Kerogen backs sub-Saharan energy player

Kerogen's capital will be used to finance the appraisal and development of offshore resources in Congo as well as an exploration program in Kurdistan. It also has the right to co-invest alongside NewAge as an equal partner on future projects in Sub-Saharan Africa and Iraq.

Jason Cheng, co-founder and managing partner at Kerogen, tells AVCJ that the deal is a good fit for the private equity firm's investment criteria. First, the assets have significant potential and its core project is a drilled discovery, which means the risks are considerably lower than pure exploration or venture capital. Second, as these assets progress up the development curve, they are likely to appeal to strategic investors out of Asia that are increasingly focused on Africa.

Crucially, NewAge's management is highly experienced, particularly in Africa. "Steve Lowden, the CEO, is the former president of Marathon International" Cheng says. "There is a highly regarded six-person management and technical team that have worked together before and between them spent over 50 years in the region."

Kerogen, which counts China National Offshore Oil Corp. (CNOOC) as a strategic partner, is on course to close its debut fund in the first quarter of this year with a target of around $1.5 billion. NewAge represents its second investment, following an $125 million commitment to Australian drilling company AJ Lucas Group in September 2011. A third investment is likely to follow before the end of March, taking total investment to around $450 million, close to one third of the fund corpus.

Primarily drawn from J.P. Morgan's Asia energy team, Kerogen's model differs from the typical VC-centric energy investment model found in the US because it backs small companies that have already discovered assets. For example, it entered NewAge in the second round of funding, with Och Ziff among others having backed the company in its nascent stages.

Natural resources investments in emerging markets inevitably carry political risk, but in Kerogen's view it is manageable. Cheng notes that Congo's energy sector is of critical importance to the government and economy, and has seen substantial investment from companies including Total and ENI. And while Kurdistan has had a difficult relationship with Baghdad in respect of its fiscal framework, the region is now deemed investible by the likes of Exxon Mobil and Marathon.

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