Transaction highly accretive across key 2024E
financial metrics
Complementary assets to significantly scale
E&P business and expand leading carbon management platform
California Resources Corporation (NYSE: CRC) today announced the
signing of a definitive merger agreement to combine with Aera
Energy, LLC (Aera) in an all-stock transaction. The transaction
values Aera at approximately $2.1 billion, inclusive of Aera’s net
debt and certain other obligations1, and is expected to be
immediately accretive. At closing, Aera's owners will receive 21.2
million shares of CRC’s common stock, equal to approximately 22.9%
of CRC’s fully diluted shares.
“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. 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.”
Erik Bartsch, Aera’s President and Chief Executive Officer,
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. We are committed to continuing to deliver the
energy Californians need today and working to deploy carbon capture
at-scale.”
Highlights:
- Immediately accretive to key financial metrics: Priced
at approximately 2.6x enterprise value1 / 2024E Adjusted
EBITDAX2,3, the transaction is expected to be immediately accretive
to key 2024E financial metrics, and reflects approximately a 45%
improvement to operating cash flow per share and 90% accretion to
free cash flow per share3.
- Creates scale and enhances asset durability: 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
thousand barrels of oil equivalent per day (Boe/d) (95% oil) and
estimated proved reserves of approximately 262 million Boe at
year-end 20224. On a pro forma 2024E basis, CRC will have estimated
production of approximately 150 thousand Boe/d (76% oil) and proved
reserves of approximately 680 million Boe4 (90% proved developed).
The combined company will own interests in five of the largest oil
fields in California with opportunities to increase oil
recovery.
- Significantly increases free cash flow outlook and expands
cash return to shareholders: Pro forma 2024E free cash flow2 is
expected to more than double to approximately $685 million3 at
strip pricing as of January 25, 2024 of $79.81 Brent and $2.65
Henry Hub, and total nearly $3.0 billion5 through 2028. Following
the close of the transaction, CRC plans to allocate its free cash
flow to enhance shareholder returns, reduce debt and fund
opportunistic expansion of its carbon management business. The
Board has authorized a 23% increase to CRC’s Share Repurchase
Program to $1.35 billion and extended the program’s authorization
through year-end 2025. Post closing, and subject to Board approval,
the Company expects to increase its fixed quarterly dividend.
- Expands leading carbon management platform: The
combination 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. Through this combination, CRC
will receive interests in approximately 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 metric tons (MMT) of storage capacity in
the Belridge Field. CRC also expects to submit an additional Class
VI permit for approximately 27MMT of storage at the Coles Levee
Field. The Company will have the potential to nearly double its
injection rate capacity near CTV I, creating a premier
“decarbonization hub” for CO2 storage.
- Significant, identified synergies, with upside:
Identified synergies are expected to total $150 million annually
and be realized within 15 months of closing. Cumulative synergies
over the next decade have an estimated PV-10 value of nearly $1.0
billion. Synergies are expected to be realized primarily through
lower operating costs, capital efficiencies, G&A reductions and
optimization of shared field infrastructure.
- Maintains strong balance sheet, enhances liquidity: On a
pro forma basis, CRC will maintain a strong balance sheet and
estimates that its leverage ratio2 will be below 0.5x within one
year of closing. Pro forma, the Company expects to have more than
$800 million of liquidity within one year of closing and enhanced
access to capital.
- Continued leadership across leading energy transition
initiatives: Combination of Carbon TerraVault platform and
Aera’s Low Carbon Solutions to enable further expansion to 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 with a
goal to further decarbonize California
Transaction Details:
Under the terms of the merger agreement, CRC will issue 21.2
million shares of its common stock to the equity owners of Aera,
and refinance Aera’s outstanding debt. CRC has secured a firm
commitment for a $500 million bridge loan facility to facilitate
closing. At current valuations, the pro forma business would have
an enterprise value of approximately $5.6 billion1, with CRC
shareholders owning approximately 77.1% of the combined
company.
Aera is owned by entities managed by IKAV (51%), an
international asset management group, and Canada Pension Plan
Investment Board (CPP Investments) (49%). Post closing,
IKAV-managed entities and CPP Investments will collectively hold
22.9% of CRC’s common stock.
“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,” said Bill Rogers, Managing
Director, Global Head of Sustainable Energies, CPP Investments. CPP
Investments’ Sustainable Energies Group takes advantage of growing
market opportunities as the energy sector evolves and global power
demand grows, especially for low-carbon energy alternatives and
carbon solutions. “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.”
Constantin von Wasserschleben, Chairman of IKAV, added: ”The
combination of CRC and Aera has strong industrial logic and aligns
with our philosophy to make investments that effect positive change
in the world. The merger brings together the strengths of both
companies, who will be better together to operate what will be the
largest oil and gas company in California by production. We believe
that the world needs access to affordable, reliable and lower
carbon energy sources and we advocate a co-existence between
renewable and conventional energy for decades to come. We look
forward to partnering with the CRC team to shape the future path of
the energy transition.”
The CRC management team will run the combined company which will
be headquartered in Long Beach, California, and at closing IKAV and
CPP Investments will each nominate one representative to the CRC
Board.
IKAV and CPP Investments will be subject to customary lock-up
periods, which preclude the sale of any shares for six months after
closing. At least 2/3 of issued shares will be subject to a 12
month lock up and at least 1/3 of the issued shares will be subject
to an 18 month lock up period.
The merger agreement has been unanimously approved by CRC’s
Board of Directors and the shareholders of Aera. The transaction is
subject to customary closing conditions, regulatory approvals and
CRC shareholder approval. The transaction, which has an effective
date of January 1, 2024, is expected to close in the second half of
2024.
Pro Forma Estimated 2024
Outlook3:
The transaction has an effective date of January 1, 2024 and on
a combined basis CRC expects to produce between 145 and 150 MBoe/d
(~76% oil) in 2024. CRC plans to run a one rig program in the first
half of 2024 and will focus on workover and maintenance activity.
Assuming resumption of a normalized level of new well permit
approvals in the second half of 2024, CRC plans to run four to five
operated rigs on a combined basis at that time. As CRC waits for
the Kern County Environmental Impact Report (KCEIR) litigation
ruling expected in the second quarter of 2024, management continues
to seek previously started Conditional Use Permits (CUPs) for its
core fields.
CRC expects to provide more complete guidance following closing
of the transaction.
PRO FORMA CRC GUIDANCE
Total 2024E
Net Total Production (MBoe/d)
145 – 150
Oil Production (%)
76%
Adjusted EBITDAX2 ($
millions)
$1,460 - $1,615
Capital ($ millions)
$420 - $470
Free Cash Flow2 ($ millions)
$650 - $720
Note: Free cash flow is before
synergies.
Shareholder Return
Strategy
CRC is committed to returning significant cash to shareholders
through dividends and repurchases of its common stock. On February
6, 2024, CRC’s Board of Directors approved an increase of the Share
Repurchase Program to $1.35 billion, an increase of $250 million,
and extended the program through December 31, 2025. Adjusting for
this increase, CRC has approximately $750 million of capacity
remaining under the repurchase program as of December 31, 2023.
Post closing, and subject to Board approval, the Company expects to
increase its fixed quarterly dividend.
Conference Call
Information
A conference call is scheduled for February 7, 2024, at 9:00
a.m. Eastern Time. To participate in the call, please dial (877)
328-5505 (International calls please dial +1 (412) 317-5421) or
access via webcast at www.crc.com 15 minutes prior to the scheduled
start time to register. Participants may also pre-register for the
conference call at https://dpregister.com/sreg/10186471/fb99757555.
A digital replay of the conference call will be archived for
approximately 90 days and supplemental slides for the conference
call will be available online in the Investor Relations section of
www.crc.com.
1
Aera’s enterprise value was
calculated as 21.2 million of shares of CRC common stock based on a
per share price of $46.81 as of February 2, 2024 plus $1.1B of
assumed debt and other liabilities, which excludes a discounted
hedge liability of ~$240MM, to be issued or assumed by CRC pursuant
to the merger agreement. CRC’s enterprise value was calculated as
$3.5 billion assuming company’s share price of $46.81 as of
February 2, 2024, 71.4 million of fully diluted shares and $116MM
of Net Debt2 as of 3Q23.
2
Represents a non-GAAP measure.
For all historical non-GAAP financial measures please see the
Investor Relations page at www.crc.com for a reconciliation to the
nearest GAAP equivalent and other additional information. CRC is
unable to provide a reconciliation of non-GAAP financial measures
contained in this release that are presented on a forward-looking
basis for the described transaction because CRC is unable, without
unreasonable efforts, to estimate and quantify the most directly
comparable GAAP components, largely because predicting future
operating results is subject to many factors outside of CRC's
control and not readily predictable and that are not part of CRC's
routine operating activities, including various economic,
regulatory, political and legal factors.
3
Unless otherwise noted, pro forma
2024 estimates are calculated assuming (i) the transaction closed
on January 1, 2024, (ii) estimated annualized synergies are
excluded, and (iii) strip pricing as of January 25, 2024 of $79.81
per barrel of oil Brent price, NGL realizations of 68% of crude
price and Henry Hub gas price of $2.65 per MMBtu. Total pro forma
capital includes combined Carbon Management Business and E&P,
Corporate and Other business needs. CRC plans to run a one rig
program in the first half of 2024 focusing on workover and
maintenance activity. In the second half of 2024, and assuming a
successful resolution to the Kern County EIR litigation and
resumption of a normalized level of permit approvals, CRC plans to
run four to five rigs on a pro forma basis. Pro forma per share
metrics are calculated using 92.6 million of fully diluted shares
of CRC common stock post close, including 21.2 million shares of
CRC common stock to be issued at closing of the transaction. All
future quarterly dividends and share repurchases are subject to
changes in commodity prices, restrictions under credit agreement
covenants and the approval of CRC's Board. Pro forma 2024 estimates
are forward-looking statements and are based on management’s
expectations. Actual results could differ materially. Pro forma
2024E free cash flow of $685MM represents a midpoint of a range
between $650MM and $720MM.
4
Reserves determined as of
December 31, 2022 and use 2022 SEC Prices of $100.25 per barrel for
oil and $6.36 per MMBtu for natural gas.
5
The free cash flow amount shown
is cumulative over the 2024-2028 period and includes impact of
existing hedge settlements and excludes synergies. These estimates
are calculated assuming (i) the transaction closed on January 1,
2024, (ii) strip pricing as of January 25, 2024 of $79.81 per
barrel of oil Brent price in 2024, $76.33 per barrel of oil in 2025
and $73.36 per barrel of oil 2026 - 2028, NGL realizations of 68%
of crude price and Henry Hub gas price of $2.65 per MMBtu in 2024,
$3.50 per MMBtu in 2025, $3.77 per MMBtu in 2026 and $3.78 per
MMBtu 2027 - 2028, (iii) net total annual production between 145 –
150 mboepd (76% oil), (iv) decline rates between 10% to 15%, (v)
G&A expenses of ~ $380MM through 2028, (vi) total pro forma
capital needs of $420MM to $580MM inclusive of Carbon Management,
and (vii) 4 to 5 rigs scenario starting from 2H24 and assuming a
successful resolution to the Kern County EIR litigation and
resumption of a normalized level of permit approvals. Pro forma
2024 - 2028 estimates are forward-looking statements and are based
on management’s expectations. Actual results could differ
materially.
About California Resources
Corporation
CRC is an independent energy and carbon management company
committed to energy transition. CRC produces some of the lowest
carbon intensity oil in the US and is focused on maximizing the
value of its land, mineral and technical resources for
decarbonization efforts. For more information about CRC, please
visit www.crc.com.
About Aera
Formed in 1997, Aera is based in Bakersfield, California, in the
heart of Kern County – one of the largest oil-producing regions in
the nation – with additional operations in Ventura, Monterey and
Fresno counties. Aera is known for excellent safety and
environmental performance. For more information about Aera, please
visit www.aeraenergy.com.
About CPP Investments
Canada Pension Plan Investment Board (CPP Investments™) is a
professional investment management organization that manages the
Fund in the best interest of the more than 21 million contributors
and beneficiaries of the Canada Pension Plan. In order to build
diversified portfolios of assets, investments are made around the
world in public equities, private equities, real estate,
infrastructure and fixed income. Headquartered in Toronto, with
offices in Hong Kong, London, Luxembourg, Mumbai, New York City,
San Francisco, São Paulo and Sydney, CPP Investments is governed
and managed independently of the Canada Pension Plan and at arm’s
length from governments. As of September 30, 2023, the Fund totaled
C$576 billion. For more information, please visit
www.cppinvestments.com.
About IKAV
IKAV is an international asset management group headquartered in
Germany, with local offices in Luxembourg, Italy, Spain, Portugal,
USA and France. The group was established in 2010. It provides
institutional investors with investment solutions spanning a broad
range of infrastructure energy assets, including solar,
concentrated solar power, wind, energy efficiency, geothermal,
thermal power plants and upstream. IKAV is a buy and hold investor
with a vertically integrated business model to optimize its
investment portfolio and to make its assets in line with the global
net zero strategy over the upcoming decades. For more information,
please visit ikav.com.
Advisors
Citi and Jefferies are serving as financial advisors and
Sullivan & Cromwell LLP is serving as legal advisor to CRC.
Wells Fargo acted as lead financial advisor alongside Truist and
Latham & Watkins LLP is serving as legal advisor to CPP
Investments & IKAV.
Additional Information
and Where to
Find It
This communication may be deemed to be solicitation material in
respect of the transactions contemplated by the merger agreement
pursuant to which California Resources Corporation (“CRC”) has
agreed to combine with Aera Energy, LLC (“Aera”) (the “Merger
Agreement”), including the proposed issuance of CRC’s common stock
pursuant to the Merger Agreement. In connection with the
transaction, CRC will file a proxy statement on Schedule 14A with
the U.S. Securities and Exchange Commission (“SEC”), as well as
other relevant materials. Following the filing of the definitive
proxy statement, CRC will mail the definitive proxy statement and a
proxy card to its stockholders. INVESTORS AND SECURITY HOLDERS OF
CRC ARE URGED TO READ THE PROXY STATEMENT AND OTHER RELEVANT
DOCUMENTS FILED OR TO BE FILED WITH THE SEC CAREFULLY WHEN THEY
BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION
ABOUT CRC, Aera, THE TRANSACTION AND RELATED MATTERS. Investors and
security holders will be able to obtain copies of the proxy
statement (when available) as well as other filings containing
information about CRC, Aera and the transaction, without charge, at
the SEC’s website, www.sec.gov. Copies of documents filed with the
SEC by CRC will be available, without charge, at CRC’s website,
www.crc.com.
Participants in
Solicitation
CRC and its directors and executive officers may be deemed to be
participants in the solicitation of proxies in connection with the
transaction. Information about the directors and executive officers
of CRC is set forth in the proxy statement for CRC’s 2023 Annual
Meeting of Stockholders, which was filed with the SEC on March 16,
2023. Investors may obtain additional information regarding the
interest of such participants by reading the proxy statement
regarding the transaction when it becomes available.
Cautionary Note Regarding
Forward-Looking Statements
This communication contains statements that CRC believes to be
“forward-looking statements” within the meaning of the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
All statements other than historical facts are forward-looking
statements, and include statements regarding the benefits of the
transaction, CRC's future financial position and operating results,
business strategy, projected revenues, earnings, costs, capital
expenditures and plans, objectives and intentions of management for
the future. Words such as "expect," "could," "may," "anticipate,"
"intend," "plan," “ability,” "believe," "seek," "see," "will,"
"would," "estimate," "forecast," "target," "guidance," "outlook,"
"opportunity" or "strategy" or similar expressions are generally
intended to identify forward-looking statements. Such
forward-looking statements are based upon the current beliefs and
expectations of the management of CRC and are subject to risks and
uncertainties that could cause actual results to differ materially
from those expressed in, projected in, or implied by, such
statements. Although CRC believes the expectations and forecasts
reflected in its forward-looking statements are reasonable, they
are inherently subject to numerous risks and uncertainties, most of
which are difficult to predict and many of which are beyond CRC's
control. No assurance can be given that such forward-looking
statements will be correct or achieved or that the assumptions are
accurate or will not change over time. Particular uncertainties
that could cause CRC's actual results to be materially different
from those described in the forward-looking statements include:
(i)
the timing, receipt and terms and
conditions of any required governmental and regulatory approvals of
the transaction that could reduce anticipated benefits or cause the
parties to abandon the transaction,
(ii)
the occurrence of any event,
change or other circumstances that could give rise to the
termination of the merger agreement,
(iii)
the possibility that stockholders
of CRC may not approve the issuance of new shares of common stock
in the transaction,
(iv)
the risk that any of the other
closing conditions to the transaction may not be satisfied in a
timely manner,
(v)
transaction costs,
(vi)
unknown liabilities,
(vii)
the risk that any announcements
relating to the transaction could have adverse effects on the
market price of CRC’s common stock,
(viii)
the ability to successfully
integrate the businesses,
(ix)
the ability to achieve projected
operational and capital synergies and the risk it may take longer
than expected to achieve those synergies,
(x)
the risk the pending transaction
could distract management from ongoing operations,
(xi)
the effects of disruption to
CRC’s or Aera’s respective businesses and operations, including the
ability of CRC and Aera to retain customers and retain and hire key
personnel and maintain relationships with their suppliers and
customers,
(xii)
the ability of CRC to obtain the
required debt financing pursuant to its commitment letters and, if
obtained, the potential impact of additional debt on CRC’s business
and the financial impacts and restrictions due to the additional
debt,
(xiii)
risks related to potential
litigation brought in connection with the transaction,
(xiv)
risks related to financial
community and rating agency perceptions of CRC or Aera or their
respective businesses, operations, financial condition and the
industry in which they operate,
(xv)
risks related to the potential
impact of general economic, political and market factors on CRC,
Aera or the transaction, and
(xvi)
those expressed in its
forward-looking statements including those factors discussed in
Part I, Item 1A – Risk Factors in CRC's Annual Report on Form 10-K
and its other SEC filings available at www.crc.com.
CRC cautions you not to place undue reliance on forward-looking
statements contained in this communication, which speak only as of
the filing date, and CRC is under no obligation, and expressly
disclaims any obligation to update, alter or otherwise revise any
forward-looking statements, whether as a result of new information,
future events or otherwise. This communication contains information
from third party sources, including information from Aera regarding
its assets, operations and results. This data may involve a number
of assumptions and limitations. CRC has not independently verified
such third-party information and does not warrant the accuracy or
completeness of such information.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240207995199/en/
Joanna Park (Investor Relations) 818-661-3731
Joanna.Park@crc.com Richard Venn (Media) 818-661-6014
CRC.Communications@crc.com
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