The drivers behind most upstream M&A the past couple of years have been consistent — namely, to gain scale (mostly in the Permian) and the economies that come with it, boost free cash flow (and share more with shareholders), and replenish reserves to keep the good times rollin' into the 2030s. There are hints of all that in California Resources’ recently announced $2.1 billion agreement to acquire Aera Energy, creating what would be California’s largest crude oil producer. But in other ways the deal is as different as, well, California and Texas themselves. In today’s RBN blog, we examine the planned acquisition, what it reveals about the companies, and the pros and cons of operating in the nation’s most populous, least-friendly-to-hydrocarbons state.
We’ve made it a habit to blog about the multibillion-dollar acquisitions that have become almost commonplace in both the upstream and midstream sectors the past couple of years. We do this partly to gain a deeper understanding of the individual companies involved in these deals — and to share what we learn with you all — but also because the deals collectively help to reveal where the energy industry as a whole is heading and how a variety of integrated giants, public and private E&Ps, and midstreamers are preparing for their futures.
The value of the M&A that’s been happening is staggering. As we recently discussed in Keep on Dancing, upstream M&A soared to $192 billion last year, a mark 79% above the previous 10-year high and more than the previous three years combined. The Permian accounted for $103 billion of that total, capped off by Q4 2024’s ExxonMobil/Pioneer Natural Resources and Occidental Petroleum/CrownRock LP deals. And the Permian remained a primary focus in early 2024 with APA Corp.’s planned purchase of Callon Petroleum and, most recently, Diamondback Energy’s deal to buy Endeavor Energy Resources.
Today, we’ll be discussing a prospective combination that couldn’t be more different, though — like all the Permian-related deals noted above — the deal tells us a lot about how at least some upstream managements see the next few years shaking out. California Resources announced last month that it will acquire privately held Aera Energy LLC in an all-stock transaction that values Aera at about $2.1 billion. California Resources shareholders will own about 77% of the pro forma company when the deal closes in the second half of this year. The two companies, both of which are active only in California, said in their deal-reveal that their complementary assets — and there really is a lot of overlap between what they do and where they do it — will enable California Resources to roughly double the E&P side of its business and expand its carbon-management platform.
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