The British government on Saturday hardened its resistance to the Russian billionaire Mikhail Fridman’s attempt to buy the energy subsidiary of the German utility RWE.
Fridman’s company, L1 Energy, agreed to a 5 billion euro (US$5.59 billion) deal with RWE last year, but its completion has been slowed by regulators’ concerns, especially in Britain, that Fridman or his company might become the target of expanded sanctions on the Russian energy industry stemming from the Ukraine conflict.
Among the prime holdings of the energy subsidiary, DEA, is a British natural gas field in the North Sea called Breagh.
The British government is worried that if Fridman or his company were sanctioned, the field and other North Sea assets belonging to DEA might need to be shut down, creating serious safety and environmental risks.
Fridman and RWE made concessions to try to push the deal through, but the British Department of Energy and Climate Change on Saturday said in a statement that these steps did not “adequately and surely alleviate” the concerns of British Secretary of State for Energy and Climate Change Edward Davey about the effect that possible future sanctions might have on the operations of the British fields.
It said that if the deal went through, Davey was “minded to require the companies to arrange” for the British fields to be sold to a more suitable operator.
The government announcement came just after it emerged that Fridman was about to hire as the head of L1 Energy John Browne, a former chief of the British oil giant BP who orchestrated a flurry of groundbreaking mergers while there.
Browne, 67, is expected to be named executive chairman of L1 Energy today, according to a person close to the company who spoke on the condition of anonymity because the appointment had not yet been formally announced.
The appointment, which the Financial Times first reported, could signal an effort by Fridman to take advantage of the current low price of petroleum to acquire stakes in oil and gas businesses around the globe.
However, Britain’s resistance to the sale could suggest that Browne will face difficulties in working for Russian investors at a tense time between Moscow and the West.
L1 planned to use DEA, which has a global range of assets in places like Germany, Norway and Egypt, and a staff of geologists and other experts, as the platform on which to build a bigger company.
In an effort to overcome British concerns, the companies said in January that the British assets of DEA would be kept separate for a number of years.
They also said that for a year after the completion of the deal, RWE would be obliged to buy back the British assets if sanctions were imposed on LetterOne, Fridman’s holding company, or its owners.
Now, a new price may need to be negotiated, and the sale itself may be at risk.
Neither Browne nor a representative for LetterOne could be reached for comment.
Browne, who left BP in 2007, is known for the deals he led as its chief, beginning with its takeover of Amoco in 1998.
Despite building BP into one of the oil industry’s biggest companies, he was among the first oil executives to acknowledge that burning fossil fuels was probably linked to global climate change.
L1 Energy might offer Browne ample financial firepower at a time when a sharp drop in energy prices has put a wide range of oil and gas assets up for sale. According to LetterOne’s Web site, it has US$29.5 billion under management, with US$13.5 billion in telecommunications assets and US$15.6 billion in financial instruments that could be used for acquisitions.
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