Kimmeridge builds stake in California Resources, in talks for changes

Brookfield Renewable Partners LP

15/08/2022 14:59

(Adds Kimmeridge statement, background)
    By David French
    Aug 15 (Reuters) - Kimmeridge Energy Management Co LLC on
Monday confirmed it has amassed a stake in California Resources
Corp  CRC.N  and is engaging with the oil and gas producer to
make changes that include selling some acreage to real estate
developers.
    Sources familiar with the matter had earlier told Reuters
the energy-focused activist investment firm owns more than 3
million shares in California Resources, equivalent to about a 4%
stake, and has been in talks with the company's management in
recent weeks on measures to boost its valuation.
    In a statement, Mark Viviano, head of public equities at
Kimmeridge, said it had "maintained a constructive and
collaborative dialogue with the management team". He did not
disclose how much California Resources stock the investor owned.
    Viviano's statement said the talks included discussions "on
how best to maximize the value of their Huntington Beach land
position".
    Kimmeridge has indicated to California Resources the acreage
in Orange County could fetch around $800 million if sold for
conversion to residential real estate, according to the sources.
    Kimmeridge has also told California Resources it should
focus more on its nascent carbon capture and sequestration
business (CCS), the sources said.
    As well as helping California Resources reach its own net
zero targets, the investor thinks the firm would be well placed
to profit from the technology's increased deployment in the
state, due to the firm's extensive land footprint and its
in-depth knowledge of California's geology, the sources added.
    
    OLDER WELLS 
    In his statement, Viviano said: "California Resources'
mature conventional fields have the potential to pare
low-decline free cash flow generation with a high-growth carbon
sequestration business."
    The sources spoke on condition of anonymity to discuss
confidential information. California Resources did not respond
to a comment request.
    California Resources' shares have languished compared with
peers this year, despite high U.S. crude and natural gas prices,
as investors put money into other producers with higher growth
rates that can capture the commodity price upswing.
    Much of California Resources' oil and gas comes from older
wells which have low but steady production.
    The stock has risen 7.7% so far this year, giving it a
market capitalization of $3.5 billion, compared with a 41.4%
jump in the S&P energy index  .SPNY .
    Earlier this month, the Long Beach-based company announced
plans to form a joint venture with Brookfield Renewable  BEPC.N 
 BEP.N  focused on developing CCS projects across California.
Brookfield is putting up $500 million for the venture, with the
potential for another $1 billion of capital.
    Kimmeridge commends the company on the move, Viviano said in
his statement.
    California Resources was formed in 2014 after Occidental
Petroleum Corp  OXY.N  spun off its California business into a
separate entity. Weighed by slumping oil prices at the onset of
the pandemic and a $5 billion debt pile, it filed for Chapter 11
bankruptcy in July 2020, emerging three months later.

 (Reporting by David French in New York; Editing by Daniel
Wallis and David Holmes)
 ((davidj.french@thomsonreuters.com;))