California Resources Corporation announces $2.1bn merger with Aera Energy

California Resources Corporation (CRC), a leading independent energy and carbon management company, has announced a definitive merger agreement with Aera Energy, LLC, marking a significant step in the energy sector’s transition towards more sustainable practices. This all-stock transaction, valued at approximately $2.1 billion, including Aera Energy’s net debt and certain obligations, is poised to reshape the landscape of California’s energy industry by creating a combined entity that stands as a leader in producing low carbon intensity fuels and advancing decarbonization efforts across the state’s industrial and energy sectors.

The merger is strategically aligned to enhance shareholder returns, with Aera Energy’s owners receiving 21.2 million shares of California Resources Corporation’s common stock, representing about 22.9% of California Resources Corporation’s fully diluted shares. Priced at roughly 2.6x enterprise value to 2024E Adjusted EBITDAX, the transaction is expected to be immediately accretive to CRC’s key financial metrics, including a 45% improvement in operating cash flow per share and a 90% accretion to free cash flow per share.

The combined operations are expected to add significant scale, featuring large, conventional, low-decline, oil-weighted, proved developed producing reserves and sustainable cash flow. This includes Aera’s average third-quarter 2023 production of approximately 76 thousand barrels of oil equivalent per day (Boe/d) and estimated proved reserves of about 262 million Boe. Pro forma 2024E, CRC’s production is expected to be around 150 thousand Boe/d, with proved reserves of approximately 680 million Boe.

California Resources Corporation to merge with Aera Energy in a landmark $2.1 billion all-stock deal

This merger will notably expand California Resources Corporation’s leading carbon management platform, adding surface acreage and rights, along with significant new CO2 pore space for future carbon capture and sequestration (CCS) development. The combined company will own interests in five of the largest oil fields in California, offering opportunities to enhance oil recovery and nearly double its injection rate capacity, creating a premier decarbonization hub.

Francisco Leon, California Resources Corporation’s President and CEO, expressed enthusiasm about the merger, stating, “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.” Similarly, Erik Bartsch, Aera Energy’s President and CEO, highlighted the complementary strengths of both companies and their commitment to deploying carbon capture at scale.

Post-merger, California Resources Corporation plans to allocate its free cash flow towards enhancing shareholder returns, reducing debt, and expanding its carbon management business. The Board has authorized a 23% increase to California Resources Corporation’s Share Repurchase Program, now totaling $1.35 billion, and expects to increase its fixed quarterly dividend subject to Board approval.

The merger, unanimously approved by California Resources Corporation’s Board of Directors and Aera Energy’s shareholders, is subject to customary closing conditions and regulatory approvals, with an expected close in the second half of 2024. The combined company will be headquartered in Long Beach, California, with IKAV and CPP Investments nominating one representative each to the CRC Board.