Q1 2022 California Resources Corp Earnings Call
Good afternoon, and welcome to the California Resources Corporation 2022 first quarter earnings call all participants will be in listen only mode.
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Please note this event is being recorded.
Now to turn the conference over to Joanna Park, VP of Investor Relations and Treasurer. Please go ahead.
Welcome to California Resources Corporation first quarter 2022 conference call.
Debating on today's call is Mark Macfarlane, President and Chief Executive Officer.
It's gonna lay on executive Vice President and Chief Financial Officer, as well as the entire year.
I'd like to highlight that we have provided slides on our Investor Relations section of our website www Dot dot com. These slides provide additional information as my operations first quarter results.
Barca Tonight information reconciling non-GAAP financial measures discussed and the most directly comparable GAAP financial measures on our website as well.
Today's conference call contains certain projections and other forward looking statements.
These statements are subject to risks and uncertainties that may cause actual results to differ.
Additional information on factors that could cause our results to differ are available in the company. Thank you.
A replay will be made available for 30 days following the call on our website.
And here, we have a lot of additional time for question and answers at the end of our prepared remarks, we ask that depends limit their questions are primary and one follow up with that I will now turn the call over to Mike.
Thank you Joanna one point to begin with a reminder, about the importance of reliable and affordable.
As well as a continued focus on energy transition.
<unk> made progress on both.
First our core low carbon intensity E&P business delivered on expectations.
Production was in line with guidance, which accounted for a previously announced C. G. P. One maintenance.
Along with the lost Hills divestiture.
And the business generated $61 million of free cash flow during the first quarter.
After the impacts of these two events if you normalize for the CGP one outage, our free cash flow would have been $105 million.
Due to a favorable commodity outlook and strong anticipated returns we are expanding our drilling program in the Los Angeles basin by adding an additional rig in our Wilmington field.
For a total of five drilling rigs and.
Our overall operations.
And we are raising our 2022 oil production by 1000 barrels of oil burden raising the 2022 midpoint guidance of our EBITDAX by approximately $8 million and the midpoint free cash flow guidance by nearly $53 million for the full year.
Additionally throughout the quarter, we continued to advance our commitment to the energy transition.
On the permitting side Syracuse carbon management team submitted two classics permits for an incremental 80 million metric tons of Sidoti sequestration for two new projects.
In the Sacramento basin, thereby creating a second C O two storage network and the San Francisco back Bay area.
With these two permit applications were more than halfway to our 2022 goal of 200 million metric tonnes of complete permit applications submitted.
On carbon terrible one we continue to have a very constructive conversation with them with our members who represent approximately 20 million tonnes of emissions per unit.
And our intent.
Remains the same on carbon durable one we are targeting year end 2022 for selection of the first $1 million.
<unk> per annum.
Her contract.
Additionally on CBD one you have submitted project permit which include the Kern County conditional use permit.
Our current county environmental impact.
And EPA monitoring reporting and verification plan.
And we are working to submit an L. CFS application for <unk> in the third quarter of this year.
These efforts highlight CRT is uniquely positioned asset base that allows us to provide much needed low carbon energy today and net zero fuel for the future.
Second as we envisioned a net zero future, we believe it will be necessary to leverage existing infrastructure to distribute low carbon and net zero solutions by creating a lower and more specifically in emissions free fuel.
We are therefore excited about our prospects of creating the first net zero carbon barrel in California.
As technology advances projects.
Projects technologically advanced projects can create additional energy transition jobs in our states, while also offering californians fuel with a substantially lower carbon intensity.
Then back of an imported barrel and further lowering our overall cotwo emissions and the state's carbon emissions.
Therefore, this net zero energy is the solution and emissions are the enemy so let's focus on eliminating emissions.
Report by the Intergovernmental panel on climate change for the IPCC.
Recently cited carbon dioxide dioxide removal is an essential step to meet the targets of the Paris accord.
Validating our view of the importance of building out our carbon management business via carbon terrible Historic third party emissions.
Thereby reducing atmospheric cotwo concentration and.
In addition to this it is imperative that CRC finds ways to abate, our own emissions and make progress towards our own full scope 2045, net zero goal as well <unk>.
Full scope being not only scope, one and two but also offsetting scope three emissions.
We're a true full scope net zero.
We evaluate our portfolio and estimated that we have approximately 200 million barrels.
Potential Ccs plus reserves at our Elk Hills field, utilizing cotwo, meaning CRC has the opportunity to permanently sequence for tier two emissions, while replacing some of our production with an incremental supply of net zero barrels.
For the past 12 months, we have analyzed and reviewed the Doa supported feed study results for our Cal capture project.
At CRC 550 megawatts of those Powerpoint.
As a reminder.
This project captures the flue gas off the power plant for permanent storage and oil producing reservoirs.
We concluded that further evaluation of operational strategies and cost proposals may yield better results and increase the viability of this project.
As a result, we have agreed to explore the development of next carbon solutions for NCS.
Technology based on a F E L two or pre feed study, which suggests significant capital reduction and operational improvements could be made.
Through the original study.
Additionally, NCS has performed over 11 <unk> feed studies and has identified opportunities that work with low concentration cotwo emissions similar to those at the Elk Hills power plant.
NCS has expected to conduct this feed study over the next six plus months.
And positions us for an investment decision by the end of 2023.
The project is slated for the Stephens reservoir at Elk Hills.
Which has similar characteristics to <unk>.
And is compliant with LCR requirements and eligible for 45 key credits.
Said simply this means permanent COC storage.
Project.
As expected to yield.
Approximately $1 4 million tonnes of injected cotr missions per annum or.
Our 28 million tons for the life of the project.
And producing an incremental 7000 barrels of net zero oil per day.
To put things in perspective, California leads and domestic electric vehicle sales with approximately 200000 sales in 2021.
Through Crc's Cal capture project equivalent emissions.
From 300000 gas fueled vehicles will effectively be removed each year from the road.
Further supporting California's climate goals.
And the Paris climate accord.
Said differently the captured emissions.
Going to power and 300000 Gaslog passenger vehicles every year with net zero fuel.
Create net zero tailpipe emissions.
We see this as one of the most efficient and economical ways implemented energy transition broadly while leveraging existing these states existing infrastructure.
This full scope net zero barrel will be made in California by Californians and.
In a state that has ambitious climate goals, but also relies on crude imported from high carbon intensity sources with less stringent environmental standards to meet its Matt.
We believe carbon management as a natural extension of our core competencies and CRC is able to bring scaleable and commercial carbon management solutions to help advance the energy transition to a lower carbon future.
Switching gears.
With ample liquidity of $744 million, we maintained our disciplined investment approach and solid financial Foundation.
We continue to see our equity deeply underappreciated and therefore, we are increasing our share repurchase program by $300 million.
So a total of $650 million and extending it through the second quarter of 2003.
We believe this is the best best path to providing returns to shareholders.
Again, I'd like to thank our employees for.
Their dedication and hard work are low carbon intensity E&P in carbon management teams continue to deliver strong results.
Thank you for being here today.
And with that I'll turn the call over to Francesco.
Thanks, Mac good afternoon, everyone and thank you for joining us on this call.
As Mac mentioned 2022 began on a good note for CRC.
During the first quarter, we produced 88000 net barrels of oil equivalent per day in line with our expectation.
Given the planned <unk> maintenance and lost sales sale.
Speaking of CGP, one I would like to highlight that work was performed safely and ahead of schedule and we would like to thank the team for their efforts.
CRC has generated positive free cash flow for the last five quarters in a row.
With $61 million during the quarter and $206 million of adjusted EBITDAX.
This demonstrates crc's significant cash generation capability.
And potential for sustainable shareholder returns.
In fact after investing in our four rig drilling program and advancing our carbon management business. We returned over 100% over the first quarter's free cash flow through a combination of our share repurchase program and our <unk> 17 per share dividend.
Given the confidence in our assets and commodity backdrop, we're expanding our SRT like $300 million through the second quarter of 2023 for a total program of $650 million.
We're also declaring a <unk> 17 per share dividend for the second quarter.
Commodity realizations remained strong across all of our streams and for the remaining of 2022, we expect realizations to be within historical norms.
Despite these strong realizations are legacy RVO credit agreement hedges continued to be a headwind, resulting in a quarterly $181 million cash loss.
Moving forward and taking into consideration the additional flexibility within the revised RV ELD Amendment.
Our forward hedging strategy will focus on maintaining financial discipline protecting our downside, while supporting our capital allocation objectives, including the investment in our E&P assets growing carbon management business and shareholder return initiatives.
With respect to the new RV L Amendment.
Post quarter end CRC success successfully amended the <unk> credit agreement for two key items subject to a one five times or lower leverage test.
First Trc will no longer have minimum or rolling hedging requirements.
The second item allows us for unlimited restricted payments basket, providing additional flexibility for share repurchases or other shareholder returns and investments in our carbon management business.
As we turn to the cost side of the business on slide nine we.
We saw a total quarterly operating costs rise by nearly $2 per Boe.
Quarter over quarter, mainly as a result of loss production from GBP one.
In addition increases to natural gas prices drove energy related operating costs, 22% higher on a per Boe basis from the previous quarter.
Per unit non energy operating costs were mostly in line with expectations accounting for the CVP one plant turnaround.
As a result, we expect our per barrel non energy operating costs to return to our normal levels for the remainder of the year.
During the quarter, we invested $99 million of capital.
Which includes $65 million of PNC and capital Workovers and approximately $15 million for CPP one maintenance.
Given the improved commodity environment and the expected results of 1 billion program irr's of over 100%.
We are adding a fifth rig.
Our Wilmington field in long Beach.
This rig is expected to bring an additional 500 net barrels of oil per day to our exit production assuming flat current prices.
I'd like to take a moment to discuss our Wilmington field assets.
These are high quality waterflood with high cumulative recoveries low decline rates and low maintenance capital needs.
We expect irr's of new wells to be above a 160% at current commodity levels with paybacks of around one year, which.
Which is similar to the rest of our 2022 drilling program.
We continue to see the strength of our assets and the depth of our inventory perform above our expectations.
I'd like to remind you that the PV 10 of our proved reserves in 2021 SEC prices was $6 2 billion.
Which grows to $8 billion at $80, Brent and it's more than double our current enterprise value.
We expect our 2022 drilling program to deliver NPV of $445 million or $5 73 per share and brings forward value to our PDP, which already represent approximately 80% of the company 84% of the company's value.
We continue to see significant portfolio optionality in our low decline assets.
With a large number of drilling locations invest mineral acreage.
With close to 14 years of reserve life would be continue to self fund our low carbon E&P business.
Stained to really deploy additional shareholder returns and fund our carbon management activities.
The first quarter of 2022 was CRC started this quarter of share repurchases to date.
Further demonstrating crc's commitment to shareholder returns.
We have repurchased approximately 239 million since the inception of the program.
Salting and the repurchase of approximately 7% of our shares that we had at the emergence.
Even after a quarter of higher capital investment and shareholder returns, we continue to build our cash balance to $328 million at the end of the quarter.
<unk> 305.
Of cash at the end of 2021.
And improve our already strong net leverage ratio of less than half a turn.
Moving to our 2022 corporate guidance on slide 15.
And given the rise in longer term outlook for commodity prices, we're adjusting our 'twenty two guidance to reflect $98 oil price and $5 30 natural gas pipes.
As well as the impact show an additional rig in the Los Angeles Basin higher energy prices and some reclassifications.
In summary, we are raising our oil production guidance by 1000 net barrels per day, primarily due to the addition of the Wilmington field rig.
We're raising our 2022 full year operating cost guidance by $40 million, primarily due to higher natural gas prices, which are driving our energy costs are driving up our energy cost and the cost of gas for our steam floods.
As a reminder, this increases our net benefit to CRC.
We are net long natural gas.
We are raising our 2022 E&P capital program by $25 million.
The addition of the Wilmington field right.
Additionally, on the carbon management front, we're adjusting our full year estimate of carbon management capital.
To remove approximately $15 million of expected lease acquisition costs that will be treated as carbon management expenses instead.
Reflecting all of these changes, we're increasing our 2022 capital program by $10 million.
Finally, we expect to pay between $30 million to $40 million in cash for the year.
As a result, we are raising our corporate free cash flow and adjusted EBITDAX guidance by 17% and 11% at the midpoint respectively.
Of note prior to our carbon management business spending CRC is expected to generate between 425 and $480 million of free cash flow from the E&P business.
To conclude CRC has a great start to the year operating safely and prioritizing high return projects.
On an exit to exit rate, we plan to maintain production this year, while only spending approximately $275 million.
D&C and work over capital.
We're excited to continue to develop our low carbon intensity assets and with the addition of a fifth grade.
Additionally, we continued to build Crc's carbon management business that we explore additional options to further drive value and increase shareholder returns.
Please note that we have provided detail analysis of our quarter financial and operational results and our 2022 guidance and the attachment to our earnings release.
And Im not turn the call back over to Max for closing remarks.
Thank you Francesco.
In conclusion, we continue to believe that CRC is well positioned for the future.
And to lead the energy transition is an E&P company.
Company has a sound financial position, well managed operations and a growing carbon management business.
Thank you for your interest in Trc.
And for joining us on today's call.
We will now open the line for questions operator.
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 are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question will come from Scott Hanold with RBC capital.
You May now go ahead.
Yeah. Thanks, So my.
My first question.
On this call capture.
Visiting it now with NCS can you give us a little bit of background. Obviously, you had the D. <unk> study you all got it in there.
How did you get to the point, where you looked at this new potential solution is that something that's in in place already and other areas that can demonstrate you can do dirty captured a lower cost.
Did you go to them do they come to you can you just give us a little sense of the background and really what the key factor is that makes you a little bit more excited about this other process.
Yeah sure first hi, Scott how are you.
Good.
So here we are.
We have interacted with MTS next decade.
Over the course of as we started developing out the carbon management business as we went through the feed study and I'm going to turn this over to Sean currency is leading the effort here, but our chief operating officer.
As we went through the feed study and came to conclusion with the OECD study. We are also in the background working other carbon management activities, some of which with next decade thinking about how to use capture equipment and.
We came to the realization that over time, we can start to optimize as we proceeded through and.
So that's why we are embarking on this new.
Feed study with MTS I'm going to turn it over to Sean to talk about some of the benefits.
This is Sean.
Yes.
As Mac mentioned, we were advancing our work on the feed study with the Doe originally and in parallel with that we continue to engage with other technology parties that were.
Bringing us different solutions to capture the carbon at Elk Hills.
As you know a lot of this technology has been around it just hasn't been applied at the scale and we were able to learn some things to be that we're really encouraging when we started engaging with with next decade on the technology.
They bring a lot of experience there.
We've looked at this around the world and we're really excited to have them.
Looking at our Elk Hills plant here as you know.
<unk> sales on top of our storage reservoir and so we're excited to be advancing this program.
Great and then my follow up question is you know I'm going to stick on.
Obviously, the carbon management side of things, but.
I guess.
Recently, the L. CFS credits have been a little bit weaker can you.
Give us a sense of what your view of that market is with what's going on there where do you think it's going to go and also you know the how.
How does that impact the economics of of some of these projects Youre looking at with with where those credits have gone here recently.
Yes, Scott so.
First of all I don't think that we would underwrite projects based awesome, depending upon where they all TFS project business, we're using the type curve they were already pulled down a bit.
And so.
When we think about it we think about the total opportunity set being <unk> at a price as well as 45 Q on the underwriting these projects and obviously we're going after.
The highest value projects first.
With respect to the <unk> market, let me turn it over to Jay our Chief commercial officer.
Good morning, Scott.
That points out none of our projects have been examined for evaluating given the spot price for CFS.
Okay.
Outcomes.
Candidly with California to achieve its carbon neutral objectives, the timeline they want to specifically involving electrification.
Youre going to need to see some modification to this program as it moves forward.
Today's programming.
As Scott and the longer term I think as Jay says, we remain really bullish on the implementation to get.
In California by 2045, and if you believe that Thats. The principle push that's going to change regulations change marketing NGL CFS add things PDL CFS.
Program.
We remain.
We believe that that will drive prices.
Back up it's going to be necessary to expand that to get to net zero youre going to have to go higher up on the marginal cost curve in some of these captured.
In the places that we're trying to capture.
Carbon from and so that will eventually be getting zero, you'll have to drive prices higher.
Okay, and then as part of that question did you all have a sense of what would.
Caused some of the recent pricing pressure.
Everybody has their theory and particular end points of the culprit.
The most widely circulated corporate has been the movement of ethanol to California.
I understand.
Got it thank you.
Our next question will come from Leo Mariani with Keybanc you may.
Oh go ahead.
Yes.
Yeah.
Hey, guys.
I wanted to quickly touch base on the decision to add the rig here at Wilmington.
When does that rig show up and I guess that was a little surprised to see that it would only bump capex by $25 million. There is it a pretty limited program here in.
In 'twenty two because they talk about like a 1500 barrel a day impact of the exit rate.
Yes.
This is Sean.
The rig starting in the second half of the year and so that that amount of capital just for the program for the remainder of 2020.
Okay.
I also wanted to ask about cash taxes.
Didn't really book anything in the in the first quarter from what I can see in our financials.
Do you all think you're going to start having to pay some cash taxes here, just given where prices are in 2022.
Hey, Leo This is Francisco, yes, we do see.
Paying some cash taxes in fact, we're paying cash taxes.
If you compare our guidance for this quarter it came down from from prior.
Guidance, given the launch here in California that.
We released our ability to be able to use some nols. So we do so the guide is slower, but we do see ourselves paying some cash taxes.
Okay, I mean is that going to be kind of.
Limited do you think you'll ramp up to be being more of a full payer next year can you just give us any high level sense, if we continue to see high commodity prices.
Yes, it really depends where the prices go up but I would say.
You're seeing it.
Nols and those are not in there. So you would expect if prices continue where they are at the detect still goes back to more of our statutory tax rate, which was much lower rates right. Now so I mean in distributed events, but what I would see us closer to that full tax payments in the coming.
Yes, if prices stay where they are.
Okay, and then just a question on LOE I saw you raise the LOE guidance a little bit.
Here in 'twenty, two I guess, if I just take your first quarter run rate LOE.
And kind of multiply it by four it puts me a little bit above the annual guide and I think first quarter was kind of a low on production for the year and since first quarter Ive only seen energy cost come up so well, there's something unique about the low in the first quarter, where your confidence can start coming down here in the subsequent quarters can you just give me more information on that.
I'm going to.
Francisco give you the specifics of the easy answer is it's just the denominator right. It's the number of barrels produced in the quarter was impacted by CGP, one and so therefore, it drives a dollar per BOE up and I think that if you make that adjustment would be shown until a couple of years, you'll get back to more of a normalized run rate. So and then if you take a look at.
The full year guidance I don't think we've reflected the nearly four times the first quarter.
Yeah, that's right I mean, there are some seasonality and cost but.
As Mike is saying, it's really we have less barrels flowing let's viewing is growing in the quarter due the CPP one that gets normalized starting in April .
That's our guide reflects our view on where the costs are going to be which ultimately everything gets normalized back to where we were before the maintenance.
Okay, and then just lastly on the hedging just wanted to make sure I understand the messaging here.
Secondly is can be more limited hedging going forward and maybe just using more floors collars that and trying to give you all sell some upside here can you just give me a little color around the hedging.
Yes, Leo So page 23.
The presentation provides an overview by quarter of the forward look on the hedges broken down.
By a couple of things I think one of the things that Francisco covered was that we amended the RV open that required it.
At the levels that were previously seen we have done that once before but we have further removed that requirement now with all the elements.
The bankruptcy, we had a number of hedges that had been put on a rolling period of time those hedges put subsequent maintenance of that RVO covenant and I will turn this over to Jay basically account for 90% of the hedges put on now with respect to our go forward position in what we call strategic hedges into the third bucket there.
I'll, let Jay answer that.
Okay.
Yeah, Let me give you a little more color on the background that kind of offset the higher level, but at the time of emergence of a covenant.
Required the company to hedged 75% of its crude production for two years and 50% for the third year.
That was done at a 40% to $45 price environment as you might expect the impacts were significant.
Looking at page 23 that would be the first row.
You go down one row.
That's reflective of two things first of all we had an ongoing obligation to maintain that 50% on a rolling basis. In addition to that.
Again, referencing back to the 40% to $45 price environment.
We moved the hedged more prices.
But we're originally contracted significantly from the $40 range $60 plus range.
Those transactions are captured in the second.
The third line.
Reflective of.
Fairly limited number of transactions Atlanta, since then I would point out that.
Frankly additional hedges.
Material regard had nothing advocates all of 'twenty one.
You had these together definitely come up with the total of the head Mark.
Going forward as mentioned by Francisco and Matt touched on until the <unk> agreement provide a great deal more flexibility.
It gives us more flexibility in terms of quantum it also gives us more flexibility in terms of the tools. We use so again youre going to find we're going to be focused on the hedging program on maintenance.
Pre tax cash flow.
The whole activity with that debt service, we've got the carbon business.
And we've got returns to shareholders, Mr pointed garner our hedging going forward.
I would just add I think your question was where do you see your hedges.
Going forward and right now if you look at 'twenty three obviously.
The of the program that was put in before it's lighter on the legacy hedges that were put into the RVO that obviously provides an update to our cash flow and EBITDAX and I would I would also say that given the hedge levels that we have out there we're comfortable right now with our hedge position and that's why we haven't really had since the fall of 2021 now.
Change in the market and we may change that but we're comfortable now.
Our next question will come from Doug Leggate with Bank of America.
You May now go ahead.
Thanks, Joe and good morning, guys. Thanks for taking my question.
Mike one of the <unk>.
One of the ways too.
Poor five year levers to the commodity is to lean into.
A little bit more activity and we've done that by adding a rig bucket Wilmington with this quarter.
Just curious how youre thinking about the go forward picture because obviously the.
Commodity deck on your exposure to that has changed dramatically.
She came out of bankruptcy and so as you think about what you inherited a CEO versus outlook you have today.
How do we think about.
Whether you might want to get a bit more aggressive in trying to recover some of the production loss over the last five years.
Good morning, Doug.
Look in the fourth quarter or late last year, we brought on a fourth rig.
Now we brought on a fifth rig we.
We continue to.
Think about how we deploy it.
Boy, our capital across the portfolio that portfolio being shareholder returns through the drill bit where in the carbon management business and we want to be very prudent about where we are now you are right with the commodity backdrop. We continue to explore that's why we're bringing on this fifth grade we're evaluating we're constantly evaluating should we.
Bring on another rig given.
Given the market conditions.
Or should the market conditions change, we also lay down rigs.
But right now our intent is to stick with the five rig program continue to evaluate and be ready.
The board of six rig.
If the markets, which is if we choose but the market is receptive to that.
As part of our portfolio minutes, maybe you want to expand on how we thought about some deployments through the drill bit for instance.
This is francisco.
Yes first of all I think we have most of our as you know most of our deals are operated by CRC.
You have high NRI. So it gives us a lot of control.
The movements on adding.
More rigs.
We will have a big inventory of projects the one.
Listen to price has been the move in natural gas prices, it's putting.
Gasior projects into the mix.
We looked at the portfolio options.
We were able to given the prices right now we're able to basically check the box deliver on shareholder returns.
Are you able to continue funding our carbon managed some business and then we said we would evaluate and stay flexible and what are the next door would go in and we're seeing very attractive returns on our wells.
We chose the elevation in Wilmington, They were ready to go ahead, a number of big projects and wells, we're drilling 10 wells there.
We will continue we're looking we have quite a bit more inventory that's ready to go this year and we will just have to make a decision what's the next August .
Well guys I appreciate the answers you've kind of taken the words out of my life for my second question.
Which is the relative capital allocation between oil and gas I'm going to save money.
Carbon questions rather ESG. It in next week. So thank you for a while but.
It relates to if you go back and look at legacy CRC.
A pivot a number of years ago to think about.
More aggressive development of your of the gas assets in your portfolio. So I was kind of really what I wanted to go here because we're not hedged on gas.
And my understanding is it's the permitting work is quite rich on the gas opportunity relative to the all opportunities. So I'm. Just wondering if you can maybe flesh that out just a little bit more consistent with your mind in terms of.
What that could look like.
Significant gas opportunity currently within CRC.
Got it.
Must be reading our minds at some point because it's a very recent conversation we've been having about the Sacramento basin, which is our big gas field, obviously with the changes in that commodity which has been substantial over the last couple of months. We've looked at it we're not committing are saying, we're going to do anything but it is definitely a ton.
The top of our minds impact for instance group Shawn and I were just talking about.
What that opportunity might look like.
So nothing to say here.
It's almost like you're inside our heads.
Just to.
Yep.
Yes.
The ratio of one versus gas given where gas is right now it really comes into play and where the ordinary the largest natural gas through a certain states. It's not just the Sac basin, but we also can build more gas and kill some EV. So you do have the inventory we hadn't had to think about gas relative to oil.
But that ratio is getting to be much more attractive in this wet gas wells are.
Pretty much more competitive.
Terrific. Thanks, very much needed and we'll look forward to seeing you next week. Thank you.
Thanks, Don.
Our next question will come from Scott Hanold with RBC capital you May now go ahead.
Hey, Thanks, one follow up here and just looking at the buybacks and the pace of what you. All are doing obviously, you made a pretty big step up ended and extended the window a little bit but can you remind us. If you know how you go about that is it is a very opportunistic do you have a <unk> five plan in place and also have you considered.
Looking at privately negotiated kind of transactions to suck up some liquidity from the non traditional holders.
Yeah.
Hey, Scott.
Yes, so open market <unk> has been historically, how we've been bringing the program.
We find that as a really really good way to participate in the market and buyback our shares.
We do have capacity to look at other forms of buybacks going forward, but for now we're staying flexible and just seeing where when the market is growing.
Thank you.
Our next question will come from Eric <unk> with Goldentree.
Oh go ahead.
Hey, good morning, guys. Thanks for the call.
Great to see you guys increasing activity levels.
Just wanted to see if you could provide a little more clarity on what the production cadence might look like.
As we head into Q2 and to the to the end of the year.
And one specific question just trying to understand it seemed like it at the Q4 presentation.
Exit rate oil guidance was it was around to keep it flat at around 58, five a day.
Just wondering if now we should be expecting that to be.
1.5 thousand Doa.
Barrels of oil per day higher.
By virtue of the expanded drilling program.
Yeah, Hey, Eric how are you.
We.
The simple answer here is that it's that darn PSC.
As we came into the year, we were more in the 80 low 80 <unk> now we're in the mid nineties and because of that we lose barrels on net production we have.
Have offset more than.
We fully offset those with this new one five or 500, a day on exit.
But it <unk> seem to add to that no I mean, we had talked about offsetting the barrels to be sold.
On the most wholesale prices.
Prices have stayed the same flat to where we were the last time, we had earnings.
It would've been the caveat some growth we've seen an increase in oil prices.
Uh huh.
If you remember for every $1 change in Brent prices.
Loose a 100 barrels.
Due to the PSA effect and it goes the other way as well.
So we've seen 15 $20 move in oil prices. So we used the net production that way so the activity.
With the Pittsburgh should help offset that.
Yes.
It's one of these ironic things.
Eric.
Moving the barrel visit the FCA because the prices are going up we will take the prices going up.
Yes, it seems like it seems like a good problem just as we think about the production progression moving from sort of Q1 to the rest of your issue is oil oil production, you're going to be sort of.
Slowly climbing throughout the year to get back to that 58, and a half level is that how we should think about it in.
It looked like on the gas and NGL side, it looked like when you adjust.
For the for the.
The processing plant being down it looks like production was almost flattish from Q4 to Q1 can you just give me a little bit more help on kind of what I should see for both both streams.
And in the remaining quarters.
I think youre right on the Ngls from the gas and if you think about prudently add this rig in the second half as Sean said, you'll see that creep up towards the exit rate, obviously and so that's it.
Pretty bump in the second half of the year, because that's the place and PSC effects of the PSC effects down for the full year because of the prices on the front end or even higher.
And then.
That gets eaten back into her ups taken care of if you will the opposite direction, we pulled back up throughout the second half of the year Okay.
Okay.
Those are very degrees of difference so Erik it's not big swings in our production.
Alright, I appreciate that.
Great well. Thanks, Thanks for that commentary thanks for the call and all the transparency you guys are giving and just wanted to sort of voice what I think Paul was Doug was getting at which is that.
We're definitely supportive of the increase in drilling activity and I imagine that the returns.
It kills must be spectacular with this gas and NGL price environment.
Look forward to seeing what you guys. What you guys can do in the second half.
Okay. Thanks, Eric.
Again, if you have a question. Please press Star then one.
Our next question will come from Ray Deacon with Petro Lotus.
Oh go ahead.
Yeah, Hey, Matt Good morning, I was I.
I had a question on the or a couple of questions on the C O two sequestration side.
From an agency standpoint is there.
If I look at the number of permits that are pending I see 14, or so did those permits require that you have a plan.
Do you know what kind of equipment is going to be used yet.
I'm asking.
Yes, I'm going to let Chris Gould, our Chief Sustainability Officer title that question, Yeah, Hey, good morning.
The EPA website for the plastics permits is that correct exactly right just checked it.
Understood.
Well I think what you see on that website.
Permits that are in.
Administratively complete which means an EPA has gone through.
Looked at the permit instead all of the different modules have been submitted.
So subsequent to that.
You make it onto the website posted.
Then after that they go through the technical review process and then at that point.
Hopefully you get the permit.
Right.
In terms of identification of.
Equipment I think is what your question was.
Certainly to get through.
Through the process, we hold ourselves to a very high standard on what submit technically.
In terms of capture and all the other things that.
Makeup of project are desirable to be in the permit.
I can't speak to all the permits that are on that website, but we hold ourselves.
Okay got it so if you're about to file another permit you'll be at some reading this correctly I think four out of the five.
At our submitted in California, So I guess you.
I guess, how is the process going communicating with these guys.
And moving forward how does it seem to you.
Yeah. So we've received.
On our first permits for carbon terrible one.
Yes.
The.
We have a scheduled.
Understanding that the UK is 18 to 24 months.
Carbon <unk> reservoirs are world class and therefore.
Tier two geological some frustration and.
Our permit filing was obviously on the website its administrative with complete and again, we believe technically.
We see a full round of comments from.
The EPA on the first reservoir that we submitted.
102 back in August last year, and we're in the process of responding as well as the second reservoir.
That application as well.
We are very pleased with the constructive dialogue and feedback that we're receiving.
From GPA and confident in the timeline.
Outlines.
Got it that's great.
And then I guess at what point I remember you went into a lot of detail about the stages of.
Development and I.
I was just wondering how far out do you need to get before project finance becomes an.
On option.
Okay.
Yeah, Ryan its Mike 17 of our deck.
Sort of a Gantt chart that outlines is with respect to CTV, one and our view is that we need to get the permit.
To underwrite and data on the first project.
Project as we get more comfortable with subsequent permits and the status of where they are we might be able to change that timing, but right now what we're looking to do is lineup limiters lineup.
You know that.
As well as our overall underwriting case and go.
Secondly, all of the day after we received the permit something like that that's our tuck.
And so that's why.
We continue to advance the emitter discussions and as Chris said, we've done he and his team have done a nice job.
And having a constructive.
Dialogue with EPA and advancing the permits and we think we can do that on the first carbon terrible one by the end of next year.
Hope that answers.
It does thanks very much.
Thanks Ryan.
This concludes our question and answer session.
To turn the conference back over to Mark Macfarlane for any closing remarks.
Yes, thank you and thanks for everyone.
Who joined our call today.
Richard your interests in CRC, we continue believe we're very well positioned as a.
Low fuel low carbon intensity fuel for today and a net zero fuel for the future of a good day. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.