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Aera Energy Sold to IKAV Exxon&Shell Divest of CA Crude Producer
09/19/2022
California oil joint venture, Aera Energy, of Exxon Mobil Corp. and Shell Plc is being sold to German asset manager IKAV, according to the agreement of Sept. 1.
Shell noted that the sale of its 51.8% membership interest in Aera Energy is for a total consideration of about $2 billion in cash with additional contingent payments based on future oil prices, subject to regulatory approval. However, the total transaction value was not disclosed.
Being one of California’s largest oil and gas producers, Aera Energy accounts for nearly 25% of the state’s production. The sale by Exxon Mobil and Shell ends a 25-year-long partnership in California, meanwhile, it persists a streak of divestments of mature oil and gas properties by the two supermajors.
Exxon Mobil quitted its Barnett Shale and Canada shale positions earlier this year as part of the company’s corporate strategy to highlight investments in advantaged assets with the lowest cost of supply. Additionally, Exxon Mobil recently said it sold its Fayetteville Shale position to Flywheel Energy.
Being a part of the strategy to persistently make stronger the industry-leading portfolio, concentrating the investments in low-cost-of-supply oil and natural gas the sale satisfies consumer demand and creates value for Exxon Mobil’s shareholders.
Aera Energy LLC operates about 13,000 wells in the San Joaquin Valley in California, producing oil and associated gas. In 2021, Aera took out about 95,000 boe/d.
Exxon Mobil’s interests in the Aera oil-production operation in California contained a 48.2% share of Aera Energy LLC and a 50% share of Aera Energy Services Co. held by Mobil California Exploration & Producing Co. Moreover, Exxon Mobil affiliates have signed a separate agreement for the sale of an associated loading facility and pipeline system.
The sale does not affect Exxon Mobil’s branded network of about 500 independently owned retail sites in California.
Shell also controls a statewide footprint in California that includes gas and power trading, electric vehicle (EV) charging, hydrogen, and LNG fueling stations, retail and lubricants, distribution facilities, and terminals. The company has operated in California for more than 100 years.
The sale effectively ends Shell’s upstream position in California. The company reported that the divestiture is valued to result in a post-tax impairment of $300 million to $400 million, subject to adjustments.
Regardless of its origins in renewable energy, IKAV has an established track record in owning and operating U.S.-based energy assets and the company reported that its investment in Aera highlights that conventional energy will continue to play a vital role in California’s energy supply during the state’s transition to renewable sources.
In 2019, IKAV got BP Plc’s San Juan gas assets, which are in Colorado and New Mexico and comprised more than 650,000 acres, producing around 600 MMcfe/d. Led by Bobby Saadati, the U.S. team has offices in Durango, Colorado, and Houston, Texas.
Headquartered in Bakersfield, California, most of Aera’s oil production originates from Kern County. After the transaction, Aera will stay as an operator, which centers in the San Joaquin Valley, the transaction has an effective date of Oct. 1, and is anticipated to close in fourth-quarter 2022, according to the Shell release.
Truist Securities and Wells Fargo Securities were financial advisers to IKAV as well. Haynes & Boone LLP acted as legal adviser to IKAV. Citigroup was the lead financial adviser to IKAV for the transaction.
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Cardinal Acquires Natural Gas Business in Prolific Delaware Basin to Expand
On November 2, Cardinal Midstream Partners, an independent Dallas-based midstream energy company, concluded definitive agreements with Medallion Midstream Services to purchase Medallion’s natural gas gathering and processing business in the Delaware Basin in West Texas. The transaction is subject to customary closing conditions and is expected to close in early 2023.
Half of Kinder Morgan’s Stake in Georgia LNG Facility is Sold to Unknown Company
Kinder Morgan Inc. decided to sell half of its 51% interest in an LNG facility in Georgia on September 27 with proceeds allocated by the Houston-based company to pay short-term debt and buy back shares. As it is acknowledged, an undisclosed financial buyer purchases the 25.5% equity interest in Elba Liquefaction Co. LLC (ELC) for approximately $565 million. ELC is a joint venture (JV) established in 2017 to build and own the Elba liquefaction facility situated on #Elba Island in Chatham County, Georgia. After completion, Kinder Morgan and the undisclosed financial buyer will each hold a 25.5% stake in ELC. Meanwhile, Blackstone Credit will continue to hold a 49% interest. The value of the equity interest considers an enterprise value of almost $2.3 billion for ELC, which is about 13 times 2022E EBITDA. The transaction has an economic effective date of July 1. The Elba liquefaction facility has 10 modular liquefaction units for a total capacity of roughly 2.5 million tonnes per year of LNG. Kinder Morgan considers it equivalent to almost 350 MMcf/d of natural gas.
Kinetik Holdings recently announced a series of transactions in the energy sector. They struck a deal to buy Durango Permian infrastructure for $765 million. At the same time, they're selling their 16% share in the Gulf Coast Express Pipeline to ArcLight Capital Partners for $540 million. The total purchase cost includes $510 million in cash paid immediately and an additional $30 million that will be paid later, depending on whether they decide to expand further.
Recently, the Permian has seen significant acquisitions: Exxon Mobil purchased Pioneer Natural Resources for about $60 billion. Diamondback Energy's $26 billion deal to acquire Endeavor Energy Resources is currently on hold due to requests from the U.S. Federal Trade Commission. Occidental’s acquisition of CrownRock for $12 billion in the Midland.
EOG Resources is pushing boundaries in Ohio's Utica oil play and now drilling on the Sable pad, also located in Noble County. This site features the 3.7-mile lateral currently under construction. The company's first multi-well pads in the area Timberwolf and Xavier have each produced over 200,000 barrels of oil since their inception—Timberwolf in August and Xavier in October. A third site, the four-well White Rhino pad in Noble County, is also showing promising early results, according to Keith Trasko, EOG’s Senior Vice President of Exploration and Production, who noted the wells are performing as expected in their initial weeks.