KKR to buy oil company Samson for $7.2 billion

AP News
Posted: Nov 23, 2011 11:11 AM
KKR to buy oil company Samson for $7.2 billion

The energy resources trapped in shale formations across the U.S. continue to attract investors. But now investors are after oil, not natural gas.

Private equity firm KKR & Co. LP and three partners announced Wednesday say they have agreed to buy the privately held oil and gas company Samson Investment Co. for $7.2 billion.

KKR's partners include the investment firms Natural Gas Partners and Crestview Partners and the Japanese trading company Itochu Corp. Financial details, including how much each partner is paying and whether they are borrowing money or paying in cash, stock, or some combination, were not disclosed.

Sampson, founded in 1971 by the late Charles Schusterman and run by his daughter Stacy Schusterman, owns interests in more than 10,000 wells and operates 4,000 of them in the U.S. The Tulsa, Okla.-based company has large positions in shale formations that are rich with oil and other liquid hydrocarbons.

Samson's wells in the deep water Gulf of Mexico and along the Gulf Coast are not included in the deal and will remain with the Schusterman family.

Several shale formations in the U.S. have been found to hold enormous amounts of natural gas. After small drillers learned to tap these resources profitably, a wave of acquisitions swept the industry, capped by ExxonMobil Corp.'s $31 billion purchase of XTO Resources announced in 2009. The huge new supplies of natural gas have pushed prices low, however, and made drilling for natural gas only slightly profitable.

But drillers have found some formations, such as the Bakken in North Dakota and the Eagle Ford in South Texas, to contain large amounts of oil. Drillers have learned to apply what critics say is an environmentally questionable method to tap natural gas to also tap oil. They drill down and horizontally into the rock, then pump water, sand and chemicals into the hole to crack the shale and allow the oil and gas to flow up.

Because oil molecules are sticky and larger than gas molecules, engineers thought the process wouldn't work to squeeze oil out fast enough to make it economical. But drillers learned how to increase the number of cracks in the rock and use different chemicals to free up oil at low cost.

Oil prices have been driven to historic highs because of growing demand in China and other developing nations, so drilling for oil is far more profitable than drilling for gas. Exploration and production companies in the U.S. such as Samson have been snapping up leases in oil-rich formations and moving rigs there as fast as possible.

Oil companies around the world including China National Offshore Oil Corp., Korea National Oil Corp. and Norway's Statoil ASA have announced investments in U.S. shale oil formations in recent months.

Samson owns oil-producing wells and assets in several locations, including North Dakota's Bakken formation and Wyoming's Powder River Basin.

KKR has a history of investing in U.S. oil and gas companies. It invested in the shale gas producer East Resources in 2009 and later sold it at a huge gain to Royal Dutch Shell. Earlier this year KKR acquired assets in the Barnett Shale, located in North Texas, from ConocoPhillips.

KKR, co-founded by the Tulsa native Henry Kravis, said Samson will remain based in Tulsa. After the deal is closed, David Adams will be named CEO and the company will be renamed Samson Resources.

The deal is expected to close before the end of the year.


Jonathan Fahey can be reached at http://twitter.com/JonathanFahey