Kohlberg Kravis Roberts’ latest oil and gas investment is a joint venture worth roughly $625 million with El Paso Midstream Group, a subsidiary of publicly listed El Paso Corporation.
The private equity firm is paying $125 million to purchase half of El Paso’s natural gas assets in Utah, which include 800 miles of pipelines. The assets, dubbed Altamont, have a fractionation capacity of 3,800 barrels per day and natural gas processing capacity of 40 million cubic feet per day. El Paso expects to increase Altamont’s drilling capacity from its current two rigs to six rigs by 2013, according to a statement.
Both KKR and El Paso will commit a further $500 million each to fund future projects together. Those may include projects in the Eagle Ford Shale in Texas and the the Marcellus Shale in the Appalachian Basin and additional partners including Spectra Energy.
The Marcellus Shale has already generated impressive returns for KKR. Last year, it invested $350 million for a minority stake in East Resources, a natural gas exploration firm which holds more than 650,000 acres of the the Marcellus Shale. East Resources was sold in June to Royal Dutch Shell for $4.7 billion.
“When we invested in Marcellus, it was a very poorly understood proposition,” Marc Lipschultz, the global head of KKR's energy and infrastructure investment team, told PEI earlier this year. He said that is what will set KKR apart from competitors – the ability to “have a very granular look at which companies [are worth investment], and then have the patience and the fortitude to work through some challenging uncertainties in the near term to participate in the inevitable activity in the long term”.
KKR makes energy investments from its global private equity fund, but is also raising an oil and gas-dedicated fund as well as an infrastructure fund that could potentially co-invest on energy deals. The oil and gas fund, KKR Natural Resources, has collected at least $257 million, according to the firm’s second quarter earnings statement.