Private equity firm forms investor group, acquires Samson in blockbuster $7.2 billion deal
Bank lending continues to lag behind the need for capital in the energy industry due in part to the financial turmoil and general economic uncertainty in the United States and elsewhere. Some banks are more eager than others to lend money in this particular climate. Fortunately for many companies, private equity investors have been moving in to fill the vacuum and are helping to provide funding for the capital-intensive petroleum sector.
This is especially true for upstream and midstream companies participating in the North American shale boom. As a group, private equity providers have been sitting on billions of dollars in hopes of finding the best investment opportunities. Operating without some of the constraints that have been placed on banks, private equity managers have been eager to identify opportunities that provide optimum return on investment. The consensus among many of these firms is that certain segments of the oil and gas industry offer the best ROI.
Although a number of private equity firms have been involved in corporate acquisitions and partnerships with public and private energy companies, one of the most active has been Kohlberg Kravis Roberts & Co. In late November, KKR was part of an investor group that signed an agreement to buy Tulsa-based stalwart Samson Investment Company, one of the largest private E&P companies in the US, for $7.2 billion. In addition to KKR and its affiliates, other companies in the investor group included Natural Gas Partners (NGP), Crestview Partners, and Japan's Itochu Corporation. KKR is the largest stakeholder in the group, and Itochu is second.
Founded in 1976 and led by Henry Kravis and George Roberts, KKR is a large global investment firm headquartered in New York City with around $60 billion in assets under management. KKR manages assets around the world through a variety of investment funds and accounts covering multiple asset classes. KKR is publicly traded on the New York Stock Exchange (NYSE: KKR).
Under terms of the agreement with Samson, the investor group headed by KKR will acquire all of Samson's assets with the exception of its onshore US Gulf Coast assets and offshore deepwater Gulf of Mexico assets, which will continue to be owned by the Schusterman family. Samson is based in Tulsa, Oklahoma, and as part of the transaction, the investor group has committed to keeping the headquarters in Tulsa, where the company and its employees have deep ties to the community.
Founded in 1971 by the late Charles Schusterman, Samson has an interest in more than 10,000 wells of which it operates over 4,000 in the US, with key positions in oil and liquids-rich plays such as the Bakken, Powder River, Green River, Granite Wash, Cana Woodford, and Cotton Valley, as well as in the Haynesville and Bossier gas shale plays. It has around three million acres, all in the United States.
Kravis, co-chairman and co-CEO of KKR and a native of Tulsa, commented on the acquisition: "We are very excited to support the continued growth of Samson. The Schusterman family [which founded the privately held company] has built a remarkable company with an extraordinary culture. We feel very fortunate to have the opportunity to carry on their commitment to employees, to communities, and to the safe and profitable development of domestic energy resources."
Stacy Schusterman, Samson's CEO and daughter of the company's founder, noted, "We had two guiding principles - we wanted a partner who would value both our assets and our people. This group demonstrated its commitment to both. They recognize that maintaining our culture will best enable Samson to retain and build the strong team we have and thereby continue to profitably grow our asset base."
Kravis added, "For Samson, Tulsa is home. It has always been a Tulsa company, and it will remain a Tulsa company. Samson is truly a special company with a highly experienced and talented team of managers and employees with a stellar track record of success."
Samson's chief operating officer, David Adams, will take over as CEO, and the company will be renamed Samson Resources.
Claire Scobee Farley and David Rockecharlie, both former executives with Jefferies & Co. in Houston, joined KKR as managing directors of oil and gas investments in 2010. In addition to giving the private equity firm valuable experience in the upstream energy sector, the industry veterans will sit on the board of directors of Samson Resources.
Samson is not the only big deal in which KKR has been involved in the energy space. The private equity investor gained a reputation as a shrewd deal-maker when in June 2009 it invested $350 million and acquired a substantial stake in East Resources, which held more than 650,000 acres in the Marcellus Shale. KKR flipped the investment 11 months later by selling the company to Royal Dutch Shell for $4.7 billion, earning an enormous return for its investors. The private equity firm insists it has no intention of flipping Samson but is investing for the long term.
Unconventional resource plays such as the Marcellus, the Eagle Ford Shale in South Texas, the Haynesville Shale in Louisiana, and the Niobrara and Bakken in the Rocky Mountain region require substantial upfront costs because of the technology required to drill and complete the wells to make them commercially viable. Even large independents such as Chesapeake Energy are participating in joint ventures with large cash-rich international companies in order to acquire the enormous capital needed to develop the resources.
Interviewed recently on Bloomberg TV, Marc Lipschultz, global head of energy and infrastructure at KKR, said his firm is very bullish on energy. "We're not in this for short-term profits," he said. "What we want to do is grow the business. We're focused on creating value and are privileged to be a part of this. We see [the Samson] investment as part of the transition from conventional resources to shale and other unconventional resources. Ten years from now we will need a lot more energy than we need today. We want to participate for the long term - 10 years, 20 years, even 30 years - and we want to be a good partner."
Lipschultz, who joined KKR in 1995, played a significant role in many of the firm's energy investments, including East Resources, Hilcorp Resource Holdings, RPM Energy, El Paso Midstream, Colonial Pipeline, as well as Samson.
In June 2011, Houston-based Marathon Oil Corp. paid $3.5 billion for Hilcorp, another Houston-based energy company with substantial holdings in the Eagle Ford Shale in South Texas. KKR invested $400 million for a 40% stake in Hilcorp Resources, a partnership between the private equity firm and Hilcorp Energy, in June 2010 and is reported to have received about $1.13 billion for its share of the company. Over the course of its year-long investment, KKR and Hilcorp tripled the number of horizontal rigs operating in the Eagle Ford from two to six. Marathon paid the equivalent of about $21,000 an acre for the assets, a record price for the shale play.
In another deal in December 2010, KKR acquired a 50% interest in El Paso Corp.'s gathering and processing assets in Altamont, Utah, for $125 million. Additionally, the two companies committed up to $500 million to support midstream projects in other areas, including the Marcellus Shale and the Eagle Ford Shale.
In October 2011, midstream giant Kinder Morgan agreed to buy El Paso for $38 billion. The company is expected to spin off El Paso's upstream assets. Kinder Morgan returned to the public markets in 2011 after having previously been taken private by The Carlyle Group, GS Capital Partners, Highstar Capital, and Riverstone Holdings. At least three of those firms remain significant shareholders.
Other recent deals include KKR's acquisition of certain Barnett Shale properties from ConocoPhillips and Carrizo Oil & Gas, and a midstream partnership with Quicksilver Resources in Canada's Horn River Basin.
The private equity firm also has raised more than $1 billion for its first fund to originate debt for takeovers. KKR Mezzanine Partners I was set up to finance private-equity investments and corporate acquisitions. The mezzanine business will finance mostly third-party transactions. The fund is intended to take advantage of a climate in which financial turmoil has crimped bank lending.
The consensus among industry analysts is that we will see a lot more private equity money flowing into oil and gas, especially shale. There is a huge demand for development capital in shale plays, and public capital markets have not been as responsive as they could be. Expect to see private equity move in to fill the vacuum. They see this as a low-risk, high-return investment.
Private equity providers to oil and gas industry
Select private equity providers to the oil & gas industry (alpha order)
Avista Capital Partners
When founded
2005
Locations
London, New York, Houston
Primary focus
Strategy is to make controlling or influential minority investments in growth-oriented energy, healthcare, media, industrial, and consumer businesses.
Individual investment range
Varies
Aggregate capital commitment
Estimated at $5 billion
Management
Avista's Co-Managing Partners are Thompson Dean, former Managing Partner of DLJMB, and Steven Webster, former Chairman of DLJMB Global Energy Partners. In addition, Newton Aguiar, David Burgstahler, Robert Cabes, David Durkin, OhSang Kwon, Brendan Scollans, Sriram Venkataraman, and Arthur Zuckerman are also Partners.
Portfolio companies
ACP II Marcellus; Appalachian Midstream Partners; Basic Energy Services Inc.; Celtique Energie Holdings Ltd.; Enduring Resources; GeoKinetics; Hansa Hydrocarbons; Laramie Energy II; Laredo Energy IV; Manti Exploration; Peregrine Oil & Gas II; Royal Offshore; Spartan Offshore Drilling
EnCap Flatrock Midstream
When founded
2008 as a partnership between Flatrock Energy Advisors LLC and EnCap Investments
Location
San Antonio
Primary focus
North American midstream energy sector
Aggregate capital commitment
The firm has more than $1.2 billion under management and 66 institutional investors
Management
Managing partners Bill Waldrip, Dennis Jaggi, and Billy Lemmons
Portfolio companies
Caballo Energy LLC, Caiman Energy LLC, Cardinal Midstream LLC, Meritage Midstream Services, Nuevo Midstream LLC, Rangeland Energy LLC, US Infrastructure
EnCap Investments LP
When founded
1988
Location
Houston and Dallas
Primary focus
To partner with seasoned management teams with demonstrated track record of value creation
Individual investment range
Not disclosed
Aggregate capital commitment, capital under management
$6.5 billion
Management
Partners: David B. Miller, Gary R. Petersen, D. Martin Phillips, Robert L. Zorich. Managing Directors: E. Murphy Markham IV, R. Jason McMahon, Jason M. DeLorenzo, Hallie M. Kim, M. Sean Smith, Wynne M. Snoots, Douglas E. Swanson Jr.
Portfolio companies
Common Resources, Crimson Energy Partners III, Destiny Oil & Gas, Empresa Energy, EV Energy Partners, Laredo Energy IV, Legado Resources, Marquette Exploration, Oasis Petroleum, Peregrine Oil & Gas II, Plains All American Pipeline LP, Tracker Resources Development II, Unconventional Resources
Energy Capital Solutions LP
When founded
2001
Locations
Dallas
Primary focus
E&P and oil service firms, midstream, private equity and PIPEs transactions, buy-side and sell-side advisory
Individual investment range
Varies
Aggregate capital commitment
$5.5 billion in completed transaction value, $3.3 billion in private capital, $2.2 billion in M&A
Management
Managing Director and Founder: J. Russell Weinberg; Director: Scott S. Trulock; Associate: David M. Malkowski
EnerVest
When founded
1992
Location
Houston
Primary focus
EnerVest Energy Institutional Fund XII recently closed with equity commitments of $1.5 billion and total purchasing power of $2.4 billion for the acquisition and development of oil and natural gas properties and strategic corporate acquisitions in North America.
Individual investment range
Transactions having a value between $50 million and $250 million.
Aggregate capital commitment
$2.4 billion (Fund XII)
EnerVest Management
Jon Rex Jones, chairman; John B. Walker, president and CEO; Mark A. Houser, executive vice president and COO; James M. Vanderhider, executive vice president and CFO. Vanderhider is responsible for the firm's private equity efforts.
First Reserve Corporation
When founded
1983
Locations
Greenwich, Conn.; London; Houston
Primary focus
Private equity and infrastructure investments
Individual investment range
Varies
Aggregate capital commitment
$12.5 billion since inception
Management
Chairman and CEO: William E. Macaulay; Vice Chairman: John A. Hill; Managing Directors: Timothy H. Day, Joseph R. Edwards, Cathleen M. Ellsworth, Will Honeybourne, Alex T. Krueger, Jeffrey S. MacDonald, Mark A. McComiskey, Kenneth W. Moore, J. Hardy Murchison, Jeffrey K. Quake, Alan G. Schwartz, Thomas J. Sikorski, Jennifer C. Zarrilli
Portfolio companies
Diversified across the energy sector. More than 100 platform acquisitions and about 300 add-on transactions. Includes Acteon Ltd., Aspect Abundant Shale LP, Beryl Resources LP, Dresser Inc., Remora Energy International, Saxon Energy Services, Stone Mountain Resources
GasRock Capital LLC
When founded
2005
Locations
Houston
Primary focus
Mezzanine debt and project equity
Individual investment range
$5 million - $100 million
Aggregate capital commitment
Not disclosed
Management
Co-Founders: Frank M. Weisser, Scott W. Johnson, David R. Taylor, Marshall Lynn Bass
Portfolio companies
Miller Energy LLC, Westside Energy Corp., Saddle Rim LLC, Endevco Eureka LLC, Z2 Oil & Gas LLC, HNNG Development LLC, Two Oaks E&P Company, BPI Energy Inc., Chroma E&P Inc., Admiral Bay Resources Inc., Rancher Energy Corp.
Kayne Anderson Capital Advisors
When founded
1991 (PE energy investing)
Locations
Houston, Los Angeles
Primary focus
Privately-issued private and preferred securities of both private and public companies in the USA and Canada
Individual investment range
$20 million - $100 million and up
Aggregate capital commitment
$2.5 billion
Management
President, Chief Investment Officer, and Co-Managing Partner: Robert Sinnott; Co-Managing Partner: Daniel Weingeist
Portfolio companies
Augustus Energy Partners, Caddo Resources, Compass Resources Corp. II, Crestwood Midstream, Exaro Energy, Grenadier Energy Partners, Greystone Exploration & Production, Highland Oil & Gas, HRM Resources, Laricina Energy, Matris Exploration, Millbrae Energy, OBENCO II, Pedernales Production, Sagebrush Resources, Trail Ridge Energy, Zone Energy
Lime Rock Partners
When founded
1998
Locations
Westport, Conn.; Houston; Aberdeen (UK); Dubai (UAE)
Primary focus
Global energy companies
Individual investment range
$25 million to $150 million
Aggregate capital commitment, capital under management
$3.9 billion
Management
Managing Directors: Jonathan Farber, John Reynolds, Saad Bargach, Thomas Bates, Trevor Burgess, Will Franklin, Mark McCall, J McLane, Simon Munro, Townes Pressler, Lawrence Ross; Directors: Jeffrey Scofield, Rob Willings
Portfolio companies
Allis-Chalmers Energy, Arena Exploration, Braden Exploration, Bridge Energy, Global Energy Services, Hercules Offshore, ITS Group, Laricina Energy, PDC Mountaineer, Tiway Oil, Vantage Energy
Natural Gas Partners
When founded
1988
Locations
Irving, Tex.; Stamford, Conn.; Santa Fe, NM; Houston; London
Primary focus
Oil and natural gas asset portfolios, oilfield service, and other energy opportunities
Individual investment range
Not disclosed
Aggregate capital commitment, capital under management
$7.3 billion
Management
Managing Partners: Kenneth A. Hersh, William J. Quinn, David R. Albin. Principal: Thomas J. N. Verhagen. Managing Directors: Richard L. Covington, John S. Foster, Scott A. Gieselman, David W. Hayes, Christopher D. Ray, Colin F. Raymond, Tony R. Weber, John A. Weinzierl
Portfolio companies
Nine private equity funds invested in numerous energy companies
Quantum Energy Partners
When founded
1998
Locations
Houston
Primary focus
Mainly upstream, midstream, and power sectors
Individual investment range
$100 million to $400 million
Aggregate capital commitment, capital under management
$5.7 billion
Management
Co-founder, President, and CEO: Wil VanLoh; Co-founder and Managing Partner: Toby Neugebauer. COO: Cedric Burgher. Managing Directors: Alan Smith, David Bole, Scott Soler, John Campbell, James Baird (also General Counsel).
Portfolio companies
Action Energy, Aspect Holdings, Ceritas Energy II, Chalker Energy Partners III, Denali Oil & Gas Partners II, EnergyQuest II, Icon NGS, Quantum NGS Holdings, RMP Energy, Sequoia Resources, Tecton Energy, Tri-C Resources, Ute Energy, Vantage Energy, Wapiti Energy
Rivington Capital Advisors LLC
When founded
2002
Locations
Houston and Denver
Primary focus
Upstream and midstream. Specializes in private capital and M&A transactions for small- and mid-cap energy sectors.
Individual investment range
N/A
Aggregate capital commitment
$4.3 billion in completed transaction value over last 10 years
Management
Christopher R. Wagner, Scott Logan, Rick Makin, J. Silva, Dan Foley, Robert Long, David Johnson, Robert D. Wagner Jr., Jonathan Clarkson
Portfolio companies
N/A
SFC Energy Partners
Location
Denver
Primary focus
Onshore upstream energy sector in North America
Individual investment range
N/A
Aggregate capital commitment
Fund I and Fund II with more than $1 billion of capital under management
Management
Mitchell L. Solich, senior managing director; Roger M. Flahive, managing director; Geoff C. Solich, managing director; John A. Cleveland, managing director
Portfolio companies
Riley Ridge LLC, Flatirons Development LLC, Rockford Energy Partners III LLC, Mesa Energy Partners LLC, ExL Holdings LLC, Greystone Petroleum LLC, Bernum Petroleum Ltd.
Warburg Pincus
When founded
1971 (first institutional fund), but traces its roots back to 1939
Locations
New York, Sao Paolo, Beijing, Frankfurt, Hong Kong, London, Mumbai, San Francisco, Shanghai, Amsterdam, Luxembourg, Port Louis
Primary focus
Wide range, including energy, health care, financial services, technology, media, telecommunications, consumer, and industrial
Individual investment range
Varies, but average investment period is 5 to 7 years.
Aggregate capital commitment, capital under management
Over past 40 years, Warburg Pincus has raised more than 12 private equity funds and invested more than $35 billion in 600 companies in 30 countries.
Management
Co-Presidents: Charles R. Kaye and Joseph P. Landy.
Portfolio companies
More than 110. Dallas-based Kosmos Energy is one of the major energy sector companies.
Others include Antero Resources, Broad Oak Energy, Canbriam Energy, Fairfield Energy, Gulf Coast Energy Resources; Laredo Petroleum; Omega Energia; Osum Oil Sands Corp.; Spectraseis; and Targa Resources.
More Oil & Gas Financial Journal Archives Issue Articles
View Oil and Gas Articles on PennEnergy.com
