CRC to Merge with Aera, Boost Carbon Capture Operations

California Resources Corporation (CRC) is merging with Aera Energy, LLC in an all-stock transaction valued at $2.1 billion, inclusive of Aera’s net debt and certain other obligations.

At closing, Aera's owners will receive 21.2 million shares of CRC’s common stock, equal to approximately 22.9 percent of CRC’s fully diluted shares, the two companies said in a joint news release. The combined company will own interests in five of the largest oil fields in California with opportunities to increase oil recovery.

Under the terms of the merger agreement, CRC will also refinance Aera’s outstanding debt. CRC has secured a firm commitment for a $500 million bridge loan facility to facilitate the closing of the transaction. The transaction is subject to customary closing conditions, regulatory approvals and CRC shareholder approval. The transaction, which has an effective date of January 1, is expected to close in the second half of 2024.

The transaction adds large, conventional, low decline, oil weighted, proved developed producing reserves and sustainable cash flow. Aera had average third-quarter 2023 production of approximately 76,000 barrels of oil equivalent per day (boepd) consisting of 95 percent oil and estimated proved reserves of approximately 262 million barrels of oil equivalent (MMboe) at year-end 2022.

On a pro forma 2024 basis, CRC will have estimated production of approximately 150,000 boepd consisting of 76 percent oil and proved reserves of approximately 680 MMboe.

The merger will expand CRC’s leading carbon management business through the addition of surface acreage and rights, and significant new carbon dioxide (CO2) pore space to enable future carbon capture and sequestration (CCS) development, according to the release.

CRC will receive interests in approximately 220,000 net mineral acres with nearly 80 percent 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 a pending Environmental Protection Agency (EPA) Class VI permit application for 27 million metric tons of storage capacity in the Belridge Field. The company expects to submit an additional Class VI permit for approximately 27 million metric tons of storage at the Coles Levee Field. It will have the potential to nearly double its injection rate capacity, creating a premier “decarbonization hub” for CO2 storage, the company noted.

Further, the combination of the Carbon TerraVault platform and Aera’s Low Carbon Solutions will enable the further expansion of a variety of energy transition technologies in development, including Direct Air Capture (DAC), geothermal, solar, and water treatment, and enable additional clean tech partnership opportunities, according to the release.

“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”, CRC President and CEO Francisco Leon said. “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”.

“We are highly confident in our ability to drive sustainable savings that will enhance shareholder returns and deliver meaningful long-term value for our stakeholders. On behalf of CRC, we look forward to working with our new colleagues at Aera. Together, this combination will create an unquestioned leader in energy transition, producing low carbon intensity fuels that California needs while accelerating the decarbonization of the state’s industrial and energy industries”, Leon added.

“Aera and CRC are two great companies with decades of experience and track records that will serve as a foundation for a strong combination”, Aera President and CEO Erik Bartsch said. “We are committed to continuing to deliver the energy Californians need today and working to deploy carbon capture at scale”.

Aera is owned by entities managed by international asset management group IKAV which holds a 51 percent stake, and Canada Pension Plan Investment Board (CPP Investments), which holds the remaining 49% percent. Post closing, IKAV-managed entities and CPP Investments will collectively hold 22.9 percent of CRC’s common stock, according to the release.

“This transaction provides CPP Investments with an excellent opportunity to scale up our investment in California's energy transition, with Aera and CRC both aligned in their commitment to enabling new carbon management solutions and each bringing complementary strengths to the table”, Bill Rogers, Managing Director and Global Head of Sustainable Energies for CPP Investments, said. “The combined company is set to play a leading role in California’s energy transition, which we view as a promising source of long-term risk-adjusted returns for the CPP Fund”.