KKR to Exit Investment in Eagle Ford Shale in Connection with Sale of Hilcorp Resources to Marathon Oil

Investment Fueled Regional Development & Major Drilling Campaign

HOUSTON--()--Kohlberg Kravis Roberts & Co. L.P. (together with its affiliates, “KKR”) today announced the exit of its investment in Hilcorp Resources Holdings LP (“Hilcorp Resources”), with the signing of a definitive agreement to sell the principal subsidiary of Hilcorp Resources for a total transaction valuation of $3.5 billion to Marathon Oil Corporation (NYSE: MRO). The sale includes all of the oil and gas interests and operations of Hilcorp Resources. In connection with the sale to Marathon, KKR’s stake in the enterprise will be valued at approximately $1.13 billion and Hilcorp will receive the remaining proceeds associated with the transaction. The sale to Marathon is subject to customary terms and conditions for transactions of this type.

Last June, KKR and affiliates of Hilcorp Energy Company (“Hilcorp”) formed a partnership to acquire, own and develop oil and gas assets within the Eagle Ford shale in South Central Texas. At the outset, KKR made a $400 million initial capital commitment to the partnership to accelerate drilling and development activity across Hilcorp Resources’ acreage position and in return received a 40% minority ownership interest in the company, subject to certain performance adjustments.

Since the formation of the partnership, Hilcorp Resources has made tremendous progress in developing its position in the Eagle Ford shale. Hilcorp Resources has become one of the top drillers in the basin, progressing from two horizontal rigs at the time of KKR’s investment to six horizontal rigs today and drilling over 40 horizontal Eagle Ford wells during the same period. Hilcorp Resources also substantially increased its regional operating footprint in connection with KKR’s investment, increasing its regional acreage position from just over 100,000 net acres at the time of formation of the partnership to 140,000 net acres today and, in doing so, increasing regional employment from 75 to 600. Today, the assets of Hilcorp Resources represent the last large independent position in the core of the Eagle Ford Shale.

“At the outset, the Hilcorp Resources partnership was designed to capitalize on Hilcorp’s expertise and fuel regional development. We are pleased to have been a part of such a successful drilling campaign that has increased employment, de-risked part of the Eagle Ford Shale and contributed to the development of an important source of energy supplies to serve the region. Equally important, we are pleased to have enjoyed such a successful partnership with the Hilcorp team,” John Bookout, Managing Director of KKR, said.

“KKR has been a valuable partner to us in building this business and helping create real value every step of the way, said Jason Rebrook, Executive Vice President of Hilcorp Energy. “We look forward to the opportunity to work with KKR again in the future.”

“While this exit is earlier than we anticipated, it has been remarkably rewarding to be a part of the development of this part of the Eagle Ford Shale. Hilcorp is a world class oil and gas company and has been an exceptional partner,” Marc Lipschultz, a Member of KKR and Global Head of Energy and Infrastructure, said.

KKR has been investing in the energy sector for more than twenty years, starting with the Union Texas Petroleum transaction in 1985. The firm’s energy business spans the globe and covers the full energy supply chain. KKR has been a leader in investing in and partnering with operators to develop unconventional oil and gas assets; recent transactions include the investment in Hilcorp Resources, East Resources, and the formation of a partnership with RPM Energy. In the last year, the firm also purchased certain Barnett shale assets from ConocoPhillips and Carrizo Oil & Gas, acquired Chevron’s stake in Colonial Pipeline, and formed a midstream joint venture with El Paso Corporation. A full list of KKR’s investments can be found on KKR.com.

The sale is expected to close in the fourth quarter of 2011. Jefferies & Company, Inc. served as sole financial advisor and Andrews Kurth LLP served as legal advisor to Hilcorp Resources in connection with the sale. Simpson Thacher & Bartlett LLP served as legal advisor to KKR in connection with the transaction.

About the Eagle Ford Shale

The Eagle Ford shale is an unconventional oil and gas development basin located in an approximately two hundred mile long area in South Central Texas, southeast of San Antonio. The Eagle Ford represents a promising energy development in North America. Comprised of a layer of rock found at depths of 7,000 feet to 14,000 feet, with a thickness of approximately 250 feet, the Eagle Ford is richly deposited with hydrocarbons and is estimated to contain over 80 billion barrels equivalent (BBoe) of original oil in place. One of the newer shale plays in the country and most active, the Eagle Ford has become an increasingly attractive area of interest for oil and gas companies given that it benefits from a favorable (oil-weighted) commodity profile and is located proximate to existing oil and gas infrastructure and liquids product markets.

About KKR

Founded in 1976 and led by Henry Kravis and George Roberts, KKR is a leading global investment firm with $61.0 billion in assets under management as of March 31, 2011. With 14 offices around the world, KKR manages assets through a variety of investment funds and accounts covering multiple asset classes. KKR seeks to create value by bringing operational expertise to its portfolio companies and through active oversight and monitoring of its investments. KKR complements its investment expertise and strengthens interactions with investors through its client relationships and capital markets platforms. KKR is publicly traded on the New York Stock Exchange (NYSE: KKR). For additional information, please visit KKR's website at www.kkr.com.

About Hilcorp

Hilcorp, founded in 1989, is one of the largest privately-held independent oil and natural gas exploration and production companies in the United States. Headquartered in Houston, TX, Hilcorp has approximately 700 employees and 9 operating areas including the Gulf Coast region, the Gulf of Mexico, and the Rockies. Operating across the United States, Hilcorp continues to grow by actively acquiring and exploiting conventional assets while expanding its footprint into a number of new resource plays. Hilcorp has been recognized for its progressive culture, values and ethics, and in 2010, was ranked the number one Top Midsize Workplace by the Houston Chronicle and ranked the 5th Best Medium-sized Workplace in America by the Great Places to Work Institute. For more information about Hilcorp, go to www.hilcorp.com.

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Contacts

KKR Media Contact:
Kristi Huller, + 1 (212) 750-8300
Kristi.Huller@kkr.com

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Release Summary

KKR Exiting Hilcorp Investment

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Contacts

KKR Media Contact:
Kristi Huller, + 1 (212) 750-8300
Kristi.Huller@kkr.com