By Selina Williams and Jenny Busche
LONDON--Russian billionaire Mikhail Fridman's investment fund is
expected to close a EUR5 billion ($5.6 billion) deal on Monday to
acquire Dea, the oil and natural-gas arm of German utility RWE AG,
people familiar with the matter said.
Completion of the transaction would propel a controversial
figure into the heart of Europe's oil-and-gas sector at a time of
growing concerns over Russian ownership of the region's energy
infrastructure. Governments have been fretting about energy
security amid tensions over the conflict in Ukraine, a transit
point for Russian gas to European markets. Just last week, a plan
for central European countries to produce their own nuclear fuel
using Russian technology became another flash point for fears of
Europe's reliance on Russia for energy imports.
The Dea deal was announced in March last year. But it hit a
roadblock trying to get a "letter of comfort," or nonbinding
consent, from the U.K. government. Britain was concerned that Mr.
Fridman could be a future target of sanctions, which have targeted
Russian businesses and government officials over hostilities in
Ukraine. Such sanctions could result in the shutdown of production
from Dea's U.K. natural gas fields at a time when the country's
other domestic gas supplies are already declining.
While Mr. Fridman has business relationships throughout Russia
and maintains contact with government officials, he isn't viewed as
a member of Russian President Vladimir Putin's inner circle.
In January, Mr. Fridman's investment fund, LetterOne Group, said
it would keep Dea's U.K. operations separate from other Dea
activities for a number of years, in an effort to assure British
officials. RWE and LetterOne agreed that RWE would buy back the
U.K. business, if new sanctions affected the deal during the first
year after the sale was completed.
A person familiar with the matter said the U.K. "letter of
comfort" could be issued this weekend. However, RWE and LetterOne
could go ahead with the deal without the letter, which is
nonbinding, people familiar with the matter said.
A U.K. government spokeswoman on Friday said the government is
examining the details of the deal closely.
The Dea deal would be the first big energy acquisition for
Luxembourg-based investment fund LetterOne, set up in 2013 by Mr.
Fridman and fellow Russian billionaire German Khan to invest part
of their proceeds from the blockbuster $55 billion sale of the
TNK-BP oil venture to OAO Rosneft, the Russian energy titan.
The Dea sale is also a crucial part of RWE's plan to reduce its
EUR31 billion debt pile amid a broad restructuring of the company.
Germany's largest power producer has seen its profits eroded by
subsidized renewable energy and weak economic growth which have
hurt electricity demand and prices.
Dea produces 100,000 barrels of oil equivalent a day from fields
in Britain's North Sea, Egypt, Norway, Denmark and Germany, where
it is the country's largest oil and gas producer. It also has
licenses in Algeria, Libya, Turkmenistan and Guyana.
With its stable cash flows from production in low-risk developed
countries, Dea could give Mr. Fridman a springboard for further
investments in oil-and-gas assets in emerging countries in Africa
and elsewhere. Such assets are now significantly cheaper than they
were a year ago because of the recent sharp fall in oil prices.
Mr. Fridman, 50 years old, has been looking to expand his
holdings in the oil, telecommunications, retail and banking
businesses where he and Mr. Khan have made billions of dollars over
the last two decades through their company, Alfa Group.
Alfa collected $13.9 billion from the sale of the TNK- BP stake.
At the time, Mr. Putin publicly called on the tycoons who were
selling out of TNK-BP to keep the proceeds in Russia.
TNK-BP was Alfa's most lucrative investment--the group spent
around $1 billion in the late 1990s for its share of what became
TNK-BP, a venture that paid them $9 billion in dividends over its
10-year life.
Alfa has been known for conflicts with former partners in
Russia, including BP and Norway's Telenor AS. In 2011, Alfa, along
with its other Russian partners in TNK-BP, took on Rosneft and won
a court order to block a proposed $16 billion deal between Rosneft
and BP.
LetterOne's energy unit L1 Energy has an advisory team
comprising a who's who of the oil industry. It includes former BP
Chief Executive John Browne and BG Group PLC Chairman Andrew Gould,
who previously headed up oil services giant Schlumberger Ltd., and
former Anadarko Petroleum Corp. CEO James Hackett
Write to Selina Williams at selina.williams@wsj.com and Jenny
Busche at jenny.busche@wsj.com
Access Investor Kit for RWE AG
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=DE0007037129
Access Investor Kit for RWE AG
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US74975E3036
Subscribe to WSJ: http://online.wsj.com?mod=djnwires