Russians Drop Texas Oil Bid, Averting Trump Security Review

Russians Drop Texas Oil Bid, Averting Trump Security Review
LetterOne's L1 Energy unit recently walked away from a deal to buy Texas oil producer over concerns the plan could be rebuffed by the CFIUS.

(Bloomberg) -- Only 16 months ago, the Russian billionaire Mikhail Fridman and his business partners happily sank $200 million into Uber.

But now Fridman’s investment company, LetterOne, has pulled out of an even bigger U.S. investment to avoid resistance from an unexpected corner -- the Trump administration. LetterOne’s L1 Energy unit recently walked away from a deal to buy Texas oil producer ExL Petroleum Management LLC for about $700 million over concerns the plan could be rebuffed by the Committee on Foreign Investment in the U.S., or  CFIUS, the government panel that reviews deals for national security risks.

“We consciously decided to postpone our investments in the U.S. oil sector,” Fridman told Bloomberg. “Many investors are finding the process challenging. Right now it’s overshadowed by this whole political cloud. It’s narrowing our ability to invest in the U.S. for the near future.”

Fridman’s flagship company, Moscow-based Alfa Group, has spent months vociferously denying that it has any ties to President Donald Trump, his family business or his campaign. Alfa Bank has denied allegations in news reports of possible electronic communications between a server at the bank and one identified with the Trump Organization during the 2016 U.S. presidential campaign. And in January, after Buzzfeed published an intelligence dossier alleging in part that Alfa Bank was part of a Russian scheme to influence the 2016 election, Fridman and his partners sued the site for defamation.  

“We are an innocent victim of this whole story,” Fridman said about the server reports. “We’d like to find out who was behind it, who framed it.”

Billions to Invest

Though L1 said the allegations weren’t a factor in the scuttled deal, the reports have undermined years of effort by Fridman and his partners to distance themselves from Russia, hiring western advisers and setting up a London office to invest billions of dollars through LetterOne. They’ve even brought in former BP Plc Chief Executive Officer John Browne to run the Luxembourg-based energy unit of L1.

L1 had a tentative agreement to pay about $700 million to buy Midland, Texas-based ExL, which operates in the massive Permian Basin, from Houston-based buyout firm Quantum Energy Partners, said the people familiar with the matter. ExL began working with advisers last year to explore a sale and now plans to solicit other offers, they said. 

Quantum didn’t respond to requests for comment. ExL declined to comment.

The oil field that L1 wanted to buy was close to a U.S. air base, complicating matters, according to Stuart Bruseth, an L1 spokesman. “No CFIUS-related officials even mentioned the false allegations of communication between the Trump Organization and Alfa Bank,” Bruseth said.

Fridman said L1 has around $22 billion in net assets, including $9.3 billion in cash, that it wants to deploy. But the company decided to postpone “billions of dollars” of deals in the U.S. energy sector, he said.

While he’s hit the pause button on some U.S. investments because of the political situation, Fridman is pushing ahead with deals in Europe. Today he announced an agreement to buy Holland & Barrett, one of Europe’s largest health-food retailers, from Carlyle Group LP for 1.8 billion pounds ($2.3 billion).

‘More Excruciating’

CFIUS, now headed by Treasury Secretary  Steven Mnuchin, can’t stop deals on its own. It can only recommend that the president block them on national security grounds. Still, when faced with what they may consider insurmountable concerns from the panel, companies often terminate their deals rather than be branded a security risk.

The panel’s work is confidential and it doesn’t comment on it. Last week, Senate Majority Whip John Cornyn of Texas said he’s drafting a bill to strengthen CFIUS’s risk assessment of companies from nations that are deemed the biggest threats to the U.S. -- China, which has been a focus of reviews in recent years, and Russia.

Attorneys who specialize in CFIUS filings say the agency has started asking their clients a lot more questions during reviews under the Trump administration, according to Stephen Paul Mahinka, a lawyer at Morgan Lewis in Washington. 


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