Long Beach-based California Resources Corp., which last year bought Aera Energy to become the state’s largest oil producer, is now poised to become even bigger with the pending acquisition of Dallas-based Berry Corp.

California Resources, or CRC, and Berry jointly announced before market open on Sept. 15 their plan to merge in an all-stock transaction that values Berry at $717 million.

Under the merger plan, Berry shareholders will receive a fixed exchange ratio of 0.0718 shares of CRC common stock for each share of Berry BRY common stock owned, representing a premium of 15% based on the closing prices of the stocks on Sept. 12.

The transaction has been unanimously approved by the boards of directors of both companies, though it still needs approval from Berry shareholders. The deal also requires several regulatory approvals. Assuming these approvals come in a timely manner, the announcement said the transaction could close during the first quarter of next year. Once the deal closes, CRC’s executive management team will lead the combined company from its headquarters in Long Beach.

CRC shares rose more than 6% on news of the deal, closing on Sept. 15 at $56.34. Berry shares shot up 21% that day to close at $4.01; that jump was more than the 15% premium on the Sept. 12 close offered in the deal.

From bankruptcy to state oil giant

Five years ago, the picture was very different for California Resources, which emerged out of a 2014 spinoff from Occidental Petroleum Corp. just before the latter company relocated from Westwood to Houston. CRC had paid down much of the debt from that spinoff when in spring 2020, at the height of the Covid-19-induced economic shutdown, oil prices collapsed. In July of that year, CRC filed for Chapter 11 bankruptcy protection, when it was based in Santa Clarita.

CRC emerged from its brief stint in bankruptcy in October of that year with $5 billion in debts eliminated.

With this mostly clean slate, CRC was able to focus on returning its operations to profitability, and eventually the company saw growth.

In February of last year, CRC announced it was acquiring Bakersfield-based Aera Energy in an all-stock transaction valued at $2.1 billion. That deal enabled CRC to leapfrog over Chevron Corp. – which recently relocated to Houston from San Ramon – and become the state’s largest oil producer.

CRC’s acquisition of Aera closed in July of last year.

Deal synergies

The current deal with Berry Corp. might pale by comparison to the Aera acquisition, but it still promises to bring considerable benefits to CRC.

Though based in Dallas, Berry has more than 80% of its oil production in California, mostly in Kern County, which is also home to the majority of CRC’s oil production.

“(This) complementary California asset fit is compelling and will ultimately benefit a state that needs more energy,” Francisco Leon, CRC’s chief executive, said in remarks to analysts in a conference call following the merger announcement.

“This bolt-on transaction aligns perfectly with CRC’s core footprint,” Leon added. “Berry will add approximately 20,000 barrels of oil per day of California-based Brent-linked conventional production on about 20,000 mostly adjacent net acres. The added scale will make CRC more durable and provides new flexibility in how we elect to allocate capital.”

According to the merger announcement, on a pro-forma basis, the combined company would have produced approximately 161,000 barrels of oil equivalent per day during the second quarter, with about 81% of that total being oil and the rest natural gas.

Berry also has oil production facilities in the Uinta Basin in eastern Utah.

With the adjacent footprints of the companies’ Kern County drilling and exploration operations, the merger announcement said CRC expects the deal to achieve annual synergies between $80 million and 90 million, or approximately 12% of the transaction value. These include removing overlap within the two corporate structures, debt refinancings, operating improvements and supply chain efficiencies.

The announcement said most of these synergies are expected to be implemented within a year of the deal closing.

One analyst on the conference call subsequently wrote in a note that he was optimistic that CRC could realize the promised savings.

“Confidence that CRC will achieve synergies is supported by the

acceleration of synergies from the Aera merger last year,” said David Deckelbaum, an analyst with TD Cowen, a division of Toronto-based T.D. Securities.

Besides Berry’s oil-producing operations, the deal also includes Berry’s oil field services subsidiary, C&J Well Services. According to the merger announcement, “(This) business will enhance CRC’s ability to maintain active wells, strengthen its well-abandonment capabilities, help support safe and responsible operations, mitigate future cost inflation and ensure long-term operational efficiency.”

Boost from Sacramento

The merger announcement came just three days after the Legislature passed a bill that promises to boost the Kern County operations of both companies. The bill, SB 237, removes an oil well permitting logjam in Kern County, allowing the county to approve up to 2,000 new well-drilling permits a year.

Last year, the county approved only 84 new well permits as an appellate court ruling set aside a county ordinance designed to fast-track oil well permits.

Backers of the bill cited the state’s increasing dependence on more expensive foreign oil as a reason to try to boost oil production in-state. The state is also trying to stabilize its oil and gas market as closures of two refineries loom. Gov. Gavin Newsom and legislative leaders brokered the deal that resulted in the bill being introduced. So, he is expected to sign the bill, despite pressure from environmental groups who want the state to remain on the path toward fulfilling its previous pledges to end oil drilling by 2045.

The bill was warmly welcomed by CRC’s Leon.

“It’s really a truly significant change as we think about our business going forward,” Leon said in response to an analyst’s question in the conference call. “The state is signaling a need for California production and in particular, Kern County production. The dependence on foreign oil has taken its toll – it’s driving prices higher. It’s having refineries exiting the state. So, to stabilize the fuel markets, the state really wants that local production.”

Leon also cited another bill that passed that will help CRC’s other major business line: carbon storage through its Carbon Terra Vault joint venture with Toronto-based Brookfield Renewable Partners.

In December, the federal Environmental Protection Agency issued a Class VI well permit to Carbon Terra Vault to inject and store up to 38 million tons of carbon dioxide in the depleted portion of CRC’s Elk Hills Oil Field holdings in western Kern County.

The bill that just cleared the Legislature, SB 614, would lift the moratorium on carbon dioxide pipelines. It was also part of the energy-related legislative package negotiated between Newsom and legislative leaders.

“These pipelines are instrumental to us as we commercialize and expand our leading carbon management business through CTV,” Leon said.