California Resources Corp. (CRC) and Aera Energy LLC have agreed to combine in an all-stock transaction that values Aera at about $2.1 billion, inclusive of Aera’s net debt and certain other obligations.
In a release Feb. 7, CRC said the complimentary assets will scale the exploration and production business and expand the carbon management platform.
“This strategic transaction will create scale in our operations, generate significant free cash flow, accelerate cash returns to shareholders and expand our energy transition platform,” said Francisco Leon, CRC’s president and chief executive officer. “We remain committed to reducing emissions and this combination will advance our goal to permanently sequester 5 million metric tons per year of CO2 in our underground storage vaults.
Aera had average third-quarter 2023 production of about 76,000 boe/d (95% oil) and estimated proved reserves of about 262 MMboe at year-end 2022.
On a pro forma 2024 (estimated) basis, CRC expects production of 145,000-150,000 boe/d (76% oil) with proved reserves of about 680 MMboe (90% proved developed). The combined company will own interests in five of the largest oil fields in California with opportunities to increase oil recovery, the companies said.
CRC plans to run a one rig program in this year’s first half and will focus on workover and maintenance activity. Assuming resumption of a normalized level of new well permit approvals in second-half 2024, CRC plans to run 4-5 operated rigs on a combined basis at that time. As CRC waits for the Kern County Environmental Impact Report litigation ruling expected in second-quarter 2024, management continues to seek previously started Conditional Use Permits for its core fields.
Identified synergies are expected to total $150 million annually and be realized within 15 months of closing.
Energy transition platform
Combination of the companies is expected to expand CRC’s carbon management business through the addition of surface acreage and rights, and new CO2 pore space to enable future carbon capture and sequestration (CCS) development. Through the deal, CRC will receive interests in about 220,000 net mineral acres with nearly 80% of the acreage within field boundaries held in mineral fee and 100,000 fee surface acres. Pro forma, CRC will have more than 1.9 million net mineral acres. CRC will also obtain 1 pending Environmental Protection Agency (EPA) Class VI permit application for 27 million tonnes of storage capacity in Belridge field. CRC also expects to submit an additional Class VI permit for about 27 million tonnes of storage at Coles Levee field. Finally, CRC sees potential to nearly double its injection rate capacity near CTV I, creating a decarbonization hub for CO2 storage.
Additional energy transition initiatives include the combination of Carbon TerraVault platform and Aera’s Low Carbon Solutions that is expected to expand technology development in Direct Air Capture (DAC), geothermal, solar, and water treatment.
Closing
At closing, expected in second-half 2024 subject to customary closing conditions, regulatory approvals, and CRC shareholder approval, Aera's owners will receive 21.2 million shares of CRC’s common stock, equal to about 22.9% of CRC’s fully diluted shares.
Aera is owned by entities managed by IKAV (51%), an international asset management group, and Canada Pension Plan Investment Board (CPP Investments) (49%) (OGJ Online, Sept. 1, 2022). Post closing, IKAV-managed entities and CPP Investments will collectively hold 22.9% of CRC’s common stock.
The CRC management team will run the combined company which will be headquartered in Long Beach, Calif., and at closing IKAV and CPP Investments will each nominate one representative to the CRC board.
At current valuations, the pro forma business would have an enterprise value of about $5.6 billion, with CRC shareholders owning about 77.1% of the combined company.
