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RWE to Proceed With Dea Sale to LetterOne

03/01/2015 | 12:30pm US/Eastern
By Selina Williams 

LONDON--German utility RWE AG and an energy-investment fund led by Russian billionaire Mikhail Fridman signaled Sunday that they would proceed this week with a $5.6 billion deal for oil-and-gas fields over the objections of the U.K. government.

The deal to sell RWE's oil-and-gas arm Dea would give Mr. Fridman the assets to launch a new international oil company, with fields in Great Britain, Norway, Denmark and Germany and licenses to work in Algeria, Guyana, Turkmenistan and other countries. Dea produces about 100,000 barrels of oil equivalent a day.

It comes at a time of heightened concerns over Russian control over European energy supplies. The U.K.'s Department of Energy and Climate Change, or DECC, said Saturday it wouldn't approve the sale of the British North Sea natural-gas fields, which form around 20% of the Dea's transaction, to Mr. Fridman because of concerns the oligarch could be a future target of U.S. or European Union sanctions.

In response, RWE and Mr. Fridman's LetterOne Group said the sale would go through anyway on Monday, as planned. Meanwhile, LetterOne tapped John Browne, the former BP PLC chief executive and a member of the House of Lords, to lead its energy unit and said it reserved the right to challenge any U.K. decision on Dea.

The showdown is playing out as tensions ratchet higher over the conflict in Ukraine, a transit point for Russian gas to European markets. While sanctions have targeted Russian businesses and government officials in response to hostilities in Ukraine, Mr. Fridman, who has business relationships in Russia and maintains contact with government officials, hasn't been extensively involved in Russian politics and hasn't been sanctioned.

Luxembourg-based LetterOne is funded by proceeds from Mr. Fridman and his partner, fellow Russian billionaire German Khan's take from the blockbuster sale of TNK-BP to OAO Rosneft.

RWE and LetterOne's energy unit, L1 Energy, had proposed keeping the U.K. assets separate from the rest of Dea's assets. It included a provision whereby RWE would buy back the U.K. gas fields if sanctions were imposed on L1 Energy or its Russian owners within a year after the transaction closed.

LetterOne said that keeping the assets separate meant that output would continue from the 12 U.K. gas fields involved in the deal and currently in production even if sanctions were imposed.

U.K. Energy Secretary Ed Davey said he had considered the proposals but decided they didn't adequately alleviate his concerns. If the sale went forward in its current form, Mr. Davey said he "would be minded to require" the companies to arrange for Dea's British stakes to be sold to a third party.

The British government is concerned that sanctions against a future owner of Dea's British fields, which represent between 3% and 5% of the U.K.'s domestic gas output, could result in their shutdown at a time when the country's gas production is declining.

Mr. Davey's statement goes further than previous U.K. concerns. The government had previously declined to provide a nonbinding "letter of comfort" for the sale.

L1 Energy said Sunday that if the DECC made a decision requiring the further sale of the assets, it reserved its rights to challenge that decision as being unlawful.

"DECC has effectively excluded L1 Energy from acquiring energy assets in the UKCS," it said, referring to the U.K. continental shelf where the gas fields are located.

The U.K. is the only country to formally oppose the Dea sale, which has already received approvals from eight national and supranational authorities, including Germany, Ukraine and the European Union.

The sale is crucial for RWE , which is trying to reduce its EUR31 billion ($34.7 billion) debt pile. The deal was announced last March.

Natalia Drozdiak in Frankfurt contributed to this article.

Write to Selina Williams at selina.williams@wsj.com

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