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KKR Will Acquire Samson Investment for $7.2 Billion in Year’s Biggest LBO

KKR (KKR) & Co., the private-equity firm that began investing in the energy industry in 1985, agreed to acquire most of Samson Investment Co. for $7.2 billion to capitalize on increased production of shale-based oil and gas.

A KKR-led investor group will buy all of Samson’s assets except its onshore Gulf Coast and deep-water Gulf of Mexico assets, the companies said today in a statement. The Gulf assets will continue to be owned by the Schusterman family, which founded the Tulsa, Oklahoma-based company in 1971.

“It is really an investment behind the transition into shale and other unconventional resources,” Marc Lipschultz, global head of New York-based KKR’s energy and infrastructure business, said in a Bloomberg Television interview. “We have an opportunity to change the energy profile of this country and an opportunity to become less dependent on foreign resources.”

Samson owns interests in more than 10,000 wells, including 4,000 that it operates in the U.S., according to the statement. Among its holdings are oil-producing properties in North Dakota’s Bakken region, where crude output has almost doubled in two years, and the Powder River in the northwest U.S. It has shale-gas fields in Haynesville in Texas and Louisiana, and Bossier in Louisiana. In some cases, it extracts oil and gas from rock formations where the company injects chemicals and sand to free tight reserves.

Photographer: F. Carter Smith/Bloomberg

Samson Investment Co. Chief Executive Officer Stacy Schusterman. Close

Samson Investment Co. Chief Executive Officer Stacy Schusterman.

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Photographer: F. Carter Smith/Bloomberg

Samson Investment Co. Chief Executive Officer Stacy Schusterman.

Biggest 2011 Buyout

The deal is the biggest company takeover by a private- equity firm announced this year and a record for an oil and gas producer, according to data compiled by Bloomberg. The KKR group -- including private-equity firms Natural Gas Partners and Crestview Partners and Japanese trading company Itochu Corp. (8001) -- lined up $4.5 billion in committed financing from 11 lenders led by JPMorgan Chase & Co., according to a person with knowledge of the matter.

The decision to exclude the Gulf of Mexico properties from the purchase makes sense for a private-equity buyer, Allen Brooks, a managing director at PPHB LP, an energy investment bank in Houston, said in a telephone interview.

“It’s a lower risk being onshore than offshore, less capital intensive,” he said.

KKR, which is run by Henry Kravis and George Roberts, beat out oil and gas companies to enter exclusive talks with Samson. New York investment bank Jefferies Group Inc. worked with Samson to seek buyers or joint-venture partners.

Tulsa Connection

Samson was founded by petroleum engineer Charles Schusterman, who died in 2000. His daughter, Stacy Schusterman, became co-chief executive officer in 1999 and assumed full control in 2005, according to the company’s press releases.

The company’s chief operating officer, David Adams, will become CEO after completion of the deal, which the companies expect by Dec. 31. The company will be renamed Samson Resources and its headquarters will stay in Tulsa, where Kravis was born.

KKR fell 2.1 percent to $11.55 at 2:33 p.m. in New York trading as U.S. stocks declined. Its shares have lost 19 percent this year, compared with the 7.4 percent drop in the Standard & Poor’s 500 Index.

Samson is KKR’s largest acquisition since it bought the U.S. Foodservice unit of Royal Ahold NV with Clayton, Dubilier & Rice LLC for $7.1 billion in July 2007. A year ago, KKR bought Del Monte Foods Co. for $5.1 billion.

For the Samson deal, lenders will provide $2.25 billion in bridge loans and $2.25 billion in credit lines, according to the person familiar with financing who asked not to be named because the information is private. KKR probably will immediately draw about $1.3 billion from the credit lines.

Deals Picks Up

Crude prices have averaged $94.72 a barrel this year in New York, up 19 percent from last year as a civil war in Libya and unrest in the Middle East reduced global supply. Gas prices have dropped 75 percent from their 2008 high, as new drilling techniques have unlocked vast reserves from tight formations of shale rock.

The value of private-equity deals in the energy industry this year has climbed 80 percent to $26 billion compared with a year earlier, Bloomberg data show. The surge included the $3.5 billion agreement in June by KKR and Hilcorp Energy Co. to sell oil and gas leases in southern Texas to Marathon Oil Corp. (MRO) The deal almost tripled the value of KKR’s $400 million investment in a year.

KKR earlier this month hired Claire Scobee Farley and David Rockecharlie, energy-industry bankers from Jefferies & Co., as managing directors focusing on its oil and gas investments. Farley and Rockecharlie founded Houston-based RPM Energy LLC, which helps manage those investments.

Pennsylvania Shale

KKR made a fourfold return on its first shale-gas investment, in Warrendale, Pennsylvania-based East Resources Inc., when the company was sold to Royal Dutch Shell Plc (RDSA) in May 2010. KKR has attracted more than $1 billion for its natural- resources fund, exceeding its target, a person familiar with the matter said last month.

KKR did one of its first oil- and gas-production deals in 1985, buying a 50 percent stake in Allied Corp.’s Union Texas Petroleum unit for about $250 million, according to “The New Financial Capitalists” by George Pierce Baker.

From 1992 to 2007, Samson spent at least $885 million buying oil and natural-gas assets in the U.S. and Canada, according to Bloomberg data. Since then, it sold non-U.S. assets and has spent $4 billion on drilling and acquisitions, according to its website.

Financial advisers for KKR, Natural Gas Partners and Crestview were Bank of America Merrill Lynch, Barclays Capital, BMO Capital Markets, Citigroup Global Capital Markets, Credit Suisse, RBC Capital Markets, Tudor, Pickering, Holt & Co. and Wells Fargo. Mizuho and Evercore Partners acted as financial advisers to Itochu.

Simpson Thacher & Bartlett LLP served as legal counsel to the investor group and the Dallas office of Jones Day served as legal counsel to Samson. Natural Gas Partners was also advised by Latham & Watkins LLP, and Crestview was advised by Davis Polk & Wardwell LLP.

To contact the reporters on this story: Cristina Alesci in New York at calesci2@bloomberg.net; Devin Banerjee in New York at dbanerjee2@bloomberg.net

To contact the editors responsible for this story: Jennifer Sondag at jsondag@bloomberg.net; Christian Baumgaertel at cbaumgaertel@bloomberg.net

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