Germany’s RWE utility company completes sale to Russian firm despite opposition from the U.K. government.

German utility RWE AG (ticker: RWE:XETRA) closed the sale of its oil and gas unit Dea for €5.1 billion ($5.7 billion) to LetterOne Group, an investment firm headed by Mikhail Fridman, who has strong ties with Russian business. The U.K.’s Department of Energy and Climate Change (DECC) said Saturday that it would not approve the sale of the British North Sea natural gas fields, which form 20% of the Dea transaction, because of concerns regarding any future expansions of sanctions against Russia that might affect Fridman and any companies he owns.

Peter Terium, Chief Executive Officer of RWE AG said, “Both parties negotiated good value for money, and RWE can now focus fully on its core business,” in a press release from RWE. The value of the transaction was slightly higher than the €5 billion amount agreed on when the sale was restructured in January because of exchange-rate fluctuations. The sale is crucial for RWE, which is trying to reduce its €31 billion debt, reports The Wall Street Journal.

Concerns over sanctions in Russia

Dea produces about 100 MBOEPD in the U.K., Norway, Denmark and Germany. Its purchase gives Mr. Fridman a launchpad to start an international oil and gas company two years after selling his stake in Russian oil company TNK-BP to Rosneft (ticker: RNFTF). Fridman founded Alfa Group Consortium, an investment group that controls Alfa-Bank and several telecom companies, among other assets. Because of Mr. Fridman’s strong business ties in Russia, the DECC said that it would not approve the sale because it feared that sanctions might be expanded to include Mr. Fridman, disrupting the sale and development of oil and gas from the Dea assets.

LetterOne responded with a letter to the DECC, saying, “In the event that any notice requiring the further sale of RWE Dea is issued, we intend to seek judicial review of DECC’s decision and fully reserve all of our rights both in that regard and generally.” The letter also explains why LetterOne feels the sale is legal, saying that concerns over sanctions that have not already happened are unreasonable, and that the deal is structured in order to protect Dea from the effects of sanctions should they be put in place.

The letter also stated that should the DECC decide to require further change of control of Dea, “the situation that would ensue would likely be disruptive to production by RWE Dea.”

As part of the deal, LetterOne is creating a new subsidiary, L1 Energy, to be run by former BP chief executive Lord John Browne, reports BBC. LetterOne is a privately owned, Luxembourg-based investment fund that focuses on large-scale investments of $1 billion or more.

Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. The company or companies covered in this note did not review the note prior to publication.

Tags: , ,

Legal Notice