Q3 2020 California Resources Corp Earnings Call

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Officer of CRC, and Francisco, Leon Executive Vice President and Chief Financial Officer, as well as several members of the CRC executive team.

I'd like to highlight that we have provided slides on our Investor Relations section on our website at Www Dot CRC Dot com. These.

Todd Thanks.

Thanks, Scott. Thank you to everyone for attending CRC third quarter earnings call.

We're glad to be back reporting our results and look forward to discussing significant value opportunity within CRC.

Darcy has always had a low decline stable high margin world class asset base to deliver affordable reliable and sustainable energy to California.

The chapter 11 behind US CRC now has a strong balance sheet one of the best leverage ratios in its peer universe.

I'm here.

With a new and much stronger balance sheet, you can expect CRC to build on the strengths of our underlying business.

Although declined capital efficient assets to provide a high degree of operating flexibility, which enables us to consistently operate within cash flow and maintains disciplined focus on return on investment capital through our value creation metric.

With a solid financial foundation, we're confident that we have the right portfolio and team in place to deliver value to our shareholders.

Are simplified balance sheet combined with our disciplined capital allocation phenomenal assets and strong relationships in California physician does that as well to succeed through the commodity price cycle and the consumer needs an investor priorities.

We invite you to track our efforts to drive down costs maintain a strong balance sheet and deliver solid returns and cash flow.

Let me first talk about our new balance sheet.

Ah restructuring process is simplified our balance sheet and eliminated the midstream JV at Elk Hills.

Let's see our business and the elements of our strong and sustainable Foundation.

First we have reinforced our long standing value focus we have maintained the same CRC DNA that to investors I've come to respect over the past six years.

Continue to live within our cash flow focus on reducing costs enhanced margins and utilize R V symmetric, which supports disciplined capital allocation to generate attractive returns on investment through the cycle.

The industry, leading portfolio of sustainability projects and our 2019 comment disclosure was recognized by CDP earlier this year with an a minus ranking at at their leadership level.

Encourage you to read our sustainability report or 2030 sustainability goals aren't near aspirations, achieving annual <unk> today inability project milestones in HCF metrics is directly tied to the annual incentive compensation of our management and workforce.

In and day out during this challenging year.

I'd also like to thank all California's essential workers, who continue to meet our state daily need for food water medical care and energy.

As economies are struggling to restart around the world. We have seen a partial return of petroleum demand, but there's a long road to fold recovery, we anticipate that progress on COVID-19 vaccines are treatment will eventually restore economic activity in further support petroleum demand, particularly for jet fuel, while we don't expect improvement in crude oil prices heading into 2020.

Disciplined value focus sustainable operational excellence and the leadership.

We conducted a thorough review of our costumed the restructuring process.

Average and our eyes approximately 87%.

In the third quarter, our operations team continued to focus on safely protecting the base controlling the controllables and building inventory.

On Opex, we added three maintenance rigs during September the return higher margin well service.

Also during the third quarter CRC invested internally 4 million of capital with no additional JV capital contribution during this period.

For a more detailed look at the net production we produced a net average of 106000 Boe per day during the quarter.

Consisting of 64000 barrels per day of crude oil production 14000 barrels per day of Ngls, and 168 million cubic feet per net and 160 million cubic feet per day of natural gas.

The San Fracking Basin produced 78000 net per day.

Hitting during the third quarter of 2020, and CRC is realized prices averaged $2.22 per thousand cubic feet or 115% of Nymex.

As of October 31st 2020, CRC has hedges, who plays that protect approximately 64% our expected fourth quarter of 2020 or production.

This includes 70, 975% of like <unk>.

This includes 75% of our oil production for both November and December.

For further information, our hedging program and volumes PCR slides posted earlier today.

Production costs for the third quarter of 2020 or $141 million or $14.52 regularly.

Do towards teens continuous efforts and are focused on safely controlling costs, we were able to lower third quarter production costs. Both on an overall basis by 36% and an upper V O E basis by 23% compared to the same prior year period, which average $18.82 per view.

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A decrease in production costs was primarily due to lower well repair and surface operations activity or prosser fields as well as cost savings from the fourth quarter of 2019, and third quarter 2020 workforce reductions.

Excluding PSE effects are third quarter of 2020 production costs would have been $13.37 per view is.

During a restructuring with further streamline organization for CRC to succeed and profitably operate in a lower commodity price environment.

We reduce our staffing in the third quarter of 2020 by approximately 12, <unk>, 12% when compared to a year in 2019.

As a result, we anticipate ongoing employee related cost savings of approximately 40 million annually with approximately 75% of the reduction in DNA expenses and the remainder reflected in production costs.

Our third quarter of 2020 general and administrative cost average $6.59 per <unk> 16 cents below the previous quarter, primarily due to ongoing cost savings efforts in the third quarter workforce reduction.

These savings was partially offset by higher incentive and retention awards, which were when we were made which were made with court approval during a restructuring process.

And the effect of lower production.

Third quarter of 2020 general and administrative costs, excluding incentive and retention payments decreased by 11 million year over year or by a dollar and 13 cents per view a.

Taxis other than on income, which are largely comprised of AD valorem taxes based on the value of minerals in the ground as well as our greenhouse gas costs came in as we expected at 42 million in the third quarter.

And the third quarter of 2020, we reported a net loss of 29 million attributable to our common stock.

Adjusting for the Noncontrolling interest and or else kills midstream JV, we had income with $2.20 per diluted share.

When also adjusting for unusual and frequent items, another non-cash items, such as reorganization and restructuring.

[noise] together with severance expenses that are generally excluded from poor earnings by investment analyst or net loss would've been 55 million.

Adjusted EBITDAX for the third quarter of 2020 with $103 million compared to $278 million from the prior year quarter.

Primarily due to 38% poured over a quarter decline and realized swelled price driven by the ongoing pandemic.

As commodity prices modestly increased from April those are adjusted EBITDAX margins recovered to 25% in the third quarter of 2020 from 7% in the second quarter.

This increase in third quarter, I, just did EBITDAX, which largely driven by higher commodity prices.

Despite the challenging commodity markets are trailing 12 months EBITDAX remains healthy and sense of 681 million.

He or she reported cash flow from operations to 48 million in the third quarter of 2020, which was significantly higher than the second quarter, primarily due to recovery cause the recovery in commodity prices.

In the third quarter, we generated approximately 55 million in discretionary cash flow and 198 million for the first nine months of the year.

Which compares favorably to our internally funded capital investments of $37 million through the first nine months of the year.

He or she has a high level of operational control over our diverse portfolio, which continues to allow us to pay what organization doing this volatile periods and to also rapidly adjuster activity to unexpected changing cashflow.

Historically, we have a proven track record of focusing particularly on value driven projects and staying nimble with our operations as such we will continue to respond to it that quickly and decisively in order to succeed throughout the price cycle.

We believe our operational knowledge and financial discipline are demonstrated by a track record.

Even during that unprecedented sector downturn, and then I'm Goin' pandemic to operate within our means while generating free cashflow.

Finally, please note that we have provided detailed analysis of adjusted items can be attachments to our earnings release.

Due to continued market uncertainties and implementation of our fresh start accounting, we will not be providing are normal guidance for the fourth quarter.

I will be happy to take any questions. You may have on a result to do unto Q&A portion of this call.

Thanks, and I'll now turn the call back over at the time.

Thanks Francisco as we emerge from with a new capital structure, we've taken steps enhanced Crc's resilient foundation, but you to invest in a conventional low decline value focused energy company with an empty will E. S. G track record, we're looking forward to creating value for our shareholders. We believe our recent emergence with top quartile leverage matrix.

Provides a very attractive value proposition compared to our peers, we have a history of generating free cashflow look forward to update are you on an investment program and opportunities at Trc I will now open afford it any questions.

We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad. If you were using a speaker phone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too.

At this time, we will pause momentarily to assemble our roster.

The first question is from Stephen Wagner with Wagner financial Please go ahead.

Hey, Todd and Francisco Nice presentation, I've been a long time investor in CRC, and obviously, we know what.

Cause occurred over the last few years much of it out of your control.

I guess one of my biggest questions. It's two part question number. One is you you guys have navigated a much needed reorganization quite frankly, many of US were dumbfounded in the spinoff from Oxy that you were saddled with so much that in the first place so much needed reorganized.

Asian, and clearly you know we shareholders got wiped out as a result of it.

Now you guys reorganize come out at 19, and now you're at 12 or high Elevens right now as a result of this earnings report.

And a good market, even with other energy companies doing fairly well so.

So I would like you to address that generally I never liked to address stock price with with executives because generally.

You folks have no control over the day to day.

It's highly competitive and and they appreciate it long term so they're not going to be launched so willing to part with their shares. So when you. When you think about it is highly fairly illiquid right now until that's trading starts.

Don't change too much but yes, I do it really is what a direct listing looks like because there's just not a lot like that.

On the and so Thats really what I can say is that we have a bunch of very large shareholders. There's three of them Goldentree Aries and fidelity, who almost two thirds or more the shares. So this is a lot.

On the other part it this is kind of always been a part of our CRC DNA, we're big believers in all of the above using all of our resources to create value.

Oil and gas obviously is a huge part of our business complementing that with Reno.

Renewables, particularly when you look at how the electricity prices in California are at some of our locations that aren't fortunate enough to be tied into our Elk Hills power plant with our lower cost electricity you can take advantage of that duck curve during the day by having complementary.

Renewable energy and I.

I think we have to continue to look at things that are going to add value and oil and gas is clearly you know our number one item, but if we can be complimentary and it competes for capital we're going to we're going to look to do that to whether it be the geothermal hydrogen or some other things that people are contemplating and a lot of times, we look at this with.

Jvs with other People's money, we want to come and look at our assets. We already have received quite a few lease rentals and payments.

For people, putting solar on top of our middle mineral acres acreage and allowing us allowing that to happen. So it's not something that I think is brand new but I think we probably highlighted are little more here than they have historically, particularly in our sustainability report, we just put out.

Okay.

I guess the biggest thing is that I would and I appreciate that so back to the share price.

And again I hate to harp on this because honestly it is out of your control but.

You're right it is illiquid, but who the hell is selling.

I don't I don't know I.

I mean, we've gone from 19 to Htwo I mean, maybe I need to look at these three.

Quote unquote large shareholders and see what it is they are doing and maybe look at the covenants and the.

The way the loans are arranged and I'll, probably need to do that and I will go to I've got a weekend ahead of me to do that.

I mean, we look we see the opportunity.

Alright, I I accept what you guys are saying in terms of as you said it earlier quote unquote substantial value opportunity.

What's the blend now you have about four 5 billion a T V 10.

I'm just looking at.

What are you gonna do different this time I.

I guess, that's my big.

Philosophical question.

Yeah, I I I think the big difference is the capital structure. We're obviously when you thought about the the debt equity split we were given that for a much different price environment kind of 100 dollar plus oil and that quickly quickly. The rug was pulled out from under US in early December 2014.

And dealing with that millstone and trying to chip away at it will you know our pick postman that was 6.8 billion, we were able to check that down to about 4.9 at the end of the beginning of this year, but you know it. It was it was just too big of a millstone for the absolute value.

Now are are are P. V 10, if you look at 731 strip.

About 4.7 billion, we have great can that conventional reservoirs with low capital intensity I think the the opportunity sat here is different because you don't have the millstone of that that you can look at creative ways with the type of asset base, we have true returned caches shareholders or reinvest in the business or.

Do different things that really weren't ever an alternative for us when we were spun off from our former parents.

Okay.

And prior to the bankruptcy you guys were scrambling to sell stuff are you still I'm trying to sell stuff.

I wouldn't say we are scrambling, we're always looking at ways to create value like I tell people.

No everything's for sale at the right price.

Except L kills you have to buy the company if you want to own L kills.

But we're not gonna conduct a fire sale if someone wants to pay is P. V 25, and two times cash flow or something like that it's better for us as a company to retain that cat free cash flow and invested in the business return to shareholders and there's not some fashion that's yet to be determined as you know we just met with our board of directors recently, we're still working out.

Forward strategy from that standpoint, but we know that we're value focus with books and creating a lot of free cash flow and how we and how and what we do is that will will will let you know in short order.

Okay. Prior CRC never bought back a single sure are paid a dividend to shareholders do you anticipate change my policy.

I wouldn't say, we never got back any shares, but we did pay a dividend to shareholders and when you're first spun off.

And we clearly as we went into 16 in late 15, we had to get rid of the dividend, but yeah. We were spun off that there was a very modest dividend paid I I would anticipate if he thought about it. These are the kind of the perfect assets for paying dividend of rewarding shareholders in some way, whether it's buying back shares paying a dividend.

The best thing in the business World. However, you think about it these are kind of a perfect perfect asset slow decline conventional low capital intensity.

Okay, and when you shut off 3000 barrels a day of production during the Covid pandemic, what's the capex to turn it back on.

What's the loss is there there's no real capex. This when you look at what we shut it and we had more shut in during the downturn, we have a fairly sophisticated way, where we can look pattern by pattern well by well from an economic standpoint, whether it's creating value in cash flow for it and so as the downturn continued it at its bottom.

We had maximum shut off I believe is almost 9000 barrels a day and now as we come back we'll use the work over Riggs and and and the like to turn it back on the production.

That is now economic and makes cashflow remember, we don't have a bunch of leaf commitments or anything like that what we have to worry about keep giving production blowing rolling allow production to slow that cash positive.

I gotcha, Okay, well I.

I wish you good luck going forward and addressing the prior callers issue.

I encourage you as management also to look up north to the Canadian producers like <unk>.

<unk> and Mike Rose and they put shareholders' first and that really makes the cost of that really low and everyone's much happier up there. So anyway. Good luck to you guys and I'll I'll jump off now thanks again.

Thanks, Chris.

As a reminder, please limit your questions to one with a single follow up. The next question is from Ethan Dan with R. A D investments. Please go ahead.

[noise] Hi, How's it going so just a couple of quick question, hoping to get a little bit of a picture on the list things strategy for the war and to coming out of the bankruptcy I understand right now that they're quite a liquid compared to for example, whiting patrols warrants whichever much higher value in another strike pet.

As much higher it's like $76.

36.

To strategy and evaluation on the real estate assets. That's C. R. C has I understand there should be a huge opportunity to return cash to shareholders. There. Thank you.

So.

Nathan I I got something about the warrant you were a little broken up there our warrants were part of a settlement during the restructuring with the creditors Committee and obviously, they're struck at there's two sets of them and it struck at $36. The other question, we do have some Ah real.

State.

On the surface that are Huntington Beach property, which has substantial value.

We we continually monitor the real estate value versus the oil and gas value and as you know building any kind of real estate entitling that in southern California. It can be quite a feat. So we're working looking to maximize value for shareholders and looking at ways, particularly as we come out of this pandemic to.

Realize that value for our shareholders, whether it be some combination of that or pure real estate or well gas.

The next question is from Tim Mckee with T. D. M. Please go ahead.

It's two am and I was.

You can see in your company during the pandemic started in March.

<unk> expected to continue and then.

Found out that you you would even declared chapter 11 in June and his shares which subsequently moved to to see her C. Q Q.

And as we know today, they're they're basically bottomed out in about two cents a share.

As I understand it I have absolutely no recourse.

And if this were only a few thousand dollars it wouldn't be an issue that this is major money.

Is is there something that can be worked out is there shares that can be offered.

Anything to the shareholders like this though.

Yeah, and I'm sorry. This is.

You know that's what we went through the restructuring and believe it or not yeah. We fought really hard for our shareholders, but we had a complicated capital structure heavily indebted from prior parrot and and this is where we ended up.

This concludes our question and answer session I would like to turn the conference back over to <unk> to Todd Stevens for any closing remarks.

Thanks to everyone I am extremely proud of our workforce during this time of uncertainty.

They have conducted themselves with professionalism as we have strengthened our ability to generate cashflow operating safely and productively during the pandemic.

He or she has many valuable assets, including our employees and the relationships, we have with our vendors state and local leaders in the community, where we live and work we.

We appreciate everyone's the tenants on today's call and look forward to delivering results for our new shareholders. I mean, if I could invest in CRC as we were proudly probably supply reliable and affordable energy for California My Californians.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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