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British Fail to Stop German-Russian Energy Deal


According to The New York Times report, the German utility RWE and a Russian-controlled investment company said on Sunday that they are to complete a deal for the oil and gas subsidiary RWE Dea on Monday, despite objections from the British government.

L1 Energy, based in London and owned by the Russian billionaire Mikhail Fridman and partners, agreed last year to buy RWE Dea for 5 billion euros, or about $5.6 billion. Among RWE Dea’s prime holdings are a large North Sea natural gas field called Breagh and other British assets.

The British government has declined to bless the sale out of concern that Mr. Fridman or his company might become the target of expanded sanctions on the Russian energy industry stemming from the Ukraine conflict. Any additional sanctions might force the shutdown of those fields, creating safety and environmental risks, according to the government.

Britain’s Department of Energy and Climate Change, which regulates the oil industry, strongly reiterated these concerns over the weekend. The department said in a statement Saturday that Edward Davey, the energy minister, was “minded” to require L1 to sell the British assets to a more suitable operator if the deal did go through.

RWE indicated on Sunday that Britain’s concerns would not be enough to stop the deal and that the country’s decision “does not affect the completion of the transaction” on Monday, the company said in a statement.

L1 Energy also confirmed Sunday that it planned to close the transaction using a legal structure it had previously proposed in an unsuccessful attempt to reassure the British government.

L1 said that the British assets would be kept separate from the rest of RWE Dea for a number of years and “monitored” by a Dutch foundation, or stichting, to “ensure that the business is held separate from the remaining Dea business and supervise that it is being operated fully in line with the license agreements.” In the event of added sanctions, L1 said, the foundation “will assume full control over” the British assets, presumably shielding them from sanctions. RWE had also said that it would buy back the British assets if L1 or its owners were hit with sanctions from the United States or the European Union within a year of the deal closing.

The British government said over the weekend that these measures were not enough to alleviate its concerns.

In a statement, L1 complained that the British government was in danger of barring a major investor when the British North Sea is losing favor. Dea “had intended to invest $450 million over the next three years in a province from which many companies are disinvesting,” the company said.

The standoff with Britain could create headwinds for Mr. Fridman’s ambitions to build an international oil and gas company using the billions of dollars he received from selling his share of TNK-BP, the Russian affiliate of BP, to the state-controlled oil company Rosneft. Underscoring those ambitions, L1 Energy is expected on Monday to announce the appointment of John Browne, a former BP chief executive known for making deals, as executive chairman.

If the sale goes through on Monday, Mr. Fridman and his partners might find themselves under pressure to sell valuable oil and gas assets when many such properties are on the market. The Department of Energy and Climate Change acknowledged in a statement on Sunday that it “cannot block the deal, only require a further change of control.”

In a possible softening of its position, the department also said that Mr. Davey, the energy minister, would be willing to consider new proposals to alleviate his concerns.

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