KKR & Co., the buyout firm run by Henry Kravis and George Roberts, is seeking $1.5 billion for an energy fund that will invest in oil and gas development, according to two people with knowledge of the matter.
The firm will use the KKR Energy Income & Growth fund mostly for drilling partnerships with a goal of generating steady income and distributions for investors, said the people, who asked not to be identified because the plans are private. KKR is offering a management-fee discount to clients who commit money in the first round of fundraising, the people said.
Investment firms are trying to take advantage of the shale boom in the U.S. fueled by the use of so-called horizontal drilling and hydraulic fracturing, known as fracking, to extract oil and gas. KKR, which had about $76 billion under management at year-end, is investing in energy as it diversifies beyond traditional corporate takeovers. The firm has made several natural-gas investments connected to shale discoveries in recent years and has a group dedicated to energy and infrastructure transactions headed by Marc Lipschultz.
Kristi Huller, a spokeswoman for New York-based KKR, declined to comment on the capital raising.
KKR’s new fund will also invest in minerals and royalties, as well as mezzanine debt, said the people. While marketing the fund, KKR will be able to give investors a preview of some investments. The firm will roll three deals into the fund comprising drilling partnerships with Comstock Resources Inc., Raptor Petroleum LLC and Cinco Energy Services, the people said.
KKR agreed in July to partner with Comstock Resources to help develop its Eagle Ford shale acreage in South Texas, the companies said at the time. Under the agreement, KKR is able to participate for one-third of Comstock’s working interest in wells drilled on its acreage in exchange for paying $25,000 per acre through a drilling carry, or development expense.
KKR is offering an annual management fee of 0.75 percent to investors joining the first close, which is being targeted for sometime in May, compared with 1.5 percent for later clients, the people familiar with the matter said. The firm will take 15 percent of the profit after achieving an annual return of at least 8 percent, known as the preferred return hurdle.
The new fund will be managed by Lipschultz, global head of KKR’s energy and infrastructure business; Jonathan Smidt, who leads KKR Natural Resources; Robert Antablin, who runs the platform that purchases minerals and royalty interests in oil and gas assets; and managing directors Claire Farley and David Rockecharlie, according to the people. KKR in 2011 hired Farley and Rockecharlie, the founders of RPM Energy LLC, an oil and gas exploration and development company.
The fund’s team is expected to include 20 to 25 investment professionals, one of the people familiar said.