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KKR Said to Hold Exclusive Talks to Buy Samson Investment

KKR & Co. is in exclusive talks to buy family owned Samson Investment Co., said people with knowledge of the matter, in what may be the biggest leveraged buyout of an oil and gas producer.

KKR is working with several banks to put together financing, said the people, who declined to be identified because the discussions are private. KKR beat out oil and gas companies to enter the exclusive talks with Samson and isn’t working with any partners, the people said.

Samson, based in Tulsa, Oklahoma, may be valued at $8 billion to $10 billion in a sale and has been working for months with Jefferies Group Inc. to seek buyers or joint-venture partners, people with knowledge of the effort said. Even at $8 billion, a private-equity buyout would be the largest of an oil and gas exploration and production company, according to data compiled by Bloomberg.

“There’s about to be a new boom time when it comes to oil and gas,” Jake Dollarhide, who manages about $65 million at Longbow Asset Management Co. in Tulsa, said today in an interview. “It’s going to take a lot of capital. Every company is looking to get bigger or looking for a partner.”

Biggest Buyout

The deal could also be the largest corporate buyout by a private-equity firm this year, topping the agreement by a group led by Apax Partners LLP in July to acquire Kinetic Concepts Inc., a maker of wound-care products and hospital beds, in a deal valued at $5.7 billion including debt.

Samson Chairman and CEO Stacy Schusterman said in an internal memo that “if a definitive agreement is reached with KKR, it will be because they recognize both the value of our assets and our team,” according to the Tulsa World newspaper. Dennis Neill, a Samson spokesman, declined to comment.

KKR is evaluating whether to buy all of Samson or only parts of the company, one person said. Negotiations between Samson and KKR could break down and a deal may not be reached.

Samson has more than 1,200 employees and operates more than 4,000 wells, according to its website. During the past five years, the company has doubled its workforce and boosted capital investment in drilling fivefold, the website says.

Samson’s Business

From 1992 to 2007, Samson spent at least $885 million buying oil and natural-gas assets in the U.S. and Canada, according to data compiled by Bloomberg. It sold non-U.S. assets and has spent $4 billion on drilling and acquisitions in the past three years, according to its website. It produces in regions and basins including eastern Texas, the Texas Gulf Coast, Anadarko and San Juan, the website said.

Samson has a record of picking good locations in profitable oil and gas fields, said Bob Sullivan, owner of the petroleum explorer Sullivan & Co. and president of the Oklahoma Independent Petroleum Association. Samson is “aggressive” and uses its expertise in geology and geophysics to stake out its positions, Sullivan said.

“They’re good scientists,” he said.

Samson was founded in 1971 by Tulsa petroleum engineer Charles Schusterman, who died in 2000. He and wife Lynn Schusterman established a family foundation in 1987 that supports causes in Tulsa and in the Jewish community.

KKR’s Investments

KKR is in talks to finance about 40 percent of the Samson purchase with equity and the rest with debt, one person said. The private-equity firm and banks are still discussing loan terms, said the person.

Financing became easier for private-equity buyers in the past month after prices on leveraged loans rose by the most since July 2009. The Standard & Poor’s/LSTA U.S. Leveraged Loan 100 index climbed 3.54 cents in October to 92.11 cents on the dollar. Still, the measure, which tracks the 100 largest dollar-denominated first-lien leveraged loans, has declined from 96.48 on Feb. 14, which was the highest since November 2007.

Oil Buyouts

Private-equity firms have typically avoided acquisitions of oil and gas producers, because their cash flows depend on gyrating commodity prices, so they can’t be loaded up with the debt that buyout funds use to finance deals. Firms have been more active buying pipelines and oilfield service providers, including the $15 billion buyout of Kinder Morgan Inc. in 2007, and more recently investing in shale-gas leases.

KKR was one of the first to venture into the oil and gas production business with its 1985 acquisition of Union Texas Petroleum. Among the biggest deals in recent years was Antero Resources Corp.’s 2007 agreement to get a $1 billion line of equity from investors including Warburg Pincus LLC.

PE Deals

Other attempts at large buyouts of oil producers have failed. Douglas H. Miller, the chief executive officer of Exco Resources Inc., tried to take the company private in 2010 for $4.4 billion. He gave up on the effort in July.

Private-equity firms have announced $332 billion of global acquisitions or sales this year, an increase of 46 percent from a year earlier, the Bloomberg data show. Deals in the energy industry have climbed almost 75 percent to $22 billion, led by 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.

With the sale to Marathon, KKR almost tripled the value of its $400 million investment in a year. The company 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 Group Plc in May 2010. New York-based KKR has also attracted more than $1 billion for its natural-resources fund, exceeding the target, a person familiar with the matter said last month.

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