Aera Energy's Coalinga-area office is seen in this Google Earth image.

California Resources Corporation (NYSE: CRC) on Wednesday announced the signing of a definitive merger agreement to combine with Aera Energy, LLC, in an all-stock transaction that values the Bakersfield-based oil producer at about $2.1 billion.

It would be the second major merger and acquisition deal for Aera in as many years. Shell Offshore completed a sale of its 51.8% interest in Aera Energy for $2 billion to German investment group IKAV.

CRC is a Los Angeles-based oil producer. Its market capitalization is $3.65 billion. Share prices were up 13% to $53.22 Wednesday afternoon on the announcement.

“This strategic transaction will create scale in our operations, generate significant free cash flow, accelerate cash returns to shareholders and expand our energy transition platform,” said Francisco Leon, CRC’s president and CEO. “We remain committed to reducing emissions and this combination will advance our goal to permanently sequester 5 million metric tons per year of CO2 in our underground storage vaults.”

Erik Bartsch, Aera’s president and CEO, added: “ Aera and CRC are two great companies with decades of experience and track records that will serve as a foundation for a strong combination. We are committed to continuing to deliver the energy Californians need today and working to deploy carbon capture at-scale.”

Under the terms of the merger agreement, CRC will issue 21.2 million shares of its common stock to the equity owners of Aera, and refinance Aera’s outstanding debt. CRC has secured a commitment for a $500 million bridge loan facility to facilitate closing. At current valuations, the pro forma business would have an enterprise value of approximately $5.6 billion, with CRC shareholders owning approximately 77.1% of the combined company.

Aera is owned by entities managed by IKAV (51%), an international asset management group, and Canada Pension Plan Investment Board (CPP Investments) (49%). Post closing, IKAV-managed entities and CPP Investments will collectively hold 22.9% of CRC’s common stock.

Constantin von Wasserschleben, chairman of IKAV, added: ” The combination of CRC and Aera has strong industrial logic and aligns with our philosophy to make investments that effect positive change in the world. The merger brings together the strengths of both companies, who will be better together to operate what will be the largest oil and gas company in California by production. We believe that the world needs access to affordable, reliable and lower carbon energy sources and we advocate a co-existence between renewable and conventional energy for decades to come. We look forward to partnering with the CRC team to shape the future path of the energy transition.”

The CRC management team will run the combined company which will be headquartered in Long Beach, California, and at closing IKAV and CPP Investments will each nominate one representative to the CRC Board.

The merger agreement has been unanimously approved by CRC’s Board of Directors and the shareholders of Aera. The transaction is subject to customary closing conditions, regulatory approvals and CRC shareholder approval. The transaction, which has an effective date of January 1, 2024, is expected to close in the second half of 2024.