The California State Teachers’ Retirement System recently revealed it made a $40 million co-investment alongside Kohlberg Kravis Roberts in a joint venture the firm formed with El Paso Corporation, which will focus on oil and gas exploration among shale rock fields in the US.
CalSTRS doesn’t often look for co-investment opportunities, a pension spokesperson noted. “They’re not the majority of our private equity activity,” the spokesperson said. The firm didn’t comment about the specific transaction.
The pension's private equity portfolio, with a market value of $20 billion, represents about 13.4 percent of the fund's total assets — about $150 billion.
As part of the partnership, KKR paid $125 million to buy half of El Paso’s natural gas assets in Utah, which include 800 miles of pipeline. The assets, called Altamont, are expected to increase in drilling capacity from two rigs to six rigs by 2013.
KKR and El Paso agreed to contribute $500 million each to fund future projects that could focus on the Eagle Ford Shale in Texas and the Marcellus Shale in the Appalachian Basin. The partnership also could welcome other partners like Spectra Energy.
“The emergence of unconventional resources is driving a need for significant investment in midstream infrastructure in the US,” Marc Lipschultz, global head of KKR’s Energy and Infrastructure business, said at the time.
KKR has long pursued energy investments, starting with its $1.3 billion management buyout of United Texas Petroleum in 1985. The firm has been raising a natural resources fund to buy oil- and gas-producing properties, which has collected at least $257 million as of 30 June. KKR also has been raising an infrastructure fund, which has so far collected about $515 million.
Energy investments have been a main focus of many private equity firms over the past year, including firms whose primary focus is not necessarily in energy. Oil and gas exploration in shale rock properties especially has attracted private equity.
Earlier this week, The Blackstone Group announced it was partnering with shale gas developer Alta Resources to form Alta Energy Partners. The two committed to investing up to $1 billion in the partnership to buy and develop “unconventional” oil and gas assets in North America in shale rock properties.