Q4 2023 California Resources Corp Earnings Call

Operator: Good day, and welcome to the California Resources Corporation fourth quarter and year-end 2023 conference call. All participants will be in listen only mode.

Good day, and welcome to the California Resources Corporation fourth quarter, and yearend 20th twenty-three conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your teller.

Operator: Should you need assistance, please signal a conference specialist by pressing star, then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad.

Phone keypad.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded.

Operator: To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Joanna Park, Vice President of Investor Relations and Treasurer. Please go ahead.

I would now like to turn the conference over to Joanna Park, Vice President of Investor Relations and Treasurer. Please go ahead.

Noel Parks: Welcome to California Resources Corporation's fourth quarter and year-end 2023 conference call. Prepared comments today will come from our CEO, Francisco Leon, and our CFO, Nelly Molina. Following our prepared remarks, we will all be available to take your questions. Please limit your questions to one primary and one follow-up.

Noel Parks: Welcome to California Resources Corporation fourth quarter and year end 2023 conference call.

Noel Parks: Comments today will come from our CEO Francisco, Leon and our CFO Nelly Molina.

Noel Parks: Following our prepared remarks, we will all be available to take your questions. Please limit your questions to one primary and one follow up.

Noel Parks: Our remarks today include forward-looking statements based on current expectations. However, actual results may differ materially due to factors described in our earnings release and in our SEC filings. We undertake no obligation to update these statements as a result of new information or future events. We will also discuss our pending merger with ERA. We encourage you to read our merger proxy statement when it is available because it will contain important information. Copies of this and other relevant documents will be available free of charge on our website and on the SEC's website.

Noel Parks: It makes today include forward looking statements based on current expectations actual results may differ materially due to factors described in our earnings release and in our SEC filings. We undertake no obligation to update these statements as a result of new information or future events.

Noel Parks: We will also discuss our pending merger with Harris, we encourage you to read our merger proxy statement when available because they will contain important information copy.

Noel Parks: Copies of this and other relevant documents will be available free of charge on our website and on the Sec's website additional information about the individuals participating in our proxy solicitation such as our directors and officers and their interests will be provided in our merger proxy statement.

Noel Parks: Additional information about the individuals participating in our proxy solicitation, such as our directors and officers and their interests, will be provided in our merger proxy statement. We've also provided information reconciling non-GAAP financial measures discussed today to the most directly comparable GAAP financial measures on our website as well as in our earnings report. I will now turn the call over to Francisco. Thank you, Joanna.

Also provided information reconciling non-GAAP financial measures discussed today to the most directly comparable GAAP financial measures on our website as well as in our earnings release I will now turn the call over to Francisco.

Francisco: Thank you Joanna welcome everyone and thanks for joining us.

Francisco Leon: Welcome, everyone, and thanks for joining us. I realize we just held a call about two weeks ago when we announced our exciting agreement to merge with Aera Energy. So we will keep our comments relatively brief, but we do have some important information to share with you. We will cover three topics today.

Francisco: I realize we just held a call about two weeks ago, when we announced our exciting agreement to merge with their energy so.

Francisco: So we will keep our comments relatively brief but we do have some important information to share with you.

Francisco: We will cover three topics today.

Francisco Leon: First, we will summarize our 2023 results and discuss how our strategy created significant value for shareholders. We took decisive steps to strengthen our acid base, lower our costs, and grow our carbon management. These steps position us to continue to build value in 2024 and beyond. Second, we will discuss an update on our CCS business. Real Estate Portfolio and Merger with AIRA. Lastly, we will summarize our 2024 outlook and steps it will take to deliver another year of strong results. Let's talk about 2023.

Francisco: First we will summarize our 2023 results.

Francisco: And how our strategy created significant value to shareholders.

Francisco: We took decisive steps to strengthen our asset base lower our cost and grow our carbon management business.

Francisco: These steps position us to continue to build value in 'twenty 'twenty four and beyond.

Francisco: Second we will cover an update on our Ccs business.

Francisco: Our real estate portfolio.

Francisco: And merger with Ara.

Francisco: Lastly, we will summarize our 'twenty 'twenty four outlook and steps it will take to deliver another year of strong results.

Francisco: Let's talk about 2020 three.

Francisco Leon: We accomplished a lot over the last year. Our E&P operations had a strong year with a low base decline, which we achieved by deploying less capital than we had forecast. Our team continues to find new and innovative ways to reduce costs and enhance margins. We accomplish these things with a continued focus on safety. In 2023, the team achieved the company's lowest total recordable incident rate, excluding the period during COVID.

Francisco: We accomplished a lot over the last year.

Francisco: Our E&P operations had a strong year with our low base decline, which we achieved by deploying less capital than we had forecasted.

Francisco: Our team continued to find new and innovative ways to reduce costs and enhance margins.

Francisco: We accomplished these things with a continued focus on safety.

Francisco: In 'twenty to 'twenty three the team achieved the company's lowest total recordable incident rate excluding the period during COVID-19.

Francisco Leon: Our carbon management business continues to build for the future as we reach first mover milestones, such as the EPA's release of the state's first draft Class 6 permits for CCS, that will accelerate the decarbonization of California. In addition, California Direct Air Capture, in partnership with leading DAC technology companies such as Climeworks and Abnos, was selected for DOE funds. We continue to prove that CRC is a different kind of energy.

Francisco: Our carbon management business continues to build for the future as we reached first mover milestones such as the Epa's release of the state's first draft class six permits for Ccs.

Francisco: Accelerate the de Carbonization of California.

Francisco: In addition, the California direct air capture hub in partnership with leading that technology companies such as crime works in App knows were selected for D. O E funding.

Francisco: We continue to prove that CRC is a different kind of energy company.

Francisco Leon: We have a quality acid base with oil and gas fields that have low declines, which coupled with strong realizations allows us to generate meaningful free cash. This is a powerful combination, allowing us to maintain annual production levels using about half of our discretionary cash. This means the other half can be used to maintain a strong balance sheet and also return cash to investors.

Francisco: We have a quality asset base with oil and gas fields that have low declines, which coupled with strong realizations allow us to generate meaningful free cash flow.

Francisco: This is a powerful combination, allowing us to maintain annual production levels using about half of our discretionary cash flow.

Francisco: This means the other half can be used to maintain our strong balance sheet and also return cash to investors.

Francisco Leon: Over the last three years, we have generated $1.25 billion of after-tax cash flows, of which we return over $750 million to shareholders, while also building a strong cast. Our merger with AERA, once completed, will further strengthen these cash generation capabilities and differentiate the CRC value proposition from peers. During 2023, we launched an initiative to reduce costs and streamline operations across the business. We achieved about $65 million in sustainable annual run rate cost savings. As we look ahead, we will remain focused on managing our existing cost structure and continuous improvement of our operation. TRC has proven its ability to successfully operate in California to help the state accomplish its goals.

Francisco: Over the last three years, we have generated 1.25 billion of after tax cash flows of which we returned over $750 million to shareholders.

Francisco: We're also building a strong cash position.

Francisco: Our merger with Ara once completed will further strengthen these cash generation capabilities and differentiate the CRC value proposition from peers.

Francisco: During 2023 we launched an initiative to reduce costs and streamline operations across the business.

Francisco: We achieved about $65 million in sustainable annual run rate cost savings.

Francisco: As we look ahead, we will remain focused on managing our existing cost structure and continuous improvement of our operations.

Francisco: Trc has proven its ability to successfully operate in California to help the state accomplish at schools.

Francisco Leon: There's no better example than our anticipated combination with AIRA. Our transaction will create a stronger enterprise to scale, a complementary fit, and the potential for $150 million of annual synergies with Upside, which we will deliver within 15 months post-close. The merger with AERA will reduce the company's break-evens and put us on a stronger footing to compete against out-of-state and out-of-country suppliers, which is good for California's local energy supply and, very importantly, the environment. With AERA, we more than double our premium pore space and will be better positioned to decarbonize hard-to-evade sectors for the economy, as well as to capture our own emissions Our increased pore space capacity will make us the partner of choice. We are confident we will sign additional projects from both Brownfield and Greenfield to rapidly expand our carbon management business in the San Joaquin Basin, as well as in other parts of the state. In 2023, we submitted EPA Class 6 permit applications for two new reservoirs, CTV4 and CTV5, adding an incremental 51 million metric tons of CO2 storage capacity. These storage reservoirs are strategically located in Northern California in proximity to major emission sources.

There's no better example than our anticipated combination where there.

Francisco: Our transaction will create a stronger enterprise true scale complementary fit and the potential for $150 million of annual synergies with upside, which we will deliver within 15 months post close.

Francisco: The merger with air will reduce the company's break evens and put us on stronger footing to compete against out of state and out of country suppliers.

Francisco: Which is good for California's local energy supply and very importantly, the environment.

Francisco: With era, we more than double our premium for space and will be better positioned to decarbonize hard to abate sectors for the economy as well as to capture our own emissions.

Francisco: Our increased poor space capacity will make us the partner of choice.

Francisco: We are confident we will sign additional projects from both brownfield and greenfield to rapidly expand our carbon management business in the San Joaquin basin as well as in other parts of the state.

Francisco: In 2020 three we submitted E P. A.

Francisco: Last six permit applications for two new reservoirs C T before in CTV five.

Francisco: Adding an incremental 51 million metric tons of C O two storage capacity.

Francisco: The storage reservoirs are strategically located in northern California in proximity to major emission sources.

Francisco Leon: Throughout 2023, we advanced five greenfield and one brownfield projects that added 860,000 metric tons per year of CCS. Four of these projects were at our proposed CTV Clean Energy Park at Elk Hills, and two were in Northern California. This week, the EPA and Kern County will hold a final hearing for our 26-R draft permit.

Francisco: Throughout 2023 we advanced five Greenfield and one brownfield projects that added 860000 metric tons per year of Ccs.

Francisco: Four of these projects, where our propulsion D V clean energy Park that Elk Hills, and two were in Northern California.

Francisco: This week the E P. A in Kern County will hold a final hearing for our 26 our draft permits.

Francisco Leon: Over the past two years, the team has been carefully preparing for this event, and we're excited about the economic, social, and environmental benefits it could bring to California. Once we receive the final permit for the 26-hour reservoir, we plan to make a final investment decision on our previously announced pre-combustion capture project at our Elk Hills Cryogenic Gas Processing Plant, with an expected annual injection of 100,000 metric tons of CO2. This will be CRC's first CCS project and will enable an almost 7% reduction in carbon emissions intensity from the Alkils power plant and pave the way for the first injection of CO2 by the end of 2025. Receiving Class 6 permits for 26R will also advance our L-KILS hydrogen.

Francisco: Over the past two years the team has been carefully preparing for this event and we're excited about the economic social and environmental benefits it could bring to California.

Francisco: Once we received the final permit for the 26, our reservoir, we plan to make a final investment decision on our previously announced pre combustion capture project.

Francisco: At our Elk Hills cryogenic gas processing plant with expected annual injection of 100000 metric tons of C O two.

Francisco: This will be Crc's first suite C. C. S project and will enable an almost 7% reduction in carbon emissions intensity from the Elk Hills power plant and pave the way for the first injection of C. O. Two by the end of 2020 five.

Francisco: Receipt of cross six permits were twenty-six are we'll also advance our Elk Hills hydrogen project.

Francisco Leon: This project will provide nearly 65 tons per day of clean hydrogen, and CRC will sequester over 200,000 metric tons of CO2 per year at CTV-1. TRC and Brookfield will continue to evaluate a potential equity investment in this project. We look to FID this project in the second half of 2024. We have other CCS accretive deals in the works and look forward to sharing further updates later this year. Before I hand it over to Nelly to cover the financial results, let me give you an update on our real estate portfolio. I'm happy to announce that we have entered into an agreement to sell a 0.9 acre parcel known as Fort Apache for about $10 million to a local real estate developer.

Francisco: This project will provide nearly 65 tons per day of clean hydrogen and CRC will sequester over 200000 metric tons of C. O two per year S. E. T V. One.

Francisco: Trc and Brookfield will continue to evaluate a potential equity investment in this project.

Francisco: We look to F. I D. This project in the second half of 'twenty 'twenty four.

Francisco: We have other Ccs accretive deals in the works and look forward to sharing further updates later this year.

Francisco: Before I hand, it over to Natalie to cover financial results. Let me give you an update on our real estate portfolio.

Francisco: I'm happy to announce that we have entered into an agreement to sell a 0.9 acre parcel no one S Fort Apache for about $10 million to a local real estate developer.

Francisco Leon: Recently, we finished plug-in abandonment operations on six wells and removed some surface infrastructure, which cost us about $2 million. This transaction provides a good indication of the potential value of the Huntington Beach Fee. As many of you know, we have about 90 acres located along a one-mile track on Pacific Coast Highway at Huntington Beach.

Natalie: Recently, we finished plug and abandonment operations on six wells and remove some surface infrastructure, which cost us about $2 million.

Natalie: This transaction provides a good indication on the potential value of the Huntington Beach field.

Natalie: As many of you know we have about 90 acres located along a one mile track from Pacific Coast Highway at Huntington Beach.

Francisco Leon: There, we operate a mature oil field that produces about 3,000 barrels per day. We plan to permanently plug and abandon about 48 of the 350 or so idle and active wells during 2024. As we remediate the property, we will continue to advance rezoning, re-entitlement, and other due diligence to prepare this unique asset for sale down the road. There are additional details in today's text. And now, I'll hand it over to Nelly to cover financial matters. Nelly?

Natalie: There, we operate a mature oil fields that produce about 3000 barrels per day.

We plan to permanently plug and abandon about 48 of the 350 or so idle inactive wells during 2024.

As we remediate the property will continue to advance.

Natalie: Rezoning re entitlements another due diligence to prepare this unique asset for sale down the road.

Natalie: There are additional details in today's deck.

Natalie: And now I'll hand, it over to Natalie to cover financial results Nelly.

Nelly Molina: Thanks, Francisco. Our 2023 financial results exceeded expectations with higher than expected free cash flow, a solid balance sheet with ample liquidity, and a near zero leverage ratio at year-end. We have carefully balanced our cash flow priorities using capital discipline to maintain a strong balance sheet and sustainable cash returns to shareholders. In 2023, our reservoirs performed exceptionally well, with entry-to-exit gross total production declining approximately 6% in line with our initial expectations. This was made possible with lower than initially expected capital of $185 million, demonstrating an improved capital efficiency of our operation. The average net production for the year was 86,000 BOEs per day, with oil comprising 60% of volume.

Natalie: Thanks Francisco.

Natalie: Our 2023 financial results exceeded expectations with higher than expected free cash flow, it's solid balance sheet with ample liquidity and a near zero leverage ratio at year end.

Natalie: We have carefully balance our cash flow priorities using capital disciplined to maintain a strong balance sheet and sustainable cash returns to shareholders.

In 2023, our reservoirs performed exceptionally well with entry to exit growth total production decline approximately 6% in line with our initial expectation.

Natalie: This was made possible with lower than initially expected capital of 185 million demonstrating an improved capital efficiency of our operations.

Natalie: The average net production for the year with 86000 Boe's per day with oil comprising 60% of volumes.

Nelly Molina: For the year, we delivered $653 million in cash flow from operations and $468 million of free cash flow. These strong financial results allowed us to reduce debt by $55 million in the second half of the year. We implemented $65 million in annual run rate savings in 2023 through our Business Transformation Initiative, which will be reflected in our 2024 results. We will continue to prioritize cash returns to shareholders, and the combination with ERA enhances this ability. In 2023, we will return nearly half of our free cash to shareholders. Over the last three years, a total of $813 million, or 65% of total free cash flow generated, was returned through buybacks, dividends, and repurchase of debt.

Natalie: For the year, we deliver 653 million in cash flow from operations and 468 million of free cash flow.

Natalie: Pes had strong financial results allowed us to reduce debt by 55 million in the second half of the year.

Natalie: We implemented $65 million in annual run rate savings in 2023 through our business transformation initiatives, which will be reflected in our 2024 result.

Natalie: We will continue to prioritize cash returns to shareholders in a combination with Ara enhances visibility.

Natalie: In 2023 we returned nearly half of our free cash to shareholders.

Natalie: Over the last three years, a total of $813 million or 65% of total free cash flow generated was returned through buybacks dividends and repurchase debt.

Nelly Molina: We recently increased the authorization under our share buyback program by nearly 25% to $1.35 billion and extended its term through the end of 2025. Upon the closing of the era merger, we intend to raise our dividend once again. Now, let me quickly summarize our four quarter results, which were in line or better than the preliminary results we released in early January. We generated $65 million in free cash flow and adjusted net income of $67 million, or 93 cents per diluted share. Our strong quarterly results were driven by lower operating costs and higher net margin from power sales. Fore-quarter production averaged 83,000 BOEs per day, and oil averaged 50,000 barrels per day.

Natalie: We recently increased the authorization under our share buyback program by nearly 25% to 1.35 billion and extended lease term through the end of 2020 five.

Natalie: Upon closing of the era of Meritor, we intend to raise our dividend once again.

Now, let me quickly summarize our fourth quarter results, which were in line or better than the preliminary results. We released in early January.

Natalie: We generated 65 million in free cash flow and adjusted net income of 67 million.

Natalie: Or 93 cents per diluted share.

Natalie: Our strong quarterly results were driven by lower operating costs and higher net margin from powerhouse.

Natalie: Or quite a production averaged 83000 boe's per day and oil averaged 50000 barrels per day.

Nelly Molina: Non-energy costs were below expectations, reflecting a partial effect of the savings we implemented last year as part of our Business Transformation Initiative efforts to improve margins. We also completed a $35 million sale of a non-operated interest around Mountain, which had an associated production of about 900 barrels per day. We ended the year with nearly $1 billion in liquidity and about $500 million in cash. We are very pleased with the exceptional 2023 results, the strong foundation of our balance sheet, and the trajectory of the business as we look into 2024, expanding our portfolio and accelerating back. Next, Francisco will talk about our outlook for the future. Thanks, Nelly.

Natalie: Non energy costs were below expectations, reflecting a partial effect of the savings we action last year as part of our business transformation initiative efforts to improve margins.

We also completed a 35 million sale of non operated interests are round mountain, which had an associated production of about 900 barrels per day.

Natalie: We ended the year with nearly 1 billion in liquidity and about $500 million in cash.

Natalie: We are very pleased with the exceptional 2023 results the strong foundation of our balance sheet and the trajectory of the business as we look into 'twenty 'twenty, four expanding our portfolio and accelerating value.

Natalie: Next Francisco will talk about outlook for next year.

Francisco: Thanks, Natalie before opening the call to take your questions I want to quickly discuss our 'twenty 'twenty four outlook.

Francisco Leon: Before opening the call to take your questions, I want to quickly discuss our 2024 outlook. For 2024, we have again prioritized free cash generation and expect total capital investments of $320 million at the midpoint of our guidance range, or about half of our expected cash flow from operations. In 2024, at $80 Brent and $3.25 NYMEX, and using our current capital plan, the business is expected to generate approximately $280 million in pre-tax profits. This will support returns to shareholders through our dividends and our opportunistic share buyback program. In addition, we will continue to reduce debt and maintain our strong balance. With the cost savings achieved to date, non-energy operating costs are expected to be nearly 6% lower year over year.

For 'twenty 'twenty four we have again prioritize free cash generation and expect total capital investments of $320 million in the midpoint of our guidance range or about half of our expected cash flow from operations.

In 'twenty 'twenty, four at $80, Brent and $3.25, a nymex and using our current capital plan. The business is expected to generate approximately $280 million in free cash flow.

Francisco: This will this will support returns to shareholders through our dividends and opportunistic share buyback program.

Francisco: In addition, we will continue to reduce debt and maintain our strong balance sheet.

Francisco: With the cost savings achieved to date non energy operating costs are expected to be nearly 6% lower year over year.

Francisco: We expect full year production to average around 80000 Boe's per day with about 60% oil.

Francisco: This plan assumes a four drilling rig program starting in the second half of 'twenty 'twenty four.

And then dissipates a successful resolution of the current county, EIA or litigation and resumption of a normalized level of permit approvals that support a multiyear program.

Francisco Leon: We expect full-year production to average around 80,000 BOEs per day, with about 60% oil. This plan assumes a four drilling rig program starting in the second half of 2024 and anticipates a successful resolution of the current county EIR litigation and a resumption of a normalized level of permit approvals that support a multi-year program. In case current county EIR litigation takes longer than expected and CRC is not able to receive drilling permits, we plan to run a one-rig program with a $200 million to $240 million total capital program and an expectation of a 5% to 7% decline, similar to our 23 program.

Francisco: Encase Kern County E. I R litigation takes longer than expected and CRC is not able to receive drilling permits we plan to run a one rig program with US 200 to 240 million total capital program and an expectation of a 5% to 7% decline.

Francisco: Similar to our 23 program.

Francisco: To be clear, we will only increase activity to four rigs if permitting process improvements supports a multi year drilling program.

Francisco: In the near term, we're laser focused on getting the ore merger closed we expect that the transaction will close in the second half of the year.

Francisco: We have provided some detailed information in our deck for Standalone CRC for the first quarter and full year.

Francisco: CRC is incredibly well positioned today and our anticipated combination with Ara will make us financially stronger and more resilient.

Francisco: Our conventional energy business has important skilled today and our people are finding innovative ways to safely and hence margin since apply California with local and lower carbon energy.

Francisco Leon: To be clear, we will only increase activity to four rigs if the permitting process improvement supports a multi-year drilling program. In the near term, we're laser-focused on getting the era merger closed. We expect that the transaction will close in the second half of the year. We have provided some detailed information in our deck for standalone CRC for the first quarter and full year.

Francisco: We're excited about the growth prospects, we see on the horizon through our carbon management business and our leadership role in accelerating the de carbonization of California.

Speaker Change: Thanks for your time today and your investment in CRC.

Speaker Change: Operator, please open the lines for questions.

Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad if.

Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two please limit your questions to one primary and one follow up at this time, we will pause momentarily to assemble.

Operator: TRC is incredibly well positioned today, and our anticipated combination with ERA will make us financially stronger and more resilient. Our conventional energy business has significant skill today, and our people are finding innovative ways to safely enhance margins and supply California with local and lower carbon energy. We're excited about the growth prospects we see on the horizon through our carbon management business and our leadership role in accelerating the decarbonization of California. Thanks for your time today and your investment in CRC. Operator, please open the lines for questions. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.

Speaker Change: Our roster.

Speaker Change: The first question comes from Scott Hanold with RBC capital markets. Please go ahead.

Scott Hanold: Hey, Thanks, I'm, just sort of curious scenario are you all receiving permits.

Scott Hanold: I know you're running a dual path, but are you receiving oil and gas permits under the original process and if you are I mean are you actually receiving them and if if the litigation does not gone in favour of Kern County, you know, what where does that make 2025 look like would you be able to start Ram.

Scott Hanold: <unk> up rigs as you accumulate permits under the old process.

Scott Hanold: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Please limit your questions to one primary and one follow-up. At this time, we will pause momentarily to assemble our roster. The first question comes from Scott Hanold with RBC Capital Markets. Please go ahead.

Hey, Scott. So we are not receiving permits for new wells are what we're doing though is getting permits four capital workovers.

Scott Hanold: So if you if you are if you look at the way that the CRC has performed now for for multiple years very low decline Ah corporate decline to the business, adding first Opex Workovers and then capital Workovers brings our all in decline is somewhere in the in the high single.

Scott Hanold: Hey, thanks. Just out of curiosity, are you all receiving permits? I know you're running a dual path, but are you receiving oil and gas permits under the original process? And if you are, do you actually receive them?

<unk> digits.

Scott Hanold: Then to get to a stay flat scenario, we drill new wells. So right now we're sitting with a permits on hand for a four year program.

Scott Hanold: And no incremental permits have come through but we feel that we can deliver a very similar program that we did last year and 23 of them that you saw in the results today. What we said is with one rig program, we can get to a 5% to 7% base decline after investments we did that in 'twenty three and we also said is repeatable. So we'll do that in 'twenty 'twenty four if car.

Francisco Leon: And if the litigation does not go in favor of Kern County, you know, what does that make 2025 look like? Would you be able to start ramping up rigs as you accumulate permits under the old process? Hey Scott.

Francisco Leon: So we are not receiving permits for new wells. What we're doing, though, is getting permits for capital work. So if you look at the way that CRC has performed now for multiple years, very low decline, corporate decline to the business, adding first OPEX workovers and then capital workovers brings our all-in decline somewhere in the high single digits. Then, to get to a stay flat scenario, we drill new wells. So right now, we're sitting with a permit on hand for a four-year program, and no incremental permits have come through, but we feel that we can deliver a very similar program that we did last year in 23 and that you saw in the results today. What we said is with one rig program, we can get to a 5 to 7% base decline.

Scott Hanold: County E are not reinstated and we expect them to continue into 2025. So we have enough permits are in hand, we have visibility into workovers to be able to have this a repeatable mod model on on the scenario, what Kern County doesn't get resolved.

Speaker Change: Okay, and just to clarify you said if you don't get them you know if the D. I R isn't resolved.

Speaker Change: You have currently permits in hand to run that one rig program to twenty-five as well that what I heard.

Speaker Change: Yeah, correct, we would have we have multiple years so for permits in hand that we can.

Speaker Change: Okay.

Speaker Change: Got it Okay, and then on the cover Mandarin side, I'm, I guess I'm going to stick to the.

Speaker Change: The topics of permits you know obviously you're in the public common period. So I. Appreciate the fact, it's probably limited things you all I can say, but anything that you would have heard from you know some of the a common period that you saw it was interesting and in a positive way and and if you have any color on I guess.

Francisco Leon: After investment, we did that in 23, and we also said it's repeatable. So we'll do that again in 2024 if current county ER is not reinstated. And we expect that to continue into 2025. So we have enough permits on hand. We have visibility into workovers to be able to have this repeatable model in the scenario where the current county doesn't get resolved. Okay, and just to clarify, you said if you don't get a, you know, if the EIR isn't resolved... You currently have permits in hand to run that OneRig program to 25 as well. Is that what I heard?

Speaker Change: Timeline.

Speaker Change: Of getting you know hopefully the final approval it looks more like a late June ish type timeframe right now any color on why the EPA kind of moved it to that timeframe.

Speaker Change: Yeah. So we continue with the classics permit they're excited about getting to the public common period right now.

Speaker Change: We've Ah it's public information it's in the tracker in terms of how the E. P. A stinking about it I wouldn't say, there's any delays. We've we've agreed to do a 90 day public common period, that's still very much within the timeline and we've been we've been checking milestones as we go.

Francisco Leon: Yeah, correct. We would have had multiple years of permits in hand that we could. Okay. Got it.

Speaker Change: On the way that again consistent with what we see on the E. P. A tracker.

Speaker Change: We've been preparing a we're getting ready for multiple years to get to this point, but maybe I'll turn it over to Chris to give a little bit of a perspective on what we're hearing on the ground. The hearing is today.

Scott Hanold: Okay. And then on the carbon management side, I guess I'm going to stick to the topics of permits. You know, obviously, you're in the public comment period, so I appreciate the fact there are probably limited things you can say. But anything that you would have heard from, you know, some of the comment period that you thought was interesting in a positive way.

Speaker Change: With the EPA. So there's a lot of excitement a lot of preparation that goes into a a day like today, but maybe Chris yeah. Thanks, Hi, Scott Yeah, Great question very timely because as Francisco mentioned, it's the the hearing is today as well as the final workshop.

Francisco Leon: And if you have any color on, I guess, the timeline of getting, you know, hopefully, the final approval, which looks more like a late June-ish type time frame right now. Any color on why the EPA kind of moved it to that time frame? Yes, so we continue with the classics permit. They're excited about getting to the public comment period right now. It's public information.

Chris: It's being conducted jointly by E. P. A region nine as well as Kern County, So looking forward to the conclusion of that today.

Chris: Do you recall theres been up with the completion today, there will have been four of those workshops in the 90 day comment period that Francisco referenced.

Chris: That's by comparison to the other class six Wabash in Indiana that had none so in fact, we have had the opportunity to really.

Francisco Leon: It's on the tracker in terms of how the EPA is thinking about it. I wouldn't say there are any delays. We've agreed to do a 90-day public comment period. That's still very much within the timeline.

<unk> participate and see what the public and the communities I have to say about this and we're encouraged by it.

Francisco Leon: And we've been checking milestones as we go along a way that's, again, consistent with what we see on the EPA tracker. We've been preparing. We've been getting ready for multiple years to get to this point. But maybe I'll turn it over to Chris to give a little bit of a perspective on what we're hearing on the ground.

Chris: I've been to all of them are virtually or in person, including today.

Chris: Later and the comments have been.

Largely supportive as you can imagine from a community in Kern County, that's excited about the energy transition.

Chris: The hearing is today with the EPA. So there's a lot of excitement, and a lot of preparation that goes into a day like today. Maybe Chris.

Chris: There is a broad level of support that we have been able to observe and all of those workshops and therefore, we're really looking forward to Tonight.

Chris: Yeah, thanks. Hi Scott. Yeah, great question and very timely because, as Francisco mentioned, the hearing is today as well as the final workshop. It's being conducted jointly by EPA, Region 9, as well as Kern County. So I'm looking forward to the conclusion of that today. As you recall, there have been, with the completion today, there will have been four of those workshops in the 90-day comment period that Francisco referenced. That's by comparison to the other Class 6 Wabash in Indiana, which had none.

Chris: You'll see in that tracker that E. P. A has always accounted for roughly a three to four months after the hearing which is on schedule for today.

Chris: That three to four months is the inclusion of those public comments into a final permit which is why we have set the guidance around.

Chris: The second middle of the year based on E T as a tracker.

Speaker Change: I appreciate the color guys. Thanks.

Speaker Change: The next question comes from.

Speaker Change: Clay.

Clay: I can meet excuse me agamete.

Chris: So, in fact, we have had the opportunity to really participate and see what the public and the communities have to say about this. And we're encouraged by it. I've been to all of them, virtually or in person, including today.

Clay: At Camino.

Bank of America. Please go ahead.

Clay: Hey, guys. Good morning, It's <unk> <unk> from Bank of America. My first question goes to Huntington Beach, where youre pursuing this real estate valuation unlock.

Speaker Change: Thanks for the additional disclosures as I think it helps provide a range of valuation.

Speaker Change: But what I think surprised that is the pace of the remediation.

Scott Hanold: And the comments have been largely supportive, as you can imagine, from a community in Kern County that's excited about the energy transition. There is a broad level of support that we have been able to observe in all of those workshops, and, therefore, we're really looking forward to tonight. You'll see in that tracker that EPA has always accounted for roughly three to four months after the hearing, which is on schedule for today. That three to four months is the inclusion of those public comments into a final permit, which is why we have set the guidance around the second half of the year based on EPA's tracker. I appreciate the call, guys. Thanks. The next question comes from Calais.

Speaker Change: Simply measured pace by the rate of plugging the wells this could easily be a multi year process. So hoping that you can comment how you see that timing playing out that's the first part the second part would be how do you see the value of the PDP wedge at Huntington Beach, because at some point that needs to be phased out.

Speaker Change: Hey, Kelly so so yeah, we're very excited about being able to sell this more property Fort Apache are.

Kelly: Four nine acres for $10 million, so, it's an $11 million per acre valuation.

Kelly: And so that was C. We needed to be able to provide that proof point to the market is.

Kelly: Is it the larger property rights. So the 90 acres in Huntington Beach, and the objective is to optimize devaluation in in ultimately to get value recognition in their stock price.

Kalei Akamine: I can meet you, excuse me, I can meet you at Acamena, Bank of America. Please go ahead. Hey, guys. Good morning.

Kelly: Meaning we would sell today if the right offer comes along right. There's no nothing holding us back from from capitalizing on that.

Kalei Akamine: It's Kalei Akamine from Bank of America. My first question goes to Huntington Beach, where you're pursuing this real estate valuation unlock. So, thanks for the additional disclosures, as I think it helps provide a range of valuations. But what I think surprises us is the pace of the remediation. If you simply measured the pace by the rate of plugging the wells, this could easily be a multi-year process.

Kelly: Evaluation and now as we look at not only the continuous development an abandonment of the field Theres a lot of steps that we have to take to get to that optimal valuation if we sold today than abandonment.

Kelly: Remediation and re entitlement gets priced into the offer not trivial if that's not the case again, we would sell it as soon as we can but assuming that there's a number of steps that we're gonna be a CRC prepared to handle which is abandonment that Wellington and the re entitlement then it's going to be a multiyear process again to find the best value for the land.

Francisco Leon: So, I'm hoping that you can comment on how you see that timing playing out. That's the first part. The second part would be, how do you see the value of the PDP wedge at Huntington Beach? Because at some point, that needs to be phased out.

Francisco Leon: We're very excited about being able to sell this small property, Fort Apache, 0.9 acres for $10 million. It's an $11 million per acre valuation. We needed to be able to provide that proof point to the market. For the larger property, the 90 acres in Huntington Beach, the objective is to optimize the valuation and ultimately to get value recognition in the stock price. Meaning, we would sell it today if the right offer comes along, right?

Kelly: So the abandonment, we control fully the piece of abandonment should not be an indicator of how long. This will take we can accelerate the abandonment.

But ultimately what's the what we need to sort through is the ability to re entitle. The property. So that we can have real estate development, which is going to be the the highest and best use of that property and we're going to work with the city of Huntington Beach, we need to work with state lands Commission, we need to talk to the coastal Commission.

Francisco Leon: There's nothing holding us back from capitalizing on that valuation. Now, as we look at not only the continuous development and abandonment of the field, there are a lot of steps that we have to take to get to that optimal valuation. If we sell today, then abandonment, remediation, and reentitlement get priced into the offer. That's our view.

Kelly: These are processes that take take some time ultimately to clear out the more we advanced the ball the hired the offer is going to be so yes. So what we we could sell it today again to maximize the value which is the objective here, it's better to keep producing the field, we have the benefit of about <unk>.

Francisco Leon: If that's not the case, again, we would sell it as soon as we can. But assuming that there are a number of steps that we're going to be, as CRC, prepared to handle, which are abandonment, the wealth, and the reentitlement, then it's going to be a multi-year process, again, to find the best value for the land. So the abandonment is fully controlled. The pace of abandonment should not be an indicator of how long this will take.

Kelly: <unk> 3000 barrels gross on the property that we use the cash to pay for the abandonments, which are self funding self contained abandonment program and we'll continue doing that until we can get line of sight to weigh a process, where we have a land that we can we can sell without taking a big deduct them. So.

Speaker Change: So again that I wouldn't read anything into the abandonment piece, because we can completely control that it's really more about the the negotiations and discussions with.

Francisco Leon: We can accelerate the abandonment. But ultimately, what we need to sort through is the ability to retitle the property so that we can have real estate development, which is going to be the highest and best use of the property. And we're going to work with the City of Huntington Beach. We also need to work with the State Lands Commission. We need to talk to the Coastal Commission. These are processes that take some time, ultimately, to clear out.

Speaker Change: Our city officials are.

Speaker Change: And the real time and know the property. So Oh would take things. It takes a few years to two unlocks a four to five years is what I would say is to get the full process completed a well we don't we don't know for sure, but we started and we're pushing forward to try to maximize the value and bring that value forward as quickly as we can.

Speaker Change: Yeah, I appreciate that and it makes sense that there is a pathway to maximizing value there and the more work you put into it the more valuable the net present value of that of that transaction becomes to you.

Francisco Leon: The more we advance the ball, the higher the offer is going to be. So yes, we could sell it today, again, to maximize the value, which is the objective here. But it's better to keep producing the field.

Speaker Change: My second question goes to the Aries deal.

Speaker Change: Our understanding is that there isn't a retirement.

Speaker Change: Liability can you talk to us about what that is and what it means in terms of an annual spend rates and on top of that can you talk about your until it your ability to push that liability out whether that's through increased activity or other means.

Francisco Leon: We have the benefit of about 3,000 barrels of gross on the property that we use cash to pay for the abandonment. So it's a self-funding, self-contained abandonment program. And we'll continue doing that until we can get line of sight to a process where we have land that we can sell without taking a big deduction. So again, I wouldn't read anything into the abandonment piece because we can completely control that. It's really more about the negotiations and discussions with... city officials and the re-entirement of the property. So I would think this takes a few years to unlock.

Speaker Change: Yeah sure.

Speaker Change: Our and CRC or are have both a and.

Speaker Change: Being very aggressively pursuing.

Speaker Change: Abandonment and plugging and abandonment of wells.

But the thing the spend that they have historically is very consistent with ours.

Speaker Change: Can't really comment we haven't put out the the rest of the information on an area, we need to get a little bit further along are in.

Speaker Change: In terms of closing the deal.

Francisco Leon: So four to five years is what I would say to get the full process completed. We don't know for sure, but we started, and we're pushing forward to try to maximize the value and bring that value forward as quickly as we can. Yeah, I appreciate that. It makes sense that there is a pathway to maximizing value there, and the more work that you put into it, the more valuable the net present value of that transaction becomes to you. My second question goes to the ARIES deal.

Speaker Change: But the the Arab properties tend to be shallower. So they may have more well bores, but they also have a much more limited debt too in terms of the differences between the asset basis, but I will provide more color as we go forward. We haven't released any of that information in more detail on the assets, but we will do so.

Speaker Change: So as we get the proxy filed as we get closer to the completion of the HSR process. So.

Speaker Change: It's so I'd say, but again the point should be as we've been abandoning wells on both sides. We have good programs. He arrow programs in place. We're also looking to deploy technology to reuse, our well bores for clean energy for for water rights for Ccs. So when we look at our Wellbore in Cali.

Kalei Akamine: So our understanding is that there is a retirement liability. Can you talk to us about what that is and what it means in terms of an annual spend rate? And on top of that, can you talk about your ability to push that liability out, whether that's through increased activity or other means?

Speaker Change: When he is having multiple lives and in multiple uses so excited to have a look at the era assets through that lens.

Francisco Leon: ARAB and CRC have both been very aggressively pursuing and plugging in the abandonment of wells. The spend that they have historically is very consistent with ours. I can't really comment. We haven't put out the rest of the information on ARAB.

Speaker Change: So is it is it fair to say based on the last comment that.

Speaker Change: If you were to see opportunity to reuse the well bores you would be able to moderate the peso a aros then.

Speaker Change: Yeah, we're actively looking at that for our portfolio Kelly and in an era would be applied the same way, there's there's opportunities really good exciting opportunities of bringing.

Francisco Leon: We need to get a little bit further along in terms of closing the deal. The ARAB properties tend to be shallower. They may have more wells, but they also have much more limited debt in terms of differences between the asset bases. We'll provide more color as we go forward. We haven't released any of that information and more detail on the assets, but we'll do so as we get the proxy filed and as we get closer to the completion of the HSR process. The point should be that we've been abandoning wells on both sides.

Speaker Change: Produced water to surface that can be treated and used for agriculture, and you don't Wanna be drilling separate well watch for that if we can reuse an existing wellbore, that's going to be a much better option where else. We're looking at things like enhanced geothermal technology that uses the heat in the rocks on from steam flood.

Speaker Change: Adding for multiple decades to to try to bring clean energy to surface so where.

Francisco Leon: We have good ARO programs in place. We're also looking to deploy technology to reuse wellbores for clean energy, for water rights, and CCS. We look at a wellbore in California as having multiple lives and multiple uses. We're excited to look at the ARA assets through that lens. So is it fair to say, based on the last comment, that if you were to see opportunities to reuse the wellbore, you would be able to moderate the pace of ARO spend? Yeah, we're actively looking at that for our portfolio, Kelly, and ERA would be applied the same way. There are opportunities, really good, exciting opportunities for bringing produced water to the surface that can be treated and used for agriculture. And you don't want to be drilling separate well wars for that. If we can reuse an existing well, that's going to be a much better option.

Speaker Change: Where we're looking at and a lot of places to redeploy.

Some some money to bring that technology to California, and I think there's there's like I said multiple uses multiple lives to these well bores and we're excited to bring that to fruition.

I appreciate the comments that's my two ill leave it there.

Speaker Change: The next question comes from Nate Pendleton with Stifel. Please go ahead.

Nate Pendleton: Good morning, Thanks for taking my question building on some earlier comments when reading through some of the supporting documents for the 26, our draft permit it seems to us that there is broad support from the local community at a high level can you speak for a moment about the role you see for energy transition projects such as Ccs in Cali.

Nate Pendleton: Cornea, specifically related to California communities that have historically been dependent on oil and gas revenues.

Speaker Change: Yeah need Oh, Oh, we'll tag team this with Chris.

Speaker Change: But absolutely I think the we have a very unique market in California, where you have the state government, that's pushing them in and really are in favor of an energy transition.

Francisco Leon: We're also looking at things like enhanced geothermal technology that uses the heat in the rocks from steam flooding for multiple decades to try to bring clean energy to the surface. So we're looking at a lot of places to deploy some money to bring that technology to California. And I think there are, like I said, multiple uses, multiple lives for these well wars, and we're excited to bring that to fruition. I appreciate the comments. That's my two.

Speaker Change: But we also have a state that has ah relied on oil and gas revenues are to support the communities and to pave the roads to pay for libraries and fire stations.

Speaker Change: Lot of that cash flow and the tax revenue that that's collected by by the counties is really supports a quality of life for the community. So a transition away from oil and gas and into some new technology needs to satisfy not only the environmental.

Kalei Akamine: I'll leave it there. The next question comes from Nate Pendleton with CFO. Please go ahead.

Nate Pendleton: Morning, thanks for taking my question. Building on some earlier comments, when reading through some of the supporting documents, it seems to us that there is broad support from the local community. At a high level, can you speak for a moment about the role you see for energy transition projects at CTS in California, specifically related to California communities that have historically been dependent on oil and gas? Yeah, Nate, I'll tag team this with Chris, but absolutely, I think we have a very unique marketing in California where you have a state government that's pushing really in favor of an energy transition. But we also have a state that has relied on oil and gas revenues to support the communities and to pave the roads, to pay for libraries and fire stations.

Speaker Change: Requirements of the state, but also supplement the income that the the counties and everybody who refuse. So we're excited to be able to do both extremely well we see our CRC platform is not being mutually exclusive but one that can continue to deliver oil and gas low carbon oil and.

Speaker Change: Gas better than anything that comes from imports, but also advancing the technology and the investments on the clean side. So we see S at being the leader cementing our leadership on both and really trying to drive those solutions that in the in the REIT are.

Speaker Change: In the right place for the state, but maybe I'll ask Chris to see if he has any more comments, yeah, I just add to that that yeah and he's already demonstrated.

Francisco Leon: A lot of that cash flow and the tax revenue that's collected by the counties really supports a quality of life for the community. So a transition away from oil and gas and into some new technology needs to satisfy not only the environmental requirements of the state but also supplement the income that the counties and everybody receives. So we're excited to be able to do both extremely well. We see our CRC platform as not being mutually exclusive but one that can continue to deliver oil and gas, low-carbon oil and gas, better than anything that comes from imports, but also advancing the technology and the investments on the clean side. So we see us as being the leader, cementing our leadership on both and really trying to drive those solutions that end up in the right place for the state.

Speaker Change: Yes.

Chris: Execute on the energy transition and the example, I would give is the build out of solar in the in our county right. It's been prolific bundle largest solar.

Chris: Installations.

Chris: It provides energy to the state in addition to the oil and gas. That's provided now so it's really the heart of the energy transition and it has a track record of our moving forward in that regard carbon captures just the next opportunity set that they can build on the success that they've already demonstrated.

Chris: With solar and other wind and other.

Chris: Forms of energy.

Chris: That's why we're confident that it's a great place to do business.

Speaker Change: Thanks for the detail and staying on C. C. U S is there any update you can provide on potential C. O. Two pipeline regulations for the state that would enable transportation of T O two outside of field boundaries.

Francisco Leon: Yeah, I just add to that that, you know, our county's already demonstrated that it can execute on the energy transition. The example I would give is the build out of solar in the county, right? It's been prolific, one of the largest.

Speaker Change: Yes.

So this is a we're looking at a 905 Clinton Senate Bill 905 cleanup Bill we expected to be India agenda for the legislature, Iran may or June are when the budget is announced.

Chris: Thank you very much, building on the success that they've already demonstrated with solar and other wind and other forms of energy. And that's why we're confident that it's a great place to do business.

Speaker Change: Sure anticipating some progress there.

Speaker Change: Engaging with the legislative.

Speaker Change: Group Ah that's pushing this this bill Ford too to make sure. We have our views are in represented there and we believe there's there's support from from legislators and.

Nate Pendleton: And staying on CCUS, is there any update you can provide on potential CO2 pipeline regulations for the state that would enable transportation of CO2 outside of field boundaries? Yes, so this is, we're looking at Senate Bill 905, a cleanup bill. We expect it to be on the agenda for the legislature around May or June when the budget is announced, so we're expecting some progress there. We've been engaging with the legislative group that's pushing this bill forward to make sure we have our views represented there. And we believe there is support from legislators and the administration and the California Resources Board.

The administration and the California Air Resources Board.

Speaker Change: So our confidence that it's going to get addressed in 'twenty 'twenty four as a reminder, there is also work happening at the federal level to the FEMSA regulations.

Speaker Change: That could also.

Speaker Change: Kudos to work, if if California is not able to get there first so it's really a question of who can get their first is in California or is it defense, but we're looking to advance Ccs through two pipeline regulation.

Speaker Change: Well sure are working on a strategy, where we're doing a lot of our activity within field boundaries, and that's where the greenfield projects that we announced and now brownfield projects, where there are.

Francisco Leon: So, confidence that it's going to get addressed in 2024. As a reminder, there is also work happening at the federal level through the FEMSA regulations that could also address it. Thanks for taking the time. I appreciate the color.

Speaker Change: If you're able to contain the emissions within fuel boundaries. You can start advancing projects have demonstration. The Ccs is the technology that we don't think is going to be in terms of decarbonising. The state and start test stepping into being a cash flow generator type projects as we look forward to the pipe.

Nate Pendleton: The next question... The next question comes from Leo Mariani with Roth MKM. Please go ahead, www.larryweaver.com. I wanted to focus a little bit on the stand-alone CapEx and production guidance, you know, for 2024 for CRC. I just wanted to make sure I kind of understood the numbers here.

Speaker Change: Flying regulations to come through but ultimately if the state is going to be successful in reaching its objectives, we're going to need a pipeline to be able to most of your two throughout the state. So looking forward to getting resolution either to a state process on 95 or the federal regulations.

Leo Mariani: You know, at the midpoint of your production guide, it looks like around a 7% annual decline. I guess that's kind of, you know, a little above, you know, maybe what I had thought, given that you guys are running four rigs in the second half of the year. I know that you kind of said that probably that number's about right with a one-rig program, but you're doing a little bit more per that guide in the second half of the year. And then just with respect to the capital, I know you guys talked about kind of a low $300 million, you know, maintenance capital level, but, you know, your guide this year is kind of $300 to $340 million. And, you know, clearly that's maybe a little bit less than maintenance activity in 24. Just given that, you know, you're only running one rig in the first half, so maybe you could just kind of close the loop on the guide, and maybe there's some timing differences here that explain some of this. Yeah, Leo.

Speaker Change: I appreciate the color thanks for taking my questions.

Speaker Change: The next question.

Speaker Change: The next question comes from Leo Mariani with Ralph M. K M. Please go ahead.

I wanted to focus a little bit on the stand alone Capex and production guidance for.

Leo Mariani: For 2024 for CRC.

Just wanted to make sure I kind of understood the numbers here.

Leo Mariani: Yeah at the midpoint of your production guide it looks like around a 7%.

Leo Mariani: Annual decline I guess, that's kind of a you know a little above our you know maybe what I had thought given that you guys are running four rigs in the second half of the year I know that you've kind of said that probably that number is about right with a one rig program, but you're doing a little bit more per that guide in the second half of the year and then just with respect to the capital I know you guys talked about.

Leo Mariani: Kind of a low 300 million you know maintenance capital level, but you know your guide. This year is kind of 300 to 340 are you now have of capital and you know.

Clearly that that that's a maybe a little bit less in maintenance activity in <unk> and 'twenty for just given that you know you're only running the one rig in the first half. So maybe you could just kind of close the loop on the guide and maybe there's some timing differences here that explain some of this.

Speaker Change: Yeah Leo show the remember we sold we announced that we sold the property.

Francisco Leon: So, remember we announced that we sold a property, Grand Mountain, about 900 barrels at the end of last year. So, when you're looking at the decline, you need to factor that in there. It's an asset sale. We've also had some weather impact here as we started the year.

Leo Mariani: Round mountain about 900 barrels at the end of last year.

So when you're looking at the decline are you need to factor that in there. There's some asset sale. We've also had some was from weather impact here as we started the year.

Francisco Leon: But from a reservoir perspective, the way to look at it is that we're looking at 2024 under the scenario where we can ramp up to four rigs. We're looking at a stay flat scenario where we can maintain 80,000 BOEs throughout the year with ultimately less capital to get to that BOE level that we have talked about before. The $340 million also includes capital for maintenance of our Alkils power plant and some one-time items. So, we see that as a scenario that we haven't developed for some time, where we have the permits for the incremental rigs. If we were able to achieve that, then what would happen?

Leo Mariani: But until that turn the rest of world perspective, the way to look at it is we're looking at 'twenty 'twenty four are under the scenario, where we can ramp up to four rigs were looking at a stay flat scenario, where we can maintain 80000 boe's throughout the year with ultimately less capital Ah.

To get to a level that we have talked about before.

Leo Mariani: The 300.

Leo Mariani: The 340 million also includes capital and maintenance of our Elk Hills power plant and some some one time items.

Leo Mariani: So the we see that as a scenario that hadn't we hadn't developed now for some time, where when we have the permits for the incremental rigs if we weren't able to achieve that then what would happen and that's what we're solving for in that higher scenario.

Francisco Leon: And that's what we're solving for in that higher scenario. So, you put $300 to $340 million of capital in the free cash flow at prices that we assume are about $280 million. If we're not able to get the current county resolution and we step down to maintain just the one rig program for the year, then the capital program steps down to $200 to $240 million, so roughly $100 million less. And then that accrues to about a free cash flow of about $350 million. So, those are the rough math numbers. We wanted to provide the bookends, as we've already demonstrated on the low end what our assets and our team are able to deliver with a one rig program, which is that 5% to 7% decline. We also wanted to provide the restoring and going back to normal levels activity, and that's a stay flat case. So, now you have both bookends to be able to triangulate on your model.

Leo Mariani: So you put three 400 to $300 million to $340 million of capital.

Leo Mariani: And the free cash flow at the prices that we assume it's about $280 million, if we're not able to get the Kern County resolution and we stepped down to maintain just a one rig program for the year and then that capital program steps down to 200 to 240 million. So our run roughly $100 million less and then that accrues to about.

Leo Mariani: Our free cash flow of about $350 million right. So those are the rough math numbers.

Leo Mariani: Wanted to provide the bookends as we as we've already demonstrated a on the low end what are our assets and our team are able to deliver with a one rig program, which is that 5% to 7% decline. We also wanted to provide the difficult restoring and going back to normal levels activity and that stay flat.

Speaker Change: Right. So now you have both bookends to be able to triangulate on your model.

Leo Mariani: Okay. That's helpful. And I just wanted to follow up on a couple of the other numbers in here.

Speaker Change: Okay. That's helpful. And then just wanted to follow up on a couple of the other numbers in here.

Francisco Leon: You know, it looks like cash taxes for the fourth quarter came in a little bit above the previously provided guidance range. I wanted to get a sense of that on expectations, you know, for first quarter and full year 24 on cash taxes. And then with respect to share buybacks, it looks like those have kind of stepped down in the last few quarters. It was kind of limited in the third quarter, and then you didn't have anything in the fourth quarter.

Speaker Change: It looks like cash taxes for the fourth quarter came in a little bit above the previously provided guidance range wanted to get a sense on that and expectations for first quarter and full year 'twenty four on cash taxes, and then with respect to share buybacks look to those kind of step down the last few quarters.

Speaker Change: Hello, Lemonade in third quarter, and then you didn't have anything in the in the fourth quarter. So just wanted to get a sense of how we should think about that heading into 2024 and perhaps there's some restrictions on that are you know due to the inherent deal. So any clarity you can kind of provide on how you want or not buybacks are a pretty important part of the process here this year would be great.

Leo Mariani: So I just wanted to get a sense of how we should think about that heading into 2024. And perhaps there's some restrictions on that, you know, due to the error deal. So any clarity you could kind of provide on whether or not buybacks are a pretty important part of the process here this year would be great. Yeah, so on the tax side, we had a gain on the Round Mountain asset. That's what you're seeing in terms of the incremental cash tax in 4Q. There's always going to be timing.

Speaker Change: Yeah.

Speaker Change: Yeah. So on the tax side, we had a gain on the round mountain acid, that's what you're seeing in terms of the incremental cash tax in four Q there's.

Speaker Change: There's always going to be timing.

Francisco Leon: We're a full taxpayer, and the timing of cash taxes is difficult to predict on a quarterly basis. So it could be lumpy, but at the end of the day, we're a full taxpayer. We've disclosed that before, and I think we also gave you the first quarter cash tax numbers to put into your model. But ultimately, the increase that you saw in the last quarter is due to the Round Mountain gain. The next question comes from Noel Parks with Tuohy Brothers Investment Research. Please go ahead. Hi, good morning or good afternoon for us.

Speaker Change: We're a full taxpayer and the timing of cash taxes, it's difficult to predict on a quarterly basis. So it can be lumpy, but are at the end of the day, we bought it for a full taxpayer we've disclosed that before and and and I think we also gave you the first quarter, our cash tax number to plug into your model, so but what ultimate.

The the increase that you saw in the last quarter is due to the round mountain gain.

Speaker Change: The next question comes from Noel Parks with Tuohy Brothers investment Research. Please go ahead.

Noel Parks: Hi, good morning.

Noel Parks: Just a couple of questions. In your remarks, you mentioned that with the air acquisition, you're confident that you're going to have more brownfield and greenfield CCS. I was just wondering if you could talk a little bit about what that would look like, you know, with the combined companies, and I was just wondering if this helps deals get closed more quickly just because, you know, you have more heft, or is it a matter of, you know, allowing a larger enterprise or series of companies to do a broader set of deals across more geographies, so does it speed things up, simplify anything? We were able to add more pore space in Kern County, which we really like.

Noel Parks: Good afternoon for us.

Noel Parks:

Noel Parks: A couple of questions.

Noel Parks: So in your remarks, you mentioned that with the air acquisition, you're confident that you're going to have more brownfield and greenfield.

C C S.

Noel Parks: Potential projects ahead, and I'm just wondering if you could talk a little bit about what.

Noel Parks: What that would look like you know with the combined companies.

Noel Parks: Just wondering is it a matter of this helping deals get closed more quickly just because you know you have more heft or is it a matter of.

Noel Parks: Allowing them, a larger enterprise or our series of companies to do a broader set of deals across more geographies. So does it speed things up simplify anything.

Noel Parks: Yeah. So the the the ore deal is very helpful. In multiple ways, we were able to add more floor space in Kern County, which we really like them. So to the tune of 54 million tons of incremental push basin in fields that are in our backyard.

Noel Parks: So to the tune of 54 million tons of incremental pore space in fields that are in our backyard. So as we're thinking through connecting brownfield emitters to our different sites, having different entry points and different storage capacity is very helpful. You know, we're excited about the market. There are discussions ongoing. If we aggregate all the people we're talking to, it's about 20 million metric tons of emissions per year.

Noel Parks: So as we're thinking through connecting brownfield emitters tool are different sides are having a different entry points and indifference towards capacity is very helpful.

Noel Parks: The you know where we're excited about the market. There are some discussions ongoing and if we aggregate all the people we're talking to it's about 20 million metric tonnes of emissions per year. So the market potential is is its large and its exciting to to to think through its about really where we are.

Francisco Leon: So the market potential is large, and it's exciting to think about. It's really what we're at is how do you connect it? So that's where we need the pipes. And where do you store it?

Noel Parks: <unk> is how do you connected so that's where we need the pipes and where do you store. It in as we can develop more poor space quickly I think we're going to be well positioned.

Francisco Leon: And as we can develop more pore space quickly, I think we're going to be well positioned to be able to receive the CO2 and ultimately bring castles forward. We're developing more pore space and a lot of new pore spaces in the northern part of California. But anything that we can bolt on to Kern County and bring other projects that will have future potential, whether it's through our own production and reducing or increasing the pore space as we deplete our reservoirs or by acquiring some of the area's fields that have potential, it's an exciting proposition that just again brings more certainty into the brownfield market. Now, the greenfield, as I discussed, there's generation of emissions that ARA brings to the table So if you think about confidence in bringing those emissions forward, the best case scenario is to have those emissions on top of the reservoir, so co-location, and you want to have full control of those emissions.

Noel Parks: To be able to receive those tier two and ultimately bring castle's forward.

Noel Parks: We're developing more poor space and a lot of the new course basis and in the northern part of California.

Noel Parks: But anything that we can bolt on to two Kern county, and in bringing bringing other projects that we'll have future potential whether it's through our own production and reducing increasing the pore spaces, we deplete our rest of world or by.

Noel Parks: Acquiring some will there S fields that have a potential it's it's an exciting proposition that just again brings more certainty.

Noel Parks: Into the brownfield market now the Greenfield S. I discussed theres, some theres generation of emissions that era brings to the table.

Noel Parks: That are going to be easy to capture or within fully within our control right. So if you think about confidence in bringing those submissions for the best case scenario to have those submissions on top of the rest of the worst with co location and you want to have full control of those submissions as we showed with our gas processing pre combustion.

Francisco Leon: As we showed with our gas processing pre-combustion project, that gives us much more certainty to get to the finish line and the highest percent of the incentives. So ARA allows us to do that through some of the emissions, through steam floating, and co-gens that they have in their portfolio. So we like the ARA deal for multiple reasons and a lot of the traditional oil and gas business in the synergies. But one thing to look for is how our team is going to tackle and think through the ARA properties and try to bring those, accelerate those, and bring those to life sooner than probably the current owner was expecting. Crate it.

Noel Parks: Project that gives us much more certainty to get to the finish line and the highest percent of the the incentive so era allows us to do that through some of the emissions through steam floating and co. Gen. So they have in their portfolio. So so we like the the are ideal for multiple reasons are in and a lot on the traditional oil and gas business and the synergies.

Noel Parks: Yes.

Noel Parks: But one thing to look for is is how our team is going to tackle and theres going to think through the Arab properties in and try to bring those accelerate those and bring those to life sooner than than probably the current owner was expecting.

Speaker Change: That's great.

Francisco Leon: Great. And, you know, thinking about class 6 permits and, of course, that upon final approval, that will be, you know, such a milestone and then, you know, the same for subsequent permanent approvals. Once that happens, sort of post-EPA approval, what is the handover like to either further regulatory involvement or, I wonder, does it change in terms of like a district office steps in, another federal entity, you know, DOE, or somebody takes the lead? So, what comes next after the permit? So the EPA is the primary agency that approves Class 6 permits. It's a federal permit, but they're working closely with Kern County, where we're going to have the first project out of the gate. And Kern County is running a parallel path to also get all of the local permits in place. So maybe I'll turn it over to Chris to describe that in more detail.

Speaker Change: Great.

Speaker Change: And.

Speaker Change: Thinking about the class six permits and of course that upon final approval that will be such a milestone and then you know the same for subsequent permit approvals.

Speaker Change: Hmm.

Once that happens sort of post EPA approval, what is the hand over like two.

Either further regulatory involvement or I I wonder does that change in terms of like a district office steps down another federal entity.

Speaker Change: D O E or somebody takes the lead.

Speaker Change: Sort of what what comes next after after the Permian.

Speaker Change: Yeah.

Speaker Change: So the so the E. P. A is the primary agency that approves classics permit.

Speaker Change: It's a federal permit and but if they're working closely with our with Kern County, where we're going to have.

Speaker Change: The first project out of the gate and the Kern County is running a parallel path to also get all of the local permits in place. So maybe I'll turn it to Chris to describe that in more detail yeah, well, yeah. So first on an E. P. A rite aid the final permit comes out but then the process.

Chris: Yeah, well, first of all, the final permit comes out, but then the process, ultimately, continues with us, you know, with the county, the conditional use permit to construct that Francisco was referencing, if you will. You know, receipt of that, and then we go FID, and then, you know, we begin the process to first injection in 2025 as planned. But obviously, as we go with those permits in hand, we'll continue to do things like pre-injection testing and comply with the conditions in the permit that EPA has set forth as we lead up to the first injection. And then, ultimately, you know, that's like immediately what's next, right, after the permits are in hand. And then, ultimately, there's an ongoing process in Class VI for monitoring, reporting, verification, and you know, being able to claim the 45Q credits.

Chris: Ultimately continues with us.

Chris: With the county the.

Chris: Conditional use permit to construct that Francisco was referencing if you will.

Chris: No receipt of that and then we go F. I D. And then you know we began the process to a first injection in 2020 five as planned, but obviously as we go.

Chris: With those permits in hand, we will continue to do things like Reinjection testing in complying with the conditions in the permit that EPA has set forth as we lead up the first injection and then ultimately you know that's like immediately what's next right. After the permits are in hand.

Chris: And then ultimately there is an ongoing process in the classics for monitoring reporting verification, you know being able to claim the forty-five Q credits, obviously, we'll be doing that in accordance with the permits and at both the the P. A level and then county as well.

Chris: Obviously, we'll be doing that in accordance with the permits at both the EPA level and then at the county level as well in terms of, you know, what we're committing to do to continue to advance carbon management more broadly there, but specifically any requirements at the field level we'll continue to do throughout the life of the project. So it's near-term steps to complete and move on to construction for the first injection, then ongoing monitoring and verification, and things of that nature.

Chris: Well in terms of.

Chris: You know what we what what we're committing to do to continue to advance carbon management more broadly there, but specifically any requirements at the field level, we'll continue to do.

Chris: Throughout the life of the project. So it's a near term steps to complete and move on to construction for first injection, then ongoing monitoring and verification and things of that nature.

Francisco Leon: This concludes our question and answer session. I would like to turn the conference back over to Francisco Leon for any closing remarks. Thanks for joining us today. We'll be presenting at several investor conferences in March, and we look forward to seeing you. Thanks a lot. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Goodbye. Copyright 2020, New Thinking Allowed Foundation, BF-WATCH TV 2021 www.larryweaver.com, The Ultimate Parody Site!

Chris: This concludes our question and answer session I would like to turn the conference back over to Francisco Leon for any closing remarks.

Francisco Leon: Thanks for joining us today, we will be presenting at several investor conferences in March and we look forward to seeing you. Thanks a lot.

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

Speaker Change: Goodbye.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: [music].