UK aims to block Russian oligarch's gas project in North Sea
Beggars can鈥檛 be choosers, but if you鈥檙e working with a Russian oligarch it鈥檚 best to exercise caution. At least that鈥檚 the opinion of the United Kingdom鈥檚 Department of Energy and Climate Change, who now听听to block the purchase of North Sea oil and gas assets by Mikhail Fridman and his Luxembourg-based LetterOne investment vehicle.
The saga began more than two years ago, when Fridman and his consortium sold their share of TNK-BP to Rosneft for nearly $14 billion. That money would form the seed capital for LetterOne. Approximately one year ago, L1 Energy 鈥� a division of LetterOne 鈥撎齮o purchase RWE AG鈥檚 Dea oil and gas unit, which, valued at $7.1 billion, contains assets in the UK, Germany, and the North Sea. The purchase 鈥� LetterOne鈥檚 first 鈥撎齛pproval from the European Union, Germany, Norway, and ostensibly the UK.
Britain has since reneged 鈥� two days after LetterOne formally听听the assets. Per energy secretary Ed Davey, the investment group has seven days 鈥� a deadline of March 11 鈥� 鈥渢o explain why the secretary of state should not now proceed to issue notices under the licenses to require further changes of control.鈥� ()
Underscoring his concern is the North Sea鈥檚 continued rapid decline 鈥� production听听1.1 percent in 2014 and is down a total of 70 percent since its peak in 1999. The Dea UK assets are of reasonably听听importance to reversing that trend. Comprising between 3 to 5 percent of the UK鈥檚 annual gas听, or roughly 1.1 billion cubic meters, the gas discoveries are among the largest presently under听听in the UK. The fields are in close proximity to Central European markets and possess an already mature system of pipelines and transportation infrastructure.
The asset grab, or perhaps redistribution, is not what Fridman was expecting when entering the struggling UK market, but such is the reality currently facing the Russian oligarch and his troupe of mostly western executives.
Unlike so many of his contemporaries, Fridman, of Ukrainian descent, has largely avoided politics or any explicit ties to either side of the Ukraine conflict 鈥� though he did recently听听the funeral of slain opposition politician Boris Nemtsov. As a result, Fridman has thus far avoided the crosshairs of EU and US sanctions 鈥� and, with his wide net of business interests, it鈥檚 likely he will continue to do so. Still, fear persists in the UK and Davey is unconvinced that existing protections in the deal will听听a production stoppage if sanctions are indeed handed down to Fridman or one of his business partners. ()
听
For clarity, if sanctioned within the next year, the Dea assets will be transferred back to RWE, who can then engage other buyers. Such safeguards were lacking when BP and the National Iranian Oil Company agreed to jointly develop the Rhum gas field in 2005.
Working from the other side of the sanctions 鈥� and with far less scrutiny 鈥� ExxonMobil has continued to invest in its future, which it plainly believes lies in Russia. In 2014, Exxon听听the area of its Russian oil exploration leases to 63.7 million acres, or more than four times the company鈥檚 holdings in the US. Projects in the Laptev and Chukchi Seas join those in the Kara and Black Seas, where Exxon works with Rosneft. It鈥檚 a long-term play, betting on short-term sanctions.
Davey, on the other hand, is under more immediate pressure. As such, his decision lacks a firm grip on reality, especially considering the price-inflicted pullbacks from BP and Sinopec-Talisman among others. Fridman and LetterOne are prepared to take a chance on the North Sea, but Davey is not ready to take one on them.
More Top Reads From Oilprice.com:
- ?
Source:听
