Monday, May 9, 2011

Asians Still Betting on Shale Gas

In another example of Asian investors putting their money behind North American shale gas, Singapore sovereign wealth fund Temasek Holdings Limited and Asian investment firm RRJ Capital joined Chesapeake Energy in a leveraged buyout of Frac Tech Holdings.  A few months ago, Chesapeake, a minority owner of hydraulic fracturing service provider Frac Tech, announced that it would "monetize" its investment through a sale or IPO of the company.  The planned IPO was shelved Friday and the LBO was announced today.

As a result of the transaction, Chesapeake received a $200 million payment and will now own 30% (up from 26%) of the company.  Huh?  Chesapeake's book value investment is $150 million, but the company believes it will have a market value of $1.5 billion by year end.  Enron accounting?  Unlikely.  Sweet deal for Chesapeake?  Absolutely.

The message here is that Asian investors understand the importance of shale gas and are willing to pay up for it.  And Chesapeake is happy to go along for the ride.

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