Kerogen Energy Fund, L.P. (“Kerogen” or the “Fund”), together with other major shareholders of New Age (African Global Energy) Ltd. (“NewAge”), has restructured its interest in NewAge’s flagship Marine XII licence in Congo-Brazzaville.
A special purpose vehicle, M12 Investment Limited (“M12” or the “Company”), has been formed to invest directly in the core asset of NewAge through the acquisition of a 5.8% effective interest. The Fund’s share of the transaction has been funded primarily through swapping NewAge shares for its shareholding in M12. As a result, the Fund has reduced its shareholding in NewAge from 26.1% to 23.7% and holds a 43.2% shareholding in M12. Post transaction, the Fund holds a combined effective interest of 7.2% in the Marine XII licence through its investments in NewAge and M12.
The Marine XII licence lies 15-20 kilometres offshore Congo-Brazzaville in shallow waters. It contains two large oil and gas fields, Litchendjili and Nene, together with other discoveries and prospects within the block. First gas from the Litchendjili field development is expected in 2015, with first oil potentially to follow in 2016. ENI, the operator of the licence, has recently announced the discovery of the Nene field, with an estimated 600 million barrels of oil and 700 billion cubic feet of gas in place based on two successful wells drilled to date.
M12 investment press release
New Age (African Global Energy) Ltd. (“NewAge” or the “Company”) has completed the acquisition from Vitol E&P Limited (“Vitol”) of its interests in two major upstream appraisal and development projects: MLHP 5, 6 & 7 (Etinde) in Cameroon and OML 113 (Aje) in Nigeria.
The acquisition adds two highly complementary West African assets to NewAge’s existing interests in Congo-Brazzaville, significantly enhancing the scale and breadth of its portfolio. Following the transaction, NewAge holds interests in 20 onshore and offshore blocks in sub-Saharan Africa and Kurdistan covering a net acreage area of 63,870km2.
Both Etinde and Aje have existing discoveries as well as substantial appraisal and exploration upside. NewAge plans to work with its partners in progressing both projects up the development curve and moving them towards first production.
To fund the acquisition, NewAge has issued new equity and a convertible loan. Kerogen Energy Fund, L.P. (“Kerogen” or the “Fund”) has invested $74 million across both instruments and continues to be NewAge’s largest shareholder post transaction.
Established in 2007, NewAge is a private oil and gas exploration and development company with a regional focus in sub-Saharan Africa. NewAge’s strategy is to build a high quality portfolio of exploration, appraisal and development assets. The Company has a highly experienced management team that has worked together for over 20 years and has a successful track record in operations and business development.
NewAge – follow-on investment and Newage acquisition of Vitol assets press release
Kerogen Energy Fund, L.P (“Kerogen”) has completed an investment of approximately $100 million in Buried Hill Energy (Cyprus) Public Company Limited (“Buried Hill”) through the combination of a subscription of new ordinary shares and purchases from existing shareholders. Kerogen is now a major shareholder of Buried Hill with an equity interest of approximately 20%. Dr. Alan Parsley, Kerogen Executive Board member, and Jason Cheng, Managing Partner of Kerogen, have joined the Board of Buried Hill.
Buried Hill is a private, independent oil and gas exploration and development company, and currently holds a 100% interest in the world class Serdar field discovery(Block III) in the Caspian Sea, under a Production Sharing Agreement with the government of Turkmenistan. Serdar has independently certified 2C resources of around 1.4 billion barrels of oil. It is located on the prolific Aspheron sill and is a direct analogue to the adjacent giant Azeri-Chirag-Gunashli (ACG) oil fields operated by BP Limited. Both Serdar and ACG are subject to a maritime border dispute between Azerbaijan and Turkmenistan.
Buried Hill entered into a farm-out agreement for 50% of Serdar with a listed IOC in May, 2012, which remains subject to Turkmen government approval. Under the terms of the farm-in agreement the listed IOC will provide loan financing to BHE for all of its’future appraisal and development costs until the first anniversary of production. The state retains a back-in right which, if exercised, would reduce Buried Hill’s interest to 40% on a fully diluted basis (assuming the farmin has completed).
In addition to Block III, Buried Hill owns a 40% working interest in two exploration blocks A1 and A4 in The Gambia (West Africa) having farmed out a 60% working interest to African Petroleum Corporation Limited who operate and are paying 80% of the forward work program which includes a commitment well.
The Company was founded in 2002 and is led by Peter Kallos, formerly EVP of International and Offshore at Petro-Canada/Suncor. Mr Kallos previously held senior management positions at Enterprise Oil, Shell, Carless Exploration and Marathon. The management team has substantial technical and commercial experience and has worked together over a significant period of time. Members of the team have been drawn from Petro-Kazakhstan, Enterprise Oil and Petro-Canada.
Kerogen Capital’s Executive Chairman, Mr. Ivor Orchard, commented:
“Buried Hill represents an extraordinary opportunity for Kerogen to participate in the development of a world class asset with a first rate management team. We look forward to working with the Buried Hill team as a strategic and financial partner in the critical next stage of the company’s development.”
Buried Hill’s Chief Executive Officer, Mr. Peter Kallos, commented:
“We are very pleased to welcome Kerogen as a shareholder. Kerogen is a specialist oil and gas fund with strong technical capabilities and a broad range of contacts in industry and government. We look forward to Kerogen’s contribution both as a shareholder and at Board level in assisting the company in developing its strategy, and shaping its business and financing plans to meet the opportunities and challenges ahead.”
Q&A with Kerogen Capital: A Closer Look at International Energy
This month, Preqin spoke to Jason Cheng, Co-Founder, Managing Partner at Kerogen Capital, regarding recent trends in the natural resources industry and the outlook for the future.
What recent trends have you seen in natural resources private equity?
Natural resources is an established asset class and has enjoyed increased attention as investors look to diversify their private equity portfolios and hedge against inflation.
The energy-focused private equity model has been successfully developed in North America for some time, yet there are few internationally focused oil and gas managers. This is not because the opportunity set is small; on the contrary over 90% of the world’s proven oil and gas reserves are outside North America.
The difficulty historically has been two-fold: firstly the lack of institutional quality managers with adequate fund sizes and secondly, the challenge in translating the private equity model to suit the
opportunities presented in a wide range of local conditions. Throughout our engagement with investors, we have seen a significant level of interest for internationally focused strategies developed by “home grown” management teams. It has become increasingly clear that the opportunities for private capital are large and growing.
What are the main industry drivers and fundamentals?
The fundamentals for the energy sector continue to be positive. The growth in demand for energy globally continues, driven mostly by Asia; however, proven resources in production are constantly depleting. The International Energy Agency estimates some $12 trillion needs to be invested over the next 20 years for supply and demand to be in balance. In response, the industry continues to push the boundaries and innovate. New technologies such as hydraulic fracturing have opened up an unconventional oil and gas industry and exploration activities have made new large conventional discoveries such as offshore East Africa, Brazil, etc.
Asia is the key driver of demand, with China and India together forecasted to account for around 83% of net oil demand growth over the period to 2035. Asian national oil companies (NOCs) have responded to Asia’s energy security concerns with a rapid wave of large scale international acquisitions, accounting for over 20% of oil and gas global M&A in 2012.
Where are the opportunities now?
A lot of capital has been raised by North American energy managers in recent years and we understand competition for investments has been intense. Private capital will eventually flow to the international sector, following public markets. Many investors may not know that 73% of Exxon Mobil and 83% of Chevron’s reserves are located outside the US and that 94% of the world’s undiscovered conventional resources in oil and gas are similarly located outside the US2. In recent times, most of the world’s large discoveries have been in Africa, Central Asia, MENA and Latin America etc. – geographies that are relatively untapped by private capital.
At Kerogen Capital, we tend to focus on international basins with proven hydrocarbon systems where we partner with portfolio companies to develop assets into potentially world class projects that typically become of strategic interest to growing Asia.
What are the key risks associated with oil and gas investments?
When evaluating a potential investment in the oil and gas sector, investors should focus on risk adjusted returns, and pay particular attention to how a manager evaluates and manages key risks such as technical and commercialization risk, management effectiveness, country risk, and oil and gas price risk.
Country risk is often the first risk that comes to mind for financial investors. It is a multifaceted issue, but it helps to focus on the context of the oil and gas industry in each particular country. We
prefer countries with a long history of oil and gas production with established international companies successfully operating there in a profitable manner. Energy tends to be so vital to many countries that governments are usually highly reluctant to take action that may damage investment flows – some countries in Latin America being the exception. What tends to matter most in managing country risk is whether the team has significant experience operating in the country with its own established networks and resources.
How does Kerogen ensure success in its investments?
At Kerogen Capital, we focus on investing in companies with a clear path for success while constructing a sensible portfolio to diversify specific risk exposures. We target companies that combine a first rate management team with an established portfolio of assets that typically include a core flagship asset, which has the potential to be of strategic importance or of world class ranking. We work closely with our internal technical and operational experts to assist in the selection, evaluation and operation of investments. We act as a partner to our portfolio companies and provide active support through strategic, technical, operational and financial engagement. In addition, at the outset of any investment we have a clear view on the logical set of buyers for each asset.
Further details: Preqin Q&A