UPDATE 3-RWE's sale of oil and gas arm to Russian ...

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* Nine-month operating profit down 31 percent

* Shares down 3.4 pct, top faller among European utilities (Recasts, adds details from source, background on Ukraine)

By Christoph Steitz and Karolin Schaps

FRANKFURT/LONDON, Nov 13 (Reuters) - The risk the Ukraine crisis poses for European companies was highlighted when German utility RWE said on Thursday a 5.1 billion euro ($6.35 billion) sale of its oil and gas arm DEA to Russian billionaire Mikhail Fridman may be delayed.

The deal, announced in March, coincided with sanctions being imposed on Russia for its involvement in Ukraine, raising questions over whether a European oil and gas business should fall into Russian hands.

The sale requires approval from the 14 countries where DEA operates, including Britain, which remains reluctant to agree to it, a source familiar with the matter said on Thursday.

Last month, a source told Reuters that British Energy Secretary Ed Davey was "not minded" to sign a letter of assurance on the deal in light of the sanctions against Russia.

RWE's Chief Financial Officer Bernhard Guenther said: "We are still working very hard to close the transaction as soon as possible but there are some third-party approvals still outstanding."

"So at this point in time it's really hard to say if we will successfully finish those talks before year-end."

Guenther, asked if the deal might not go ahead, said: "Can the deal fall apart theoretically? It's the same for every M&A deal: as long as you don't have the closing ... any deal can still collapse."

LetterOne, the investment vehicle led by Fridman, was not immediately available for comment.

RWE's shares were down 3.4 percent at 1313 GMT, the biggest fallers among Europe's largest utilities.

MORE SANCTIONS?

With the Ukraine truce crumbling and NATO saying Russian troops and tanks have been seen entering the east of the country, there is some talk of extending sanctions that have already delivered a serious hit to the Russian economy and sent the rouble tumbling.

The European Union's new foreign affairs chief, Federica Mogherini, said foreign ministers, due to meet in Brussels on Monday, would discuss new punitive measures against Russia.

German Chancellor Angela Merkel has ruled out further economic sanctions for now but has also expressed concern that a ceasefire agreement was being broken and that pro-Russian rebels had gone ahead with elections.

Britain's apparent refusal to approve the deal follows an earlier situation where production at a major North Sea gas field was interrupted for four years due to sanctions against the field's partial owner, Iran.

The source familiar with the matter said the British government wanted to avoid a repetition of this with DEA's North Sea assets if sanctions against Russia were expanded.

Britain accounts for about a fifth of DEA's gas production and analysts have put the value of its British business at about 1 billion euros, a figure CFO Bernhard confirmed.

RWE has said in the past it would be possible, in theory, to exclude the British assets from the transaction, but last month said that was not what both parties wanted.

The DEA sale is a big part of RWE's efforts to cut a 30.7 billion euro debt pile, partly by selling assets that are no longer part of its main business so it can invest in new areas, including renewable energy.

DEA owns stakes in about 190 oil and gas licenses or concessions in Europe, the Middle East and North Africa.

Essen-based RWE, Germany's No.2 utility, also said its operating profit fell 31 percent to 2.91 billion euros in the first nine months of the year. ($1 = 0.8021 euro) (Additional reporting by Daniela Pegna in Frankfurt and Michael Peacock in London; Editing by Georgina Prodhan and Jane Merriman)

FILED UNDER: Energy Utilities

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