Private equity appears to be finding a home in the Marcellus Shale after Kohlberg Kravis Roberts & Co. (KKR) became the second firm in two weeks to invest money in an Appalachian Basin producer. KKR will invest $350 million in privately held East Resources Inc., considered one of the most active players in the natural gas play.
East, based in Warrendale, PA, controls around 900,000 acres in the Marcellus Shale. It plans to use the KKR investment to pay down debt, invest in new infrastructure and develop its existing reserves.
"Given the increased competition in the Appalachian Basin's Marcellus shale region from a number of well capitalized publicly traded oil and gas companies, we chose a capital provider that has both relationships and skills that could add value to East Resources," said CEO Terrance Pegula, who founded the company in 1983. "KKR's team has demonstrated a strong understanding of our business and is 100% aligned with our strategy to grow East Resources."
KKR in 2007 put together what was then considered the largest leveraged buyout ever when it purchased Texas-based utility TXU Corp. for $32 billion (see Daily GPI, Sept. 10, 2007). The deal announced Tuesday comes a week after Morgan Stanley Private Equity said it would acquire a majority stake in Triana Energy Investments LLC, which plans to acquire and develop properties in the Marcellus Shale (see Daily GPI, June 3). Avista Capital Partners last November said it would invest up to $150 million with Marcellus producer Carrizo Oil & Gas Inc. to acquire and develop acreage in the basin.
East controls more than 1.25 million acres of onshore properties, and it operates more than 2,400 producing wells in New York, Pennsylvania, West Virginia and Colorado. The independent, which employs more than 200, has an active exploratory program under way in Wyoming. In addition, East Resources Utility Division supplies natural gas to more than 5,000 residences and businesses in 23 counties across West Virginia.
"East Resources has a long and successful history of energy development in the region, and we are excited to partner with such an impressive management team on an investment we believe not only fuels the efforts of a growing enterprise but also provides lasting economic benefits to the region," said KKR's Marc Lipschultz, who heads the firm's energy team and infrastructure business.
KKR would gain more than a leasehold interest in the Marcellus.
East owns a stake in Northern Pipeline Co. LLC, which owns 400 miles of gas gathering lines that stretch from the Butler-Clarion County, PA, line north to the New York state line. It also owns 100 miles of gathering lines that extend from the Butler-Clarion County line south through the Pittsburgh area to the Pennsylvania-West Virginia border, and it owns 60 miles of gathering lines in Pennsylvania's Lancaster, Chester and Delaware counties.
In addition, East owns an interest in two gas facilities in northern Pennsylvania that currently are capable of processing more than 20 MMcf/d of gas.
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