Fridman's Alfa Group sets up energy fund, to invest $20 bln

Mon Jun 17, 2013 9:00am EDT

* L1 Energy to invest $10 bln equity, borrow rest

* German Khan to be CEO, recruiting managers

* Looking at 5-6 deals over 3-5 years

* First transaction likely in 2014

* Ex-CEOs Browne, Gould, Hackett join advisory board

By Douglas Busvine

MOSCOW, June 17 (Reuters) - Billionaire Mikhail Fridman's Alfa Group will invest $20 billion or more in global oil and gas projects through a new fund it has set up that will be advised by top-ranking former oil bosses, including ex-BP chief executive Lord Browne.

The L1 Energy fund will be run by German Khan, a partner of Fridman's, and will invest the bulk of Alfa's proceeds from the sale of oil venture TNK-BP this year in what was Russia's largest-ever takeover deal.

Alfa, which owned a quarter stake in TNK-BP, reaped $14 billion in March when state oil major Rosneft completed the purchase of Russia's third-largest oil firm. The bulk of that windfall will go into oil and gas deals.

"The shareholders plan to invest around $10 billion in equity over the next 3-5 years in order to build a global oil and gas business," Stan Polovets, who will be lead member of the L1 Energy advisory board, told Reuters in an interview.

"With leverage, L1 Energy could spend over $20 billion on acquisitions and partnerships by 2018."

In a statement, L1 Energy named Lord Browne, Andrew Gould and Jim Hackett as members of the advisory board, which will advise on overall strategy, investment opportunities, and review investment performance and governance.

Browne, now a partner at energy-focused private equity fund Riverstone, led BP from 1995 to 2007 and masterminded the British oil major's highly profitable deal to buy a 50 percent stake in TNK-BP back in 2003.

Gould is chairman of BG Group and was previously chairman and CEO of oil services company Schlumberger, while Hackett is former executive chairman and CEO of U.S. oil independent Anadarko Petroleum Corp.

Khan, 51, a hard-charging boss who was executive director at TNK-BP through its decade as a joint venture, is hiring a management team for the fund and has brought in headhunters Korn/Ferry International.

NO TNK-BP 2.0

L1 Energy will be based in London and will be part of a new investment vehicle being set up by Alfa Group that is called LetterOne Group.

This holding company, managed by TNK-BP's former chief financial officer Jonathan Muir, will also include the group's telecoms interests and funds raised from the TNK-BP sale.

The energy fund will make five or six investments over the coming years, with a global focus that includes Russia, said Polovets. Deals would either be full takeovers or acquisitions of major strategic stakes that allow significant influence.

"We are not planning to spend $20 billion on one acquisition," said Polovets, who was previously CEO of the AAR shareholder consortium that owned half of TNK-BP. "This is not about creating TNK-BP 2.0."

Fridman, Russia's second-richest man, worth an estimated $16.5 billion according to Forbes magazine, and Khan, with a fortune of $10.5 billion, have moved more quickly than their former AAR partners, Viktor Vekselberg and Len Blavatnik, to put their TNK-BP windfall to work.

L1 Energy will act as an active financial investor, but not as an operator, reverting to Alfa's roots in the 1990s when Fridman and his partners built a business empire that also spans mobile telecoms, banking and retail.

With the disposal of its Russian oil business and push into emerging markets by its main telecoms play, New York-listed Vimpelcom, Alfa's portfolio has taken on an increasingly international flavour.

Rosneft, meanwhile, is dragging its feet after saying it would dispose of non-core assets in Russia to reduce its debts and refocus on developing new reserves of offshore oil and gas, and of hard-to-recover 'tight' oil in Siberia.

L1 Energy has not held any talks with Rosneft on possible asset disposals, said Polovets, who will continue to be based in New York.