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ExxonMobil, Shell Sign Deal to Divest California Asset to IKAV

Zacks Equity Research
·4 min read

Exxon Mobil Corporation XOM and Shell Plc SHEL entered separate agreements to divest their California-based joint venture, Aera Energy, to IKAV for $4 billion.

The divestiture marks the end of a 25-year partnership between oil majors ExxonMobil and Shell. Aera Energy was one of the state’s largest oil producers.

The divestment reflects the companies’ withdrawal from mature properties when higher oil and gas prices support new offers. Also, ExxonMobil and Shell were in advanced talks to divest the San Jaoquin Valley property in California.

Aera Energy is an independent oil and gas company, which accounts for nearly 25% of California’s hydrocarbon production. In 2021, Aera produced 95,000 barrels of crude oil equivalent per day from the 13,000 wells it operates in the San Joaquin Valley.

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IKAV acquires assets with solid cash yields and holds them to maximize returns to its funds. The latest deal makes IKAV responsible for a living relic of California’s early oil and gas production. IKAV, which has $2.49 billion under management, owns wind, solar, geothermal and hydrocarbon operations. It also operates a Colorado natural gas business acquired two years ago.

Asset divestments are crucial components of ExxonMobil’s strategy to optimize cash management. ExxonMobil, which owned 48% of Aera Energy, has been offloading assets as it focuses on Guyana, Brazil and other liquefied natural gas projects. The deal brings it closer to its target of raising $15 billion from asset divestments to reduce debt and focus on low-cost oil production.

Shell has been divesting mature properties to repay debt and invest in profitable areas. The company will maintain its current oil marketing agreement for at least five years.

The divestment will end Shell’s upstream position in California. Shell faces a $300-$400 million impairment charge as a result of the latest divestment.However, the state is a core market for the company’s Renewables and Energy Solutions business.

Both companies are holding their other California operations, which include gas station chains. The transaction, subject to regulatory approvals, is expected to complete in the fourth quarter of 2022.

Company Profile & Price Performance

Headquartered in Irving, TX, ExxonMobil is one of the leading integrated energy companies in the world.

Shares of ExxonMobil have outperformed the industry in the past six months. The stock has gained 15.8% compared with the industry’s 1.6% growth.

 

Zacks Investment Research
Zacks Investment Research


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Zacks Rank & Other Key Picks

ExxonMobil currently carries a Zack Rank #2 (Buy).

Investors interested in the energy sector might look at the following companies that presently flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cheniere Energy Inc. LNG is primarily engaged in businesses related to liquefied natural gas. Ushering in good news for shareholders, LNG recently declared its inaugural quarterly dividend of 33 cents per share. The company’s decision to initiate a payout reflects the dramatic improvement in its fundamentals.

Cheniere Energy has witnessed upward earnings estimate revisions for 2022 and 2023 in the past 30 days. The company currently has a Zacks Style Score of A for Growth and Momentum. LNG is expected to see earnings growth of 308.7% in 2022.

Murphy USA Inc. MUSA is a leading independent retailer of motor fuel and convenience merchandise in the United States. MUSA remains committed to returning excess cash to its shareholders through continued share buyback programs. The fuel retailer approved a repurchase authorization of up to $1 billion, which will commence once the existing $500-million authorization expires and be completed by Dec 31, 2026.

Murphy USA has witnessed upward earnings estimate revisions for 2022 and 2023 in the past 30 days. The company currently has a Zacks Style Score of B for Value and Growth. MUSA is expected to see earnings growth of 43.4% in 2022.


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Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
 
Murphy USA Inc. (MUSA) : Free Stock Analysis Report
 
Cheniere Energy, Inc. (LNG) : Free Stock Analysis Report
 
Shell PLC Unsponsored ADR (SHEL) : Free Stock Analysis Report
 
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