Kohlberg Kravis Roberts is planning to exit its investment in East Resources, an oil and gas exploration and development company, in connection with the signing of a definitive agreement for East’s principal subsidiaries to be sold for a total transaction valuation of approximately USD4.7bn to an affiliate of Royal Dutch Shell.
The sale to Shell includes East’s natural gas and oil exploration and production operations and most of its holdings in related businesses.
With more than 25 years in local operations, East is an oil and gas development company in the Appalachian basin. The company has drilled over 1,000 wells in last five years and currently holds more than 650,000 net acres in the Appalachian Basin’s Marcellus and Utica Shales.
In June, 2009, KKR made a minority investment in East, fuelling the company’s growth and development in the region.
Since KKR’s investment, East has become one of the top drillers in the basin, having progressed from one horizontal Marcellus well drilled at the time of the investment to over 75 horizontal Marcellus wells drilled. The company’s annual capital budget has grown from USD100m to USD350m and employment increased significantly across East’s primary operating areas in Pennsylvania, West Virginia and New York.
In addition, during the same period East succeeded in de-risking a substantial part of the Northeastern Marcellus Shale area and developing a critical supply of natural gas to serve the region for many years to come.
"KKR was a catalyst for the growth and development of East and not just in terms of capital. With significant experience in oil and gas, they were a valuable partner – working with us to assist in building the business to scale, including activities ranging from financial and strategic planning to executive recruitment," says Terrence M. Pegula, founder, president and chief executive officer of East Resources.
"Even before he approached us, Terry was a visionary who had built a great business, with a tremendous regional presence, backed by many hard-working and committed employees. At the outset, our partnership was designed to enable the East team to build on what it had been doing for 25 years. Terry wanted us to help take East to the next level and together we have done this — far more quickly than we ever anticipated," says John Bookout III, managing director and member of the KKR energy and infrastructure team.
The sale of East Resources to Shell is expected to close in two phases. The first phase of the sale will be completed in mid- to late summer. The second phase of the sale, including the sale of the West Virginia business, will close later this year, pending certain regulatory approvals.