Private equity giant KKR and Pembina Pipeline have agreed to merge their western Canadian natural gas processing assets in a C$11.4 billion ($8.9 billion) deal that will create a natural gas processing heavyweight and aims to take advantage of rising prices for the commodity.

The transaction is an example of KKR's interest in continuing its exposure to oil and gas markets even though the company no longer uses its private equity funds to make investments in oil and gas exploration. In recent years, the firm has been making energy investments primarily through funds managed by its infrastructure and energy teams, according to PitchBook data.

"We have not done a North American PE transaction in energy since 2018," a spokesperson said in an email to PitchBook.

The firm has done other types of energy deals. For instance, in 2019 KKR formed an investment partnership with Spur Energy Partners to acquire "large, high-margin oil and gas production and development assets" in the lower 48 states. Funds managed by KKR's energy real assets team backed the partnership.

Amid increased financing costs for oil and gas projects, price volatility, and the growing appetite for climate-friendly investments, a growing number of asset managers have said they intend to reduce deal making in conventional oil and gas assets, in particular the upstream segment that comprises exploration and production.

Blackstone recently told its clients its private equity arm will no longer back upstream investments, Bloomberg reported. However the firm isn't planning to exit the midstream sector, which is the business of transporting, storing and processing gas and fuel, according to the report.

As some alternative asset managers consider cutting their exposure to parts of the industry, new opportunities are opening for private capital funds still willing to invest in traditional oil and gas, as they can acquire assets at attractive valuations, according to Rebecca Springer, a senior private equity analyst at PitchBook.

The deal last year in which KKR merged its portfolio company Independence Energy with Contango Oil & Gas in a $5.7 billion transaction was an example of KKR's willingness to capitalize on opportunities arising in the field, she added.

Crescent Energy, formed during the merger, last month said it would buy Verdun Oil Co.'s oil and gas producing assets.

This article has been updated to add details, include a comment from KKR and clarify elements of its energy investment strategy.

Here's a look at the 10 largest PE deals involving oil and gas companies last year:

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