Forbes Private Capital Group Hong Kong News Alert on $1B Hong Kong Fund Targets Midsize Oil Cos

Law360, New York (July 25, 2012, 1:22 PM ET) -- Hong Kong-based private equity fund Kerogen Capital Ltd. has closed a more than $1 billion fund to invest in midsize oil and gas producers, according to a statement Wednesday by Forbes Private Capital Group, which managed and advised on the fund.

Kerogen Energy Fund LP will provide growth and development capital to junior upstream oil and gas companies, Forbes said in a statement. Many of these midsize independent energy firms are swamped with debt and hungry for funds to develop licenses in new oil frontiers like Africa, Brazil and Southeast Asia.

The fund will mostly invest in areas with access to markets in China, which is expected to account for more than half of the total increase in world oil demand over the next 25 years, according to the International Energy Agency. Australia, Canada, East Africa, Malaysia, Vietnam and the Middle East have all seen an influx of Chinese money due to easy export routes for oil or liquefied gas.

“The world has run out of easily accessed oil, and surging demand in Asia will require new and expanding capital to invest with A+ management teams,” said Todd Morley, chairman of G2 Investment Group, Forbes' parent company. “We are excited to partner with Kerogen on one of the few private equity energy funds focused on opportunities outside North America.”

The fund has already made two transactions, touching oil and gas plays in six countries.

In January, it invested $125 million in New Age African Global Energy Ltd., a privately held oil and gas company run by former Marathon Oil Co. president Steve Lowden that holds 11 blocks across four countries, with a focus on sub-Saharan Africa and Kurdistan. It has proved reserves of 37.5 million barrels, including sizable minority stakes in the Marine XII gas block in the Congo and the Khalakan block in Kurdistan.

And in December, Kerogen pumped $100 million in debt and equity into AJ Lucas Group Ltd., which holds a 43 percent interest in an extensive European shale gas portfolio and Australian coal seam gas projects. Its crown jewel is a stake in England's Bowland shale, which holds an estimated 200 trillion cubic feet of gas, making it about half the size of the Marcellus shale in the Northeastern U.S. The financing package included a $86.5 million mezzanine loan and the purchase of a 15 percent stake in the company, with an option to buy more shares, according to earlier statements.

Funds like Kerogen's could give independent producers an alternative to takeovers by the oil majors, which have been snapping up smaller companies with promising leases in emerging energy hotspots. Most big oil and gas companies prefer to let smaller companies acquire licenses and do exploratory work, and then buy them up once early test wells confirm oil and gas deposits.

Canada-based Nexen Inc. and Talisman Energy Inc. both found big Asian backers this week, with China National Offshore Oil Co. Ltd. paying $15.1 billion for Nexen and China Petrochemical Corp. snapping up 49 percent of Talisman's British offshore operations for $1.5 billion. Royal Dutch Shell PLC was prepared to pay $1.9 billion for Cove Energy PLC, a British company with an 8 percent stake in a huge Mozambique offshore gas field, before being outbid by a Thai energy firm.

Kerogen, which takes its name from a compound found in shale formations, is run by two former JPMorgan Chase & Co. energy bankers. Its executive chairman, Ivor Orchard, spent five years as head of Asia Pacific energy and natural resources at the Wall Street firm. Managing partner Jason Cheng came from Jade International Capital Partners Ltd., which focused on investments in mainland China, and, before that, was a vice president at J.P. Morgan Australia.

Kerogen representatives did not immediately respond to requests for comment Wednesday.

Counsel information was not immediately available.

--Editing by Lindsay Naylor.