KKR-backed energy group mounts raid on UK fracking firm's assets

An oil and gas group backed by the powerful Wall Street investor Kohlberg Kravis Roberts (KKR) is mounting an aggressive raid on assets owned by one of Britain's leading fracking companies.

Sky News has learnt that Trans European Oil & Gas (TEOG) is pressing IGas Energy (LSE: IGAS.L - news) to divest its conventional resources arm, which comprises producing assets in the east Midlands and the Weald Basin in the south of England.

IGas, which trades under names including Dart Energy and Star Energy (Stuttgart: 2393147.SG - news) , also ‎holds a number of licences to explore through fracking in Lancashire and the Midlands.

TEOG's effort to force IGas to put its conventional assets up for sale has been made possible by amassing a previously undisclosed but substantial voting position in IGas's secured bonds.

One insider close to the bondholders said TEOG was pursuing a 'loan-to-own' strategy, where an investor buys into a company's debt in order to secure control of the company or its assets through a restructuring of its balance sheet.

‎TEOG has hired Evercore, an investment bank, to help it in its attempts to buy the IGas assets, according to sources close to the bondholders.

‎In a statement to the London Stock Exchange (Other OTC: LDNXF - news) last week, IGas said its board "believes that there are divergent views among those bondholders".

"These include the preference for a capital restructuring of the group or a divestment of its conventional assets.

"The board will continue discussions with its key bondholders aimed at aligning those views.

"At the same time, the board is also continuing to pursue discussions with a number of strategic investors."

TEOG's management team is no stranger to IGas's business: Melvyn Horgan, its chief technical officer, was an executive at Star Energy when it was acquired by IGas in 2012.

KKR‎'s investment in TEOG last year was aimed at giving the company the financial muscle to build a portfolio of onshore oil and gas assets in Europe.

People close to TEOG said it was convinced it could win control of the IGas assets that it was targeting.

IGas's board is said to believe, however, that the co-ownership of its two divisions continues to be in the interests of all shareholders.

Although‎ IGas's share price has fallen by more than a third over the last year, reflecting the declining oil price, analysts believe there is significant potential upside from a sustained revival in the value of the commodity.

One investor in IGas also pointed to the recent decision by Sajid Javid, the Communities Secretary, to give the go-ahead to a fracking scheme in Lancashire despite objections by the local council, as evidence for a potential improvement in the company's value.

IGas, TEOG and KKR all declined to comment.