For Long Beach-based California Resources Corp., the next couple months could be crucial in determining the course of the oil company for decades to come.

First, California Resources is awaiting final regulatory approvals for its previously announced $2.1 billion acquisition of Bakersfield-based oil company Aera Energy LLC. If the deal does go through, California Resources not only becomes the state’s biggest oil producer, but it also would have roughly double the carbon storage capacity in the crucial Kern County region.

In anticipation of the merger going through, California Resources earlier this month closed on an upsized $600 million debt offering; about $590 million of the proceeds are to be used to repay Aera’s existing debts.

On the carbon storage front, Kern County, which is home to the bulk of oil and gas fields for both California Resources and Aera Energy, is expected to take up consideration of a permit for carbon storage near those oil fields in August. The federal Environmental Protection Agency is also set to consider the company’s carbon storage permit sometime in the second half of this year.

If both Kern County and the EPA approve the permit in the next few months as expected, then California Resources executives expect to start creating the first major underground carbon storage facility in the state. The company sees carbon capture and storage as crucial to its long-term survival in an era of climate change and transition away from fossil fuels.

Aera merger passing key milestones

California Resources announced its bold move to acquire Aera Energy on Feb. 7 in a deal valued at about $2.1 billion.

“This transaction enhances our conventional energy business and provides cash flow to help expand our carbon management business and decarbonize California,” Chief Executive Francisco Leon said in a conference call addressing the merger.

In the company’s most recent quarterly conference call with analysts last month, Leon and other executives shed some more light on the benefits of the merger.

“Aera’s conventional (oil and gas) assets are similar to CRC’s with low royalty burden and multi-stock producing zones with 10% to 13% corporate production declines before capital,” Leon said.

An accompanying slide presentation noted that California Resources produced roughly 86,000 barrels of oil equivalent per day last year, with about 52,000 of those barrels being oil and the rest natural gas. Aera produced roughly 74,000 barrels of oil equivalent per day, almost entirely oil.

Perhaps even more important for the long term, the slide presentation showed the merger more than doubling California Resources’ carbon storage capacity in the Kern County region. California Resources on its own either has applied for or intends to apply for a total of 46 million metric tons of carbon storage capacity in Kern County. Aera brings to the table an additional 54 million metric tons of capacity in the same region, providing an opportunity for combined efforts and economies of scale.

California Resources has also applied for permits to store up to 191 million metric tons of carbon in underground reservoirs toward the northern end of the Central Valley.

“The transaction also expands our leading carbon management platform, adding premium pore space and co-located CO2 capture opportunities that further strengthened our ability to help the Golden State meet its ambitious climate goals,” Leon said in the earnings conference call.

As for the merger milestones, in its first quarter earnings release, California Resources noted that on March 26, the waiting period required under the Hart-Rodino Antitrust Improvements Act had expired. This is the period under which antitrust objections are generally raised, with further delays triggered if objections are filed. The company did not note any significant objections being filed.

The earnings release went on to state that the company expects to close the deal “around midyear 2024.” That means anytime within the next few weeks.

Carbon storage permits moving forward – with a delay

California Resources’ decision to forge ahead with carbon storage is part of the oil industry’s response to the broader push to get to carbon neutrality as fast as possible. The state Air Resources Board has laid out a path for the state to reach carbon neutrality by 2045 – just over 20 years from now. California Resources aims by that time to remove as much carbon from the air through capture, injection and storage as it puts into the air through its oil and gas drilling operations.

But the road to getting the federal EPA and Kern County permits to proceed with carbon capture and storage has not always been smooth for California Resources and its Carbon Terra Vault unit.

In March, Kern County officials announced they were pushing back to late August consideration of the California Resources permit to capture and store carbon underground around the Elk Hills Oil Field to allow more time to take in public comments and complete their environmental review.

The EPA also extended its comment period on the permit to 90 days from 45 days.

California Resources and its Carbon Terra Vault unit welcomed these extensions and said they still expect Kern County and the EPA to issue their permit approvals by the end of this year.

“CTV supports this approach, as it sets the goal standard for (carbon capture and storage) permitting,” Leon said in the earnings conference call.

But the granting of the permits may not be the last word on the matter. Some environmental and community groups oppose the carbon capture and storage plan, saying they would rather California Resources end oil drilling altogether in the Elk Hills Oil Field. Once the final permits are issued, the window opens for lawsuits to challenge the permit approvals.