Saturday, June 4, 2011

Progress Energy Sells Stake in Shale Venture for $1.1 Billion -
Progress Energy Resources of Canada announced on Thursday that it was selling a 50 percent stake in its North Montney venture in British Columbia to the Malaysian state oil company Petronas for nearly $1.1. billion....

Shale formations — tightly packed sedimentary rock from which natural gas and oil can be extracted using a well-development technique called hydraulic fracturing, or fracking — have been the object of a flurry of activity in recent months.

The private equity firm Kohlberg Kravis Roberts announced on Wednesday that it was selling its assets in the Eagle Ford shale formation in Texas to Marathon Oil for $3.5 billion. Earlier this year, Talisman Energy sold a 50 percent stake in shale assets in British Columbia to Sasol for $1 billion. BHP Billiton is paying $4.75 billion for Chesapeake Energy’s shale assets in northern Arkansas.

The New York Times Dealbook
June 2, 2011

A Times Article the previous day by Michael J. De La Merced at "K.K.R. Venture Sells Its Shale Assets for $3.5 Billion" noted:

Kohlberg Kravis Roberts & Company has now struck gold in unconventional oil and gas exploration — twice. Hilcorp Resources, a joint venture between K.K.R., the private equity firm, and Hilcorp Energy, announced on Wednesday that it would sell its assets in the Eagle Ford shale formation in south Texas to Marathon Oil for $3.5 billion.

The deal will reap a windfall for K.K.R., which paid about $400 million for its 40 percent stake in Hilcorp Resources less than a year ago. That stake now is valued at $1.13 billion, a staggering 2.7 times the firm’s original investment.  What Marathon is buying includes 141,000 net acres of shale, 36 producing wells and 10 drilled wells that await completion.  Investors and analysts regarded the price as rich, helping to push Marathon shares down 2.8 percent on Wednesday to $52.65.

The deal was announced one year after another K.K.R. shale partnership, East Resources, sold itself to Royal Dutch Shell for $4.7 billion. The buyout firm initially invested just $350 million for a 35 percent stake in East.  For K.K.R., both deals highlight the wisdom — and luck — of its push into shale investments, made when the market had cooled for the leveraged buyouts for which the industry is known. Not only did the firm generate handsome returns from Hilcorp Resources and East, but it left each investment in about a year....It was part of the private equity consortium that took over the Texas utility TXU in 2007 in the largest leveraged buyout on record, though the company has since struggled with heavy debt loads and low natural gas prices. East and Hilcorp Resources have proved highly profitable.

In its effort to find quality low-cost areas, K.K.R. turned first to the Marcellus shale formation, which stretches from West Virginia to New York. It formed a partnership with East Resources in 2009 because of the energy company’s knowledge of the area and operational expertise.

K.K.R. used those same principles in entering a partnership with Hilcorp Energy last year. The firm provided  capital to help expand the partnerships, when East and Hilcorp might have considered selling themselves at lower prices. K.K.R.’s investment in East allowed the company to expand from one drilled well to 75 in a year. Its infusion into Hilcorp Resources allowed the partnership to add more than 40,000 acres and increase to 600 employees from 75.

K.K.R. has one shale partnership, with RPM Energy, and it owns other shale assets....

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