LetterOne, the investment fund owned by Russian billionaire Mikhail Fridman, has sold its gas fields in the British North Sea to the giant Swiss petrochemical company Ineos in a deal that not only ends Fridman’s dispute with the UK government but also begins Ineos’ expansion into energy production
Anonymous banking sources told Reuters that the price was about $750 million, significantly below LetterOne’s asking price of $1.2 billion, the London-based investment concern said Oct. 11. Still, LetterOne benefits because the transaction ends a months-long dispute with Britain’s Conservative government.
Fridman’s company took over the fields in March when it bought DEA, a subsidiary of the German utility RWE in a $5.8 billion deal. At the time, though, London refused to recognize the transaction because of the risk that Fridman and his partners may one day be the targets of expanded Western sanctions against Russian interests due to Moscow’s involvement in the Ukraine conflict.
Related: Nigeria Could Shoot Itself In The Foot With New Oil Revenue Plans
Now, however, it appears that Fridman’s relations with the government have improved since Prime Minister David Cameron’s Conservatives won a majority of seats in Parliament in May and no longer needed to form a coalition with the Liberal Democrats, who were more opposed to LetterOne’s acquisition than the Tories were.
In fact, LetterOne reportedly received a letter from a leading figure at Britain’s Department of Energy and Climate Change saying that the government’s insistence on the divestiture “is not a judgment on the suitability of LetterOne’s owners to control these or any other assets in the UK.” However, a government spokesman would not confirm the letter’s existence.
Related: This State Just Became The World's Greatest Renewables Market
Still, Britain is careful about who should be allowed to own the North Sea fields because it views them as strategic assets. The fields bought by Ineos generate 8 percent of the kingdom’s gas production.
The resale will help Ineos begin its effort to expand its operations from refining and manufacturing to include energy production. The company’s CEO, Jim Ratcliffe, has been importing shale gas from the United States to support Ineos’ petrochemical production. He said the deal with LetterOne was just the opening chapter of his effort to make the company’s operations more comprehensive.
Related: Can Tesla Deliver A Self-Driving Electric Car Before 2020?
“Ineos has been very open about its intention to make strategic investments in the North Sea, and this acquisition is our first step in fulfilling this goal,” Ratcliffe said in a statement. “It will also help our UK petrochemical assets to have ongoing access to competitive energy.”
In 2014, Ineos said it planned to spend $1 billion in hydraulic fracturing technology to explore onshore for shale gas in Britain in an effort to become the kingdom’s largest producer of shale gas. In announcing the North Sea purchase, the company said the offshore gas fields would be an appropriate compliment to the onshore operations.
Ratcliffe called the North Sea deal “a great entry point” for developing Ineos’s energy-production efforts. “Whilst no decisions have yet been made,” his statement said, “we will continue to evaluate other opportunities in the North Sea.”
By Andy Tully of Oilprice.com
More Top Reads From Oilprice.com:
Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com