More Energy Deals -- Time to Invest?
Private equity firm Kohlberg Kravis Roberts (NYS: KKR) is set to acquire natural gas shale properties worth $306 million, after it entered into a definitive agreement with WPX Energy (NYS: WPX) on Monday. Private equity firms seem to be playing it long on the natural gas space. Should we do the same? Let's take a look at KKR's newest deal.
Natural gas play
KKR will acquire 27,000 net acres in the Barnett shale play and 66,000 net acres in the Arkoma Basin through its joint venture with Premier Natural Resources known as KKR Natural Resources. That adds up to 93,000 acres in total. According to KKR, the acreage in the Barnett shale play has a net production of 67 million cubic feet per day.
The joint venture has been pretty active since its formation in 2010 and has acquired more than $900 million worth of oil and gas properties across North America. This includes properties worth $600 million it has acquired this year alone. In fact, the joint venture currently has another $1 billion available to invest in energy fields. Also, according to KNR, it has the ability to acquire $2 billion worth of properties in the next few years. So we can expect some more acquisitions in the near future. Click here to add the company to your watchlist.
We've been here before
This current deal isn't KKR's first in the Barnett shale play. Last year, KKR acquired 93 billion cubic feet equivalent worth of net proved reserves from ConocoPhillips (NYS: COP) . Of this acquired land, 90% is proved developed producing. KKR has become one of the most prolific buyers in the U.S. energy space. In November last year, it acquired a majority of explorer Samson Investment in a deal worth $7.2 billion. Just last month, KKR entered into a $250 million deal with Chesapeake Energy (NYS: CHK) wherein the two would invest in U.S. oil and gas fields.
Why natural gas?
Now the question you might be asking is why invest in natural gas. The thing is that, according to EIA Annual Energy Outlook 2011, the U.S. currently holds a whopping 2,552 trillion cubic feet of potential natural gas reserves. And taking into account U.S. consumption levels in 2009, the latent reserves could potentially meet our requirements for the next 110 years.
At present, natural gas prices are at historically low levels. Plus, excess supply and rising inventories keep sending prices lower. They are also banking on the fact that it's a cleaner energy source than either oil or coal, as the world becomes more environmentally conscious. In addition, these firms are less susceptible to price fluctuations as they aren't liable to show their quarterly production figures to investors, and can control production according to prices. So they stand to gain. Do you agree with KKR's view on natural gas? Leave your comments below.
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At the time this article was published Fool contributor Shubh Datta doesn't own any shares in the companies mentioned above. Motley Fool newsletter services have recommended buying shares of Chesapeake Energy. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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