KKR Buys SM Energy’s Eagle Ford Assets

Energy Smart Money

SM Energy (NYSE: SM) has entered into a definitive agreement to sell its non-operating Eagle Ford assets and 12.5% ownership interest in Springfield Gathering System to Venado Oil & Gas, a portfolio company of KKR (NYSE: KKR), for $800 million on January 3, 2017. Given hydrocarbon mix of PDP and non-op nature of the asset, it is interesting to see this deal get announced.

Deal Overview/Background

  • This was a widely anticipated sale
  • 37,500 net acres and 27,260 net BOE/d with a hydrocarbon mix of 33% oil, 33% natural gas, and 34% NGLs in the Maverick Basin / Eagle Ford area (volatile oil / condensate window)
  • Anadarko (NYSE: APC) is the operator (SM had roughly 15% non-op working interest)
  • Springfield Gathering System: ~550-mile gas and ~240-mile oil gathering line with capacity of ~0.8bcf/d and ~130Mbbl/d, respectively
  • SM has been trying to boost its presence in the Permian while divesting assets elsewhere
    • Announced acquisition of 35,700 net acres in Howard and Martin counties, TX for $1.6B in October 2016 and acquired 24,783 net acres in Howard County from Rock Oil for $980 million in August 2016
    • Closed divestiture of 55,000 net acres in Bakken to Oasis Petroleum (NYSE: OAS)
  • Scotia Waterous (energy arm of Scotiabank) served as financial advisor for SM

KKR / Venado Oil & Gas

  • KKR announced a partnership with Venado Oil & Gas in September 2016 to buy producing oil and natural gas assets in the Eagle Ford shale region; acquisitions will be funded by KKR’s Energy Income and Growth Fund I; Venado is led by CEO, Scott Garrick

KKR Energy – Marc Lipschultz

  • Marc Lipschultz, who joined KKR in the 90’s after a stint at Goldman Sachs, has led KKR’s energy and infrastructure investing unit from 2009 to 2016 as its co-head
  • He oversaw 3 energy investments that went bankrupt (TXU or Energy Future Holdings, Samson Resources, and Quicksilver Resources), 2 of which are one of the largest bankruptcies in the US (TXU and Samson)
  • He was part of successful energy investments including East Resources, Hilcorp, and pipeline venture with El Paso
  • Marc Lipschultz left KKR in early 2016 and started a credit fund, Owl Rock Capital Partners, with Doug Ostrover who left Blackstone in 2015 and was a co-founder of GSO Capital Partners at Blackstone. They have raised almost $1 billion for a credit fund from investors/funds including George Soros, Michael Dell, and Joseph Tsai (Alibaba’s co-founder)
  • David Rockecharlie now heads KKR’s Energy Real Assets
Image Source: Twitter @KKR_Co

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