Alfa Billionaires to Invest $10 Billion in Oil Using TNK Funds

Mikhail Fridman’s Alfa Group may invest $10 billion in the global oil and gas industry over the next five years using funds from the sale of its 25 percent holding in Russian oil producer TNK-BP.

The investment will be made through L1 Energy, a London-based venture headed by German Khan, one of Fridman’s co-investors in Alfa, according to a statement today. A trio of former oil industry chief executive officers -- BP Plc’s John Browne, Schlumberger Ltd.’s Andrew Gould and Anadarko Petroleum Corp.’s Jim Hackett -- will serve on L1’s advisory board.

Alfa received $14 billion this year when state oil producer OAO Rosneft bought TNK-BP, a 10-year venture between a group of Russian billionaires and BP, in Russia’s largest ever deal. While L1 Energy will look at investments in Russia, the scope of the venture will range across the Americas, the Middle East, Africa and Asia.

“The shareholders of L1 Energy know the oil and gas industry very well and have a permanent pool of capital that can be put to work,” Stan Polovets, lead member of the advisory board, said in an interview. “This is not an exercise to create another TNK-BP. While L1 Energy wants to have a significant influence over the investments it makes, it will rely on existing management teams.”

L1 will look principally at oil and gas production and expects to spread the $10 billion through about five different investments, according to Polovets, who was CEO of AAR, the venture that managed the Russian investors’ stake in TNK-BP. The company may take a stake of 25 percent to 100 percent in each deal and work at a debt-to-equity ratio of one-to-one, taking the total employed to $20 billion, he said.

Formulate Strategy

The advisory board, which will meet as needed, will serve a threefold purpose, Polovets said: to help formulate strategy, give advice that provides assurance to shareholders and suggest investments.

“L1 Energy is well positioned to capitalize on a wide variety of oil and gas opportunities throughout the world,” John Browne, who’s now a partner at private equity investor Riverstone Holdings LLC, said in the statement. The “combination of value creation track record, M&A expertise, permanent structure and access to capital makes L1 Energy a highly attractive partner for ambitious management teams.”

L1 Energy has employed executive search firm Korn/Ferry International to help Khan, who was an executive director of TNK-BP, build the management team.

As well as oil and gas production, the company will consider investments in oilfield services and midstream infrastructure, Polovets said. L1 Energy’s risk appetite will increase over time, so early investments may involve existing production and move toward exploration later, he said.

L1 Energy is part of LetterOne Group, which will also manage Alfa Group’s international telecommunications assets, according to today’s statement.

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