First Reserve sells North Sea gas firm

US-based energy specialist First Reserve has sold Caledonia Oil & Gas to global power and gas company E.on for £470m.

Houston, Connecticut and London-based private equity firm First Reserve has sold North Sea gas production firm Caledonia Oil & Gas Limited to global power and gas firm E.on for £470 million (€691 million; $830.4 million).

We realised that it would exceed our return targets if we were to sell Caledonia.

Will Honeybourne, managing director, First Reserve

The transaction was arranged in London, utilising ABN AMRO as sole adviser, but was overseen by Will Honeybourne, managing director in First Reserve’s Houston office. A source close to the deal said that the sale generated a multiple of around 5x for First Reserve.

Caledonia Oil and Gas has interests in a total of 15 gas fields in the UK Southern North Sea. The firm also owns Caledonia Energy Trading Limited and has interests in two pipeline systems for transporting gas to the UK.

First Reserve acquired Caledonia Oil & Gas two years ago for an undisclosed amount, according to Honeybourne. The company was founded by First Reserve and the former management team of Highland Energy, a company First Reserve had previously backed and sold.

“We realised that it would exceed our return targets if we were to sell Caledonia,” Honeybourne told PEO. “We considered options including floating the company or selling it, and in the end decided to see a limited number of offers.” Honeybourne added that bids came mainly from trade buyers, although there were some financial buyers involved.

Honeybourne: unlikely to raise another fund before 2007

First Reserve made the original acquisition in Caledonia from its Fund 9 fund, which is now totally invested. He declined to comment on how much the fund has returned so far. With the $2.3 billion Fund 10 still being invested from, Honeybourne didn’t expect that the company “will be looking at the next fund until 2007 or later”.

Energy-focused First Reserve has $4.7 billion under management in four active funds. Current investments include Dresser, Dresser-Rand, Power Well Services and Southern Cross.