California Resources' Stock Climbs On Thursday: What's Behind The Gain?

Shares of California Resources Corp. CRC closed higher on Thursday after Hunterbrook Media alleged that a California oil and gas regulator has not enforced a new environmental law in a merger between California Resources and Aera Energy LLC.

California Resources is a 2014 spinoff of oil major Occidental Petroleum Corp. OXY that declared bankruptcy in 2020 before restructuring months later.

Aera is a former joint venture of oil majors Shell plc SHELL and ExxonMobil Corp. XOM that German private equity group Institut fur Kapitalanlagen und Versicherungslosungen GmbH, known as IKAV, bought in 2022 for $4 billion. CRC acquired Aera two years later from IKAV for $2.1 billion. 

What Happened: On Wednesday, Hunterbrook alleged that the California Department of Conservation has decided not to enforce AB 1167 in a move that Assemblymember Wendy Carillo (AD-52), the legislation’s author, said “would set a terrible precedent” for the environment.

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The July 1 merger is “exactly why” the new law, which is designed to require oil companies buying old or underperforming oil wells to set aside funds for cleanup, was passed, Carillo said, according to Hunterbrook.

"Not enforcing the policy as intended sets up our state for a potential financial catastrophe,” she said.

Neither California Resources nor the department immediately returned Benzinga’s requests for comments.

Hunterbrook said that oil and gas wells that are left unplugged can lead to potent greenhouse gas emissions and contaminant releases into the water and air.

Hunterbrook alleged that it is common in the oil and gas industry for companies to offload troubled assets to other operators instead of paying for cleanup costs that include properly filling and plugging the wells.

This practice has led to many of these wells remaining unretired years after they have stopped producing oil and gas as new operators also fail to properly seal them, Hunterbrook said.

The new California law was passed to ensure that oil companies acquiring these declining wells, rather than the public, cover the costs of retiring them, according to Hunterbrook.

Hunterbrook said that Aera owns more unretired and low-producing wells than any other operator in the state, according to state data analyzed by the environmental nonprofit FracTracker Alliance.

Following the merger, California Resources will oversee over 40,000 active and idle wells throughout California, with nearly 16,000 being low-producing idle wells, according to the department’s data analyzed by Hunterbrook Media.

California Resources expressed concern that AB 1167 could interfere with its merger or future deals, depending on how it was enforced, Hunterbrook said.

In response to the department’s decision, more than 70 environmental, health, and community organizations sent a letter on Tuesday to the agency, urging the department’s Geologic Energy Management Division to reconsider its position and apply AB 1167's bonding requirements to California Resource’s acquisition of Aera.

Hunterbrook operates under two different arms: Hunterbrook Media and Hunterbrook Capital. The former operates as a media outlet publishing investigative and global reporting. The latter arm is a hedge fund, betting on or against some of the stocks on which it reports.

Price Action: Shares of California Resources gained 2.20% to $52.91 on Thursday.

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Image created using artificial intelligence via Midjourney.