Exxon Mobil Corp. and Shell Plc on Sept. 1 agreed to sell their California oil joint venture, Aera Energy, to German asset manager IKAV.

The total transaction value was not disclosed. However, in its release, Shell noted that the sale of its 51.8% membership interest in Aera Energy is for a total consideration of approximately $2 billion in cash with additional contingent payments based on future oil prices, subject to regulatory approval.

Aera Energy is one of California’s largest oil and gas producers, accounting for nearly 25% of the state’s production. The sale by Exxon Mobil and Shell ends a 25-year-long partnership in California while also continues a streak of divestments of mature oil and gas properties by the two supermajors.

“This decision supports our strategy to create a resilient and competitive upstream portfolio by focusing on positions with high growth potential and a strong integrated value chain,” commented Zoe Yujnovich, Shell's upstream director.

Meanwhile, Exxon Mobil has exited its Barnett Shale and Canada shale positions earlier this year as part of the company’s corporate strategy to “prioritize investments on advantaged assets with lowest cost of supply.”

Exxon Mobil was also recently reported to have sold its Fayetteville Shale position to Flywheel Energy.

“This sale is part of our strategy to continually strengthen our industry-leading portfolio, focusing our investments in low-cost-of-supply oil and natural gas to meet consumer demand and create value for our shareholders,” Liam Mallon, president of ExxonMobil Upstream Co., said of the Aera Energy sale in a separate release.

Golden State

Exxon Mobil formed the Aera Energy JV in June 1997 and has operations in eight onshore fields, according to the Exxon Mobil release.

Aera Energy LLC operates around 13,000 wells in the San Joaquin Valley in California, producing oil and associated gas. In 2021, Aera produced about 95,000 boe/d.

Exxon Mobil’s interests in the Aera oil-production operation in California included a 48.2% share of Aera Energy LLC and a 50% share of Aera Energy Services Co. held by Mobil California Exploration & Producing Co. In addition, Exxon Mobil affiliates have entered into 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 still manages 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, according to its release.

“California is a key market for our renewables and energy solutions business given its advanced, emerging technology and country-leading research and development,” Shell added in the release.

The sale effectively ends Shell’s upstream position in California, however. The company said the divestiture is estimated to result in an approximate post-tax impairment of $300 million to $400 million, subject to adjustments.

IKAV’s Oil and Gas Track Record

Despite its origins in renewable energy, IKAV has an established track record in owning and operating U.S.-based energy assets and the company said that its investment in Aera underlines that “conventional energy will continue to play an essential role in California’s energy supply during the state’s transition to renewable sources.”

“In addition to our long-term goal and commitment to renewable energy, we recognize the continued need for oil and gas and for these assets to be operated safely and responsibly to facilitate a smooth and sustainable transformation of our energy supply. We advocate a co-existence between renewable and conventional energy for decades to come,” Constantin von Wasserschleben, chairman of IKAV, commented in a release from the company.

In 2019, IKAV acquired BP Plc’s San Juan gas assets, which are in Colorado and New Mexico and comprise over 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. Following the transaction, Aera will remain as operator, which centers in the San Joaquin Valley.

“Aera fits our philosophy, and we are excited to be working with its exceptional team, who share our culture and long-term ambitions,” von Wasserschleben continued in his statement. “Together, we have the expertise required to find innovative solutions to meet California’s energy demand as well as its future climate goals.”

The transaction has an effective date of Oct. 1, and is expected to close in fourth-quarter 2022, according to the Shell release.

Citigroup was lead financial adviser to IKAV for the transaction. Truist Securities and Wells Fargo Securities were financial advisers to IKAV as well. Haynes & Boone LLP acted as legal adviser to IKAV.

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