Chesapeake and KKR Form Partnership
| KKR AND CHESAPEAKE ENERGY CORPORATION FORM PARTNERSHIP TO INVEST IN MINERAL INTERESTS AND OVERRIDING ROYALTY INTERESTS | ||
Houston, TX, March 6, 2012 – Kohlberg Kravis Roberts & Co L.P. (together with its affiliates, “KKR”) and Chesapeake Energy Corporation (“Chesapeake”) (NYSE:CHK) today announced the formation of a partnership to invest in mineral interests and overriding royalty interests (together, “royalties”) in key oil and gas basins in the United States.
“Chesapeake has been the world’s leading discoverer and developer of oil and gas shale plays, which are revolutionizing energy exploration worldwide. We hope that today’s partnership is just the beginning; we have long admired Aubrey and the Chesapeake team and we look forward to broadening our relationship over the years ahead,” said Marc Lipschultz, Head of KKR’s Global Energy & Infrastructure business.
Under the terms of the arrangement, KKR and Chesapeake will make an initial combined $250 million commitment to the partnership. Chesapeake will contribute 10% of the total commitment and will receive a promoted ownership in the partnership. KKR and Chesapeake will jointly oversee the partnership while Chesapeake will source, acquire and manage the royalty investment opportunities.
“Driven predominantly by the recent advancements in unconventional oil and gas technology, we continue to see attractive opportunities to invest behind the domestic exploration and production of oil and gas. Royalties represent an important extension of this opportunity set and offer an attractive risk/reward for our investors in the current environment,” said Robert Antablin, a Director at KKR who leads the firm’s royalties investment strategy.
Aubrey K. McClendon, Chief Executive Officer of Chesapeake, said, “As the largest oil and gas leasehold owner and most active driller in the U.S., we are uniquely well positioned to leverage our operating footprint to pursue profitable and related business opportunities. We are delighted to partner with KKR, a leading investor and partner to the energy industry, to expand our royalty acquisition business. During the past 10 years, we have acquired approximately $900 million in royalties, and now 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.”
KKR has been investing in the energy sector for more than 20 years, starting with its investment in Union Texas Petroleum in 1985. Acquiring royalties is just one of many ways KKR is investing behind the oil and gas industry. The KKR Global Energy & Infrastructure business invests across the entire energy supply chain and multiple asset classes. Recent examples include oil and gas investments such as the firm’s acquisition of Samson Resources, one of the largest privately held oil and gas companies in the U.S., formation of the KKR Natural Resources platform, a partnership with Premier Natural Resources to acquire producing oil and natural gas assets, and recently exited investments in East Resources and Hilcorp Resources. A complete list of KKR’s energy investments is available on KKR.com.
KKR is making this investment through its affiliates and KKR Financial Holdings LLC.
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Replies to This Discussion
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Permalink Reply by Krkyoldhag on
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Does this translate to "invest and hold" or invest and drill?
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Permalink Reply by JHH on
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I wished i could tell you. It's all a mystery to me. But it sounds like they'd rather buy than lease. And... it's all about $$$!
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Permalink Reply by Skip Peel - Mineral Consultant on -
KKR has been interested in acquiring mineral interests in the Haynesville Shale for the last couple of years and has considered a number of possible acquisitions before purchasing Samson Energy. CHK has purchased mineral rights and royalty interests under their Haynesville units through a subsidiary. IMO this has little or nothing to do with the Exploration & Production segment of the energy business. Therefore it has no affect on operating decisions. The current value of minerals with natural gas production is depressed and can be acquired in many instances at a bargain price by those who can afford to hold the asset for a perceived future of improved pricing. In other words those who value a continuing income stream with high long term potential for better asset values. Natural gas has a solid future, that's a given. This depressed pricing period is temporary. KKR has both the capital to invest and the long term investment strategy that makes acquiring minerals, royalty and over riding royalty interests a good business plan.
overriding royalty interest
Ownership in a percentage of production or production revenues, free of the cost of production, created by the lessee, company and/or working interest owner and paid by the lessee, company and/or working interest owner out of revenue from the well.
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Permalink Reply by Doctor Joe on
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I'm not sure I fully comprehend as to the override royalty interest but here goes. The lessee in essence shares production with the lessor - lately about 25 percent. If another company buys an override, this will reduce the amount the lessee has, that is it comes from the 75 percent held. If this is correct, then CHK would not be selling any of their interests to this entity but buy from other producers who may wish to have money in hand now rather than wait for future production. Anywhere near correct?
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Permalink Reply by Skip Peel - Mineral Consultant on
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ORRI's have traditionally been employed by lessee/operators to raise money or to compensate a third party. If you need to raise money to drill a well an ORRI could be sold to an investor. In the case of compensation the third party could be a geologist that developed the prospect, a land company that holds the leases or, in the old wildcat days, a driller, a rig owner, etc. that supplies equipment or services in exchange for the ORRI. The business venture could work in a number of ways. It may be that KKR will fund the acquisitions and CHK will handle making the offers and acquiring the mineral interests. Those interests will likely come from lessors, individual and corporate. CHK has a huge mailing list.
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Permalink Reply by Spring Branch,mineral owner on
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If I, the lessee, lease from you the lessor for 3/16 royalty and then I, in turn, assign my lease to Chesapeake and deliver to them a 75% net revenue lease, I have essentially carved out for myself a 1/16 overriding royalty interest, which is the difference between 1/4 and 3/16.
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Permalink Reply by Hopeful About Natural Gas on
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Kohlberg Kravis Roberts are big time money mangers for large institutional investors, pension funds. I found another interesting article about this investment. The whole article is worth reading, but I highlighted one section below. Especially telling is how much CHK has fallen compared to other natgas producers.
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http://www.marketwatch.com/story/chesapeake-taps-kkr-to-feed-its-ad...
"So what’s KKR’s motivation? Clearly, a $250 million initial investment isn’t much in the energy business. And both companies enthusiastically predict their partnership will grow. But that might work out better for KKR than Chesapeake. While Chesapeake does all the heavy lifting, KKR boosts its production royalties. That means KKR is betting the current market glut will someday end and prices will rise. All good.
But gas prices will have to go up a lot more before Chesapeake will likely recover the money spent snapping up gas fields back when prices were double today’s levels. That keeps creditors and investors on edge, and is a key reason the stock is down 2.8% today, extending its losses over the past 12 months to 30%, while the NYSE Arca Natural Gas Index XX:XNG -1.33% of its peers — even with weak gas prices — is down less than 2% over the same period."
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Permalink Reply by Mark on
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Depending on a individuals needs at the time, selling a mineral or royalty interest, or any portions thereof, can be the right decision and should be considered. There is more to a sale of this nature than what is stated in the previous sentance, but brevity seems to match previous contrary input.
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Permalink Reply by DrWAVeSport Cd1 on
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HANG,
Don't miss the BIG Picture... The Art of The Deal is in the Deal "making." The Senior Executives of Corporations...Especially the Publicly Traded Ones... Found out in the late 80's and 90's that Mergers and Aquisitions, JVs, Partnerships, Buyouts, Takeovers, Restructurings, Spin-offs, Drop-downs, etc., etc., came with HUGE Perks and Golden Parachutes and Stock Options and "FEES" and OVERHEAD "COSTS" that ALL Senior Executive Sides of a "DEAL" could partake in... These "Deals" generate so much insider "moola" for the DEALMAKERS/INSIDERS/EXECS... That "Everyone" approves them... The Boards on UP...And Everyone gets Something! Stockholders moneys are what support the huge costs, fees, overheads, options, and percentages of the DEAL that go into the Dealmakers' Pockets.
It's like a realtor who sells your home. The realtor gets his share of the sell price. Does the realtor really care if the buyer or seller is getting the BIGGEST BANG FOR THEIR BUCK? Not really. There just needs to be a "deal," a meeting of the minds of both seller and buyer.... The seller gets some moola, the buyer gets to spend the moola, and the realtor gets a cut...with every deal he makes. The realtor just doesn't get the mega "Gold" that these KKR Moguls get to keep!
That's The REAL Deal! Creditors and Investors don't even show up on these Tycoons radars.
Wall Street is in it for the DEAL, not for the "investor." Ever watch "Wall Street," movie or "Wall Street Money Never Sleeps?" The DEAL is all that matters... And in this case, the price of nat gas is moot. They just figure low nat gas prices = low bonus moneys = lower royalty moneys = frustrated royalty owners = DOLLAR SIGNS!!!!
Just my opine...
DrWAVeSport Cd1 3/7/2012
P.S. And for all those mineral owners in NEWER Plays... Beware. I can just hear the "twisted" logic talk and new "spiel" from Lessees will be..."Hey, look nat gas prices are never comin' back... Bonus moneys have tanked.... And, I can get you top dollar if you want to SELL YOUR MINERALS TO ME!!!!!
Run! Run! Run Away! I Say~
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