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California Resources signs drilling deal with Macquarie

California onshore specialist signs up second joint venture partner this year

A division of Australian investment giant Macquarie has signed a joint venture worth up to $300 million with US independent California Resources to develop its oilfields in the San Joaquin basin in California.

Under the terms of the agreement, Macquarie Infrastructure & Real Assets committed to invest $160 million over the next two years to fund 100% of the well costs in return for an initial 90% working interest.

That working interest will decline to 25% after Macquarie reaches a certain return on its investment and the bank has the option to increase the amount up to $300 million.

The cash will be put to work across California Resources’ portfolio beginning with a focus on the Kern Front, Mount Poso, Pleito Ranch and Wheeler Ridge fields, California Resources said when announcing the deal.

“We are pleased to partner with Macquarie to bring forward the value of our large and long lived inventory and help to derisk and accelerate the development of California Resources’ vast resource base, chief executive Todd Stevens said. “The joint venture also provides additional flexibility to aid in our deleveraging efforts through growing our production and cash flow.”

The deal is the second such agreement this year for California Resources, which signed a similar agreement with Benefit Street Partners in February that calls for the credit provider to invest up to $250 million in tranches of $50 million to develop assets in California.

Analysts at investment bank Johnson Rice said the latest agreement was another step in the right direction for California Resources, which has struggled to manage its debt load since being spun off from Occidental Petroleum in 2014.

“While this agreement will not likely materially affect California Resources' near-term production, we view this as a strong positive as it gives credence to the company's prior commentary of two to five joint ventures by year-end 2018, and is both a larger commitment and was signed sooner than expected,” the analysts said in a note.