Q4 2022 California Resources Corp Earnings Call
[music].
Good day and welcome to the California Resources Corporation fourth quarter earnings Conference call.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions.
To ask a question you May press Star then one.
Oh, I know Touchtone phone to withdraw your question. Please press Star then two.
Please note this event is being recorded.
And now I would like to turn the conference over to Joanna Park. Please Joana go ahead.
Welcome to California Resources Corporation fourth quarter 2022.
Call participating on today's call are Mac, Mcmillan, President and Chief Executive Officer.
Go down executive Vice President and Chief Financial Officer, as well as the entire Executive Committee I'd like to highlight that we have provided slides on our Investor Relations section of our website Www CRC com.
These slides provide additional information into our operations fourth quarter results we.
We have also provided information reconciling non-GAAP financial measures discussed to the most directly comparable GAAP financial measures on our website as well as in our earnings release.
Today, we are making some forward looking statements based on current expectations actual results could differ.
Factors described in our earnings release and in our 10-K and other periodic SEC filings.
Mind, you we have a lot of additional time for Q&A at the end of our prepared remarks.
We ask that participants limit their questions to one primary and one follow up with that I'll now turn the call over to me.
Great. Thank you Joanna and good morning, everyone and thank you for joining us today.
Over the past two plus years following the company's emergence from its financial restructuring we have evolved CRC into an enterprise focused on generating the highest cash flow from our assets and returning that cash to shareholders.
Case in point in 2022, we returned to 120% of free cash flow to shareholders through share repurchases and dividends.
And we bought back 14% of the company's outstanding shares since our emergence in late 2020.
We also saw a tremendous opportunity for carbon management and have built a solid business around that.
As any company Theres any focused company should do we continue to evolve.
As we look forward to 2023 and beyond we are announcing a strategic realignment of the company's business operations and structure to adapt to current circumstances and build on our strong momentum.
As I've said before and to say it simply we are focused on generating the highest cash flow per share possible from our E&P business. So we can return that cash to shareholders.
Another case in point, if you take 2022 free cash flow of $311 million and the average fully diluted shares outstanding of $77 6 million during the year.
We delivered $4 of free cash flow per share in 2022.
And if you take the midpoint of our 23 guidance of $385 million of free cash flow and our fully diluted shares outstanding of.
$73 6 million at the end of January we would expect to deliver $5.23 a free cash flow per share in 2023.
That would be roughly a 30% increase in cash flow per share and that is before we buy any more shares back in 2023, which would drive the results even higher.
That is the benefit of our low decline assets and the toggles, we have available to us in the business.
In connection with the strategic alignment.
We are announcing management and board changes to support the eventual separation of R. E N P and carbon management businesses. We are also cutting cost to match activity levels, and we plan to increase our financial flexibility to accelerate shareholder returns.
By taking these steps we believe we can create a different kind of energy company and drive cash flow per share growth.
With the revised corporate structure.
Francisco Leon will succeed me as CEO and I will step back from the day to day management role.
I will continue to serve on the board of CRC and will chair the newly formed board of our carbon terrible subsidiary, which will be devoted to overseeing the continued growth of the carbon management business.
Your existing CRC Nonexecutive directors, Andrew Bremner, and James Chapman will also serve on the subsidiary Board.
Together, we will provide the business with insight into the commercialization of new technologies provide expertise in corporate and financial structuring as well as provide knowledge relevant to early movers for carbon capture and storage in California.
I've had the tremendous opportunity to work with the great people of CRC and forged many great friendships and having spent more than two years working with Francisco side by side I am confident he is the right person to lead us at this exciting time and going forward.
I'll now turn it over to Francisco to share more details on the steps, we're taking to position our business for success Francisco.
Thanks, Mac and thank you everyone for joining the call.
I will focus my comments on the actions, we're taking to enhance value and deliver stronger shareholder returns and to maximize cash flow per share of the business.
But first we have provided detailed analysis about our 2022 quarterly and yearly financial and operational results and also our 2023 guidance in the attachments to our earnings release and in our slide deck I'll refer you to those documents for that information rather than cover them on this call.
But as you will see 2022 euro yearend financial results were very strong with over 300 million free cash flow, helping showcase a resilient and valuable portfolio of assets.
As we delivered on all of our 2022 priorities and look at what's in front of us in the next chapter we must continue to evolve.
So here's our plan for 2020 three.
We're going to focus our development and drilling plan on developing the highest returning projects with permits in hand.
That combined with well servicing and downhole maintenance will help reduce our base production declines.
We will do this by reducing capital investment to one and a half rigs, which is based on permits in hand in the Wilmington field, where high rate of return projects with short paybacks.
This constitutes a run rate E&P Capex program of 155 million per annum.
As demonstrated with our 2023 program and as you can see on slide 10 of our presentation.
We're also adding opex dollars to downhole maintenance, increasing our rig maintenance count by six to 38.
Which combined with our capital program, we expect to deliver.
5% to 7% total decline for the company.
We have a backlog of about 1000 wells that we can go after and returned to service and returned to engineering that allow us to make high impact investments with very little incremental operating expenditure dollars.
Even reduced activity levels across our E&P business. We're also looking to reduce all.
Other non energy operating cost and adjusted E&P, corporate and another DNA costs by 5% to 10% by year end.
Aligning our cost to activity level.
We have successfully implemented similar strategies in the past and believe that company is well positioned to identify and achieve additional cost reductions while maintaining the high operational and safety standards that CRC has achieved over the years.
In addition to the revisions to our operating plan. We're also pursuing ways to increase our financial flexibility and flexibility to bolster the company's ongoing shareholder return program and enable a potential future separation of the company.
To help achieve this financial flexibility, we intend to refinance the 600 million dollar high yield notes and extend or replace our RVO.
Clearly, having carbon terrible operate on a standalone basis will broaden capital sourcing options for that business.
Our continued focus on cost and our ability to maintain production due to the high quality of our assets gives us confidence in our cash flow projections and as such Crc's Board has authorized a 30% increase to the share repurchase program for a total of $1.1 billion.
With $640 million remaining of dry powder.
With this planning 2023 we expect to generate $455 million with the M. P free cash flow in total corporate after tax free cash flow of $385 million.
All of this we intend to return 100%.
The shareholders in 2020 three.
Tina and her track record of returning more than 100% of cash to shareholders and maximizing cash flow per share.
If market conditions persist in 'twenty 'twenty four and beyond.
We will repeat this plan.
If we assume a one and a half rig count going forward. We are confident that we can lower our capital plan of approximately $155 million of drilling and completion capital.
We can make the appropriate reductions to our cost structure that we expect will ensure that we deliver improving operating and financial metrics on a per share basis.
I am really excited about the future of CRC.
And look forward to working with our talented team to <unk>.
Take the steps to separate our quality low decline low carbon intensity and high cash flow generating E&P business, and our California, leading carbon terrible.
Which we will unlock which will help unlock the company's full potential for delivering value to shareholders.
I want to take a moment to thank mark for his leadership. These last two years and look forward to working with them to accelerate the growth of our carbon management business.
Thank you for your interest in CRC and thank you for joining us on the cost today.
We will now open the line for questions.
Operator.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one.
On your telephone keypad, if youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, well pause momentarily to assemble our roster.
Our first question comes from Scott Hanold from RBC capital.
Please go ahead.
Thank you appreciate it Hum Francesco congrats on the promotion well deserved.
And Mac you know you know congrats on and on.
On all your leadership to this point and in the future. So I'm good to see those those moves in place, but my first.
It could be around permitting.
And then maybe give a little bit of a multifaceted question, but let me give it a shot here.
Can you give us a sense you know the decision to go to you know this one and a half rig counting and lower activity pace you know.
Has your view changed on the litigation that's ongoing in Kern County has that has that changed that drove that opinion and then could you also give us a sense of like how many total permits do you have in hand, and in what basins and just to give us a sense of like how much.
Runway you have outside of 2023.
Hey, Scott Thanks for your nice words and in the question so.
You know when we issued the 8-K, a few weeks ago around the appeal process in Kern County in and think where we were looking to do today after getting feedback from all of our investors wish to showcase what the plan would be on a go forward basis and that's what we did today.
So the wanting to have rigs is has.
It effectively all concentrated in the Wilmington field as you know we're operating three fields at three basins.
In the Sacramento Basin, Kern County, San Joaquin Basin, and then the L. A basin so.
The litigation is only around Kern County, so that gives us optionality to go to leasehold in two basins.
We're focusing activity in the L a basin and the Wilmington field.
And we have a lora, one way, there, which kind of independent process to get permits.
We nothing has really changed around the appeal process. We when we said is okay. Obviously, we can get some good news there and we're also working on alternative plans around our individual fields sequel, I Rideshare remember this is a kern county wide permitting process, but we can still go to individual fields to get those.
Permits replace so we're working through that and nothing's really changed but what we wanted to provide was E. E view to our shareholders that are what we would do it.
He is the appeal process continues intrexon, so so to us there's upside to the story, we already communicated when we saw the impact.
We think we can deliver wanting to have rigs on a go forward basis is the appeal process continues to drag on.
Okay. Appreciate all that color and and as my follow up question I mean, there's a lot of different questions I could ask you about <unk>.
Obviously, you have to talk about the strategic kind of repositioning of the company in and could you give US you know your view of or the vision for what you think is going to transpire and and you know how you get there and the timeline. So it sounds like you're separating the two businesses do you do you have separate management teams and you know as is the path to separation first to get.
The EPA classics permit in hand, and then and then you know go down that path or is it a little bit more of a longer or shorter process.
No. It's God, Yeah, we haven't put out a specific timeline, but we mark and I and other members of the team we built together carbon terrible.
We think can see fantastic business very excited about that and in Dino as we talk to investors.
One understand better right now it's all integrated all consolidated the one understand better how each of them. The two businesses is is advancing on a go forward basis. So we wanted to start the beginning is to take the steps.
Mac moving.
Into back to the board, but then have a much more direct oversight into carbon turo mold by creating E E.
A boy he is a board seat at the sub level. So that that allows him to have that oversight and continued to do help from that standpoint are.
We also looking at cost of capital options and looking at flexibility of running the business and making sure. We have the right people in the right assets allocated to the two businesses that at the end of the day, we think should be run separately, but it's going to take some time to get there we would take in all the initial steps and it starts with the message.
<unk> today around our structuring decisions, but maybe Mac has a few additional thoughts to share about the carbon terrible.
Yeah, Hey, Scott good morning, or good afternoon, but look I'm really excited about sharing the carbon terrible subsidiary board and helping advance that but you're exactly right look we have a vision that these two businesses over time.
Need to be run and and potentially separated.
And that will mature over time. This is just the first step of many many as you look to stand up a business. It takes a lot of work, but where we're ready to meet that challenge and I'm excited about it it.
It is not dependent upon what happens with respect to different commercial actor commercialization activities of classics or any of that it's just over time theres a lot of connective tissue. If you will between the two businesses and we're going to start looking at how do we effectuate change into an eventual separation down the road.
Okay, Okay understood and I would assume that the financials are gonna be separated going forward is that going to happen or we'd see that pretty soon here.
Yeah, that's the intent to start given much more visibility into the cost structure in the financials of the business.
In the near future.
I appreciate it thank you.
Our next question comes from Nate Pendleton from Stifel.
Please go ahead.
Good morning, and congratulations Francisco.
Thanks Nate.
For my first question regarding the recent announcement about your planned direct air capture hub can you speak to how you view the potential for DAC compared to appoint tourists capture projects from an economic and an opportunity perspective for carbon terrible going forward.
Yeah, no absolutely need to think where we're very excited about that that consortium and I'm going to let Chris Gould, who was the architect of that that vision answer that question go ahead, Chris Hey, Good morning Nate.
Yeah happy to share that Tso.
The the the value proposition for direct air capture obviously it starts with this.
D O E opportunity right, it's a <unk>.
Three and a half billion dollar a funding opportunity that came out of the D. O for a technology. That's at the beginning stages of maturing and coming down the cost curve much like wind and solar did in the past we see the opportunity for direct air capture to have a very long runway.
Building over time.
It's estimated to be in the neighborhood of.
15% to 20% of the requirements worldwide and in California for emissions removals.
Removals actually.
So it's a it's a substantial significant.
Emissions opportunity for CTV.
The state is that.
To my knowledge, the leading target for direct air capture of North of 60 million tons per annum.
Through 2045, and that's the evidence of the.
The size and scale of it so we think it's.
A great opportunity for us to come in with the D O E funding and progress you'll know that.
The incentives are for direct air capture.
From 45, Q or $180 per ton. So they are the largest incentives.
In that program.
And in addition to that California is home to the largest concentration of carbon direct renewable credits.
From from Fortune 100 companies in Tech companies that are very eager to purchase these sorts of.
Instruments to offset and fulfill their net zero goals.
Thanks.
In a snack a just a couple of things first of all you know on the economics look if you look at the revenues are the highest that you know are going through 45, Q as Chris just said to something like carbon terrible throw the credits. If you will that we count as revenues, but the technical issue there, but any any event there are more credits that go to.
Through 45 to the DAC and there are two other forms of carbon capture and that's important but it's not enough because as you know the you know we're talking about parts per million, capturing so very low concentration out of the air and sea question.
That said, we're really excited about this and the D O P working and the consortium that Chris has been put together has put together and we're advancing and responding to the Dol's request and we hope to put the one of the DAC hubs here in California through that consortium and it's very very exciting I mean, I will tell you that.
The.
The the breadth and the.
And the participants of our DAC consortium are far greater than I ever expected, Chris has done a tremendous job getting it there and our response to it.
Whether it be through the government local communities College.
Colleges all the rest has been beyond expectation. So I just I'm just looking forward to keeping the momentum going here on on what Chris Who's built in at really a tremendous opportunity for us.
Absolutely thanks for that color.
As my follow up staying on the carbon management business for a moment can you provide any color around conversations are how they're progressing with the teacher CDMA agreements.
Yeah Nate.
We.
As you saw we've been.
I'll begin with when to see rate should to CDMA ace with lone Cypress in Grannis excited about blue hydrogen blue ammonium and then came the DAC hub in.
And you know, it's just a matter of a couple of months, we've been able to share some of the some of those developments around more of the greenfield projects.
Projects and but we're talking to all types of the meters. We are confident we have the leading position in the state and in the.
Several million tons of cool, but permits.
Permits in the Q, so we're getting a lot of deal flow. So.
Maybe we can now I'll turn it to Jv's, whose has it was leading the discussions on the emitter fronts. If he wants to add any more color. Thanks Francisco not ignite Francisco captured we're continuing conversations both with.
With existing emitters and Greenfield emitters.
Actually a pretty exciting time to be in the business.
But just.
Just as with the arrangements we've announced to date.
We will announce a subsequent arrangements.
When we've gotten too detailed parameters in terms or just trying to be a responsible in that regard, but I think the market's going to be placed.
And I guess, then Linda point out race.
You know existing emitters, we'd have to go through the price discovery that.
That takes time at the end of the day, our conditions in California are very different than the rest of the country around Ccs in the incentives that we receive so theres really no model, where we're building it we're having these commercial negotiations.
But that will take time, but we still focus on point towards submission. We're also very focused on our own emissions through Cal capture.
Made some really good progress on our feed studies.
That's going to be a really viable project. So so more to come but where we're like I said, we're talking to a lot of the meters and seeing a lot of deal flow and.
Just a matter of time before we can we can talk about the incremental activity there.
Great. Thanks for taking my question.
Thanks Nate.
We now have a question from Leo Mariani.
Ross.
Yeah.
Leo Please go ahead.
Yeah, Hi, everybody I just wanted to follow up on the kind of future of the E&P business. Here you guys are obviously talking about this kind of you know.
5% to 7% type of decline in the production and you're going to your basket to stave. It off I just wanted to get a little bit more information around that do you see this is more of a long term strategy for the company given that California hasn't been all that friendly tend to oil and gas companies you made a comment in your prepared remarks that this.
Is the plan for 'twenty, three but if market conditions persist. Perhaps this continues do you see this as more of a likely long term strat here or for whatever reason the permitting situation. Finally gets straightened out would you guys potentially go back to kind of holding production flat in the next handful of years, I think which was the original plan.
Alea yet so.
So so yeah, we're not going to get into kind of guidance for out the out years beyond 'twenty, three but what I will say is.
I think the market was able to see how we perform in 2022. When we ran four rigs kept production flat. So that mall I think it's clear to the market, what's maybe not as clear and we're hoping to highlight today is in this in this new.
This didn't you challenge from that from the appeal process in terms of how we would manage the company going forward right. So I really want to highlight the very low decline in our acids. The ability a lot of the value for CRC is concentrated on P. P. We're never a capital intensive business that needs to have a lot of <unk>.
Rigs to maintain production and to generate cash flow and you can see that flowed through our numbers right in a year, where we don't have all the permits we think we can deliver our plan for one and half breaks this year Oh, unless we get some some some a good outcome in the near term with the appeals process, but it's a one and a half rig is not going to be in.
The whole production, but you can see the cash flow generation of the business is extremely high and we're going to take every dollar to buy back shares so.
So you know going beyond 'twenty three right now we don't know where this is going to end up but I think we proved what we can do in 2022 with permits we're going to prove what we can do in 'twenty three with a more limited set of permits and doing the one and a half rig program.
Okay. So if I, maybe just frame this a different way if you guys had unlimited permits and twenty-three would you be laying the production decline.
So we had a poor pool permit we would be doing what we did in 2022.
Okay, that's what I was trying to get at.
And then just following up on the plan for this year everything is in the Wilmington deal. It sounds like focused on oil obviously gas prices in California have been pretty volatile, but generally speaking have been very robust.
Why not try to drill some some gas out there as well and in California, Obviously had I think you know some opportunities as promised to do that I believe.
Yeah, No we are we saw.
In particular in January very very strong natural gas prices around $47 per Mcf.
And that that's flowing as you know we are a net long producer of natural gas we produce about 36 30 Bcf more than we consume until we see those prices coming in very strong.
In the in the question with gas always it's very seasonal and it gets more difficult to time, but definitely where we're focused on natural gas in and trying to bring more and more gas onboarding and that's part of the plan here is to develop that inventory, but the.
I don't know Jay if you want add any other comments around where we see it in February and January and February by the way. We are now doing first quarter guidance, we're doing quarterly guidance and you can see the anticipated realizations of natural gas that we're expecting Q1 to those numbers.
Okay.
To speak to the realizations and what happened in December we generally market most of our sales gas on.
On the first of month index basis. So during.
During the month of December for example, when prices ran up mid month.
We went out there to participate now.
Obviously that approach served us pretty well.
First the month sales process service well in January and again in February .
To Francisco's point.
Roughly 90% to 95% of the natural gas consumed in Californian comes in from out of state, we like to have a larger impact going forward and that's part of our part of our plan to figure out where can we have that positive impact.
It maybe Mac doesn't want one thing done.
Yeah, I mean, that's the benefit of being in a long natural gas producer.
Producer you produce more than we consume it and it was a nice result in Jan and February .
Hey, Leo I, just wanted to go back and address something.
You you would pose the question in a hypothetical about rig count. Unfortunately, we don't deal in Hypotheticals, we deal in the circumstances that are in front of us and the circumstances that are in front of US is as we've laid out a drill plan. That's based off of permits in hand and have reduced the uncertainty associated with any outcome associated with Kern county, or any additional permits down there.
Obviously the question about gas is a good one because gas you know in the future has the possibility of being a transition aerie fuel if you will or at least it's viewed as that way and it's needed for the electrical grid out here and so that's good to have that vision, but the reality is as we're dealing with circumstances, all the time and what we look when we look at.
And in reality non hypothetical situation is how do we maximize cash flow generation and then what do we do with that cash.
Thank you we have a question now from that.
They are coming from Bank of America Kaley. Please go ahead.
Hey, good morning, guys. Thanks for taking my question. My first question is on cost.
CRC has always screening at the higher end up unit costs in the peer group pre Covid my understanding that you guys did much at the bottom yet.
Yet you're focusing your efforts here, so I want to understand what's different today or maybe to ask it differently on your what permits are you guys cutting cost.
Because you guys are declining this year between five and 7% are you know optimizing your permanent cost structure around and declining business.
Yeah, No Kelly, Hey, How's it going.
We have definitely we've taken a lot of cost over the last couple of years.
And in will continue to be focused on cost we did see like everybody else.
Inflationary pressures in those inflationary pressures that are driving cost in the business needs to be offset so that we can maintain the margins.
So I think we're just committed to continue to evaluate cost in a year like this year, we're guiding to lower production, we need to align that cost structure due to the production rate that that's kind of what that's what we're saying, but it's obviously.
A focus on cost it's just for their long term viability of the business is something that we always do.
What is sustaining capex at the moment.
Say it again what was the if you don't mind why what is sustaining capex the capital needed to hold the business Oh, it's for hold production flat.
Yeah, what we said.
Two to hold that in and Theres different moving parts, there, so opex and capex that ultimately helps us keep production flat, but when are we when we said is about $300 million keeps production flat entry to exit and this program is like you said more of a $1 55 run rate and that's where we're.
We're seeing where.
We're guiding to a 5% to 7% decline.
Got it my second question is on the Huntington Beach monetization. So pre bankruptcy. The thought was that that land was worth about $1 billion less remediation costs. What do you think that net value is today and what is the pathway to readying that asset for sale and ultimately executing on the sale.
Yeah, Yeah, Theres, a theres a lot in that question and I think when we mentioned in the past is we're focused on a smaller property and because theres a lot of things to work through as you sell assets, but we have a fantastic.
Our real estate portfolio or assets that can be turned into into real estate or in Elk Hills for example into the mid tier industrial Park. So we can we can do a lot with our fields.
The Huntington Beach field is the largest by most attractive piece of the portfolio from a future development.
But what we're doing there is we're starting abandonment we started the entitlement process, which is needed to change the surface use to the most appropriate and best use going forward, we're still producing oil and it's at a very very valuable.
Very profitable field so.
So where we're taking the steps we're trying to assess where I want to go but right now we're focused on monetizing the smaller property that ultimately helps inform the plans for the for the bigger piece of Atlanta.
Do you think it's going to be difficult to get the rights to change the use of that land from oil and gas production to commercial development of real estate.
We don't know I mean, it happens a lot in California, you can look there's.
A number of big developments land, that's been used for some foils, whom for other purposes and you can see.
You know these these projects get done but its timeline you scenario will win and that's the work than when you were starting to do.
Perfect. That's my two so I'll leave it there Matt Francesco congratulations to both of you guys.
Great. Thank you.
Our next question comes from Eric sees from Goldentree, Eric. Please go ahead.
Hey, guys congratulations to both you and on the on the <unk>.
The title changes.
My first question is.
With respect to the production guidance can you give us a sense of where.
You know not just 2023 average production.
But beyond Q1, where you've already given guidance can you give us a sense of the cadence the production cadence we should expect for Q2, Q3, Q4 or an exit rate level.
Yeah, No hey, Eric So we.
We are expecting as we said he very moderate decline as we go through the year.
We know we we went through.
Started the year exited the year last year had three rigs and obviously that carries into this year and now we're reducing the activity to now a one full time rig in Wilmington, So that step down in activity will I should tell you that over the next few quarters, we will we.
We will be declining and we think we can add opex dollars I mean that ultimately the most efficient dollar that we can put to work is around downhole maintenance because that means it's an existing wellbore that we just need to be back online followed by capital Workovers, which we take a different zones you shouldn't see in wallboard, and then Thirty's and new brand new well so bye bye.
By backing on the activity for new drilling.
That's the the capital needed to be able to fully offset the decline in that's where right now looking to more of a 5% to 7% decline year over year.
Okay and.
So you've given guidance for Q1, the midpoint of guidance is around 90000 a day.
And I guess for the full year.
The midpoint is around 88.
Okay.
What sort of suggest that hey, we could see production just stepping down sort of gradually.
You know maybe around 1000 Boe per day per quarter is that a fair way to too.
I appreciate that you don't know for sure and there will be unexpected twists and turns but is that a fair way for investors to sort of think about the progression here.
I mean, you quoted your numbers, we have Oh, obviously ranges than maybe some differences there but in terms of the way to think about it that's right. So we have production coming in from last year that benefits Q1.
But then you would expect a very gradual decline after that.
Okay, great. Thank you.
And just want to make sure I understand you've talked about a one and a half rig program through throughout the year does that mean three rigs in Q1, and then stepping down just to one rig for quarters, two three and four.
Yeah. It did we exited with three rigs.
In 22 of them, which means we entered in Q1 of this year and three rigs, but now we stepped down to just one rig in Wilmington.
That's great.
Thank you and I understand obviously, the permitting issues and.
San Joaquin Basin now, but in the L. A basin why why only one.
One rig there it seemed like given some of the dynamics.
You know around permitting there it would seem like an ideal time to be more active wow why only one run one rig there.
Yes, we as we looked at.
In a year like this year, we really wanted to.
Maximize cash flow and in you know what it's the ability of this asset too we do we've done this before sometimes you press rewarding you accelerated activity and some things you back away to this year. We felt the best dollar its were in Opex and downhole maintenance and capital Workovers, because obviously, where we're ranking the portfolio in a returns basis.
We think that's the best use for every dollar in in that doesn't mean that another.
Another rig in Wilmington would not be attractive it just relative to where we thought we wanted to be for for the year and what are the returns that we're getting or putting dollars in opex and capital Workovers, Eric It's Mac.
Just want to Echo, what Francisco said and I think that the key to this year with the one and a half rigs is to reduce uncertainty. So this is a plan based off of permits in hand, and as we go forward.
If the circumstances change.
We will consider those but right now after going through a.
Yeah.
Last year, several different rig lines and accounts of rig lines. We wanted to put forth. A plan that are stabilizing and then maximize the cash flow as Francisco said for the year.
Thank you we have a follow up question from Leo Mariani from Roth.
Leo Please go ahead.
Yeah, Hey, guys just wanted to default very quickly on the separation of the two businesses. So you clearly talked about laying some groundwork here and I understand there is preliminary steps involved here, but you.
It sounds to me like you guys are pretty much intent on eventually.
Getting these businesses you know separately do you envision potentially to carbon management business being a separate public company sort of down the road just trying to get a little bit more color on what the vision might be on the separate businesses here.
Yeah, Great question I don't know if I will answer it very clearly because we were working on a lot and we are focused on maximizing the value of the company I would tell you a meal that if I look at the reserves.
The company.
And if you look at the PDP value of the company.
And then look at what we think is a value for carbon management. We don't think it's they're reflected in the stock price. So we're going to take the steps to unlock that but in what form and what the timeline is we still need to weren't allowed to make sure we have the optimal outcome here.
Okay I appreciate that and then just on hedging.
Just given sort of the at least for now kind of a less focus on less capital would you guys anticipate doing less hedging with less forward Capex. How are you thinking about that.
Yeah. So you know we talked about in the past that a lot of the hedges that we had in place.
Or put in were put there when when we went to bankruptcy and those hedges are starting to roll off.
So we're seeing the benefit in particular 24, where.
And we don't have a lot of that impact of the bankruptcy hedges.
We think theres, a an amount of hedging that is needed in this business to be able to guarantee the returns as we invest on a go forward basis.
We will continue to assess where we are we'll see how the year progresses and how the markets behave in terms of oil but at.
At this point, we feel 'twenty three is adequately hedged in and we'll see we'll see what the.
As the year progresses, when we think of 'twenty four.
Okay. Thanks.
And this concludes our question and answer session I would like to turn the conference back over to Francisco Leon for any closing remarks. Please Francisco go ahead.
Great. Thanks, everybody for listening in and look forward to seeing a lot of our shareholders next week at the various conferences and thanks for tuning in.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.