Terms of the deal, announced on Tuesday, March 6, call for Oklahoma City-based Chesapeake, the second largest U.S. natural gas producer, to contribute about 10% of an initial $250 million investment fund, and to take responsibility for sourcing, acquiring and managing the investments. The companies will jointly oversee the partnership.
Chesapeake has made a business of managing royalties, having acquired about $900 million-worth in the last 10 years. Analysts at Tudor Pickering Holt & Co. Securities Inc. said the partnership is not a "needle mover" for Chesapeake's stock. But they note the deal will provide an opportunity to acquire minerals and royalty interests across North American basins - in which it has expertise - rather than acquiring acreage.
Chesapeake CEO Aubrey K. McClendon in a statement said that as a large oil and gas leaseholder and active driller in the U.S. Chesapeake is "uniquely well positioned to leverage our operating footprint to pursue profitable and related business opportunities.
"We look forward to accelerating the pace of our acquisition of royalties by combining our unparalleled acquisition skills and unique information base with KKR's capital and business structuring expertise," McClendon said.
Chesapeake has recently been focused on strengthening its balance sheet. Last month it boosted its possible divestiture range to up to $12 billion from $7 billion in hopes of paying down debt and covering a funding gap created by low natural gas prices.
New York-based KKR is a veteran energy investor dating back to its involvement with Union Texas Petroleum starting in 1985. Marc Lipschultz, head of the firm's global energy and infrastructure business, said he hopes the initial $250 million investment fund is "just the beginning," praising Chesapeake's ability to discover and develop new oil and gas shale opportunities.
"We have long admired Aubrey and the Chesapeake team and we look forward to broadening our relationship over the years ahead," Lipschultz said.
Private equity has shown a strong interest in the energy sector of late. Last week Houston-based Cheniere Energy Partners LP agreed to sell new senior subordinated paid-in-kind units to Blackstone Energy Partners LP, Blackstone Capital Partners VI LP and affiliates for $2 billion, raising money to fund a liquefaction project at Cameron Parish, Louisiana.
-- Claire Poole in Houston contributed to this report
Mayer Brown LLP hires Lawrence V. Berkovich as a partner in the banking and finance practice, amid "rapid growth of the CLO market." For other updates launch today's Movers & shakers slideshow.
The firm's Daniel Bonoff discusses the difficult environment for finding quality targets, but welcomes a hot market for issuers. More video