"Smart Money" Still Investing in Gas

News came yesterday of a new joint venture between KKR and El Paso in a new natural gas midstream joint venture.  The deal makes a lot of sense for each group, especially KKR, which has a lot of cash to invest as equity.  KKR has already made a number of investments in the natural gas "space" and recently formed an energy-focused investment joint venture with RPM Energy (although in the El Paso deal, KKR seems to be acting alone).

While this deal is not Haynesville-related, it is an indication that gas is not dead.  Smart people with a long-term perspective are still spending, case in point:

• EnCana has filed paperwork to buy back about 5% of the company's common stock, an indication that management believes the stock is undervalued.
• EXCO Resources' CEO Douglas Miller has made an offer to buy the company through a management buyout.  He believes the firm is badly undervalued and is prepared to make additional investments in the company while commodity prices are depressed.

Some deals will be aimed at consolidation, a natural activity in a cyclical industry like energy because as heft aids survival in bad times (see: AGL Resources acquisition of Nicor in the natgas distribution industry).  But I'm talking about growth investments, especially with outside financial sponsors.  While we may not see as many blockbuster shale deals from multi-national firms looking to get into North American shale, I think we will continue to see a range of transactions from buyouts to farm-outs to joint ventures as natural gas assets remain undervalued relative to their potential future value.