Mikhail Fridman and LetterOne fund attack UK government attempt to block North Sea oil and gas fields deal

Lynsey Barber
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Russian Tycoon Fridman's fund was blocked by the UK (Source: Getty)

Russian oligarch Mikhail Fridman has issued a stinging attack on the government over its attempts to block a deal which would see his fund LetterOne take ownership of North Sea oil and gas fields.

A letter to the UK government called the decision “not rational” and criticised its last minute decision just days before the deal was due to be completed without “opportunity to respond to your internal deliberation of the transaction and to address any ongoing concerns prior to your publicising your position.”

“We are deeply disappointed and concerned by your letter, given the extensive efforts the parties have made to address your professed concerns regarding the indirect change of control of RWE Dea upon [its] sale to LetterOne."

Fridman's Letter One energy fund L1 Energy agreed a €5.1bn (£3.7bn) deal to buy up German energy company RWE's Dea arm, which includes 12 oil and gas fields in the North Sea assets in Norway, Germany and Denmark as well as licences in Algeria, Guyana and Turkmenistan.

After gaining approval from several governments, the secretary of state Ed Davey ruled against the deal because of the possibility that future European sanctions against Russia would target Fridman.

Despite the government's decision to block the deal on the grounds of potential sanctions against Fridman, LetterOne notified the department for energy and climate change (DECC) it intended to close the deal today and RWE has now confirmed its completion.

Your letter is the first substantive communication received by the parties which seeks to discuss in any respect at all the substance of the structure presented to you on 9 December 2014, and in relation to which the parties have provided DECC with a comprehensive package of supporting legal opinions.

The structure was, as you know, devised by the parties to insulate RWE Dea from any risk that would arise following any future Ukraine‐related sanctions being imposed against the ultimate beneficial owners of LetterOne.

The parties have consistently indicated to you that they would welcome an opportunity to discuss any lingering concern you may have, in advance of DECC reaching any conclusion regarding its position and this transaction.

It was certainly hoped that the parties might be afforded the opportunity to respond to your internal deliberation of the transaction and to address any ongoing concerns prior to your publicizing your position.

Your letter, issued 48 hours before the closing of the transaction and over the weekend, regrettably affords the parties no such opportunity.

L1 has proposed a legal structure that it says will “guarantee continued production” from its UK assets by keeping Dea UK separate from all other Dea activities.

The UK business is to be monitored by a separate governing entity, a Dutch foundation or Stichting, which will ensure that the business is held separate from the remaining Dea business and supervise that it is being operated fully in line with the licence agreements. If sanctions are imposed, the Stichting will assume full control over Dea UK.

In the letter, signed by LetterOne chief executive Jonathan Muir, Fridman's fund took issue with the government's decision to put out a statement without consulting the firm and warned that it would seek a judicial review of the decision if the government requested the sale of RWE Dea.

Less than 2 hours after receipt of your letter and without consultation, you chose to put a statement on your website, DECC has been briefing journalists and substantive press coverage has ensued commenting on DECC's position (and its perceived motivations)."

These actions to advertise DECC's decision seem designed to put on notice third parties, potentially creating the uncertainty that DECC alleges it is guarding against through its letter and the position taken in it. In the circumstances, we had no option but to respond setting out our position – from which you will have seen that we take your letter very seriously.

LetterOne said it would potentially seek compensation and damages, including a claim under the Energy Charter Treaty.

It also warned that any change of control would likely damage investment in the firm and disrupt production at the 12 oil and gas fields in the North Sea an urged DECC to reconsider its position.

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