Q4 2024 California Resources Corp Earnings Call
Speaker Change: Good day and welcome to the California Resources Corporation fourth quarter and year-end 2024 Earnings Conference Call.
Speaker Change: All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions.
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Please note, this event is being recorded.
Speaker Change: 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's fourth quarter and year-end 2024 conference call. Following our prepared remarks, members of our leadership team will be available for questions.
Joanna Park: By now, I hope you have had a chance to review our earnings release and supplemental slides. We have also provided information reconciling non-GAAP financial measures to comparable GAAP measures on our website and 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.
Joanna Park: As a reminder, please limit your questions today to one primary and one follow-up as this allows us to get to many more of your questions today.
And now I'll turn the call over to Francisco.
Good morning, and thanks for joining us.
We have a lot of good news to share.
Joanna Park: I will kick off with a summary of our 2024 accomplishments and recent milestones from our carbon management business.
Joanna Park: I will also provide more details around today's announcement with National Cement.
Next, I ask our new CFO, Cleo Crespi.
Cleo Crespi: to cover the fourth quarter, our 2025 outlook, and key financial priorities.
So, here we go.
2024 was an exceptional year for CRC.
We're executing well today and building for tomorrow.
Cleo Crespi: We delivered on our key targets and meaningfully reduced costs across the business by achieving sustainable era related synergies.
Cleo Crespi: Importantly, we announced an exciting new deal today with National Cement.
Cleo Crespi: This agreement further validates the carbon teravolt business model and our ability to provide industrial partners with near-term solutions to create a cleaner California.
CRC is a different kind of energy company.
Cleo Crespi: Today, we will highlight the big value drivers gaining disability in our story.
Cleo Crespi: Our conventional oil and gas business has a proven track record.
delivering robust cash flow and solid financial results.
CoStar Era Merger, we're California's largest oil and gas producer.
supported by Quality Proof Reserves and the Deep Inventory.
This scale unlocks significant synergies from our low-decline, low-capital-intensity assets.
Cleo Crespi: We're also excited of our new high growth opportunities in power and carbon management.
Cleo Crespi: with available behind-the-meter power capacity in our portfolio. We're actively pursuing agreements with multiple well-known and capitalized parties to advance new AI data centers in California. Stay tuned.
Let's talk about a rapidly expanding carbon-terrible business.
Cleo Crespi: which has moved from concept to reality as leading companies across industries are coming to us for innovative solutions to complex challenges.
Cleo Crespi: This should allow us to command a premium valuation in the market.
Cleo Crespi: The expected returns we model under these new arrangements are compelling and show a path to future profitability and attractive returns.
Aramida is bigger, better, and more sustainable.
Cleo Crespi: Our operating teams have captured over 70% of our targeted synergies.
Cleo Crespi: improving our 2025 cost structure and reinforcing that assets are better in our hands.
Now, let's look at our growing carbon management business.
Cleo Crespi: We received the nation's first EPA Class 6 permits, giving us the green light to advance California's first TCS project at Elk Hills.
Cleo Crespi: We plan to break ground in the second quarter with first injection expected later this year.
Cleo Crespi: Including today's announcement with National Cement, we have nearly 9 million metric tons per annum of carbon management projects under consideration.
Cleo Crespi: Our CTV business has seven additional Class 6 permits in the queue with an estimated total storage capacity of 287 million metric tons.
Cleo Crespi: Our Brookfield JV is working well, allowing us to capitalize the growth of the CTV business.
Cleo Crespi: Let me expand on today's announcement with National Cement, a large private domestic subsidiary of an international cement producer.
Cleo Crespi: This is a first-of-its-kind brownfield project to decarbonize a very hard-to-evade sector of the economy.
Cleo Crespi: The cement industry is vital to the growth of any community across America.
Here are some important details.
Cleo Crespi: When operational, the plant will mark the first step in establishing a decarbonized cement market.
Cleo Crespi: It will be California's first net-zero cement facility, backed by up to $500 million in DOE funding.
Cleo Crespi: California Senate Bill 596 requires 40% of all cement used in the state to be net zero by 2035 and 100% by 2045.
This project is crucial to meeting these mandates.
and National Cement Selected CTV Assets Partner.
Cleo Crespi: This vote of confidence validates our CCS strategy and our expertise in carbon management and transportation.
Cleo Crespi: Just last week, Governor Newsom flagged carbon management as part of a statewide plan for economic growth.
Cleo Crespi: recognizing it as an emerging sector with high strategic importance to the innovation ecosystem of California.
Cleo Crespi: TRC is in a great position today. We are selecting partners that meet our criteria and advance California's decarbonization goals.
Cleo Crespi: These projects are attracting significant new capital and high-paying jobs to the Golden State.
Cleo Crespi: Our unique asset portfolio offers our partners near-term answers to today's complex energy challenges.
Cleo Crespi: Whether it's access to clean and reliable power for a new AI data center, or carbon capture and storage for critical industries like cement and agriculture.
We have solutions.
I'll now pass the mic to Cleo.
Cleo Crespi: Thank you Francisco and good morning everyone. Let me start with a discussion of our recent financial results.
Cleo Crespi: We exceeded expectations this quarter, driven by net production of 141,000 BOE per day, realized oil prices at 99% of Brent, and continued cost discipline.
Cleo Crespi: Our focus on cost control and operational improvements drove $316 million in adjusted EBITDAX and generated $118 million in free cash flow, a testament to our disciplined execution.
Cleo Crespi: Combined operating and transportation costs came in 4% lower than our initial guidance at the closing of the ARRA merger to link $344 million.
Let me highlight the work behind these numbers.
Cleo Crespi: Following our transformative merger, the teams have been focused on safely achieving sustainable cost reductions, optimizing operations, and finding innovative ways to make our business leaner, more efficient, and more profitable across several key areas.
Cleo Crespi: First, we strengthened our supply chain synergies to unlock new economies of scale.
Cleo Crespi: Second, we optimize operations, applying mutual best practices, improving rig efficiencies, sharing resources across assets, and refining work planning.
Cleo Crespi: Third, we enhance our energy efficiency, improving connectivity across our energy portfolio, and reducing steam requirements, all of which are maximizing field profitability.
Cleo Crespi: And lastly, we reduced their GNA by 10%, quarter over quarter, to 95 million, eliminating inefficiencies, improving people processes, and strengthening team cohesion.
Cleo Crespi: All of this puts us in a stronger position, running leaner while driving even more value.
Cleo Crespi: <unk> maintained a low annual gross decline of about 6%, which we efficiently manage to a 123 million in drilling capital.
Cleo Crespi: Importantly, we are deploying new technologies to increase production uptime and maximize revenues.
Cleo Crespi: For the year, we delivered over 1 billion of adjusted EBITDAX and generated 355 million and free cash flow.
Cleo Crespi: We are committed to sustainably rewarding shareholders and returned about 85% of 'twenty 'twenty four free cash flow through dividends and share repurchases.
Cleo Crespi: This is key to driving long term value.
Cleo Crespi: CRT is in a very strong position as we enter 2025, let's talk about the key components of our outlook.
Cleo Crespi: In 2025, we should benefit from new sustainable efficiencies.
Cleo Crespi: We expect to invest 285 million to $335 million.
Cleo Crespi: So far we've actually approximately 70% of our $235 million of targeted ore related synergies and expect to achieve the remainder of this year two operational planning vendor management and ongoing G&A savings.
Cleo Crespi: When compared to the pro forma combined 2023 organization, our 2025 targeted controllable cost structure is estimated at $220 million or nearly 16% lower.
Cleo Crespi: We have high quality conventional assets and expect single digit reservoir declines again this year.
We plan to run a single rig and the first half of the year and add in additional rig in the second half.
Cleo Crespi: We expect to deploy $165 million to $180 million in drilling completions and Workover capital with annual net production estimated at about 135000 Boe per day.
Cleo Crespi: Oil should comprise nearly 80% of the total.
Cleo Crespi: So our hedges, we have reduced commodity price risk and underpinned cash flow.
Cleo Crespi: More than 70% of our expected 2025 oil production is hedged at an average floor price of $67 per barrel and more than 60% of our 2025 fuel gas is hedged at an average price of $3 95 per M. P T.
Cleo Crespi: Lastly, our financial results will benefit from enhanced revenue streams and natural gasoline getting in power.
Cleo Crespi: Our resource adequacy power capacity payments will increase 50% to $115 million and we are assessing new power purchase agreements for spare power capacity.
Cleo Crespi: Once signed this should expand the value of our power offering.
Cleo Crespi: The cumulative impact of these financial drivers in 2025 are expected to generate one one to one 2 billion and adjusted EBITDAX of $73 per barrel, Brent while growing cash flow grow share.
Cleo Crespi: Let me wrap up with our financial priorities.
Cleo Crespi: Maintaining a strong balance sheet is paramount.
Cleo Crespi: This allows us to invest for the future and support our integrated business strategy in conventional oil and gas carbon management and power.
Cleo Crespi: Today, we have more than 1 billion of liquidity.
Cleo Crespi: Six months after our Arab merger, we rebuilt cash on hand from practically zero to more than 350 million at yearend, reflecting the strength of our conventional asset business.
Cleo Crespi: Last week, we redeemed roughly half of our 2026 senior notes at par and expect to act on the remaining 122 million later this year.
Cleo Crespi: Leverage ratio remains less than one turn.
Cleo Crespi: I would like to reiterate.
Cleo Crespi: We understand the importance of sustainably returning capital to shareholders.
Cleo Crespi: Last year, we increased our dividend by 25% and returned 85% of free cash flow to shareholders. Since 2021. These returns totaled more than 1 billion.
Cleo Crespi: We see great value in our stock and we will opportunistically use our buyback program to support our equity and enhance the per share metrics.
Cleo Crespi: We have ample capacity with more than $550 million remaining under our buyback authorization as of year end 2024.
Cleo Crespi: I've enjoyed meeting many of you on the road in recent weeks and look forward to staying connected throughout the year.
Francisco: Francisco back to you.
Francisco: Thanks, Craig.
Francisco: Before taking your questions. Let me quickly greater eight our focus on shareholder returns and summarize today's key points.
Francisco: There is no doubt today that CRC has a different kind of energy company, we have a sound business plan strong execution and a high performing team.
Francisco: Our team has a proven track record of returning capital to shareholders and growing cash flow per share all while maintaining a very strong balance sheet.
Francisco: We are well positioned to deliver on the significant near term value drivers we discussed today.
Francisco: With these strengths in place, we see tremendous value in our stock and are confident in our ability to maximize shareholder returns.
Francisco: To recap our plans.
Francisco: Our oil and gas business is performing well.
Francisco: We are benefiting from strong reservoir performance synergies lower costs, and predictable and sustainable cash flow.
Francisco: This is a powerful combination.
Francisco: We are leading californias de carbonization effort.
Francisco: We will soon break ground on the state's first Ccs project at Elk Hills, with first injection and cash flow expected later this year.
Francisco: Market demand for carbon terrible this accelerating.
Francisco: Today's announcement with National cement is a major milestone in domestic industrial de carbonization.
Francisco: With multiple carbon management projects under consideration, we can prioritize the best projects for us.
Francisco: This deal pipeline gives us a visible path to future revenue growth and profitability.
Francisco: Our power business is generating reliable and consistent cash flow and returns.
Francisco: We expect to unlock even greater near term value through new agreements with AI data center providers later this year.
Francisco: We are executing well today and building for tomorrow.
Francisco: Operator, we're ready for your questions.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.
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Speaker Change: Please press Star then two.
Speaker Change: In the interest of time, we ask that you. Please limit yourself to one question and one follow up.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question today comes from Scott Hanold with RBC capital markets. Please go ahead.
Scott Hanold: Thank you.
Speaker Change: Cisco are welcome.
Speaker Change: My first question is probably a tough one for you all to answer but look I mean your stock prices.
Underperforming some of your peers. Despite some of the progress you I'll make and then and especially today with with no OPEC talking about potentially or looking to bring back its volumes.
Speaker Change: It's hitting all stocks, but you guys continue to underperform.
Speaker Change: You give us a sense of a couple of things related to that number one.
Speaker Change: Do you think the lockup.
Speaker Change: From from the era of owners is having some influence on that end and is there a way for you guys to help mitigate that impact and.
Speaker Change: Associated with that as you talk about your buybacks, but like is this a point, where you get really aggressive in buying back your stock as well.
Speaker Change: Yeah.
Scott Hanold: Hey, Scott.
Speaker Change: Yeah I appreciate the question too.
Speaker Change: We have.
Speaker Change: We really can't comment on or what other industry investors, we'll be doing with their shares but let me. Let me give you my perspective, we have great track record returned over $1 billion since 2021.
Speaker Change: It's about two thirds of our free cash flow.
Speaker Change: If you look at 'twenty 'twenty four we bought back about $3 5 million shares at an average price of $52.12. If you combine that with the dividend, that's an 8% free cash flow yield to shareholders.
Speaker Change: Now 2025, the fundamentals remained unchanged are.
Speaker Change: Our business is stronger today and the catalysts are near.
Speaker Change: So what I would say is we see tremendous value in our stock.
Speaker Change: It's trading well below our estimated intrinsic value.
Speaker Change: And we are buyers of CRC shares full stop.
Speaker Change: I want to ask <unk> to maybe cover some of the specifics on the lockup.
Speaker Change: Thanks, Francisco, Hi, Scott Yeah.
Speaker Change: C. P. P. IV I cabin Oaktree are under a lock up agreement post the merger with era.
Speaker Change: One third of the Schurz is no longer under lockup. The first tranche expires early January which is around $6 5 million shares held by ICANN and C. P. P IV.
Speaker Change: The other two thirds remain under lockup until July for the second and third in January 2026 for the final third.
Speaker Change: As Francisco said, we can't speak to what these shareholders will ultimately do.
Speaker Change: You can look at track record.
Speaker Change: <unk> has a deep expertise in California's energy sector, and a strong track record as a strategic thoughtful and long term partner to their portfolio companies.
Speaker Change: But if either large owner does decide to sell we have the ability to help support in one way or another.
Speaker Change: We have a buyback program with more than 515 million remaining that represents over 12 million shares at current prices and close to double the amount of the initial one third tranche held by C. P. P. IV in I guess.
Speaker Change: And we have been active on the buyback front as a reminder, we have repurchased 18 and a half million shares since the start of the program in May 2021.
Speaker Change: Thanks, I appreciate all that color I know it's.
Speaker Change: Tough situation, but it sounds like you guys are definitely defending your stock where you can right now.
Speaker Change: My next question is Francisco, you kind of you know kind of wetter whistles with with the.
Speaker Change: More to come on the data Center front.
Speaker Change: Could you just what color can you provide us in terms of you know what what's going on there is and I'm assuming this would be.
Speaker Change: Capacity.
Speaker Change: Used capacity they'll kills the Elk Hills facility, but can you generally talk.
Speaker Change: Well you know what.
Speaker Change: You know what what kind of structures are you looking at and and you know what what should we.
Speaker Change: Expect with this.
Scott Hanold: Yes, Scott so in terms of data centers, where we're talking to multiple parties.
Scott Hanold: We really see a big potential here, but.
Scott Hanold: As a reminder, we have a strategic infrastructure advantage.
Scott Hanold: And what that means is we can get to speed to market rates are front of the line four data centers in the California markets.
Scott Hanold: The delay here is.
Scott Hanold: Long lead times to interconnect and we see a behind the meter solution at Elk Hills.
Scott Hanold: Then if you look at backup power from the grid, that's something that works really well in California from both an economic and regulatory perspective.
Scott Hanold: So what we're trying to solve for.
Scott Hanold: He is a high value long term PPA and were looking at about 150 to 200 megawatts.
Scott Hanold: But then also unlocking the low carbon emissions solution with Ccs.
Scott Hanold: Finding the right partner locking arms without partner is critical as we expect this to be a decade plus type of contract.
Scott Hanold: So the goal here is deliver powered today make the electrons.
Scott Hanold: Low emissions and then the data carbon free.
Scott Hanold: We're gonna be first in.
Scott Hanold: Indonesia, and being able to do this given our permits and so we're really looking at this advantage as deliberate of the powered now. We've also have about 90 acres of land a Dell kills that we've identified to build the data centers.
Scott Hanold: And we also have the ability to provide firm supply of natural gas. So when you look at all these advantages and then you also take into account that we participate in the resource adequacy programming, California, which it's up 50% year over year.
Scott Hanold: That's what I think what explains that we're being thoughtful about this the key is long term value. The key is a long term contract is optimization of what we have today.
Scott Hanold: And then ultimately also bridging to a low carbon emissions power with Tcs. So.
Scott Hanold: It's finding the right partner and we're talking to a number of groups that are interested and thats. What we said later this year, we'll provide an update but I feel that I feel very good about the positioning of our plant.
Pillay Akamine: The next question comes from Pillay Akamine with Bank of America. Please go ahead.
Pillay Akamine: Hey, Good morning, guys for instance go Cleo.
Pillay Akamine: My first question is on the PPA development. So maybe Jay can weigh in here one issue that we've identified that is obviously with the co location opportunity. It's got redundancy. So gas plants are base load, but they don't operate 24 seven 365, there are scheduled and maybe even unscheduled periods of Nathan. It. So my question is how are you think.
Pillay Akamine: Thing about addressing this issue is it a grid connection for backup power or is it modular generation and does whatever solution that you choose affect your economics I E is one solution better for you than another.
Speaker Change: Okay. So I'll take a first pass at the question and then I'll turn it to Jay.
Speaker Change: As a reminder, our plant runs 24, seven it's a baseload plant.
Speaker Change: It's one of the most efficient plants in California.
Speaker Change: So where you might be hearing issues P. Kirsten and other issues in other states. That's not the case here. We operate this plant for oilfield operations and then we sell the rest into the grid and then it's supplemented by by very attractive contracts on resource adequacy to be on standby.
Jay: Maybe I'll turn it to Jay to answer the question on the interconnect.
Jay: Yeah. Thanks, that's a good question currently at Elk Hills, we do have standby agreements it back up not only the plant itself, but also the risk or the assets and load behind defence. We're looking to do the same thing here.
Jay: We've got import and export capacity at the plant well in excess of.
Jay: The plant's capacity and the anticipated LOE behind the fence. So all the resources physically are sitting there right now.
Jay: Got it Thats helpful.
Jay: My next question is a clarification on the synergies. So maybe this one is for <unk>. So this year you guys plan to capture 72% at $235 million run rate of synergies than the balance of 26. So my question is these are run rate numbers and the benefits of 25, maybe it depends on when that run rate is achieved so maybe for better.
Jay: <unk> can you offer what the absolute dollar benefit is on 25 and for 2006 and then as we think about how Thats reported is it all effectively in your non energy and G&A guidance of $1 $2 billion.
Speaker Change: Hey, Kelly so so yes, so I'll start and then I'll turn it to <unk> I also wanted to to have Omar give some of the specifics on our plans for 2025.
Jay: But just to recap.
Jay: Very proud of the team progress on synergies.
Jay: Set out an initial goal of $150 million of synergies, we've increased that to 235 and we closed the transaction on July one and the team went to work and as you point out 70% of those synergies are captured already meaning we took action in 2024.
Jay: For the benefit of 2025, and we see those numbers flowing through on guidance, a CLIA will give a little bit more specific answer in where the numbers are coming from but I can only point to make is we're cutting cost faster in.
Jay: And at a better better piece than our estimated decline on the business for 2025. So then if you look at how we how we think about this year court cost increase margins buy back shares aggressively which will all look to grow cash flow per share as we wait for permits to get back on track at the end of the year.
Jay: So that's our strategy, maybe clear probably provide some perspective, please one on the numbers.
Speaker Change: Thank you Francisco Hi, Kelly.
Speaker Change: So just to put things into context here. If you remember at deal announcement. The targeted synergies amount was initially 150 million then up to by 57% to $235 million.
Speaker Change: Which implies synergies representing roughly 11% of the deal EV.
Speaker Change: This compares very favorably versus other deals in our sector. In fact, it's a top tier number given the averages in the three to five per cent range of target E V for E&P transactions in the past four years.
Speaker Change: Now if I unpack, our 235 million target between what has been action versus remaining today well on an annualized basis era merger run rate savings actions in 2024 total about $170 million and that included 110 million in non energy and G&A.
Speaker Change: Savings and 60 million and interest expense.
Speaker Change: This year, we plan to achieve the remaining 65 million as we progress in three key areas.
Speaker Change: First we plan to further optimize our vendor agreements to drive operational efficiencies second we will continue to reduce G&A, while improving our processes.
Speaker Change: And third leverage scale to enhance cost discipline and margin expansion.
Speaker Change: So versus pro forma combined 2023, we expect to see $220 million and cost improvements in 2025.
Speaker Change: And beyond synergies the Ara merger provided us with significant premium C O two poor space in Kern County.
Speaker Change: I'll now turn it over to Omar on our operational plan this year to capture these incremental synergies.
Omar: Thanks, Guillermo Hi, clay.
Speaker Change: I think the numbers are Francisco and Cleveland covered the numbers, maybe maybe I can help by providing a little more color on what's behind the numbers how are we driving these synergies.
Speaker Change: If you look at 2024 that was mostly around G&A optimization.
Speaker Change: And our supply chain efficiency, so more specifically around supply chain.
Speaker Change: We looked at price matching which means we adopted the lowest unit rate between CRC Anatto price books.
Speaker Change: And drive cost reductions around that are.
Speaker Change: We also brought some of the purchasing our operations in house.
Speaker Change: And what that data is that it helped US Award third party markups through direct sourcing and we'll continue to see G&A and supply chain and being an important part in 2025.
Speaker Change: But what 2025 is going to be about is going to be about infrastructure consolidation between Ara in CRC assets and then I'll give you a more specific example, what do I mean by that so for example, right now we have a project in the budget and our capital budget for 2025.
Where the gas production associated gas production at <unk>, which is a field that came in with acquisition. It produces about $15 million to $20 million in gas that is being used as a fuel gas for steam generation and what we're planning to do is bring that gas over to al killed cryogenic gas plant and drop 1000.
Speaker Change: Barrels of Ngls, and then read out that gas back to batteries. So by implementing that project, we will add a thousand barrels to our liquid production by the end of 2025.
Speaker Change: And that's just one example, we see similar opportunities in power, we see similar opportunities around optimizing our fuel gas and will continue to build on that momentum.
Speaker Change: To deliver on the remaining $65 million that we have promised to the market.
Speaker Change: The next question comes from Nate Pendleton, with Texas Capital. Please go ahead.
Speaker Change: Good morning, and thanks for taking my questions.
Speaker Change: Good morning.
My first question I wanted to dive a little deeper into the Mou with national cement first off congrats on signing the deal I think it highlights at Ccs can reduce emissions from a broad array of hard debate sectors can.
Speaker Change: Can you share any specific milestones that you were focused on as this project progresses and how are you thinking about the Coty transportation component of the project.
Speaker Change: Hey, Nate will come back so.
Speaker Change: Very excited about national cement.
Speaker Change: It's the type of brownfield partnership we were looking for.
Speaker Change: You also if you remember, California is the second largest cement producer in the nation. So it's a big market a big market opportunity.
Speaker Change: National cement.
Speaker Change: Generates about 1 million tons per year of emissions.
Speaker Change: They have a state of the art are planned.
Speaker Change: Plant in the town called Lebbek and they they don't have a lot of upgrades into enhance in energy efficiency. They are very focused on this.
Speaker Change: Resource rebid the reduction of emissions.
Speaker Change: They were able to secure a $500 million loan from the D O.
Speaker Change: Let just at the end of last year and.
Speaker Change: And we understand that they're working on their engineering and pre feed study around that so where we come in we would be the the transport and storage solution.
Speaker Change: <unk> project across the board will generate a lot of jobs.
Speaker Change: In the state and we need them.
Speaker Change: In terms of pipeline. So we've been talking about shield II pipelines in and needing those to be able to physically connect the emission sources to tour our reservoirs weed.
Speaker Change: We've taken a kind of a two step approach, we're working with the federal government to.
Speaker Change: To release and move forward and the completion of their rulemaking.
Speaker Change: And we were we were trending in the right direction that January 20th the the government announced plans to release the safety rules are around the National pipeline regulation are then there was an executive order that that temporarily paused or rulemaking for 60 days and so we've been advocating.
Speaker Change: For FEMSA, which is the agency that controls the pipeline regulations.
Speaker Change: Two to move forward to a completion point given that's the trigger to lifting California's SB 905 moratorium on tier two pipelines here. So we're working closely with the federal government to get that step.
Speaker Change: Moving forward now also here in California, where we're engaged with the state leadership are looking to provide a solution that California solution to the same dynamic.
Speaker Change: There's growing recognition that in order for California to be successful with climate goals with all the ambitious targets that we have here in the state were not going to be able to do those without tier two pipelines and we see momentum building with legislators.
Speaker Change: And the administration to lift that moratorium in the 2025 legislative session. So field.
Speaker Change: I feel we have a multiple ways to get this back or to get this one track.
There are significant investments that we have ready great projects behind it.
Speaker Change: We think we're going to get the momentum there to be able to get to a good landing spot let good landing spot this year.
Speaker Change: Got it thanks as my follow up perhaps for Clio now you've been in the role for a few months can you share your top financial priorities going forward and you also mentioned the recent redemption of the 2026 notes in your prepared remarks and that was only about half of the amount of outstanding. So could you also touch on the rationale behind that and.
Speaker Change: Anything to read into that.
Speaker Change: Hi, Nate sure so mitel financial priorities as CFO are clear and maintain a strong balance sheet drive sustainable cash flow and as a result create long term shareholder value.
Speaker Change: First we're focused on financial resilience, we have a pristine balance sheet strong free cash flow and a clear path to further debt reduction.
Speaker Change: And earlier this year, we took strategic steps to Delever and we remain on track for the rest of the year.
Speaker Change: Second we're committed to disciplined capital allocation.
Speaker Change: Our approach ensures that we have the flexibility to invest in high return opportunities across oil and gas carbon management and power, while still returning significant capital to shareholders.
Speaker Change: Record of shareholder returns transactional expertise and strong financial position speaks for itself.
Speaker Change: And third we're building for the future.
Speaker Change: We have many value, creating opportunities coming and knocking on our doors I need to make sure that we have the balance sheet the capital and the people to make these valuable opportunities a reality for our shareholders.
Speaker Change: We're positioning CRC to thrive not just in today's market, but for years to come and a big value driver should provide the market with a clear view of our long term path.
Speaker Change: So why do we pay down only half of what the debt well. It was the right strategic move our 'twenty 'twenty six notes are our lowest cost of debt and with our strong hedge book and cash flow visibility, we have the ability to be patient to be deliberate.
Speaker Change: We chose to pay down half now, which is more than double the amount allocated to our buybacks over the past two quarters.
Speaker Change: It allows us to really maintain balance sheet flexibility keeping leverage low, but also supporting growth and shareholder returns.
Speaker Change: To note. We also have some cash flow commitments in the near term that will require additional cashed appointment as an example, our expected bonus payments in the first quarter, which include a timing shift back to our standard practices and also includes a one time payout tied to aero retention payments, which were part of the merger related commitments to.
Speaker Change: To ensure a smooth transition and integration.
Our durable assets, they really provide us with the confidence to deliver on both our leverage objectives and shareholder returns.
Speaker Change: Our ability to rebuild cash on hand from practically zero to more than $350 million in just six months post merger is a true Testament to how we can fund both and.
Speaker Change: And we fully intend to act on the rest of our 'twenty six notes well ahead of maturity.
Speaker Change: To summarize our financial strategy is working we're running leaner more efficient business with a balance sheet built for the long term.
Speaker Change: We're also investing in the right places generating strong free cash flow and creating real sustainable value for our shareholders.
Speaker Change: The next question comes from Josh Silverstein with UBS. Please go ahead.
Speaker Change: Yeah.
Speaker Change: Thanks, guys I wanted to see if you can provide an update on the CTV JV with Brookfield.
Speaker Change: Announced the delay in the final payment until you reach the 35% of the 26 our storage capacity.
Speaker Change: Was this due to just the timing around the project startup versus when the JV was announced or any shift in view on the JV structure or future projects lately. Thanks.
Speaker Change: Hey, George Yeah, So in terms of the Brookfield JV.
Speaker Change: I'd say its been working extremely well, it's a long term pattern partnership we signed up for four five years to work together.
Speaker Change: To unlock the value of Ccs in California, and I would say great engagement and a lot of good opportunities we're reviewing together.
Speaker Change: The delay that you pointed out it's really a timing.
Speaker Change: In a tightening in agreement on the timing, but it also has to do with the capital that Brookfield wants to deploy and Theres multiple reservoir multiple projects that we're looking at so it makes sense that you calibrate the capital coming into the project and tried to tie closely to.
Speaker Change: Execution, what you're generating the cash flow show that the returns make sense.
So when we look at project number one it's a small project of 100000 metric tons per year.
But we're looking to fill the rest of the rest of the war with emissions that we had nearby and I mean, we have our own emissions are and we have third party emissions. So we see about 2 million metric tonnes near the 26, our rest of world. So feel very good about reaching this threshold and it's just a timing and an allocation or when that money comes in.
Speaker Change: We received $92 million to date on the first two payments. So again, that's the mechanics of the JV have proven to be working really well and now we're focusing on adding more rest of awards dropping in more and more assets into the JV and that could be in the form of pipes capture or more.
Speaker Change: Rest of World as we go forward. So I would say the report on Brookfield is extremely good at as a partner and.
Speaker Change: We are working together to put more and more capital to work.
Speaker Change: Got it maybe sticking with CCTV as well.
Speaker Change: You have several Mou is outstanding and I think five classics permits in the queue for the EPA. This year, maybe can you just give an update on the timing for those those permits when do you expect those and then as you get those in do you expect to convert a lot of those mou use over to formal agreements.
Speaker Change: Yeah. That's that's the expectation so are we received the first permit.
The end of the year.
Speaker Change: And we expect to break ground on our cryogenic plant project here in the second quarter.
Speaker Change: Goal is to get the first injection first cash flow by the end of the year and be off to the races on the first project.
Speaker Change: If you look at the EPA tracker to there's four to five incremental permits that will be that should be approved this year or beginning of next and those are in different parts of the state we're gonna be talking more about northern California in the pore spaces that we have there.
Speaker Change: So definitely I see a path to getting those and will you converted I also see a path to incremental brownfield and greenfield projects coming down the Pike as.
Speaker Change: As we move up North you open up a different universe of emitters are that's where the data centers are there's a lot of power generation a lot of a lot of potential customers that are in those northern reservoirs and as we've proven that by being the first in California with a permit we know what we're doing and where.
Speaker Change: We're going to March on and bring that poor space that we've accumulated into execution form into fully permitted and that's going to turn into cash flow.
Speaker Change: As a reminder, we have projects here in California, you might be hearing about tcs nationally, but the value and the returns that we see in CS of Ccs in California are very competitive returns to the rest of the portfolio. So excited to bring those forward and and the team has had a really good track record to get us.
Speaker Change: Here.
Speaker Change: The next question comes from Betty Jiang with Barclays. Please go ahead.
Betty Jiang: Hello, Thank you for taking my question.
Speaker Change: I wanted to ask about the cow capture project.
Speaker Change: Seems pretty consequential from both the seats Eaton JV perspective.
Speaker Change: And as well a lot.
Speaker Change: The power and value.
Speaker Change: Where do you see that project.
Speaker Change: Scott today.
Speaker Change: Now pharmacy T D.
Speaker Change: It seems that the most consequential sequestration project that maybe going into 'twenty six or should we be thinking about it like that could be that could be the project that get cheap third at 35% threshold with Brookdale and then along that line as you are having the power of <unk>.
Speaker Change: First nations, whereas the interest level two moved for with a cow capture to get that incremental value for them all card side.
Speaker Change: Video as you point out it's all connected the.
Speaker Change: Carbon capture business in Datacenters are linked from our perspective, we.
Speaker Change: We see Tidewater can extremely well in California, we have the solar penetration. So already there are there is we're down to one nuclear plant. So if you think about a solution that works here that not only addresses the environmental requirements, but also the affordability.
Speaker Change: Point, though that the governor is driving is going to be natural gas with Tcs. So we do see the Cal capture as being critical.
Speaker Change: To unlocking that business opportunity for for us and for four four others around California.
Speaker Change: So the the cow capture decision is critical we where we continue to look at the feed study and its really it has nothing to do with technology, we're very comfortable with the technology, but we're seeing improvements in.
Speaker Change: In the cost aspect of it we want to make sure we have the highest efficiency in terms of capture.
Speaker Change: And we're looking to submit all the permits that are required to get going.
Speaker Change: It's still hard to say, where the emissions will go because we haven't pointed the regulators to where that will end up but we have 26 are and we have several other rest of wars next 226 are where this could go so that's where we're very comfortable we feel we're oversubscribed. Our if you look at all.
Speaker Change: Emissions in third party submissions to not only satisfy the Brookfield requirements, but also to have all the reservoirs in in and around that area is completely full.
Speaker Change: We're going to work the Cal capture decision hard this year try to get to a resolution in the near the end and we think this is a way to unlock a tremendous value for our shareholders.
Speaker Change: Great I look forward to that update my follow up is back on the oil and gas operation.
Speaker Change: Thank you for giving US a look at 14 to four key trajectory you guys are thinking about 5% to 8% decline for 2025 I know, it's really early to talk about 2026 right. Now so could you just give us some lift out how to think about.
Speaker Change: 2020 six once the permit is all up and running.
Betty Jiang: Yeah, Betty so so yeah to recap 2020 for outstanding work by the team 6% production decline.
Speaker Change: Very.
Speaker Change: Extremely good capital efficiency, so lower capital spending to get there.
Speaker Change: We feel really good about 'twenty 'twenty five in delivering a very similar trajectory.
Speaker Change: As it relates to permits.
Speaker Change: We remain encouraged that we will get permits by year end, we see a path to receive them.
Speaker Change: We're seeing progress through the Kern County, a R. E. <unk> progress process. We also see we have applied for conditional use permits.
Speaker Change: That would be through Cal Jim So we have a number of fronts that we have been progressing.
Speaker Change: The outlook is I would say.
Speaker Change: Becoming clear that where we should have some some news by the end of the year. So that will lead us to what 2026, a return to activity in a more normalized basis to be able to invest to stay flat. So it's still as you said very early to guide.
Speaker Change: But we wanted to establish a no permitting risk this year.
Speaker Change: And that's why we guided 2025.
Speaker Change: So we look to get permits.
Speaker Change: Being able to develop a critical mass of permits and then we have the inventory right to go a lot of attractive projects to go into next year. So we'll look to get to that more normalized return to activity.
Speaker Change: The next question comes from Neal Dingmann with Chewy Securities. Please go ahead.
Neal Dingmann: Morning, Thanks for the time.
Speaker Change: Goodbye My questions, maybe just twofold one.
Speaker Change: Yes on the Mou I wouldn't want it I guess what were so with net power.
Speaker Change: Similar to the question wanted to ask sort of a button.
Speaker Change: That's just we're just wondering is there any.
Speaker Change: You sort of step as catalyst, we should we should look through on that and then that kind of same vein are you anticipating more classic permit separately.
Neal Dingmann: Yes, Neil Thanks.
Neal Dingmann: <unk> net power of national cement, the existing and will use.
Neal Dingmann: As we talked about before.
Neal Dingmann: Our goal is to solve for.
Neal Dingmann: Storing our emissions and delivering.
Neal Dingmann: Low carbon intensity oil and gas, but we see a big opportunity to impact positively every single industry that operates in California, and that's our cement and our are the two very natural places that are absolutely industries that are hard to abate.
Neal Dingmann: Though difficult to reduce the emissions.
Neal Dingmann: They also absolutely critical to the state functioning so.
Neal Dingmann: We see this is great.
Term projects.
Neal Dingmann: That ultimately provide that.
Neal Dingmann: They're running room on a very long term sustainable cash flow of the Ccs business right. So it's a good match the market is basically saying, we need to decarbonize and we're partnering with CTV to do it.
Neal Dingmann: So we're working on things like the C O two pipeline are more.
Neal Dingmann: Moratorium and a few other elements to get these projects off the ground.
Neal Dingmann: But I would say, we're being highly selective on the partnership that we're entering two we.
Neal Dingmann: We won projects that are are viable that make economic sense to have the right return profile. We're also looking for partners that bring their own money to be able to build a capture systems and you mentioned that power you mentioned national cement.
Neal Dingmann: Both very credible in good businesses that are seeing California's where they wanted to be and we want a partner would see TV. So I would say the next milestone to look for would be on shield two pipelines as we think that will be the key to getting us to start the year.
Neal Dingmann: More more money put together with Brookfield on these projects.
David <unk>: The next question comes from David <unk> with TD Cowen. Please go ahead.
Neal Dingmann: Yeah.
Speaker Change: Hi, Thanks for taking my questions, everyone and welcome to <unk>.
Speaker Change: Francisco I just wanted to follow up just to clarify on the budget this year.
Speaker Change: The addition of the second rig in the back half of the year. It seems like it's sort of predicated on confidence that youre seeing on the permitting environment.
Speaker Change: Turning around I guess is that happening in your mind towards the end of this year or is it more of a 'twenty six event and should we think about that second rig is is it sort of being a contingency right now.
Speaker Change: So David Thanks for the question, it's important to clarify no. There is no contingency, where we're adding the second rig we have the permits to be able to deliver that second rig today.
Speaker Change: That comes from our team's ability to look.
Speaker Change: Look at Sidetracked and capital Workovers.
Speaker Change: We have a lot of the producing well bores the history here in California, as those well bores could get drilled vertically through multiple pay zones.
Speaker Change: So you have multiple bites at the Apple if you will the Wellbore you drill it you produce out of its own and then you go back and you you can go up or you can go down hole you can do a sidetrack. So that our team has been working on that inventory as we get our hands on the ear acids.
Speaker Change: And that second rig it is not contingent on any incremental work we have the permits on hand so.
Speaker Change: Then the second part to the question is what happens in 2026, we have we continue to build inventory on sidetracked and capital Workovers, but we see a E E 10 Shaw.
Speaker Change: Wind where permits get back on track and that would be incremental activity beyond the two rigs in 2026, if that were to happen is we expect that so it is showing a sign of getting to a more normal investment cadence.
Speaker Change: And it's evidenced by the free flowing aspect over the permits one sidetrack and capital Workovers and new New we expect new permits for new wells to come in like I said in the second half of the year. So.
Speaker Change: We're getting back on track.
Speaker Change: I appreciate that and then.
Speaker Change: Either you or Omar I was just kind of curious around this year, obviously I think you guys guided to $310 million at the midpoint for Capex.
Speaker Change: Which as you know a fairly efficient program, especially pro forma where would you sort of credit that efficiency to just the high grading around workover activity from the Arab properties and I guess.
Speaker Change: You alluded to some of this runway with a workover and sidetrack opportunities but.
Speaker Change: How do you feel about your trajectory over the next couple of years in terms of just capital efficiency and these opportunities around perhaps a low hanging fruit from this pro forma.
Speaker Change: Yeah no absolutely.
Speaker Change: We agree with the point.
Speaker Change: That the capital efficiency.
Speaker Change: As a result of the year our merger.
Speaker Change: The workover and sidetrack opportunities that we see.
Speaker Change: When you put.
Speaker Change: Very high caliber very good asset like a bell.
Speaker Change: Bell rich in front of our team.
Speaker Change: They immediately got to work in selected a number of really good locations to get after so I expect that to continue are expected to be the norm, you'll hear more about Bell ridge.
Speaker Change: The history here of pretty much every oilfield that's not owned by US is that the operator sees their into the bedroom very shallow reservoirs with the heavy oil, but theres a lot of deeper and deeper in California is that you know three to 8000 feet.
Speaker Change: A lot of very very high quality potential as you develop. These these are the stack reservoir so more to come on Bell Rich I'm really excited I think the team sees this as the the next Elk Hills in Elk Hills had it has had a magnificent track record so.
Speaker Change: But we expect to continue and have a really good program. This year is we have a high graded set of Workovers and sidetracked a lot of that in bell rich, but it also covers a lot of our other fields, particularly in the San Joaquin Basin.
Speaker Change: The next question comes from Alejandro Macdonough with J P. Morgan. Please go ahead.
Speaker Change: Hi team. Thank you for taking my question you had a meaningful step up in the percentage of free cash flow return to shareholders between 23, and 24 are with 24 coming and 85% are recognizing that payout percentage can move around in part due to working capital.
Speaker Change: Do you think about the payout percentage directionally in 2025 in light of your other cash calls this year.
Speaker Change: Thank you Alejandro so we've been we're intentionally haven't been formulaic on our cash flow, but I think our track record really speaks to our intent to be a top top performer as it relates to returning cash to shareholders.
Speaker Change: We see as I stated earlier.
Speaker Change: Tremendous value on the stock right now are very very high return opportunities to buy shares at current pricing.
Speaker Change: Sure we will do that throughout the year and happy to also address some of the headwinds from exited any exiting shareholders in the same way to the extent that they they want to exit but.
Speaker Change: But we see a lot of value there, but we also like the fixed dividend we've grown it for three three years.
Speaker Change: We think the combination of fixed dividend.
Speaker Change: And in share buybacks is the most attractive way to return capital to shareholders. The nice thing about CRC is we can do that and then we call. It could also pay down our debt and which we've done half of it.
Speaker Change: Already for the 2026 nodes, we intend to take care of the remaining half later this year and you can see how we can do this by the the ability for this business to generate cash flow very quickly and to add cash flow. We just in the second half of last year, we went from effectively.
Speaker Change: Zero cash at the time of the merger as we pay down the debt to rebuilding to over $350 million by the end of the year. So it said, it's a nice thing about our our predictable business. It's a cash generation business and then we're able to both keep a clean balance sheet take care of our debt.
Speaker Change: But also by.
Speaker Change: Buy shares aggressively where we see them being disconnected from the increased value, which is what we're seeing today.
Speaker Change: The next question comes from Lee L. P Mariani with Ross. Please go ahead.
Speaker Change: Yeah.
Speaker Change: I wanted to dig a little bit more into the Capex here just to kind of lay out the numbers here. It looks like you guys spent around 88 million in the fourth quarter of 24, you're guiding to around 65 in the first quarter of 'twenty five so it's a pretty nice step down but kind of eyeballing your guidance here in 2025.
Speaker Change: Looks like maybe that 65 holds flattish in the second quarter and then it's probably going to go up in the second half with the addition of the second rig so I guess, maybe you get to kind of.
Speaker Change: 85 to 95 million, perhaps run rate in the second half of Capex with two rigs, but you had kind of one rig in the fourth quarter with 88 million of Capex. So it seems like an enormous step change there and capital efficiency with the one rig are roughly the same capex as with two rigs. So just can you provide a little more color.
Speaker Change: Around that is there any kind of like maybe cut down and the actual workover activity or anything like that that was going into capital that kind of allows for that efficiency.
Speaker Change: Hey, Leo it's really about the mix of projects.
Speaker Change: The team is tasked to deploying the most efficient.
Speaker Change: Capital onto drilling program and they're doing a really good job. So last year, we had a different mix one first as a Standalone company then as we came into the year into the second half of the year, where there are and you can see that there's a good slide on slide eight that shows that trajectory on the capital efficiency, we see about it almost.
Speaker Change: 10% I think we're highlighting a 9% improvement year over year. So it's just blocking blocking and tackling I'd see the team has has done this before and now we have a new sandbox with ear assets too so.
Speaker Change: We'll try to enhance values. So it's just a it's just capital efficiency and a little bit of the mix.
Speaker Change: The next question comes from Michael <unk> with Stephens. Please go ahead.
Speaker Change: Yeah, Hi, I wanted to see now that you have the final permit at CTV one what the next steps we should look for on the path to seeing the 26, our reservoir becoming operational.
Speaker Change: Hey, Michael So so yeah. We received the first the first permit first in California first tour in oil and gas.
Speaker Change: We're actually in the nation.
Speaker Change: So our team is working hard to I mean, the permits effective so we're gonna start breaking ground.
Speaker Change: In the second quarter.
Speaker Change: So we expect to be.
Speaker Change: Doing all the facilities work connecting the plan, which is our cryogenic plant into the injector well later this year and we.
Speaker Change: We expect to be flowing seal to from the plant.
Speaker Change: By the end of the year and collecting our first Ccs cash flow.
Speaker Change: So the milestones are you still go through the through the EPA. They have to they have to check that everything to go but we baked that into into the timeline.
Speaker Change: So what did you hear next from US is that we broken ground on the project.
Speaker Change: And then every you know.
Every big milestone will be happy to communicated but the plan is to get to that first injection, that's a big milestone.
Speaker Change: But along with that we're working on every other project around that to be able to fill this reservoir as quickly as we can from either own emissions or third party. So I think giving just the evidence to all our stakeholders.
Speaker Change: That this can be done in a fast track basis. After you get the permit is it's important for us we've been waiting for three years for this permit to come through and now that it's here, we have a great Q an inventory of the rest of the permits and that all telcos, where we're gonna start having cash flow from this business very soon.
Speaker Change: 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: Thank you everyone, we will be presenting at several investor conferences in March and we look forward to seeing you soon thanks.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change:
Speaker Change:
Speaker Change: [music].
Speaker Change: Okay.