Not only did KKR & Co.’s $7.2-billion acquisition of Tulsa, Oklahoma-based producer Samson Investment Co. represent the largest leveraged buyout in 2011, it also topped the charts as the single largest private-equity-backed purchase of an E&P company ever. And to get the powder to pull the trigger on such a big deal, even the vaunted Kohlberg Kravis Roberts & Co. had to call a few friends for a few bucks.

“That’s a lot of equity even for large private-equity groups,” says Claire Scobee Farley, now a KKR managing director of energy investments and whose hands were all over the deal.

Claire Scobee Farley, now a KKR managing director of energy investments, notes Samson’s “huge inventory of oil and liquids-rich assets, and deep portfolio of great, low-risk development.”

About $4 billion in equity, to put a best-estimate number on it. To get the deal done, KKR put together a syndicate of private-equity players including Asian trading firm Itochu, Dallas-based energy investor Natural Gas Partners, and New York equity house Crestview Partners, run by former Goldman Sachs investment bankers. While quiet on the specifics, KKR acknowledged it is the largest stakeholder with less than 50% interest, while Itochu holds the next largest piece at 25%.

An additional $4.5 billion in committed financing, including lines of credit beyond the enterprise value, was raised from 10 banks led by JP Morgan Chase & Co.

In an interview with Bloomberg, Marc Lipschultz, a member of KKR and global head of KKR’s energy and infrastructure business, said, “To ultimately bring together this partnership we needed a lot of people. We needed technical people, capital markets people and we needed to reach around the globe to build the partnership. Altogether, we’re able to bring the resources to bear to work with Samson to bring this transaction together.”

Industry insiders suggest a $7-billion price tag is too big a bite for any private-equity fund to go alone, including KKR, one of the biggest private-equity shops around. But the syndicated structure marrying financial partners may be a sign of mega deals to come. “They are going to look long and hard at it for the right assets,” says one source. “It just makes sense.”

The right assets for giant private-equity investments will likely require a hefty base of proved producing reserves mixed with mountains of unconventional upside, as in this case. The unconventional-resource prize is too large for private-equity players to ignore.

Eyes on the prize

Samson certainly captured KKR’s attention. Founded in 1971 by Charles Schusterman, the company is the largest private E&P in the U.S. Sensing opportunity in early spring 2011, Sam-son chief executive Stacy Schusterman, daughter of the since-deceased founder, hired Houston-based asset-advisory firm Jefferies & Co. to float the company in a limited auction.

keeping the Samson team together, in Tulsa, was a key motivator for Samson chief executive Stacey Schusterman in choosing a buyer.

KKR co-founder Henry Kravis, a Tulsa native from an oil and gas family, had ties to the Schusterman family. Likewise, Farley, who spent 18 years with Texaco and was chief executive officer of Randall & Dewey, the asset marketing firm bought by Jefferies & Co., had developed a relationship with Schusterman over the 10 years she was at the helm of Sam-son. KKR was on the call list.

“We got excited when we learned the Schusterman family was thinking of a sale,” says Far-ley. “We were eager to engage.” Still, the company was closely held with an unknown asset base.

In August 2011, Farley, Kravis and Lipschultz journeyed to Tulsa. There, they met with Schusterman to tell her how keenly interested they were in the company. Schusterman in turn provided a high-level look at the assets, “and we were extremely impressed. We have been working hard ever since to own the company,” Farley says.

Samson owns interests in approximately 10,000 wells and operates some 4,000 of those across 18 states. It has some 3 million acres, all in the U.S. The biggest holdings: the Bakken, Powder River, Green River Basin, Granite Wash and Haynesville/Cotton Valley plays. “Those drove our valuation. Everything else is a rounding error,” says Farley.

Samson books some 2 trillion cubic feet equivalent of proved developed producing (PDP) reserves, and produces 650 million cubic feet equivalent per day, about 80% gas. Additionally, “Samson has a huge inventory of oil and liquids-rich assets,” Farley says, “and a deep portfolio of great, low-risk development.” Thousands, in fact. The majority of Samson rigs are focused in unconventional reservoirs.

KKR was not without competition. Korea National Oil Co. (Knoc) was one rumored suitor, and sources place Apache Corp. in the hunt for Samson as well. However, Apache, like other public E&Ps, suffered a dive in stock valuation during the volatile September stock markets and when the deal was going down, and balked at raising additional equity.

“It was a fortunate confluence of events for us,” says Farley. “KKR takes a long view. We were convinced of the quality of the assets, the team and the business plan. We were able to stay firm in our conviction while it was difficult for some others.”

KKR, however, excluded Samson’s assets in the deepwater Gulf of Mexico and along the Gulf Coast.

“They have a nice discovery in the deep water and we think they’ve unlocked an interesting play in the Gulf Coast. But those are exploration oriented, and the wells are expensive. Those are a different asset class than the large inventory of unconventional resources with low-risk drilling opportunities.”

KKR cofounder Henry Kravis, a Tulsa native from an oil and gas famly, had ties to the Schusterman family that owned Samson.

When Schusterman discovered buyers weren’t willing to push as hard on valuation for the deepwater and Gulf Coast assets to reach her perceived value, she instead carved those out from the package with the intent of going forward as a stand-alone company. One industry source valued those at some $2 billion.

The 40-year-old Samson employs 1,200 people, most in Tulsa. Keeping the team together and at home was also a key motivator for Schusterman in choosing a buyer. Schusterman, in a public statement, said the company specifically sought a partner that would value both the company’s assets and people. “This group demonstrated its commitment to both.”

“That was a perfect fit with our approach,” Farley acknowledges. KKR’s buyer group will indeed keep company headquarters in Tulsa. Current Samson chief operating officer David Adams will become chief executive, and the company will be renamed Samson Resources.

Going deep and long

Lipschultz said the Samson investment is a bet on energy’s transition into shales and unconventional resources. Recognizing the vast sums of money needed to develop shale plays, KKR first backed East Resources in the Marcellus shale with $330 million and a 30% interest, followed by a partnership with Hilcorp Energy Co. in the Eagle Ford shale with a $400-million investment for a 40% interest. It has subsequently exited both for $4.7 billion and $3.5 billion, respectively, about a year into each.

Samson is far and away KKR’s biggest upfront investment, likely falling in a range between $1- and $1.3 billion. Like its recent big exits with East and Hilcorp, might KKR look to flip Samson for fast cash as well? It’s different this time, says Farley, because this investment involves mature assets, as opposed to a majority of undeveloped upside in the previous two investments.

“We’re content to own this company for a very long time. KKR understands that when you have a large portfolio of high-quality assets, you’ll do very well with them if you take a long view and not try to grow them for growth’s sake, but to focus on high returns and expanding the margins.”

The East and Hilcorp deals were largely non-PDP, whereas about half of Samson’s value is in proved producing reserves. KKR’s model is to hold for five to seven years. When ripe, likely exits will be a sale to a major oil company, or to IPO.

Jefferies, notably, represented both East and Hilcorp, and now, Samson.

KKR recently hired Farley and another Jefferies’ veteran, David Rockecharlie, as managing directors of oil and gas investments. Farley and Rockecharlie together had formed RPM Energy LLC, a team of geoscientists and engineers, to match energy investors with investments. RPM has backing from KKR.

The addition of Rockecharlie and Farley gives KKR an edge over other private-equity funds, says one observer. “They are from E&P and can show them how to think about it.” While the Samson deal was big, “they understood it. A lot of private-equity firms don’t have that.”

KKR will hold five of 10 seats on Samson’s board, including Farley and Rockecharlie.

KKR did not disclose Samson capex, although media reports put the figure near $1 billion. Farley did confirm the bulk of future spend will be on liquids-rich targets—the Bakken with 400,000 acres, Powder River, Green River and Granite Wash plays. Cash flow from natural gas production will be plowed back into liquids-rich developments.

About half of Samson’s acreage is held by production, and the company’s large Haynesville shale/Cotton Valley position will receive capex to hold that acreage. “The gas asset base is a wonderful option,” she says. “We are convinced gas margins will eventually improve.”

Barclays Capital Inc., led by Greg Pipkin and Brad Hutchinson, and including Bank of America Merrill Lynch, BMO Capital Markets, Citigroup Global Capital Markets Inc., Credit Suisse, RBC Capital Markets, Tudor, Pickering, Holt & Co. LLC and Wells Fargo Securities LLC, were financial advisors to KKR, NGP and Crestview. Mizuho and Evercore Partners, led by Shaun Finnie, were financial advisors to Itochu Corp. Ajay Khurana and Ralph Eads with Jefferies & Co. Inc. were financial advisors to Samson. Simpson Thacher & Bartlett LLP was legal counsel to the investor group. Dallas-based Jones Day was legal counsel to Samson.