Feb. 24 (Bloomberg) -- Apollo Global Management LLC is leading a group that is near a deal to acquire El Paso Corp.’s oil-exploration business for about $7 billion, according to person with knowledge of the situation.
An agreement may be announced as soon as today, said the person, who declined to be named because the talks are private. The negotiations are fluid and may still fall apart, this person said. Apollo is working with Riverstone Holdings LLC and at least one other partner and is arranging between $4.5 billion and $5 billion in financing, the person said.
The transaction under discussion would be on par with KKR & Co.’s $7.2 billion takeover of Samson Investment Co. last year in the largest corporate leveraged buyout since 2007. Kinder Morgan Inc. agreed to buy El Paso for $21.1 billion in October and planned to sell the oil and natural gas exploration and production unit to help finance the takeover.
Larry Pierce, a spokesman for Houston-based Kinder Morgan, declined to comment, saying the company doesn’t discuss any potential mergers, sales or acquisitions. Charles Zehren, a spokesman for Apollo, and Jeffrey Taufield, a spokesman for Riverstone, declined to comment.
The Wall Street Journal reported the talks yesterday.
Apollo agreed in December to sell Parallel Petroleum Corp., an oil and gas producer based in Midland, Texas, to a group of South Korean companies for $771.5 million. The buyout firm acquired Parallel in 2009 for $483 million.
“It’s perfectly reasonable for them to be looking for another energy investment” after selling Parallel, said Dan Morrison, an analyst at Global Hunter Securities LLC in Fort Worth, Texas, said by telephone.
U.S. oil and gas transactions involving private-equity firms more than doubled in value last year to about $14 billion, according to data compiled by Bloomberg. The takeover of Samson Investment, completed in December, was also the biggest leveraged buyout of an oil and gas producer.
Crude prices are up about 12 percent in the past year and traded at $108.56 barrel in electronic trading on the New York Mercantile Exchange at 12:03 p.m. Singapore time. Natural-gas prices have dropped 81 percent from their 2008 high, as new drilling techniques have unlocked vast reserves from formations of shale rock.
El Paso gets 96 percent of its production from its U.S. oil and gas fields, including large positions in the Haynesville Shale in Texas and Louisiana and in the Rocky Mountains. The company also has acreage in Brazil and Egypt.
The company was a “damaged brand” in 2003, El Paso Chief Executive Officer Douglas Foshee said during an analyst meeting in May last year, citing company scandals related to alleged market manipulation in its energy trading business and restated earnings to correct inflated numbers for its oil and gas reserves. The explorer sold assets to pay down debt and began shifting its focus from energy trading to its pipeline and production businesses, including acquiring acreage in unconventional shale fields, Foshee said.
El Paso announced May 24 it would spin off the exploration and production unit to its shareholders to concentrate the company on the pipeline business and lower its capital spending requirements. Five months later, after agreeing to buy El Paso, Kinder Morgan executives said they would sell the exploration unit rather than continue with the spinoff.
--With assistance from Mark Chediak and Elizabeth Wollman in San Francisco, Mike Lee in Dallas and Zachary R. Mider and Devin Banerjee in New York. Editors: Amit Prakash, Ryan Woo
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