LPs endorse Kerogen’s Asia energy strategy

Kerogen, which has a technical services agreement with CNOOC, targets oil and gas assets globally with one eye on potential exits to Asian national oil companies (NOCs). It is a strategy that hinges on the region's demand for natural resources. Led by NOCs from China, Korea and Thailand, outbound oil and gas acquisitions in Asia Pacific reached $46.1 billion in 2011, up from just $12.5 billion five years ago, according to Thomson Reuters.

"Everyone understands the impact of Asia on the energy sector, but the question is how to develop an investment strategy that can benefit from it?" asks Jason Cheng, co-founder and managing partner at Kerogen. "We have relationships with Asian NOCs and look for ways to develop mutually beneficial opportunities based on their strategic imperatives."

The PE firm, which was set up by former executives from J.P. Morgan's Asia energy and natural resources team who subsequently co-founded Indonesia's Ancora Capital, spent 18 months marketing the fund, having originally targeted $1-1.5 billion. While fundraising took longer than anticipated, Kerogen continued to build its pipeline and invest capital so as to provide greater transparency to investors.

There are likely to be 8-10 deals, with Kerogen putting in $100-200 million into each investment, plus co-investment by LPs. The idea is to avoid early-stage assets and focus on companies that have already built their portfolio and need capital to move up the development curve. The first two investments are drilling company AJ Lucas, which has exposure to European shale gas, and sub-Saharan Africa oil specialist NewAge.

Cheng stresses the nature of Kerogen's platform - one portfolio company may end up with several projects across several countries - means the PE firm can provide diversification within a series of independent strategies. It has target allocations for areas ranging from unconventional energy to sub-Saharan Africa and these may be channeled into one or multiple companies.

Kerogen's LP base includes North American institutions, family offices, fund-of-funds, an affiliate of a Middle East sovereign fund, and investors in Asia. A number of participants are likely to be stepping outside of their comfort zone. While many North American LPs have oil and gas exposure via portfolio GPs, the assets tend to be in the US, not overseas.

"We appeal to these investors because they have experience in oil and gas but they want more international exposure rather than just North America," says Cheng.

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• Topics
• Fundraising
• Kerogen Capital
• energy
• China
• Asia
• Fundraising