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Thursday, Mar 28, 2024

Ares Management Joint Venture Cuts CRC Debt

California Resources Corp. has formed a joint venture for the ownership of a natural gas-fired power plant in Kern County. The Chatsworth oil and gas producer partnered with Development Capital Resources LLC, in Midland, Texas, on the Elk Hills power and cryogenic gas processing plants, near Tupman just west of Bakersfield. Development Capital is owned by Ares Management LP, an investment firm in Century City. The company is putting $750 million into the joint venture as well as buying 2.3 million common shares of California Resources for $50 million in cash. Ares formed Development Capital in April last year to provide working capital for oil and gas exploration and production operators. Its investments go toward drilling joint ventures, non-operated working interests and royalty participation. California Resources signed a 30-year contract to purchase power from the plant and use it to process natural gas. If CRC does not use all the energy it contracted for, it can sell the excess to the California Independent System Operator Corp. and receive any revenue from the sale. California Resources Chief Executive Todd Stevens said the investment from Ares and Development Capital validates the position of CRC’s assets and flexible business model. “With our ongoing focus on value creation, we intend to deploy transaction proceeds toward the best available alternatives to drive shareholder returns over the long term,” Stevens said in a prepared statement. Muhammed Ghulam, an analyst with Raymond James & Associates Inc. who follows California Resources, said in an interview with the Business Journal that the joint venture was all about addressing the company’s debt. The company has about $5 billion that it owes and yet only a market cap of $766 million, as of Feb. 9 It makes for a huge overhang that investors have been concerned about, Ghulam said. What California Resources gets from the deal is $750 million to help reduce that $5 billion still owed. “They will use that amount to pay off debt, which is a huge benefit,” he added. A lot of investors were concerned that if the price of oil stayed low, CRC might go bankrupt with so much debt because they couldn’t make the interest payments, Ghulam said. “Now that oil has recovered they are in a much better place,” he added. “They continue to reduce their debt, which is definitely good.” In the last two years, crude prices have risen from less than $30 a barrel to about $60. For the third quarter, the most recent figures available, California Resources reported a narrower adjusted net loss in its third quarter of $52 million (-$1.22 a share), compared to an adjusted net loss of $71 million (-$1.74 share) for the same period a year earlier. Third-quarter revenue was $445 million, compared to $456 million a year ago. Analysts had forecast revenue of $488 million.

Mark Madler
Mark Madler
Mark R. Madler covers aviation & aerospace, manufacturing, technology, automotive & transportation, media & entertainment and the Antelope Valley. He joined the company in February 2006. Madler previously worked as a reporter for the Burbank Leader. Before that, he was a reporter for the City News Bureau of Chicago and several daily newspapers in the suburban Chicago area. He has a bachelor’s of science degree in journalism from the University of Illinois, Urbana-Champaign.

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