425: CRC to Acquire Berry Corp. in $717M All-Stock Merger

California Resources Corporation (CRC) and Berry Corporation (BRY) announced an all-stock merger valued at approximately $717 million, creating a stronger California energy leader.

Summary

• California Resources Corporation (CRC) and Berry Corporation (BRY) have entered into a definitive Agreement and Plan of Merger.
• The transaction is an all-stock combination, valuing Berry at approximately $717 million, inclusive of Berry's net debt.
• Berry shareholders will receive a fixed exchange ratio of 0.0718 shares of CRC common stock for each Berry share, representing a 15% premium based on September 12, 2025, closing prices.
• Existing CRC shareholders are expected to own approximately 94% of the combined company upon closing.
• The combined company would have produced approximately 161 thousand barrels of oil equivalent per day (Mboe/d) (81% oil) in Q2 2025 on a pro forma basis.
• Pro forma proved reserves as of year-end 2024 would be approximately 652 million barrels of oil equivalent (MMboe), with 87% proved developed.
• The merger is expected to be immediately accretive to net cash provided by operating activities and free cash flow, with more than 10% per share accretion in 2H 2025 before synergies.
• Annual synergies of $80 $90 million are expected within 12 months post-closing, with 50% implemented within six months.
• CRC plans to refinance Berry's outstanding debt with cash on hand and borrowings, potentially pursuing a new debt issuance.
• The transaction has been unanimously approved by the boards of directors of both companies and is expected to close in Q1 2026.

Sentiment

Score: 9

Explanation: The filing presents a highly positive outlook on the merger, emphasizing immediate accretion, significant synergies, enhanced financial strength, and strategic asset fit. Management comments are optimistic, and the identified risks are standard for M&A, not indicating specific red flags beyond typical integration challenges.

Positives

• The transaction is immediately accretive across key financial metrics, including net cash provided by operating activities and free cash flow, with over 10% per share accretion in 2H 2025 before synergies.
• Significant annual synergies of $80 $90 million are identified, representing approximately 12% of the transaction value, expected to be realized within 12 months post-closing.
• The combination creates a stronger, more efficient California energy leader with enhanced portfolio and operational capabilities.
• The acquisition adds high-quality, oil-weighted, mostly conventional proved developed reserves and sustainable cash flow to CRC.
• The combined company will maintain a strong balance sheet with an estimated pro forma LTM leverage ratio of less than 1.0x and approximately 70% of its expected 2H 2025 pro forma oil production hedged at a $68/Bbl Brent floor price.
• The integration of C&J Well Services will enhance CRC's well operations, secure its supply chain, and mitigate future cost inflation.
• Berry's Uinta Basin position provides additional operational and financial optionality with significant identified inventory and recent strong production from new horizontal wells.

Negatives

• The filing does not explicitly state any negatives, but potential challenges are outlined in the 'risks' section, such as integration difficulties and market price volatility.

Risks

• Transaction costs associated with the merger.
• Potential unknown liabilities of the acquired entity.
• Risk that announcements relating to the proposed transaction could have adverse effects on the market price of Berry's or CRC's common stock.
• Challenges in successfully integrating the businesses of Berry and CRC.
• Inability to achieve projected synergies or taking longer than expected to achieve them.
• Risks related to financial community and rating agency perceptions of the combined entity.
• Potential impact of general economic, political, and market factors on the companies or the transaction.
• The occurrence of any event, change, or circumstance that could lead to the termination of the proposed transaction.
• Risk that Berry's stockholders may not approve the proposed transaction.
• Disruption of management time from ongoing business operations due to the proposed transaction.
• Effects of the announcement, pendency, or completion of the transaction on the ability to retain customers, key personnel, and maintain relationships with suppliers.
• Risk that any of the other closing conditions may not be satisfied in a timely manner, including regulatory approvals or approvals subject to unanticipated conditions.

Future Outlook

The combined company anticipates significantly lower costs and higher free cash flow by realizing substantial corporate and operating synergies. It expects to maintain a strong balance sheet with low leverage, a robust hedge book, and liquidity, providing flexibility for new development opportunities amid an improving permitting backdrop in Kern County. The company is positioned to unlock deep asset inventory and drive long-term cash flow per share growth. CRC will provide additional financial and operating guidance for the combined company after the transaction closes in Q1 2026.

Management Comments

• Francisco Leon, CRC President and CEO: "This transaction is attractively valued and immediately accretive across key financial metrics, strengthening our ability to deliver sustainable value to shareholders."
• Francisco Leon, CRC President and CEO: "By realizing substantial corporate and operating synergies, we expect to significantly lower costs and generate higher free cash flow."
• Francisco Leon, CRC President and CEO: "We are now well positioned to unlock our deep asset inventory and drive long-term cash flow per share growth."
• Rene Hornbaker, Berry's Board Chair: "This announcement presents a compelling value proposition for our shareholders."
• Rene Hornbaker, Berry's Board Chair: "The industrial logic of this merger will allow Berry shareholders to benefit from the creation of a larger and more sustainable business, with an improved capital structure and significant operational synergies."
• Rene Hornbaker, Berry's Board Chair: "Additionally, the strong tailwinds we are seeing on the regulatory front makes this the right time to consummate this merger."

Industry Context

This all-stock combination reflects a trend of consolidation within the energy sector, particularly for companies focused on conventional assets and in-state production. The emphasis on 'improving permitting backdrop in Kern County' and 'strong tailwinds on the regulatory front' suggests a more favorable operating environment in California, which could drive further M&A activity. The merger also highlights the strategic importance of integrating oilfield services (C&J Well Services) to enhance operational efficiency and mitigate cost inflation, a common challenge in the industry. The combined entity aims to be a leader in providing 'safe, reliable and affordable energy through responsible in-state production,' aligning with broader energy transition and security narratives.

Comparison to Industry Standards

• The pro forma combined company's 2Q25 net oil production of 161 Mboe/d (81% oil) positions it as a top-tier independent oil producer compared to peers like CHRD, CIVI, MTDR, SM, CRGY, MUR, NOG, TALO, VTLE, KOS, MGY, VET, HPK, BRY, MNR.
• The combined entity is expected to have a 'Peer Leading Low Base Oil Decline Rate' of 10%-15% (pro forma estimated next twelve-month base oil production decline rates as of 1Q25), outperforming the peer group average of ~27%.
• The transaction is priced at approximately 2.9x enterprise value / 2025E adjusted EBITDAX, which is presented as 'attractively priced' in comparison to other E&P peer deals mentioned (e.g., Crescent Energy Co. & Vital Energy, Inc. (2025), EOG Resources, Inc. & Encino Acquisition Partners (2025), APA Corp. & Callon Petroleum Co. (2024), Chesapeake Energy Corp. & Southwestern Energy Co. (2024), Chord Energy Corp. & Enerplus Corp. (2024), ConocoPhillips & Marathon Petroleum Corp. (2024), Crescent Energy Co. & SilverBow Resources, Inc. (2024), Devon Energy & Grayson Mill Energy (2024), Diamondback Energy, Inc. & Endeavor Energy Resources, LP (2024), Chevron Corp. & Hess Corp. (2023) and Exxon Mobil Corp. & Pioneer Natural Resources (2023)).

Stakeholder Impact

• Shareholders of Berry Corporation will receive a 15% premium on their shares and will become shareholders of the larger, combined entity, potentially benefiting from a more sustainable business, improved capital structure, and operational synergies.
• Shareholders of California Resources Corporation are expected to own approximately 94% of the combined company, benefiting from immediate accretion to key financial metrics and significant synergies.
• Employees of both companies may experience changes due to business integration and synergy realization, particularly in corporate functions and supply chain, though the filing emphasizes retaining and hiring key personnel.
• Customers and suppliers may see changes in relationships and operational processes as the companies integrate, with an aim to maintain relationships and achieve supply chain efficiencies.
• Communities in California will continue to have access to in-state energy production, with the combined company committed to responsible operations and environmental stewardship.

Next Steps

• CRC will file a registration statement on Form S-4 with the SEC, which will include a proxy statement/prospectus for Berry shareholders.
• Berry shareholders will need to approve the proposed transaction.
• The companies must obtain required regulatory approvals.
• The transaction is expected to close in the first quarter of 2026.
• Following the close, CRC will provide additional financial and operating guidance for the combined company.

Key Dates

Recommendation

The merger is highly strategic, immediately accretive to key financial metrics for CRC, and promises substantial synergies of $80-$90 million annually. The combined entity will boast a stronger balance sheet, lower leverage, and a robust hedge book, enhancing financial stability. The acquisition of Berry's assets, including C&J Well Services and the Uinta Basin position, provides complementary, high-quality reserves and operational optionality. The 15% premium for Berry shareholders is attractive, and the overall industrial logic points to a more efficient and sustainable California energy leader. Given the strong financial and operational benefits, the combined company presents a compelling investment opportunity.

Keywords

Merger, Acquisition, Oil and Gas, Energy, California Resources Corporation, Berry Corporation, All-stock transaction, Synergies, Accretion, Upstream, E&P, Uinta Basin, Kern County, Oilfield services