Q3 2024 California Resources Corp Earnings Call
Good day and welcome to the California Resources Corporation third quarter 2024 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 telephone keypad. After today's presentation, there will be an opportunity to ask.
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 I would now like to turn the conference over to Joanna Park, Vice President of Investor Relations and Treasurer. Please go ahead.
Joanna Park: Good morning, and welcome to California Resources Corporation third quarter Conference call.
Following our brief prepared remarks members of our leadership team will be available to take your questions by now I Hope you have had a chance to review our earnings release and supplemental slides we.
Joanna Park: 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.
Joanna Park: Today, we will be making some forward looking statements based on current expectations. Actual results may differ due to factors described in our earnings release and in our periodic SEC filings.
As a reminder, please limit your questions to one primary and one follow up and this allows us to get more of you on today.
Speaker Change: I will now turn the call over to Francisco.
Francisco: Thanks, Joanne and good day everyone.
Francisco: By all accounts. This has been a very strong year for CRC with excellent progress on several fronts.
Speaker Change: We are bigger and financially stronger.
Following our combination with Ara energy.
We have successfully integrated <unk> talented workforce into CRC too.
To form California's largest producer with a portfolio of high quality low decline low capital intensity conventional fields.
Our state wide portfolio of assets and long duration development inventory.
Allows for flexible capital allocation opportunities.
Through Workovers and side tracks to offset natural declines in our rest of wars.
We have executed on our business strategy, demonstrating an ability to acquire assets and rapidly capture synergies to enhance returns and grow cash flows.
Francisco: And in regards to era.
Francisco: We are ahead of schedule as we have already implemented more than 55% of the 235 million in annual synergies.
Joanna Park: Our track record of growing cash flow per share is a core competency in a rapidly consolidating industry.
Yeah.
Joanna Park: We are an innovative energy solutions provider, helping California decarbonize.
Joanna Park: Essential and hard to abate industries, while attracting new partners, saying green capital to the state.
And we offer a very compelling investment proposition for existing and prospective shareholders.
Our equity is underpinned by the P. P value of our conventional assets and our carbon business is gaining momentum with multiple projects in various stages of development.
Joanna Park: In addition, the combination of our natural gas production with power generation has us well positioned to monetize excess power capacity to meet this rapidly accelerating electricity demand in California.
Joanna Park: Trc has a very bright future.
Joanna Park: Before taking your specific questions. There are three things I want to discuss.
Joanna Park: First nearly will give us a summary of our third quarter results.
Second I will provide an update on our carbon management business and the key projects we're advancing.
Crc's, a sustainability leader and our assets are uniquely positioned to provide efficient reliable and near term energy solutions.
Joanna Park: Lastly, I will share some early thoughts from 'twenty to 'twenty five.
Joanna Park: Although full guidance will come out in normal course next February we wanted to highlight our top priorities.
Speaker Change: Let's get started with a recap of our third quarter results Nelly.
Nelly: Thank you Francisco.
Nelly: Our operating results exceeded expectations, driven by strong production improved operational efficiencies and lower cost when compared to last quarter.
Reservoir performance remains resilient due to the Workover program, which effectively manages our production declines.
Joanna Park: Third quarter production averaged 145000 barrels of oil equivalent per day and oil averaged 113000 barrels per day.
We also are 96% of Brent after hedges.
We generated 402 million and adjusted EBITDAX, and I had a 41 million and free cash flow.
Results benefited from cash calls that came in approximately four and below our guidance.
Joanna Park: In just one quarter and despite a weaker commodity prices and merger related payments, we rebuilt our cash balance to more than 200 million and we let it honors with peer leading shareholder returns.
Our liquidity remains robust at one point 15 billion and we are committed to reducing debt to our leverage target level in 2025, while continuing with our dividend and share repurchase programs.
Joanna Park: We continue to maintain capital discipline and delivered strong quarterly results are lowered unexpected capital of 79 million.
Joanna Park: These are crazy is mainly related to lower than expected capital deployment after high grading our workover projects.
Joanna Park: We have a track record of returning meaningful cash to shareholders with approximately 965 million returned to shareholders since 2021.
Joanna Park: In the third quarter, when it turns and $76 million to shareholders or more than half of the quarter free cash flow.
This was comprised of $34 million in dividends and 42 million and share repurchases.
If you have questions on our quarterly financial results Francisco and I will be happy to answer them at the end of our remarks.
Speaker Change: Let's just go back to you.
Speaker Change: Things daily.
Joanna Park: Now, let's talk about our growing carbon management business.
We continued to experience significant interest in our carbon management business from various stakeholders as we make progress in helping solve the dual challenge of quickly, reducing California's industrial emissions, while delivering reliable and affordable energy.
We all share a common goal to.
Joanna Park: So safely and rapidly the carbon nice, California.
In our carbon terrible release, we provided some exciting new information, including three major updates.
Joanna Park: First Kern County unanimously approved our conditional use permits for CTV, one at Elk Hills.
For the E. P. A tracker, we expect to receive our final EPA class six permits for CTV won 26, our rest of the war next month.
Shortly after receipt of the EPA permit we expect to F. I D and break ground on our first carbon capture storage project at our Elk Hills gas processing plant.
Next we recently signed a brownfield Mou.
Joanna Park: To develop carbon solutions for a leading California power company.
Joanna Park: Which will allow for up to one 5 million metric tons per annum or C O to sequestration.
Joanna Park: While important to CRC. This partnership is uniquely aligned with California's gold to Decarbonize by 2045.
I'll take a moment to explain the significance of this mou.
California's regulators have highlighted the importance of carbon sequestration and acknowledged that decarbonising power is critical as this high emitting industry is vital to grow our economy.
Joanna Park: Our new Mou with whole Street energy, a leading power provider in a state that desperately needs more clean power today.
It's aligned with ours and the state's climate objectives.
Joanna Park: Natural gas is necessary to power in California, today, and combining it with Ccs will deliver net zero power, which is needed to achieve the state's climate goals.
Joanna Park: California's own Senate Bill 100 stage.
Wondered percent of retail electricity sales be sports from renewable and zero carbon resources by 2045.
Joanna Park: At CRC, we're doing our part to lead California's de carbonization.
Joanna Park: But we need regulators to do their part.
And take fast action on C O two pipeline regulations to enable the installation of new pipes.
This will allow carbon to be safely capture transported and stored.
Our CTV subsidiary is rapidly scaling today with nearly $4 2 million metric tons per annum of Ccs projects under consideration.
In other substantial agreements in discussion.
And lastly, we continue to explore multiple opportunities in connection with new AI data centers in California.
Having existing power required to run these centers.
Joanna Park: Copel with a desire to decarbonize that power creates a unique first mover advantage for CRC.
Joanna Park: Data centers are expanding rapidly across the country with contracts for nuclear S. M ours in geothermal energy sources, receiving reaching attention.
We believe that natural gas power generation with Ccs is the best option for Tech companies in California.
Given the expensive existing infrastructure and the ability to reduce emissions.
We are positioning seat T V S. California's energy solutions provider with the goal of making Datacenters carbon free.
Joanna Park: Together.
Joanna Park: There, we can attract and retain highly technical high paying jobs and encouraging new investments in our state with the aim of meeting Californias aggressive de carbonization goals.
In helping ensure the reliability of an already taxed power grid.
We hope to have more to report soon on CRC his role in creating the carbon free digital bridge between energy and Tech.
Joanna Park: Let me close out our remarks with some preliminary thoughts on 2025.
Joanna Park: Over the last few weeks, we have seen tremendous volatility in oil prices with this backdrop, we have taken steps to provide near term cash flow certainty.
Our significant hedge positions.
Joanna Park: For the full year 2025.
Joanna Park: Roughly 72% of our oil production is hedged at an average floor price of $67 per barrel.
These positions underpin our merger assumptions and support our cash flow.
Joanna Park: We are confident that we have the right strategy and are 2025 priorities are clear.
We will maintain our strong balance sheet and improve our bottom line.
Through continued capital discipline delivery of area related synergies and the strength of our near term hedges, we expect to generate significant cash to both reduce total debt and return meaningful cash to investors.
In the E&P business, we will proactively manage our low natural declines with a combination of Workovers sidetracked and new wells with permits on hand.
We plan to start a 2025 with a one rig program, which we can sustain through 2026.
Joanna Park: In carbon terrible, we will add scale in our leading carbon management business entering into agreements with new brownfield and Greenfield emitters.
After years of planning, we're moving closer to our target to inject shield two into CTV, one by the end of 2025.
Joanna Park: In 2025, we will once again.
Joanna Park: Demonstrating the strength of our power business.
We have resource adequacy contracts in place that will increase these payments by 50% year over year to approximately $150 million in 2025.
Joanna Park: Lastly, we will aggressively pursue additional cash flow generating opportunities.
Joanna Park: We are in an unrivaled position to provide solutions for AI data centers.
Joanna Park: Power industry expansion and other new industries looking to enter our great state.
Joanna Park: We are a different kind of energy company and.
Joanna Park: And we look forward to unlocking the value of our business for the benefit of our shareholders and our fellow Californians.
Joanna Park: With that we can now open the line 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 you're using a speaker phone. Please pick up your handset before pressing the keys.
Joanna Park: At any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two please.
Joanna Park: Please limit your questions to one primary and one follow up.
Joanna Park: At this time, we will pause momentarily to assemble our roster.
Joanna Park: The first question comes from Scott Hanold with RBC capital markets. Please go ahead.
Scott Hanold: Thanks, Good afternoon.
Scott Hanold: I think I want to start with the whole energy Mou.
And will you use sign obviously significant it two ways I think it's your largest.
The agreement to date and obviously, it's a brownfield situation you did highlight obviously future pipeline regulation in California would be needed.
Speaker Change: Can you provide a few things one could you provide thoughts on where you think that is right now and in the timeline of that being addressed.
Speaker Change: Number two any kind of context around that agreement relative to you know location of assets in California that would be the first likely area you'd be looking at.
Speaker Change: For that and what would it take.
For you to do front end versus just the storage piece.
Scott Hanold: Hey, Scott So yeah regarding shield two pipelines, that's definitely going to be needed to scale the business to where we want to take it.
Scott Hanold: There is a significant market demand and the market need to reduce emissions I think.
Scott Hanold: Our Mou.
Scott Hanold: Mou with whole street proves that there's there's market appetite and.
Joanna Park: This is.
Scott Hanold: I'm also going to be needed to attract data centers in California. So.
Scott Hanold: I think the this transaction or potential transaction.
Scott Hanold: Highlights the market need that to get there. So the next step to be able to scale. The business. Because this will certainly be one of many opportunities we bring to the table will be the connectivity on pipe.
Scott Hanold: As we've talked about before we have two ways to think about pipelines are one is a california can.
Scott Hanold: We'll make around their S be vinyl five.
Scott Hanold: Build to be able to regulate pipelines throughout the state, but we'll sure looking.
Scott Hanold: At the federal government and I believe they're going to start drafting or potential.
Scott Hanold: Pipeline legislation soon so.
Speaker Change: We definitely needed to scale the business as we think about our portfolio of Greenfield and brownfield, we liked the combination of them to a.
Scott Hanold: New fields with Greenfield existing emitters with brownfields, but.
Scott Hanold: But this is just a start right then and be evidenced through the market supported the evidence of where the market needs are going to be critical to take this going forward. So.
Scott Hanold: The nice thing is we were able to be a continued to be very selective as we advance the permitting process and getting to this first ever C. U P permitted Kern county awaiting the EPA.
Scott Hanold: We're able to to Ah now I get to the next stage of our of our development, which is this brownfield emitter portfolio that we've been building. So excited that we got here with whole street two to announce an Mou today we're.
Scott Hanold: We're not being specific at this point from project details are there still things to work through.
Scott Hanold: But we're building the queue, we're building that inventory or brownfield emitters in a lot more to come.
Speaker Change: I appreciate the context and as my follow up.
Speaker Change: Obviously, the political landscape is.
Speaker Change: Pretty dynamic will say no.
Speaker Change: Month, or so and obviously.
Speaker Change: The change that can bolt last night.
Speaker Change: How do you think about the prior agreements that you've signed where they very reliant on the IRA.
Scott Hanold: Bill that was put out there or do you think if there is some uncertainty in the IRA dollar that changes.
Scott Hanold: Those prior agreements really from a financial perspective don't change for you all too much.
Speaker Change: Yes, we headed into the election looking at.
Scott Hanold: The aspects of the eye or a that we're working through us bipartisan so.
Scott Hanold: If you look at carbon capture and sequestration.
Scott Hanold: It's really been done nationally.
Scott Hanold: There's a lot of interest in it.
Scott Hanold: States that have both the emissions and to keep the ability to sort of them.
Scott Hanold: Irrespective of their if they're red or Blue States.
Scott Hanold: Think this is the right compromise solution ready to use your existing infrastructure and retrofit with Ccs.
Scott Hanold: So we went into the election thinking it's bipartisan certainly Red States you see a two to four you are so we don't see that changing at all so we think the IRI is the right thing to to bring a more technology and investment forward, but.
Scott Hanold: But if we think about our California projects.
Scott Hanold: Theres some theres multiple ways to ultimately meet this projects viable right. So I R. As one component, which will be very very good about that we also have the CFS program here locally.
Scott Hanold: And but what we're starting to also develop is both the voluntary credit market is starting to take hold.
Scott Hanold: But then you're also going to start seeing a premium value to having clean electrons and clean products right, that's where the bringing the datacenters and it doesn't have to be data centers right. It could be really any customer that sees value in having clean baseload power or or clean.
Scott Hanold: Lower carbon intensity fuels.
Scott Hanold: That will come to the table and really benefit on Ccs. So if you look at the entirety of the incentives and the market opportunity, we don't see an over reliance on one versus the other we think the whole kid is going to be ultimately what's needed to make this the ccs carbon management business really take off nationally.
Scott Hanold: But for US specifically in California, we are we see multiple ways to win multiple ways to bring these projects forward and we don't see that changing at all with the election.
Speaker Change: Thank you.
Speaker Change: The next question comes from Kelly <unk> with Bank of America. Please go ahead.
Kelly: Hey, good morning, guys Francisco and team.
Kelly <unk>: I guess first it's really get to see some definition forming around the option value in your portfolio. As you know we've been pretty constructive on your power business and the opportunity to take some of those what's behind the meter if there's demand for clean Baseload power. We think that you guys are well positioned to provide it and I guess that brings me to the Mou I don't think it's coincidence.
Speaker Change: This comes after receiving the surface permit.
Speaker Change: You've got the classics penciled in for December can you give us a sense of the work that's been building up behind the classics and in anticipation of that milestone and whether we should expect even more news flow after getting that permit.
Speaker Change: Yeah, we thanks Kelly for the question too.
Scott Hanold: Yeah, we've been talking about our classics permit for it for three years. So it's great to finally get there where we achieved this milestone in.
Scott Hanold: First ever right.
Scott Hanold: We can't.
Scott Hanold: Dismiss the amount of effort.
Scott Hanold: That went into the kitchen in the company.
Scott Hanold: Two to our grid this permitting Kern county for a conditional use.
Scott Hanold: It really testament to the team CRC.
Scott Hanold: <unk> about being able to create value in and ultimately bringing these projects forward.
Scott Hanold: Is an important milestone, but we're not done we see I mean, clearly the EPA permit should come next and tracking towards next month.
Scott Hanold: In but as we've been thinking four to four <unk>.
Scott Hanold: For several years now on the magnitude and the impact to the business.
Speaker Change: There is significant work and as you say in understanding first where does the value what are the value chain ultimately fits in and just to recap we see a state that wants to be Carbonite, we see a state that by law and used to Decarbonize we have.
Scott Hanold: Carbon taxes greenhouse gas tax that the meters paid today.
Scott Hanold: We see a real need to find and.
Scott Hanold: And extend the life of a lot of great infrastructure, that's already in place.
Scott Hanold: And paid for by by other emitters. So when we looked at the landscape. We saw this opportunity to deploy capital Ah alongside with Brookfield that caused the value chain.
Scott Hanold: In but as you go through a first of a kind.
Scott Hanold: Then you have people that want to take the wait let's wait and see CRC can deliver I think the proof point is there that we were making really good progress there were head of anybody else in the state.
Scott Hanold: And you can see that with our Mou today are the <unk> in.
Scott Hanold: I believe the seam will apply to data centers.
Scott Hanold: You see a real need a market need but then when you drive a one a first of a kind solution like natural gas combined cycle, which is yes, I think it's legitimate for people to say, okay is this real or or not in.
Scott Hanold: I think we're right there right. So yes to the question of do I expect more absolutely. The market is right for these solutions and we're ready to <unk> to provide them.
Scott Hanold: Obviously, you can't speak to other conversations so other than to say that I would expect more to come in the coming months.
Speaker Change: As we we have a finite resource which is poor space. This reservoir will get full overtime. So.
Scott Hanold: I think the time has come to us to bring in the right partners. The right long term partners that ultimately get a clear benefit from.
Scott Hanold: From being able to do storage and capture a C O shield two.
Speaker Change: I appreciate that Francesco This is my my really quick follow up so last week. The regulator was at FERC pushed back on Susquehanna plant going behind the meter can you talk a little bit about why the California market is different than E. G M and I'll leave it there.
Speaker Change: Yeah, and I won't speak to what's happening in other states are in and might not know the details.
Speaker Change: To speak to them, but what's the dynamic in California is unique we.
Speaker Change: So you laid out already theres mandates to be Carbonite and this is no doubt about that.
Speaker Change: There's a dish both carrots and sticks around that ultimately to make these companies viable going forward they need to find the solution to store that you too are we can't continue where our goal is to lower emissions.
Speaker Change: So when we think about what's in place in California, There's a significant penetration of removal.
Speaker Change: In wind.
Scott Hanold: And there's an appetite to move away from natural gas power and well as we do that what we see is you see cost increase to consumer so in electricity.
Speaker Change: We've also seen a lack of reliability in the system. So as we think forward as to what do we need to do to deliver both right that they should not be mutually exclusive we can lower emissions and we can provide reliability. We think it's infrastructure that's.
Speaker Change: In place today acts more S, peaking speakers and not as Baseload. These are going to be great solutions for the state and the key is to take some of these power behind the meter.
Scott Hanold: That's not servicing the communities, but it also can be used to attract businesses that ultimately have a great benefit for California. So the dynamics are different here, we have excess capacity in natural gas generation, we're gonna make it clean and we're gonna we'd like to bring in behind the meter.
Speaker Change: Thanks, Francesco <unk> next week.
Speaker Change: Thanks, Our next question.
Speaker Change: The next question comes from Betty Jang with Barclays. Please go ahead.
Betty Jang: Hello, Hi, Thank you for taking my question I.
Betty Jang: Definitely great to see the momentum that you're seeing in the current management business, but I suppose activity start to pick up and your imminent to F. I D B.
Betty Jang: Gas processing carbon capture project.
Betty Jang: Starting with for next year, how should we be thinking about.
Betty Jang: The capex at the capital allocation that you expect to put into the carbon management business next year.
Betty Jang: And just help us remind us like what percentage of the capital is being spent at the CRC level versus what's being funded at the subsidiary J P level. Thanks.
Speaker Change: Yeah, Ben Thanks for the questions. So our first project 35 are is our own.
Speaker Change: Carbon capture project of an existing facility.
Speaker Change: Pre combustion of Oh tier two we're going to strip out the shield two from the gas stream.
Betty Jang: To get to be on that project very shortly after we received we have received over the EPA permit. It's basically the last remaining condition precedent to move forward on the project.
Betty Jang: As we stated before that.
Speaker Change: <unk> is less than $20 million is I would see a relatively simple modification of an existing plant.
Speaker Change: We also have the injector are very very close by things like 4000 feet away So very short.
Speaker Change: The thief of Chile, we already exist and it can be modified so low capital project and we will disclose the details once we reach F I D.
Speaker Change: So I would say 2025, it does depend on other projects that we may bring to the table, but for now what.
Speaker Change: When we have line of sight to and we've communicated to the market is just this project 25 are in terms of capital.
Speaker Change: The run rate of the business is is a combination of permits and termination of people cost.
Speaker Change: So that's disclosed in our financials.
Speaker Change: Small amount of run rate Opex and G&A to move these projects forward.
Speaker Change: The big capital projects will come later, as we advance the capture transport and storage business.
Speaker Change: Particular to brownfield Limiters and and that's where we have a great partnership and joint venture with Brookfield, where if you recall, we have the ability to sell down a portion of the poor space a 49% working interest in the pore space.
Speaker Change: A $10 per ton a set.
Speaker Change: Is that ultimately helps us finance the capital calls on the CRC business effectively could become self funding business as we move the ball forward. So so I would say 2025 should be a year of further proof points.
Speaker Change: Their market evolution, I would expect more emitters, oh, the different industries to come in and partner with us.
Speaker Change: I expect to continue advancing in those fronts.
Speaker Change: Oh.
Speaker Change: For the most part should be limited in 'twenty five to more than 2025 35 are projects that we're launching this year.
Speaker Change: And then we will see you in 2026, we should be ready to talk about that for the further larger capital investments.
Speaker Change: That's really helpful. Thank you for that my follow up is on cash return and type I specifically the.
Speaker Change: The third quarter, we see the first full quarter of <unk> and Pat and soon these free cash the cash flow generation capability of the business. The adjusted free cash flow is $171 million. This quarter and then you bought back only 42 million, it's a bit less and well thought you are capable of doing so.
Speaker Change: As we look forward to 25 Gigabits is protected by hedges, so should we be expecting that buyback pace to pick up or any reason that it wouldn't.
Speaker Change: So it gives the first point to raise but he is we see tremendous value in our stock. If you think about all the business lines that we have the business opportunities all the catalyst.
Speaker Change: Now, we have and great to see the first catalyst starting to arrive.
Speaker Change: With our Mou today.
Speaker Change: We don't see the value captured into stock so as long as that continues we'll continue buying back our shares aggressively.
Speaker Change: We bought back.
Speaker Change: Have a share repurchase program since 2021, and if you look at the track record over the last four years.
Speaker Change: We've used about 65% of our free cash flow to buy back shares right. So that's the indication over the past.
Speaker Change: As you point out the the Arab transaction brings.
Speaker Change: More stability bigger scale and more cash flow to the business.
Speaker Change: As we close the year at transaction, we took our cash levels down to zero and then we rebuild it in one quarter to over $200 million right just to showcase again, the it showcases the capacity the Castro capacity of the business.
Speaker Change: So we still have about $600 million remaining under the board authorization.
Speaker Change: On the share buyback.
Speaker Change: And we evaluated every day, we look at ways to deploy capital in a smart way and like I said, we have a lot or we see a lot of value in the stock. So we have in being prescriptive on a go forward basis as to how many shares we're going to buy but we've I think we can do you can look at our track record is evidence.
Speaker Change: What we've done and what we might be heading the opportunities continue to show.
Speaker Change: The nice thing about our cash generation business and the hedge book is.
Speaker Change: We also can can bring down debt, we have about $240 million of our 2026 bonds outstanding. We're also looking at that those are.
Speaker Change: Callable at par starting next year.
Speaker Change: So that's the commitment that you have with Trc will manage a very strong balance sheet, and our liquidity and deploy capital in a way that ultimately to reward investors and different forms so.
Speaker Change: So that's what that's where I'll leave it on the shelf shareholder return policy.
Speaker Change: Oh that sounds great. Thank you so much for that color.
Speaker Change: Thanks Ben.
Speaker Change: The next question comes from David <unk> with TD Cowen. Please go ahead.
David: Good afternoon, guys. Thanks for taking my questions.
David: I was I was curious just as you think about 2025, obviously there were some outperformance in the upstream business on just capital deployment this quarter.
David: As you integrate the era assets when you think about it.
Speaker Change: You kind of gave some book ends around our production guidance for next year.
David: As you think about optimization, what was some of that optimization in high grading workovers. This quarter more of a onetime thing or do you see free sure opportunities as you kind of look through that portfolio, where you could significantly lower.
David: Capital expenditures next year as you kind of look for high grading.
Speaker Change: Yeah no.
Speaker Change: First of all we see lot of opportunities as we continue to integrate we now have the hands on the steering wheel have a really good sense of the opportunity set in the capacity of the business.
David: Yeah, the bread and butter of California is through Workovers and side tracks in.
Speaker Change: Those are great projects that make really good returns and help offset the decline.
Speaker Change: I would not say that the third quarter's evidence of any any sort of one time activity do you think that should see.
David: Continuation of the business is to continue to really focus on those.
David: Those type of projects on a go forward basis.
David: We obviously youre not going to guide to date for 2025 are in terms of specifics, but we see a very similar trajectory of.
David: Of the business.
David: In 2025 from E&P perspective in terms of capital deployment in terms of activity set in terms of decline rates. So.
David: I'd say, its a steady business and that.
David: We can do a lot of the blocking and tackling to tackling by surveillance base management, Workovers and sidetrack and expect that to continue as we.
David: Keep getting a.
David: We've been we've been rebuilding the permit inventory as well so we see the same similar trajectory into next year as we've had this year and it was great to see the production convenient strongly as he did that just are a testament to the quality of the assets and the quality of the team that runs off.
Speaker Change: I appreciate the color there.
Speaker Change: Thanks, and congrats obviously on the Mou.
Speaker Change: On the carbon storage side.
David: I am curious if you have an update on just your views on the solar market as it relates to your your surface acreage.
David: It was obviously something that was highlighted last quarter. I think you guys had around 80 485 megawatts of projects in development as you kind of consider all of the solutions for.
David: Increasing power generation in the state.
David: Obviously, there's a huge opportunity with.
David: With carbon capture in a clean energy source from existing emitters.
David: How are things progressing on the solar side and are you seeing how would you kind of weigh the demand for opportunity between solar and use of surface acreage versus.
David: Inbounds around carbon capture.
Speaker Change: Yes, it is very complementary.
Speaker Change: Yes, the largest mineral acreage holder in the state.
Speaker Change: And a pretty significant surface owner.
David: A lot of solar projects are enabled through our land.
David: Have the ability to bring more solar solutions into.
David: Into California, so those are progressing well.
David: And it's going to be part of the portfolio of clean energy that we offer.
Speaker Change: I really don't want to start the conversation there.
David: If you think about.
David: Would we have battery solutions and more traditional battery solutions that were considering but what are you. So have a great opportunity to bring our what's called enhanced geothermal into California, and don't see using the the heat from reservoirs and natural.
David: He'd from rest of World War.
David: The steam flooding to create clean energy and that's you're seeing basically the earth as a battery AR and the ability to bring that energy something that hasn't really excited as well.
David: So we're looking at many fronts, whether it's to provide backup power for data centers with to further make.
David: Make the grid green.
David: See ourselves of incubators of these technologies.
David: More so because we have the the reservoir. So we have the land we have the a in a lot of cases interconnectivity to make these projects go from from Great idea generation into solid solutions, and so I'd say were building that portfolio.
David: It's not just solar like I said it is traditional geothermal enhanced geothermal is battery storage and we really like how this business is heading I say again as we mentioned many times, it's the it's a full solution platform.
David: Its embracing the California's trajectory to Decarbonize. We've also won lower emissions and our projects are going to deliver.
Speaker Change: Thanks Francisco.
Speaker Change: The next question comes from Josh Silverstein with UBS. Please go ahead.
Josh Silverstein: Thanks, everyone.
Josh Silverstein: I had a couple of upstream questions for you guys first just on oil realizations I'm curious what you guys see potentially happening down the road with given the recent news of our California refineries shutting down and maybe perhaps other shutting down I know you guys are more linked to Brent do you see any of the discount.
Josh Silverstein: Or the I guess, the discount that you guys have to Brent or improve the higher realizations relative to W. P. I changing at all from from this over the next few years.
Speaker Change: Yeah No I appreciate the question.
Speaker Change: <unk>.
David: The do the reality that just to remind.
David: The audience is.
David: California's consumes a lot of a lot of oil to gasoline and jet fuel think we're California's 110, 110th of the entire consumption of gasoline and about a third of the jet fuel. So the demand is still very much. There. So then if you look at the.
David: Finding capacity of the state.
David: Have about a million and a half barrels that get produced crude refining.
David: And that C compared to the California production of close to 300000 barrels a day more.
David: More than a third would come from CRC.
David: These refineries were built for California crude.
David: In the East you have if you look at the Nelson complexity, the ability to create jet fuel.
David: I know their products through this that's what these refineries need today, so we use our crude blending.
David: Blending.
David: Source, so as you bring lighter crude or high sulfur fuel.
David: Crude from or there are states or countries a lot of foreign country imports.
David: There's a strong preference for our crews to blend. It. So that's why you continue to see a very high realizations, even on our heavy crude that.
David: That trade so both Dolby Ti in California, So, but maybe I'll turn it to our two JV is to see if he has anything else to add.
Speaker Change: No I think I think Francisco best capture the essence of this $1 5 million demand versus 300000 native production, it's a nice ratio.
David: This refinery is really built around their crude and that's not changed.
David: It could change, but that would take capital investment, which I think right now you would find most refiners reticent to make so I think for the time being we're going to continue to see strong demand for our products in particular.
Speaker Change: Got it thanks for that next one is.
Speaker Change: I'm curious what you guys need to do to implement and execute on the remaining $100 million of the arison as synergies you've done a really good job on the financing and G&A side. It looks like the bulk of the $100 million is more operational related so what needs to happen for you guys to execute on that thanks.
Speaker Change: Yeah and I appreciate the question that I'm, absolutely tremendous job by the team.
Speaker Change: We talked about it as we announced the euro merger.
David: This is a unique.
David: Fifth of assets there.
David: Right next to each other had been run independently for decades, So we talked about synergies and the confidence we had on those <unk>.
David: It wasn't just about right sizing the organization and thinking about the organization, we were really focused on.
David: A lot of the operational synergies you can see in our slide deck. The disclosure we have between G&A and Opex.
David: In it and ultimately we see a natural progression of synergies.
David: Focus on supply chain.
Speaker Change: <unk> focus on infrastructure optimization, and steam flood optimization, but I'll pass it over to Omar Hyatt to provide more color and some examples on what are the next $100 million would come from.
Omar Hyatt: Yeah. Thank you so <unk>.
Omar Hyatt: The way to think about synergies is really think about it on a timeline.
David: But what we have done so far is that we have executed the projects that we can execute fast and deliver value, which is the workforce optimization.
David: And the supply chain contracts reevaluating them moving the combined company to more favorable contracts now that we have doubled our scale there.
David: The next thing and the line is really infrastructure consolidations and what we're looking at here is leveraging our proximity to arrow assets and connecting those assets to move the products in the most economic or direction.
David: So what I mean by that is that if you look at power, while we feed most of our operations without own generated power and therefore can provide power at a low cost they're still leases and assets that are on T. J D power at a higher cost.
David: So we look at the opportunities to bring those assets at a lower energy cost.
David: By power provided from our own assets. Similarly, if you look at gas, where net producers and that kills and that consumers and salaries, which are a true measure of a field. So we have recently connecting those two fields and we'll look at moving the gas in the right direction based on prices and consumption.
David: We also have a lot of capacity in our cryogenic gas plant at Elk Hills and.
David: And not all our assets are connected to that plant. So there is a large opportunity we see in bringing gas to CGP.
David: Extract natural gas liquids in the future.
David: And comments that were made earlier by Jan Francisco, we now produce quite an array of oil in terms of API gravity.
David: And our marketing team continuously works with operations to look at the right brands.
David: To refineries to optimize our realization prices and then finally the water at the same way there are disposal capacities.
David: We've got access disposal capacity in some areas were punished and others. So we consolidated to optimize cost around water movement. So those are just some of the examples around infrastructure.
David: In addition.
Speaker Change: Got it thanks guys.
Speaker Change: Thanks, Josh.
Speaker Change: Okay.
Speaker Change: The next question comes from Scott Gruber with Citigroup. Please go ahead.
Scott Gruber: Hi, and good morning in your end, we've covered a lot of ground. So just one for me given the Mou announced okay.
Speaker Change: Curious you know these big tech interested and indirectly underwriting capturing gas plants are you having those types of conversations or is it kind of the broader market forces here and the incentives in place that's really underpinning the interest for capital to come into this space, just curious how direct or indirect.
Speaker Change: Big Tech drivers today, when it comes to capture on gas plants.
Speaker Change: I think we're about to find out.
Speaker Change: When you have a project that really very few people have no. One has it at this stage, we have which is the ability to take.
Speaker Change: A great.
Speaker Change: Infrastructure, a natural gas combined cycle power and then two Ccs to lower emissions really solves for everything that we think are big Tech is looking for as they.
Speaker Change: Develop.
David: So.
David: Why why are we not seeing announcements across the U S. Because it doesn't exist, but you see the how power hungry. They are looking in every direction.
David: To get their hands on power as they compete for market share. So you know.
David: What does that ultimately stand in terms of interests I think is high.
David: Is there an underwriting capacity, we don't know yet and that's where having the proof points of permits that's where we having.
David: The showcase or what we can bring to the table.
David: They at Elk Hills would really what's a one stop shop of land water fiber networks, our floor space for Ccs, We think is going to be an attractive proposition.
David: So it's really about capitalizing a first mover.
David: Initiative that now becomes what we think is gonna be a market leader.
David: And that also gives us time to be selective to make sure. We have the right partner the right capital structure in the White right return profile for our investors right. So that's what we're ultimately working towards <unk> and we'll be happy to announce when we have an update.
Speaker Change: That's great and certainly are a great solution I guess.
Speaker Change: A cadence in your view you know after we kind of work through the small stock of nukes that we can restart do you think.
Speaker Change: I'm interested in capture on gas plants, and it takes a meaningful step higher or is that where we kind of need to progress through.
Speaker Change: Yeah, absolutely I think that that should be the natural progression that we see in the state.
Speaker Change: We see.
Speaker Change: A lot of opportunity I mean, we really are just getting started.
Speaker Change: And.
Speaker Change: These brownfield conversation of can can this be something that trc execute but think we could prove that today that we can but there.
Speaker Change: There was a there's a lot of market appetite behind this and I look forward to bringing more projects.
Speaker Change: Well it would show that we can we can talk about.
Speaker Change: Great I appreciate it.
Speaker Change: Extra for Cisco.
Speaker Change: Thank you. The next the next question comes from Leo Mariani with Roth. Please go ahead.
Leo Mariani: I wanted to just follow up on the drilling.
Leo Mariani: Permit situation.
Leo Mariani: It seems like the Cal Jim has been kind of rethinking that for many many months now and I was just curious if there was kind of any update there or are there any actual drilling permits coming out of Cal jam to you or others that you guys could kind of talk about I, certainly know, there's workover and sidetrack permits or whatnot, but just.
Leo Mariani: Curious if there's any update there.
Speaker Change: Yeah Leo Thanks for the question, so, yes, multiple avenues to get permits back on track.
Leo Mariani: Kern County.
Leo Mariani: Environmental impact report.
Leo Mariani: We talked about.
Leo Mariani: We also are pursuing what's called a conditional use permit.
Leo Mariani: In particular through to the <unk> piece or conditional use permit we're seeing good progress made by other operators.
Leo Mariani: Over the last two quarters, we've seen about 80, new permits to other operators in the state and they basically have taken the same path that we're taking.
Leo Mariani: And it's basically doing a conditional use permit.
Speaker Change: Field level C question, not countywide, but specific to fields.
Leo Mariani: And that's the process that we're going to take you know we have some of the biggest fields in the California.
Leo Mariani: In the most of our C U P submissions or had been in around forcefield cell kills one of this current front then bill rich.
Leo Mariani: Bind they make up about 85% of our proved undeveloped reserves so.
Leo Mariani: We see a different paths that can get us back to the permits.
Leo Mariani: We still see potential.
Leo Mariani: Potential resolution in the second half of next year we're.
Leo Mariani: We're working through it and watching the Kern County, and make progress on our their adoption of revised.
Leo Mariani: <unk> and we also are working with Cal Jim.
Leo Mariani: Two to satisfy the requirements from the sequence so.
Leo Mariani: Lots of work happening, we're seeing some good progress on with other operators or smaller operators.
Leo Mariani: We're also seeing really good progress on Workovers and sidetracked, So those will start coming in as per usual.
Leo Mariani: So we're growing in confidence that our resolutions coming it's hard to predict when it's difficult to pinpoint timing, but we do see constructive.
Leo Mariani: Constructive discussions depending on the permanent.
Speaker Change: Okay I appreciate that.
Speaker Change: And then earlier you mentioned certainly the the need in the state to get some pipeline regulations in place.
Speaker Change: Oh two side.
Speaker Change: Just wanted to get a sense I know that was something that might have been getting discussed in the legislature you know over the summer.
Speaker Change: Hence if theres been any real progress there or is this issue just kind of slipped maybe there was other priorities and you know do you have.
Speaker Change: Expectations, just can get taken up again by the legislature you know maybe early next year when things are back in session.
Speaker Change: Yeah that would help with my expectation, there's there's a lot of support in a lot of interest in the legislature to to lift the moratorium on C. O two pipelines in and I think it's just a matter of who comes to a strike. So are we.
Speaker Change: We see California, moving in that direction, we see the federal government also trying to address it.
Speaker Change: Again, we need one one other tool with which satisfied.
Speaker Change: But really what we see is California has an opportunity to move forward.
Speaker Change: And ultimately capture an advantage that we have.
Speaker Change: Over the rest of the country by doing this earlier and attracting a significant capital until the state that's the opportunity we've been conveying that to.
Speaker Change: The legislature and.
Speaker Change: Yeah, I would expect it to be picked up in this next session as we move forward in <unk>, but it's all connected right. So I think if you start delivering the proof points. So there's a market need.
Speaker Change: Theres permits flowing on the subsurface this a natural step to look at ways to bring an existing pipelines that can be retrofitted to transport. She had to ask the natural next step so.
Speaker Change: Continue to have those constructive conversations and they do expect.
Speaker Change: The the conversations to continue.
Speaker Change: The session and so again next year.
Speaker Change: The next question comes from Michael Schiavone with Stephens. Please go ahead.
Michael Schiavone: Got it thank you.
Michael Schiavone: If you do find that big Tech is willing to underwrite the de carbonization of power plants, you have a large co gen plant there at midway Sunset.
Michael Schiavone: I'm wondering if all of the capacity there as needed to power that field or is there some excess capacity. There like you have at Elk hills that could be used by our customer.
Michael Schiavone: Do you have any plans to decarbonize that plant.
Speaker Change: Yeah. So if you look at.
Michael Schiavone: Power generation that ultimately push to CRC, we have over 850 megawatts of power generation throughout the state to a multiple plants and.
Michael Schiavone: We're looking we use less than half of the capacity for the oilfield the rest of it participates in resource adequacy and goes to the grid.
Michael Schiavone: We're always looking to optimize what's the best what.
Michael Schiavone: There were some of the greatest value to our shareholders.
Michael Schiavone: I don't want to be prescriptive about any other plans I mean, we talked about Cal capture which is Elk Hills, we will do see she is there we're evaluating cost benefit on everything else in the portfolio, but we were long power, we like owning power assets in the state that we think this is.
Michael Schiavone: A great compromise solution to boost Ccs when natural gas generation so.
Michael Schiavone: So that's that's our plan going forward right. So there's a that's the opportunity is how much of this capacity and with term into firm contracts long term ppas, whether it's with big tech or someone else.
Michael Schiavone: That's the opportunity that's in front of us and that's what we're pursuing a progressive Michigan.
Speaker Change: Got it and then with Elk Hills does.
Speaker Change: The portion you know you have the excess there that goes to the grid now is that.
Michael Schiavone:
Michael Schiavone: It's tied to the grid or what would be if you did have an opportunity to.
Michael Schiavone: Have a customer there how much of that are free to go to the customer.
Speaker Change: Yeah, so the way to think about it so the plant.
Speaker Change: Generally to about 550 megawatts.
Speaker Change: About one third of that power is consumed by our E&P operations.
Speaker Change: It means two thirds.
Speaker Change: It doesn't have a home so we put it into the grid.
Michael Schiavone: Whatever the spot prices are throughout the year.
Michael Schiavone: Then we participate temporarily for that extra capacity on resource adequacy, which is basically standby power.
Michael Schiavone: When the grid is particularly tax typically in the hotter months of the year do you have contracts with different groups throughout the state that ultimately pay for that stemmed by capacity. So we've been participating in the resource adequacy program for years.
Michael Schiavone: And we've seen that.
Michael Schiavone: The contract value go up will be.
Michael Schiavone: Talked about this in 'twenty for a week.
Michael Schiavone: We've made $100 million or being one that standby power or having that standby power to California.
Michael Schiavone: California that will move to $150 million of contract value in 2025.
Michael Schiavone: But it's really more of the we its capacity that ultimately they'll send it doesn't really have a home and that's when he goes to the grid, we have the ability to bring it all behind the meter and we.
Michael Schiavone: We think that's consistent with what California, once we choose to make more of the greed renewable as possible. So so the plan is weak and we bring in partners can we ultimately use that has a usable power in a in a way that's optimized and we think it's too.
Michael Schiavone: It could be others that ultimately value that baseload power, which ECS.
Michael Schiavone: For for their own businesses right it could be manufacturing needs to be chip manufacturing can be.
Michael Schiavone: Or are there sort of industries and the key is to be able to find that customer base that can take the power behind that behind the grids. So those are the dynamics that we have to work with right now we feel good about our resource adequacy and were certainly participating in that.
Michael Schiavone: But that is ultimately a decision that we make as we try to optimize the value of our excess power.
Speaker Change: The next question comes from to Noel Parks with Tuohy Brothers. Please go ahead.
Noel Parks: Hi, Good afternoon, just had a few things I wanted to ask I'm, just wondering could you talk about sort of the.
Noel Parks: Relative maybe momentum and timing youre seeing between brownfield projects.
Noel Parks: Versus where the meters versus your discussions on new generation of projects like for Datacenters I'm just wondering.
Michael Schiavone: Or is that the.
Michael Schiavone: The basics of the terms that are the main things that are in discussion or is it sort of more complexity around I don't know risk sharing as you satisfy certain.
Michael Schiavone: Sitting in agreement.
Michael Schiavone: Emotion.
Michael Schiavone: Yeah, So we've talked about CRC being a catalyst rich.
Michael Schiavone: B, it's great to see the catalyst starting to arrive.
Michael Schiavone: And so yes, the culmination of brownfield versus Greenfield.
Michael Schiavone: As we said before a brownfield.
Michael Schiavone: The key there will be the connectivity of the physical connectivity between the emitter and the and the storage side.
Michael Schiavone: That's why the conversation around tier two pipelines is important.
Michael Schiavone: But then think about it maybe from a different perspective, we were going to build these greenfield projects on top of Elk Hills Theyre going to have we're gonna have renewable natural gas, we're gonna have a clean hydrogen we're gonna have renewable diesel.
Michael Schiavone: Once we look for market opportunities to deploy the clean fuels.
Michael Schiavone: You can also come to these emitters.
Michael Schiavone: And provide an input of that fuel to ultimately lowered their emission footprint right. So there's a lot of synergistic elements to how we're thinking about the portfolio and different aspects of the projects still need some work and we need that build projects. We also need.
Michael Schiavone: Connectivity, but.
Michael Schiavone: But we're excited about being the solutions provider in the state of California, and we see us, particularly well positioned and in more advanced than others to be.
Michael Schiavone: To be able to capture that market share. So we're excited to run towards that in a lot of details to work out what are the I think it should be clear that the market opportunity is very strong.
Speaker Change: I see that we're past the top of the hour. This concludes our question and answer session I would like to turn the conference back over to Francisco Liang for any closing remarks.
Francisco Liang: Thank you so much for joining us today, we will be presenting.
Michael Schiavone: At several investor conferences in both November and early December and look forward to seeing everybody on the road. Thanks.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Goodbye.
Speaker Change: Yeah.
Speaker Change:
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Yes.
Michael Schiavone:
Michael Schiavone: [music].