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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.”