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KKR $2B Fund Targets North American Unconventionals

Private equity giant Kohlberg Kravis Roberts & Co. LP (KKR) announced Wednesday that it has closed on a $2 billion fund focused on development of unconventional oil and gas resources in North America.

KKR said a diverse group of new and existing investors -- including pensions, sovereign wealth funds, insurance companies, foundations, endowments, private banking platforms, family offices and individual investors -- were backing its KKR Energy Income and Growth Fund I (EIGF). According to the firm, EIGF's strategy is to "generate current income and capital appreciation while seeking to provide inflation protection through commodity exposure.

"This strategy is focused on making joint venture drilling investments, acquiring minerals and royalties, acquiring legacy producing assets and pursuing opportunistic investments associated with oil and gas resources. To date, the EIGF strategy has deployed over $350 million of equity in eight investments."

KKR said it has invested, to date, approximately $4.3 billion in oil and gas investments since 2009. The firm manages $8.7 billion in energy and infrastructure related assets.

KKR made its first foray into unconventional oil and gas resources in June 2009, when it invested $350 million in privately held East Resources Inc., which held about 900,000 acres in the Marcellus Shale (see Daily GPI, June 10, 2009). One year later, a unit of Royal Dutch Shell plc purchased nearly all of East's assets, including KKR's interest, for $4.7 billion (see Daily GPI, June 2, 2010; June 1, 2010).

Days after the Shell deal was announced, KKR agreed to invest up to $400 million to help develop 100,000 net acres in the Eagle Ford Shale (see Daily GPI, June 15, 2010). It formed a joint venture (JV) with privately held Hilcorp Energy Co. to form Hilcorp Resources Inc. Marathon Oil Corp., in turn, acquired Hilcorp's Eagle Ford assets for $3.5 billion in 2011 (see Shale Daily, June 2, 2011).

In October 2010, KKR and RPM Energy LLC formed a JV, RPM Energy Partners LP, to target opportunities with exploration and production (E&P) companies operating in unconventional plays (see Shale Daily, Oct. 28, 2010). That December, KKR formed a $1 billion-plus JV with El Paso Midstream Group Inc. to develop midstream projects in the Marcellus and Eagle Ford.

KKR acquired properties containing 93 Bcfe of net proved reserves in the Barnett Shale from ConocoPhillips for an undisclosed sum in January 2011 (see Shale Daily, Jan. 26, 2011). Three months later, Carrizo Oil & Gas Inc. agreed to sell substantially all of its Tier 1 properties in the Barnett -- about 13,000 acres, including 75 gross (58.5 net) wells -- to a KKR affiliate for $104 million (see Shale Daily, April 29, 2011).

In December 2011, KKR acquired stakes in several unconventional plays in a $7.2 billion deal with Samson Investment Co., then one of the largest privately held E&P companies in the United States (see Shale Daily, Nov. 28, 2011). The Samson deal included assets in the Bakken, Cana-Woodford and Haynesville/Bossier shales, the Green River and Powder River basins and the Cotton Valley and Granite Wash formations.

Also in December 2011, KKR agreed to jointly build and operate midstream services in Canada's Horn River Basin with Quicksilver Resources Inc. (see Shale Daily, Dec. 28, 2011).

In March 2012, KKR agreed to provide a 90% stake ($225 million) in a $250 million partnership with Chesapeake Energy Corp. for investing in undisclosed oil and gas basins in the United States (see Daily GPI, March 7, 2012). The next month, KKR and its affiliates acquired about 27,000 net acres in the Barnett and about 66,000 net acres in the Arkoma Basin from WPX Energy for $306 million (see Shale Daily, April 3, 2012).

KKR and its affiliates formed a JV with Comstock Resources Inc. to develop its holdings in the Eagle Ford in August 2012 (see Shale Daily, Aug. 1, 2012).

Marc Lipschultz, who heads KKR's energy and infrastructure business, said the equity firm appreciates both new and existing investors.

"The energy revolution has created an unprecedented opportunity set, and we are seeing many ways to partner with companies to help develop these important resources," Lipschultz  said. "Pursuing asset-level and structured investments, we intend to deploy creative and flexible structures that seek to best meet the needs of our partners while delivering benefits associated with real asset ownership."

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