California Resources (CRC) has partnered with Colony HB2 Energy, an energy investment arm of Colony Capital, to establish a strategic joint venture for the development of CRC’s Elk Hills field, located in the San Joaquin Basin.

Under the new joint venture, Colony HB2 Energy has committed to funding $320m (£256m) for the development of the field. Subject to the mutual agreement of the parties, the total investment may be increased to $500m (£400m).

CRC president and CEO Todd Stevens said: “We are pleased to partner with an outstanding investment firm like Colony and its partners to provide certainty of development of our large and high value inventory at Elk Hills, a very long-lived field.

“This is the largest joint venture capital commitment to date for CRC, and the terms reflect the sizable project inventory we have established at Elk Hills. This partnership also provides additional flexibility to aid in our deleveraging efforts through growing our production and cash flow.”

Initial investment to target multiple development opportunities in Elk Hills field

The initial investment commitment is expected to support multiple development avenues across the Elk Hills field.

California Resources said that the initial investment is intended for a period spanning approximately three years in accordance with the pre-approved development plan, comprising approximately 275 wells.

Colony is expected to fund 100% of the development wells to earn a 90% working interest, while CRC is expected to revert from 10 to 82.5% working interest, upon colony achieving an agreed return.

Colony is also expected to receive warrants to purchase up to 1.25 million shares of common stock with a $40 (£32) strike price upon funding their capital obligations.

Colony Capital chairman and CEO Tom Barrack said: “Colony is delighted to form this strategic partnership with CRC to continue the development of this historic and world class field. This is also a milestone event in the establishment and growth of our new energy investment management platform, and there is no better partner than CRC and no better asset than Elk Hills with which to start.”