California Resources Corporation to Combine with Aera Energy
Transaction highly accretive across key 2024E financial metrics
Complementary assets to significantly scale E&P business and expand leading carbon management platform
“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
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.
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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.
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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 million 3 at strip pricing as ofJanuary 25, 2024 of$79.81 Brent and$2.65 Henry Hub , and total nearly$3.0 billion 5 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.
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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) ClassVI 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.
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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.
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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.
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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
Aera is owned by entities managed by IKAV (51%), an international asset management group, and
“This transaction provides CPP Investments with an excellent opportunity to scale up our investment in
The CRC management team will run the combined company which will be headquartered in
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
Pro Forma Estimated 2024 Outlook3:
The transaction has an effective date of
CRC expects to provide more complete guidance following closing of the transaction.
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PRO FORMA CRC GUIDANCE |
Total
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Net Total Production (MBoe/d) |
145 – 150 |
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Oil Production (%) |
76% |
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Adjusted EBITDAX2 ($ millions) |
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Capital ($ millions) |
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Free Cash Flow2 ($ millions) |
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Note: Free cash flow is before synergies. |
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Shareholder Return Strategy
CRC is committed to returning significant cash to shareholders through dividends and repurchases of its common stock. On
Conference Call Information
A conference call is scheduled for
1 |
Aera’s enterprise value was calculated as 21.2 million of shares of CRC common stock based on a per share price of |
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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. |
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3 |
Unless otherwise noted, pro forma 2024 estimates are calculated assuming (i) the transaction closed on |
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Reserves determined as of |
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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 |
About
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
About CPP Investments
About IKAV
IKAV is an international asset management group headquartered in
Advisors
Citi and Jefferies are serving as financial advisors and
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
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
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, |
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the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement, |
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(iii) |
the possibility that stockholders of CRC may not approve the issuance of new shares of common stock in the transaction, |
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(iv) |
the risk that any of the other closing conditions to the transaction may not be satisfied in a timely manner, |
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(v) |
transaction costs, |
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(vi) |
unknown liabilities, |
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(vii) |
the risk that any announcements relating to the transaction could have adverse effects on the market price of CRC’s common stock, |
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(viii) |
the ability to successfully integrate the businesses, |
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(ix) |
the ability to achieve projected operational and capital synergies and the risk it may take longer than expected to achieve those synergies, |
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(x) |
the risk the pending transaction could distract management from ongoing operations, |
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(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, |
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(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, |
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(xiii) |
risks related to potential litigation brought in connection with the transaction, |
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(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, |
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(xv) |
risks related to the potential impact of general economic, political and market factors on CRC, Aera or the transaction, and |
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(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 |
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.
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818-661-3731
Joanna.Park@crc.com
818-661-6014
CRC.Communications@crc.com
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