Apollo and El Paso reached a $7.15 billion agreement for El Paso's E&P segment. The deal is subject to the closing of the El Paso-Kinder Morgan pipeline merger.

El Paso's exploration and production segment has been on the sales block since the Kinder Morgan deal was announced, but the question remained whether the assets would be sold in pieces or all together.

While Apollo has been rumored to be considering the deal, it comes as a bit of a surprise that the private equity group acquire El Paso E&P. Most industry experts thought El Paso would be a great fit for an international company looking to expand its footprint in the U.S. (e.g. Statoil-Brigham). Low natural gas prices that are limiting many companies' upstream budgets might have opened a window for the Apollo group to step in.

Apollo Global Management is leading a group that includes Riverstone Holdings, Access Industries, as well as others in buying the E&P unit. The deal will have almost no tax consequences for Kinder Morgan and the company will use the proceeds to pay down debt taken on to finance the purchase El Paso Corp.

El Paso's assets are attractive even at low natural gas prices because the company has significant oil/liquids producing acreage positions in the Uinta Basin in Utah, the Niobrara in the Rockies, the Wolfcamp in West Texas, and the Eagle Ford Shale of La Salle and Dimmit counties.

Apollo will likely increase the pace of development in the oil & gas areas of the company's portfolio. Private equity firms do not practice a long-term buy and hold strategy. El Paso will be held for a period and later re-offered to the market. Typically, private equity firms hold investments for a 3-7 year period and target a return of 2-3 times their investment.