California Resources said on Wednesday it would buy Aera Energy, in a deal valuing the company at $2.1 billion including debt, as the U.S. oil and gas firm looks to more than double its production.
The combined entity will own interests in five of the largest oil fields in California and its 2024 production is estimated to average 150,000 barrels of oil equivalent per day, California Resources said.
The deal also unlocks significant carbon capture and storage (CCS) potential, the company said, as it plans to add around 54 million metric tons of CCS pore space in the San Joaquin basin following the deal’s close.
“It enhances scale across both the upstream and carbon management businesses, with the potential for material synergies,” said Mark Viviano, managing partner and lead portfolio manager at Kimmeridge.
“CRC is uniquely positioned to capitalize on an energy transition that will require net zero oil production,” he added.
Aera is currently owned by German asset manager IKAV and Canada Pension Plan Investment Board. It was started as a joint venture of oil majors Exxon Mobil and Shell and was sold to IKAV for $4 billion in 2022.
California Resources is paying a very reasonable price for the assets, brokerage Roth MKM’s analysts said.
The Long Beach, California-based company said it would issue 21.2 million common shares to the equity owners of Aera.
The company said the deal, expected to close in the second half of 2024, would immediately add to some financial metrics this year and reflect a 45% improvement in its operating cash flow per share. California Resources’ board also authorized a 23% increase in share buyback to $1.35 billion. Shares of the company were up about 12% in afternoon trade.
Oil production in California has been on a steady decline for nearly four decades. New drilling permits have steadily declined since Gavin Newsom became governor in 2019.
The value of the deal does not contemplate incremental permits, a California Resources executive said in an analyst call.