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Dong mulls selling its oil and gas business

Offshore wind giant Dong Energy confirms that it is reviewing "strategic options" regarding the future of its remaining oil and gas business, and said investment bank JP Morgan has been engaged to conduct a preliminary market assessment.

The open admission of having engaged a high-profile US investment bank to assess the market could point to considerations to sell the oil and gas business altogether firming up.

The Danish utility previously had only talked of "market speculation" when reports about a possible sale of its oil and gas business had surfaced, which pointed to a possible sale intention still being in a preliminary stage.

But Dong in today's note reacting to media reports goes as far as to stress that it has not taken a decision yet to divest the oil and gas business, which may be a hint that the company is further along the way in a possible sale process.

The utility before a sale of what remains of its oil and gas activities still has some unfinished business to deal with, according to Danish media.

Danish daily Politiken on Tuesday wrote Dong hadn’t fulfilled a prerequisite imposed by parliament for its recent IPO that “vital infrastructure” - such as oil and gas pipelines in the North Sea - must be sold to state-owned grid company Energinet.dk.

Lawmakers with that clause intended to avoid that key infrastructure could end up in the hands of foreign firms such as Russia’s Gazprom, and some of them now complain that the sale of the pipeline grid to Energienet.dk isn't complete yet.

Dong so far has only sold its gas distribution business to Energinet.dk, but not the North Sea pipeline grid.

The Danish state and other shareholders in a June 2016 IPO that valued the utility at $15bn sold off 17.4% in Dong, with Denmark remaining a majority shareholder, while US investment bank Goldman Sachs kept a 13.4% stake.

Goldman Sachs and other minority shareholders in Dong would also claim part of the receipts of a sale of Dong’s oil and gas grid infrastructure, Politiken stressed.

Dong in today's note confirms its plan to “build a world-class clean energy company with a portfolio based on leading competences in offshore wind, bioenergy and green distribution and customer solutions.”

A complete sale of its oil and gas business could bring the company the necessary cash to speed up its high-profile offshore wind expansion plans.

The utility has installed offshore wind farms with a combined capacity of 3GW, a figure it expects to swell to 6.7GW by 2020.

Dong – which was established in 1972 under the name Danish Oil & Natural Gas company - today confirmed that future cash flows from oil and gas exploration (E&P) would be used to fund investments in renewable energy, as it had announced already after a strategic review of E&P business completed in January.

But the utility also reiterated that oil and gas was not considered a long-term strategic commitment for the company, leaving the door open for a complete sale not only of the oil and gas grid and pipeline infrastructure, but also the E&P business.

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