Analyst: California Resources' $750M Joint Venture, Equity Deal Could Create 'Significant Future Value'

California Resources Corp CRC recently announced a $750 million midstream joint venture with Development Capital Resources, owned by the private equity group Ares Management, as well as a $50 million equity investment. 

The Analyst

Imperial Capital analyst Jason Wangler upgraded California Resources from In-line to Outperform and maintained a $26 price target, suggesting roughly 46-percent upside from current levels.

The Thesis

California Resources' joint venture and equity deal add significant incremental capital that the company can use for its assets or to improve its balance sheet and debt metrics, Wangler said in a Monday note. 

"We think these funds can lead to significant future value for CRC," the analyst said. 

The company has the future option to redeem the interests in the joint venture, he said. 

Ares Management's purchase of $50 million in common equity from California Resources further strengthens the relationship and also raises incremental capital for the oil and gas producer, according to Imperial Capital. 

"CRC has about $297 million allocated to repay the company's outstanding credit facility balance and we think it should remain opportunistic with the remaining funds," Wangler said. 

The Price Action

California Resources shares are nearly flat, with a slight downside bias, over the past year.

The stock was up 4.87 percent at $18.74 at the close Monday. 

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