Mikhail Fridman's LetterOne Buys North Sea Fields From EON

  • $1.6 billion deal doubles LetterOne's oil output in Norway
  • EON's U.K.-based North Sea assets remain under review

Russian billionaire Mikhail Fridman’s investment firm LetterOne Holdings SA agreed to buy EON SE’s oil and gas assets in the North Sea for $1.6 billion in a deal that will double its production capacity in Norway.

The assets include equity interests in 43 exploration licenses and stakes in producing fields from Skarv to Njord and Hyme, LetterOne subsidiary Dea said Wednesday in a statement. The accord takes the company’s output in Norway to 75,000 barrels of oil equivalent a day.

Fridman set up LetterOne with Russian partner German Khan in 2013 to invest part of the $14 billion they got from selling a stake in Moscow-based TNK-BP, the Russian oil-production venture between BP Plc and a group of billionaires. LetterOne is adding the assets after the U.K. government forced it to sell its North Sea fields in the country because of the risk of Russian sanctions.

“LetterOne is clearly looking to build a portfolio of oil assets around the world and it’s seeking to make the most of this downturn to buy assets for as cheap as possible,” Michael Barron, London-based director of global energy at risk consultants Eurasia Group, said by phone. “The U.K. didn’t want to risk having Fridman invest in fields in the country because sanctions could affect production. Yet, Fridman is keen to expand.”

Chemicals producer Ineos Group AG said on Sunday it agreed to buy North Sea natural gas fields from a subsidiary of LetterOne. The deal is estimated to be worth $750 million and consists of 12 North Sea fields, the Sunday Times reported. Terms were not disclosed by the companies.

Energy Slump

The oversupply in the global oil market widened to the most in 17 years in the second quarter, the International Energy Agency said in August.

The slump in oil and gas prices and policy changes by the German government are forcing utilities to reorganize their businesses. EON is spinning off fossil-fuel power plants into a separate company called Uniper to focus on renewable energy in response to Germany’s switch to wind and solar power, a shift that undermined power prices, eroding the profitability of traditional utilities.

The sale of all of EON’s upstream assets could reduce total earnings before interest, taxes, depreciation and amortization of the assets to be transferred to Uniper by approximately a third, based on E.ON’s reported full-year 2014 financials, Elchin Mammadov, an analyst at Bloomberg Intelligence in London, said by e-mail.

The sale marks a “significant step forward” in an internal review of EON’s business portfolio, the Dusseldorf-based company said in a statement on Wednesday. EON’s U.K.-based exploration and production business remains under strategic review, the company said.

“In the current challenging commodity environment, this is a good deal” for EON, Deepa Venkateswaran, an analyst at Sanford C. Bernstein Ltd, said by phone from London. “This will help strengthen the balance sheet and give them time to sell their U.K. assets," she said, adding that the price exceeded her estimate.

Norwegian Approval

The deal needs approval from Norway and the European Commission, Dea said. The Norwegian government will handle the application for approval in a “usual manner,” Petroleum and Energy Minister Tord Lien said by e-mail.

“Restrictive measures concern operations in Russia. It’s a good thing that companies wish to focus on the Norwegian shelf,” he said.

EON’s remaining U.K. assets will probably fetch about 300 million euros ($342 million) to 400 million euros, Venkateswaran said.

EON shares reversed an earlier decline to climb as much as 5.1 percent to 9.575 euros on the disposal. They closed at 9.416 euros in Frankfurt.

(An earlier version of this story corrected the spelling of Fridman in second paragraph.)

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