Apollo Global Leads Consortium Planning Acquisition Of El Paso E&P Business

To acquire company with 75,000 net acres in TX Eagle Ford shale, 138,000 acres in Permian Basin Wolfcamp shale, GOM & S TX assets, Haynesville shale, 140,000 acres S LA Wilcox oil play, E TX & N LA, Altamont & Raton Basin & Rockies & Camamu, Espirito Santo & Potiguar basins offshore Brazil, and in 2 blocks primarily onshore Egypt’s Western Desert, gaining 783 MMcfe/d, 3.4 Tcfe proved.

New York-based investment management firm Apollo Global Management LLC (NYSE: APO), along with private-equity firm Riverstone Holdings LLC and Access Industries Inc., plan to acquire all of the oil and gas E&P assets of El Paso Corp., Houston, (NYSE: EP) for approximately $7.15 billion.

The deal comes in advance of midstream giant Kinder Morgan Inc.'s acquisition of El Paso for $38 billion, announced in October and at which time Kinder Morgan announced its intent to divest the E&P assets out of that deal to offset the debt portion of that acquisition. The Apollo transaction is subject to the closing of the merger between Kinder Morgan and El Paso.

Apollo Global Management senior managing director Josh Harris says, “Apollo is acquiring a company with an impressive portfolio of valuable natural resource assets, a talented management team and a remarkable group of highly skilled employees. We look forward to building on El Paso’s impressive track record of success in partnership with Apollo’s natural resources expertise.”

El Paso’s upstream assets are centralized in four divisions. The southern division includes U.S. properties with 75,000 net acres in the Eagle Ford shale, 138,000 acres in the Permian Basin Wolfcamp shale, and portions of its Gulf of Mexico and South Texas assets. The central division includes the Haynesville shale, 140,000 acres in the South Louisiana Wilcox oil play, and assets in East Texas and northern Louisiana plus shallow unconventional programs.

The western division includes an active drilling program in the Altamont and in the Raton Basin and the Rockies. The company’s international division includes operations in the Camamu, Espirito Santo and Potiguar basins offshore Brazil, and in two blocks primarily onshore in Egypt’s Western Desert.

Average production in 2010 was 782 million cubic feet of gas equivalent per day. Proved reserves as of year-end 2010 were 3.4 trillion cubic feet equivalent. This includes 48.8% interest in Four Star Oil & Gas Co. Net risked resource potential is 8 trillion cubic feet equivalent with 3,260 drilling locations in its core operations (48% oil). Production at the end of the third quarter was 823 MMcfe per day.

In an October presentation, El Paso reported 45% of 2012 revenues were expected to be generated by oil production.

Kinder Morgan chairman and chief executive Richard D. Kinder says, “We are pleased that this pending sale will allow the El Paso exploration and production assets to be kept intact as a single entity.” The company had considered selling El Paso's E&P interests in pieces.

El Paso’s net operating loss carry forwards will largely offset taxes associated with the sale of the exploration and production assets, and thus almost the entirety of the proceeds from this sale will be used to substantially reduce the debt borrowed by KMI to fund the cash portion of its purchase of El Paso.

The sale of EP Energy is expected to close about the same time as the merger of Kinder Morgan during the second quarter.