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Aera Energy Sold to IKAV Exxon&Shell Divest of CA Crude Producer

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%

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.

On August 31 Ring Energy Inc. purchased privately-held Stronghold Energy, adding operations that are mainly situated in Crane County, Texas, in the Permian Basin’s Central Basin Platform. According to a September 1 Ring Energy release, this transaction fully complements the conventional-focused Central Basin Platform and Northwest Shelf asset positions in the Permian Basin. The majority owned by Warburg Pincus LLC, Stronghold’s operations are concentrated on the development of about 37,000 net acres situated mainly in Crane County. In July Ring Energy entered into an agreement to buy Stronghold Energy II Operating LLC and Stronghold Energy II Royalties LP for $200 million in cash at closing and $230 million in Ring equity based on a 20-day volume weighted average price. Consideration also involved a $15 million deferred cash payment due six months after closing and $20 million of existing Stronghold hedge liability increasing the total transaction value to $465 million. Stronghold’s asset base is almost 99% operated, 99% working interest, and 99% HBP. In July, Ring announced the current net production of Stronghold’s asset base was approximately 9,100 boe/d (54% oil, 75% liquids).

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