Britain forces Russian oil tycoon out of North Sea

The potential of future US and UK sanctions on Russia has scuttled a Russian billionaire's plans in North Sea oil and gas fields, writes Andy Tully. It comes at a time when low oil and gas prices have decreased interest in North Sea fields.

Russian billionaire Mikhail Fridman has decided to sell his new gas fields in the North Sea in the next six months rather than challenge Britain’s threat to revoke his license to exploit them.

On March 1, Fridman’s LetterOne, or L1 Energy, bought the fields in British waters of the North Sea in a package with its acquisition of DEA, the oil and gas unit of the German electric utilities company RWE, which also has energy assets in other countries, including Algeria, Egypt, Germany, Libya, Norway, Poland, and Turkmenistan. The price at closing was $5.7 billion.

Since February, however, Britain began trying to block the deal on the grounds that it and the United States may decide to impose further sanctions on Russia or its large enterprises because of the crisis in Ukraine. Such sanctions, if imposed on L1 Energy, might affect operations in its 11 North Sea fields, which produce as much as 5 percent of Britain’s gas output. (Related: Why The US Should Worry About Oil Sector Jobs)

In a failed effort to appease the British government, Fridman grouped the North Sea gas fields in a Dutch foundation, making them no longer Russian assets and therefore, he says, not subject to any possible future sanctions.

Fridman has decided to sell only the North Sea assets and keep those in other countries where DEA operates, Reuters reports, citing banking and industry sources. The North Sea gas fields alone are reportedly expected to sell for up to $1 billion, even though the North Sea market for selling assets is depressed because of the oil price collapse.

Morgan Stanley will be managing the sale, one source told Reuters, and will soon make a formal announcement that the assets are on the market. (Related: Oil Field Services To Bear The Brunt Of Price Collapse)

 

On April 20, Britain’s Department of Energy and Climate Change (DECC) intensified its demand that Fridman sell the gas fields. Energy Secretary Ed Davey threatened to revoke North Sea operating licences “unless LetterOne arranges for a further change of control of the DEA UK gas fields in the North Sea,” a DECC statement said.

Davey also laid down a deadline that the gas fields be sold within three months. Davey softened that deadline by saying he may extend it to six months.

On its website, the DECC said the decision to impose a deadline for a sale “was taken after a thorough review of all relevant information as well as obtaining cross-government views.” It said Davey would await L1 Energy’s response to his offer to extend the sale deadline by three months. (Related: We Are Witnessing A Fundamental Change In The Oil Sector)

If Fridman does agree to sell the North Sea gas fields, it would be a far cry from the legal action against the British government that he’s threatened until now.

The British government’s dispute with Fridman may seem odd because it comes at a time when the British waters of the North Sea, once rich in energy, are becoming less productive and more expensive, and many large energy companies are abandoning the region. As a result, any investment in gas in that area normally would be welcome.

Fridman is a native Ukrainian who made his fortune in neighboring Russia after the breakup of the Soviet Union in 1991. He’s worth $14.6 billion and is ranked by Forbes magazine as the 68th richest person in the world.

By Andy Tully of Oilprice.com

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