In a merger deal announced last week, California Resources Corp. – already the state’s largest gas producer – stands to also become its largest native oil producer.
The Long Beach-based company last week said it would merge with Bakersfield-based petroleum and gas producer Aera Energy LLC. The all-stock transaction, which is subject to regulatory approval, is valued at $2.1 billion, and while Aera’s added production will propel CRC atop the state’s producers, it also adds significant carbon-removal capabilities to the operation.
“This transaction enhances our conventional energy business and provides cash flow to help expand our carbon management business and decarbonize California,” Chief Executive Francisco Leon said in a conference call addressing the merger last week. “The transaction truly benefits all of our stakeholders. This combination demonstrates the merits of consolidation and reinforces our belief that CRC is a different kind of energy company.”
The deal, which is expected to close in the second quarter, will award 21.2 million shares – nearly 23% of CRC’s shares – to Aera owners IKAV, which is a German asset management group, and the Canada Pension Plan Investment Board. IKAV acquired Aera, then a joint venture between Shell and ExxonMobil, for about $4 billion in 2022 and sold 49% of the company to the pension board, which operates as CPP Investments.
The announcement resonated with stock traders last week; CRC’s share price climbed more than 13% that day.
Aera was most recently producing 76,000 barrels of oil a day, with reserves estimated at the end of 2022 to be 262 million barrels. Assuming the deal goes through, this will essentially double CRC’s output, bringing it to 150,000 barrels per day and putting its reserves at about 680 million barrels.
The merger also stands to expand CRC’s developing carbon-storage operations, with one Aera-initiated permit for 27 million metric tons of storage on track for 2025 approval and another field with nearly the same amount able to be applied for.
“The deal is priced right. The combination creates critical scale in our operations, making us a more durable business. It more than doubles our free-cash flow, allowing us to return more cash to shareholders, and provides more meaningful opportunities to capture synergies,” Leon said. “Our in-state production reduces reliance on more expensive, higher-carbon foreign barrels, and today’s deal helps us build a material decarbonization business that will benefit all stakeholders.”
Pavel Molchanov, an analyst with Florida-based Raymond James & Associates, noted that the merger will make CRC the “overwhelmingly dominant” oil and gas producer in the state, even if it remains modest on the national scale. He said it was the latest in a wave of consolidation within that industry, which is increasingly making carbon capture a priority.
“As it stands, all of CRC’s and Aera’s profitability is coming from traditional oil and gas operations,” Molchanov said. “The roadmap is to diversify into carbon capture and sequestration, though this is more of a 2026-plus story. CRC is one of many oil and gas companies – Exxon is the largest one – that are looking at carbon capture and sequestration as an effective way of improving their climate footprint in the long run.”