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Aera Energy Sold to IKAV Exxon&Shell Divest of CA Crude Producer
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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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Significant Growth of MPLX; Pipeline Throughput Raised by 6%
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According to a midstream oil and natural gas company release on August 2, MPLXLP has increased total pipeline throughputs by 6% in the second quarter of 2022 and terminal throughput by 4%, versus year-ago levels. In an earnings statement of MPLX, the total pipeline throughputs were 5.9 million bbl/d, with terminal throughput of 3.1 million bbl/d for the second quarter. The company reported a net income of $875 million and adjusted earnings of $1.457 million in the second quarter, both higher than in the same period of 2021. Gathered volumes grew up by 11% from year-ago levels to an average of 5.6 Bcf/d. In the Marcellusregion, gathered volumes fell 1% compared to year-ago levels to an average of 1.3 Bcf/d. MPLX is expanding several projects, including in the Permian Basin where the Whistler pipeline is increasing from 2 Bcf/d to 2.5 Bcf/d, in addition to lateral pipelines into the Midland Basin and Corpus Christi domestic and export markets. Moreover, the construction is also maintained on the 200 MMcf/d Tornado ll processing plant, which MPLX anticipates coming online in the second half of 2022. Additionally, 68,000 bbl/d Smithburg de-ethanizer project in the Marcellus is expected to come online in the third quarter.
Cardinal Acquires Natural Gas Business in Prolific Delaware Basin to Expand
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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.
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The pipeline industry in the USA faced and still faces a range of regulatory challenges, including permitting delays, environmental requirements, and public opposition to pipeline projects. In recent years, pipeline projects like the Keystone XL and Dakota Access pipelines had legal and regulatory obstacles that delayed or canceled their construction. Keystone XL Pipeline, proposed by TransCanada in 2008, aimed to transport crude oil from Canada (around Calgary and Edmonton) to refineries on the Gulf Coast (Port Arthur). The project faced opposition from environmental groups and indigenous communities, who argued that it would contribute to climate change and pose a risk to water resources. In 2015, President Obama rejected the project, citing concerns about its environmental impact. However, in 2017, President Trump revived the project, leading to further legal challenges. In June 2021, U.S. President Joe Biden officially canceled the project on his first day in office.
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The renewable natural gas (RNG) industry in the United States is showing promising signs of growth. As of 2019, the U.S. consumed 261 billion cubic feet (BCF) of RNG, primarily utilized by independent power producers, electric utilities, and various commercial and industrial entities. However, this figure represents only a small fraction of its potential. Research indicates that the U.S. could theoretically produce up to 2,200 BCF of RNG through anaerobic digestion alone, which would equate to about 11% of daily national natural gas consumption.
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Recently, the progress toward an energy transition is hitting a snag. Sales of electric vehicles are decelerating, and the growth in wind and solar power needs to be keeping pace with expectations. To make matters more challenging, electricity prices are climbing when they were expected to fall. Amidst these setbacks, the oil and gas sectors are proving resilient. According to BP's latest energy outlook, not only are these energy mainstays here to stay, but their demand is expected to remain relatively high even after reaching a peak. Interestingly, BP forecasts that oil demand will reach its zenith next year, marking a critical moment in energy consumption trends. This isn't the first time BP has projected a peak in oil demand. Back in 2019, their review anticipated a decline in demand growth, but the prediction fell flat. Instead, oil demand surged to unprecedented levels following the end of the global pandemic lockdowns, defying previous forecasts and underscoring the enduring dominance of traditional energy sources in the global market.