Q1 2025 California Resources Corp Earnings Call
[music].
Good day and welcome to the California Resources Corporation first quarter 2025 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 questions.
I'll 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.
Speaker Change: Good morning, and welcome to California Resources Corporation first quarter 2025 conference call.
Speaker Change: Following our prepared remarks members of our leadership team will be available for questions.
Speaker Change: I Hope you have had a chance to review our earnings release and supplemental slides we.
Speaker Change: We have also provided information reconciling non-GAAP financial measures to comparable GAAP financial measures on our website and in our earnings release.
Speaker Change: Today, we will be making some forward looking statements based on our current expectations actual results may differ due to factors described in our earnings release and in our periodic SEC filing as a reminder, please limit your questions today to one primary and one follow up as this allows us to get more of your questions today.
Francesco: And now I will turn the call over to Francesco.
Francesco: Good morning, everyone.
Speaker Change: Thanks for joining our call and for your interest in our company.
Francesco: Trc's executing very well.
Francesco: We delivered a solid quarter and are reaffirming our full year 2025 outlook.
Francesco: Our business strategy is designed to mitigate commodity price volatility and generate cash flow to execute our operations maintain a strong balance sheet.
Francesco: And sustainably return cash to shareholders.
Francesco: Before <unk> covers our first quarter financial and operating highlights.
Francesco: Let me open with some thoughts on how CRC is positioned to withstand the uncertainty in today's macro economic environment first.
Francesco: First the strategic steps, we have taken to strengthen our business were timely.
Francesco: We have achieved critical scale.
Francesco: The Ara merger made us bigger and better.
Moving that assets are better in our hands. This combination provided new opportunities to streamline our business and achieve meaningful cost savings that strengthen our returns today and well into the future.
Francesco: We have now realized more than 70% of our total $235 million in announced annual synergies and expect to achieve the full target in early 2026.
Francesco: Second our cash flow is underpinned by a strong hedge portfolio and diversified revenue stream.
Francesco: For the remainder of the year, we have approximately 70% of our oil production.
Francesco: And 70% of our natural gas consumption.
Francesco: Hedged at attractive levels relative to the current strip.
Francesco: In addition, our power and natural gas marketing strategy are delivering meaningful margins further underscoring the strength of our business.
Francesco: This integrated strategy provides strong visibility into near term cash generation supports debt service and shareholder returns and allows us to generate free cash flow at Brent prices down to approximately $34 per barrel.
Francesco: Third we have high quality conventional assets.
Francesco: We have low decline rates high net revenue interest and high ultimate recovery rates with modest development cost, we can manage our production largely through capital efficient Workovers and sidetracked.
Francesco: Low capital intensity provides an advantage over our peers.
Francesco: We're also able to control the pace of activity due to our high ownership interest, where we own both surface and mineral rights.
Francesco: We have a solid inventory of development projects in recent improvements in the states oil and gas regulatory environment provide confidence that we will continue to build our permit inventory through several avenues later this year.
Francesco: We are returns focused and allocate capital to our highest return projects, while effectively managing production and investing in our growth opportunities.
Lastly, the strength of our business allows us to sustainably return meaningful cash to our shareholders.
Francesco: In the first quarter, we returned a record 258 million to stakeholders through dividends share buybacks and debt redemption.
Francesco: We continue to show that CRC is a different kind of energy company.
Speaker Change: I'll turn it over to <unk> to summarize our first quarter results and some of the drivers behind our strong outlook.
Speaker Change: Thank you Francisco.
Speaker Change: Morning, everyone and thank you for joining us.
Speaker Change: This quarter, our results exceeded the street's expectations.
Speaker Change: We delivered flat net production quarter over quarter, either 141000 Boe per day and realized prices that we're 98% right.
Speaker Change: Adjusted EBITDAX was 328 million.
Speaker Change: Net cash flow before changes in working capital was 252 million.
Speaker Change: And free cash flow totaled 131 million all of which came in above consensus.
Speaker Change: This performance was primarily driven by our continued cost discipline.
Speaker Change: In Q1, our combined operating and G&A costs were 388 million approximately 5% better than what we had guided.
Speaker Change: Looking ahead, we expect to reduce our operating costs in the first half of 2025 by nearly 10% compared to the second half of 'twenty 'twenty four.
Speaker Change: We remain focused on delivering value to shareholders. This quarter, we repurchased a record 100 million shares nearly double our historical average and paid 35 million in visitors.
Speaker Change: Altogether, that's 135 million returned or about 103% of our Q1 free cash flow.
Speaker Change: With our strong start to the year and despite nearly a 16% decline in oil prices. We are reaffirming our full year adjusted EBITDAX guidance of one one to 1.2 billion driven mostly by our low decline assets focus on cost reduction.
Speaker Change: Okay.
Speaker Change: We continue to target average annual production of 136000 Boe per day with D&C capital investment between 165 and 180 million.
Speaker Change: Now I wanted to take a moment to talk about our financial resilience and highlight three core strengths.
Speaker Change: First balance sheet strength.
Speaker Change: We have a strong financial foundation, our leverage below one times, we have more than $1 billion and liquidity and nearly $200 million in available cash earlier. This year, we redeemed 123 million of our outstanding 2026 notes at par.
Speaker Change: Sure.
Speaker Change: And we expect to address the remainder later this year.
Speaker Change: This balance sheet strength gives us the flexibility to reduce debt and return capital and invest in disciplined opportunities.
Speaker Change: We also have access to third party capital from Brookfield to support the growth of our carbon management business second our cost reduction progress.
Speaker Change: I spend Cisco mentioned, we realized $173 million in annual run rate error related synergies based on our Q1 results.
Speaker Change: We expect those to be sustainable and enhance our future margins.
Speaker Change: Third executing on our strategy.
Speaker Change: Our integrated approach is gaining traction.
Speaker Change: We're capturing value through resource adequacy payments for standby power capacity.
Speaker Change: <unk> gas marketing commodity derivatives and emerging opportunities in carbon management.
Speaker Change: We're executing on a broader vision.
Speaker Change: Gas and power and carbon capture strategies are not only actionable, but theyre also scaleable and position us to deliver long term value, while reducing the risk. We are pleased with how we started 2025 and I'm confident in our ability to execute for the rest of the year.
Speaker Change: We're executing today and building for tomorrow.
Speaker Change: Thank you.
Speaker Change: Back to you Francisco.
Speaker Change: Thank you Cleo before.
Speaker Change: Before we move to Q&A, let me quickly summarize today's call and offer a few things to watch for as the year unfolds.
Speaker Change: Through our carbon management business, we continued to build scale and expect new vaults and projects to be announced later this year.
Speaker Change: Industrial partners are turning to us for solutions to energy challenges and desire for clean reliable power.
Speaker Change: We have a leading C O two storage rest of world business in various stages of permitting with multiple Ccs projects under consideration.
Speaker Change: We're also excited to launch California's first Ccs project at the Elk Hills cryogenic gas plant with construction breaking ground in the second quarter and with first injection expected later this year.
Speaker Change: In our power business, we're pursuing multiple new opportunities with AI data center companies and other large off takers interested in our available power capacity.
Speaker Change: Our firm supply of gas speed to market access to land proximity to Ccs.
Speaker Change: And scalable infrastructure are key attributes in our portfolio.
Speaker Change: The proximity of our assets two large industrial centers in the world's four largest economy creates multiple advantages as we progressed as discussions.
Speaker Change: Stay tuned for more later this year.
Speaker Change: Crc's executing and we sit in an advantage position.
Speaker Change: With a strong balance sheet quality assets, a low and declining cost structure and well priced hedges are.
Speaker Change: Our margins are well insulated from near and medium term reductions in commodity prices.
Speaker Change: We certainly recognize the challenges presented in today's markets, but CRC has a plan.
Speaker Change: In closing, let me reiterate my opening comment.
Speaker Change: <unk> is well positioned.
Speaker Change: Our durable assets and integrated business strategy are yielding strong results today.
Speaker Change: Operator, we're now ready 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.
Speaker Change: If youre using a speakerphone please pick up your handset.
Speaker Change: Before pressing the keys is that any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: Please limit your questions to one primary and one follow up.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Moderator: The first question comes from Scott Hanold.
With RBC capital markets. Please.
Speaker Change: Please go ahead.
Speaker Change: Thanks, Thanks Al a nice quarter I was wondering if you could.
Speaker Change: Walk through how you're able to achieve the similar EBITDA using a much lower Brent assumption I mean, obviously you pointed to some things like you know lower costs are being one thing but is that is there is things incrementally happening from the prior outlook that has been a tailwind and can you give us some specifics on what.
Speaker Change: Really is driving some of those are opex costs, though.
Speaker Change: Hey, Scott. Thanks for the question, Yeah, definitely we're seeing a lot of tailwind.
Speaker Change: Related to our synergy targets. We've you know the team is just.
Speaker Change: Well, we'd like to talk about is how the story is good but the execution is better. The team has just been outperforming every expectation in terms of.
Speaker Change: Getting the ear as its integrated into into CRC.
Speaker Change: I would think about it as three stages are the first stage was around refinancing and are.
Speaker Change: The people aspect of a merger the second one is voice around leaning in on our supply chain our advantage in and negotiating good contracts that do have a long term runway. What we're doing right. Now is we're consolidating infrastructure and that's where we're seeing a tailwind.
Speaker Change: We're moving cost savings earlier and that in combination with our very strong hedge book is what positions the company to be able to not only reaffirm guidance, but continued to invest in this business. So excited with the progress and the results from the merger and we expect to continue.
Speaker Change: Getting every dollar from from our target in the synergy bucket bucket.
Speaker Change: The next question comes from Josh Silverstein with RBC capital markets. Please go ahead.
Josh Silverstein: Yeah. Thanks. Good morning, Hum you just had a question on the breakeven that you guys were highlighting obviously the very low end.
Josh Silverstein: You mentioned that the hedge book can you give us a sense as to what they look like on an unhedged basis is it closer to those.
Josh Silverstein: Other kind of Workover and sidetrack cost that you guys were alluding to earlier in that side as well.
Speaker Change: Hey, Josh Yeah. So let me, let me spend a couple minutes talking through why how we got.
Josh Silverstein:
We have been for years working to position the company.
Josh Silverstein: For to be able to manage the ups and downs in the cycle are we volatility so given commodity prices and our commodity industry. So we have to be able to build a resilient business and deliver sustainable capital returned to shareholders.
Josh Silverstein: When we look at our our future, it's really underpinned by the quality of the assets. So we have very low decline predictable assets, but the steps that we've taken are steps that we take to get ready for situations with increased volatility like we have right now so we've done M&A, where there are.
Josh Silverstein: We put the hedges in place we maintain E absolute pristine balance sheet and we're taking a proactive view on cutting cost. The result of that is as you're pointing out our corporate breakeven is around $34, Brent or about $30 per Dolby Ti.
Josh Silverstein: So that's how we run the business and we took all of these actions to get ready for for this moment. So when we look at a go forward basis. That's what you should expect that you'd see is not a reactive nature or getting caught by surprise by by any macro its about being ready so weak.
Josh Silverstein: Can deliver that certainty to the investors and so we can continue to return cash to shareholders predictably.
Josh Silverstein: And then a follow up question for me I think I asked this a couple of quarters ago, but we've.
Josh Silverstein: We've seen you know another refinery shutdown in California.
Josh Silverstein: Is there a growing concern about who you guys know what to sell to you or or a different premium that you guys received.
Josh Silverstein: Yeah.
Josh Silverstein: Yeah. So so no concern on the refinery shutdowns were able to place her crude with the existing refineries.
Josh Silverstein: And as a reminder, what we have is.
Josh Silverstein: The refinery Sherwood build for California crude it's the right Nelson complexity.
Josh Silverstein: As well our production has little sulfur so the why the answer to why do we have a really high realizations vary on par with Brent is because sort of that preferential.
Josh Silverstein: The preferential market to our crude.
Josh Silverstein: California has seen it in a tough spot I mean, we're the largest fourth largest economy in the world Big consumer gasoline I think we're second to Texas, one of the largest consumer of jet fuels in the U S.
Josh Silverstein: And status in a difficult situation with reduced refining capacity.
Josh Silverstein: But when we when we talked to the government when we talked to a refinery. He sees there are solutions here or there are ways to do improve our cost structures and that is to produce more locally. So I think the message has been received and we're seeing progress across all fronts. So it sits there refining situation could be improved but were.
Josh Silverstein: And now we're gonna help solve that by producing more of our barrels studies is really what the refiners need.
Josh Silverstein: Uh huh.
Speaker Change: And we have Scott hanold from RBC capital markets. Please go ahead.
Josh Silverstein: Yeah.
Josh Silverstein: Yeah. Thanks.
Josh Silverstein: For my follow up.
Josh Silverstein: From my earlier start to for instance go I was wondering if.
You could give us a sense of what youre seeing and hearing on the political landscape, both in California, and Washington, and I know, you say pretty active and close to that then what kind of progress.
Josh Silverstein: For a lot of things like C. O two pipeline regulation carbon tax credits, you know oil and gas permitting specifically in the state you know what kind of progress you're seeing at this point then and.
Josh Silverstein: You know is it encouraging or you're seeing some movement by some of the politicians too.
Josh Silverstein: You'll be more open to I guess, they're all companies in the state.
Yes got it really appreciate that question definitely we are seeing a it's very encouraging Ah. How this is playing out here.
And we're really trying to solve for two things one is to cut emissions, which aligns very well with California's two objectives.
Josh Silverstein: But also to produce California has a natural advantage by having some of the best oil and gas reserves remaining reserves in the U S. So we can achieve both cutting emissions and in improving affordability of energy and also delivered to our energy security Suez.
Josh Silverstein: Talk through messaging, and Sacramento, and Washington D. C. We feel there's a lot of alignment in our projects are really the bridge between the two ideologies. It there there is a win win and in part of it is what we're delivering so we do see progress on our C. O. Two pipelines you mentioned, we do see.
Josh Silverstein: Progress on cap and trade, we see progress on oil and gas permitting I would say across the board we're.
Josh Silverstein: We're seeing indications of a much more constructive engagement Prague.
Josh Silverstein: Progress tangible progress to be able to put capital to work, whether it's in the new energy space or in the legacy legacy industry. So we said we have a very oh, we see very positive outlook in terms of engagement.
Josh Silverstein: On both Sacramento, and Washington D C.
Clay: The next question comes from Clay.
Speaker Change: <unk> with Bank of America. Please go ahead.
Speaker Change: Hey, Good morning, guys I'm for my first question I'm looking at Slide number 16 here, which covers Huntington Beach it looks like you've got visibility on the necessary permit for land use at the city level wondering if that opens up an opportunity to start marketing in the real estate that potential buyers and if you could give us an update on the remediation timeline that would be great.
Speaker Change: Yeah, Kelly so absolutely so we.
Speaker Change: As you mentioned, we submitted the proposal with the hunt with the city of Huntington Beach.
Speaker Change: We're going through community of reviews.
Speaker Change: But to be very clear in terms of marketing the assets for sale, we would sell it for the right price right now there's nothing holding us back other than making sure we get the best value and we think we get the best value by abandoning the field, which we control our own pace, but it's really to get the land re entitled for for the best and after.
Speaker Change: And we'll use which for this property we've done a lot of work.
Speaker Change: On preliminary development, indeed, see it's going to be a mix used community that has 800 homes 350, plus hotel rooms. So it's gonna be a very nice development Ah This California in L. A in particular need to a lot of housing. So this will be a great project.
And so we're launching.
Speaker Change: Those plans are we.
Speaker Change: We have had a continuous rig abandonment program since 2023, so we're making progress on that front.
Speaker Change: And really it's about when can we get the right value to.
Speaker Change: To monetize in some form the property. So that's underway. If you look at the kind of the local media. There's there's a lot of press and coverage on this asset. So we expect it to be roughly about a three year timeline to get all the approvals and you have to go seek one environmental impact reviews.
Speaker Change: Not sure yet if that can be fast track, but we're doing our part to get distress and ready to go.
Speaker Change: And try to bring assume incremental value for shareholders.
Speaker Change: This is not my second question, but just a really quick follow up on this can you share any color on how many interested bidders there are.
Speaker Change: So your one big question Kelly Okay.
Speaker Change: So we're not a four and we don't have a formal bidding process, we just announced.
Speaker Change: Two interested developers that.
Speaker Change: To come talk to us and these are big projects. If you. If you recall, we sold a small property next to our Huntington Beach for about $10 million an acre. So these are the big dollars. It takes he developed bird with the E rate vision for the future.
Speaker Change: You know what you see.
Speaker Change: Rates coming down interest rates coming down that helps the the project development, so rather than talking about a universe of bidders are think about this as a very unique property that has a lot of interest and where we're marching forward to try to get the best value for it.
Speaker Change: Got it. This is my follow up question I wanted to ask on the <unk> PPA at the way that we understand is that the PPA to create demand for clean energy that you can supply from Elk hills with carbon capture carbon capture is a more expensive project in the cryo that you're breaking ground on this quarter. So wondering if you could offer any latest thoughts on funding.
Speaker Change: <unk>.
Speaker Change: Yeah, the way to think about Cal capture we see it the final investment decision very much connected to a PPA. So you have.
Speaker Change: The clean energy incentives, we have 45 Q, we have L. CFS, we have avoidance of a carbon tax in California. So those are part of the revenue stack that we have but at the end of the day, we're trying to unlock a completely new business model, which is Baseload 24, seven natural gas fired with car.
Speaker Change: Capture and that's that's kind of the mission to be able to find the right partner the right PPA for that.
Speaker Change: So that where we're advancing all fronts Cal captures one we're doing a lot of the engineering side to optimize when cost.
Speaker Change: But we're also looking at the funding behind it and that comes with a view of Okay, who is this power plant is going to be a merchant power plant, which is today.
Speaker Change: Is he going to participate in the resource adequacy, which also is today or are we selling that power to a third party in that third party has a that values. The clean baseload electrons. So we're getting a lot of inbounds a lot of interest on the power and.
Speaker Change: And we think there's going to be a hyper scaler or are coming back to the table. We also seeing older or they're off takers are coming coming back to the picture.
Speaker Change: I'll turn it to clear also cleared joined this everybody noticed at the beginning of the year and and her prior dog. She was kind of looking at the other side of P. P. A is working with a technology company. So maybe she wants to offer a few remarks.
Thanks, Francisco and Hi, Kelly, Yes, So Kelly is as Francisco mentioned prior to joining CRC I was working on a number of things, but one that was keeping me very busy was brokering and structuring deals between the data center developers. So that's your hyperscale or is that your co locators and empower asset owners and.
Speaker Change: And that's where really I recognize the significant potential of Crc's power business and in that.
Speaker Change: How that's set a clear market need and fit that very well. So one of the most exciting opportunities I saw was it was related to the Elk Hills power plant and and what was the behind the meter our partnership model and an opportunity that we are have been progressing and now I've got a more in depth the view of our operations of our AST.
Speaker Change: That's in the market and so I'm, even more confident in the strength of our value proposition to data centers and into large off takers mm are offering really is is not only differentiated but it's it's resonating strongly and ongoing discussions and those are advancing and constructively.
Speaker Change: So just to kind of close out the question getting the right long term partner, we won a 10 year plus P. P. A with the right partner to that not only recognizes how valuable this opportunity is.
Speaker Change: The Hyperscale, there's one speed to market, we can deliver that we have capacity today, we have land. So we wanted to write PPA structure in the right way, but we also are looking to solve for the northern CTV rest awards, where we see a lot of demand potential natural gas power generation Big emitters.
Speaker Change: Need a solution and if we can unlock this at El kills it should ultimately also scaled to our northern rest of awards and create a further business opportunity. There. So a lot of things to solve for but we are making progress were getting the land ready, we're getting our permits and in good shape so that.
Speaker Change: When we finalize the details of our contract with a third party.
Speaker Change: It'll be it'll be something that really can can unlock value for us.
Speaker Change: Our next question comes from Daniel tackle Baum with TD Cowen. Please go ahead.
Speaker Change: Hey, Francisco Cleo everyone. Thanks for taking my questions today.
Speaker Change: Hey, David I was just curious.
Speaker Change: Curious just going back to the synergies.
Speaker Change: You've effectively almost achieved your twenty-five target.
Speaker Change: And I want to say that you all had left you know call. It around 60 million of additional synergies in 'twenty six as perhaps upside.
Speaker Change: Is there any reason why that should remain in 26 versus being pulled forward or is it is that the timing of certain projects that youre looking at or it seems like since you're already ahead of the game here, we might be able to see some of those elements, perhaps showing up a bit earlier.
Speaker Change: Yeah Ted.
Speaker Change: The question really speaks to.
Speaker Change: Our ability to the team's ability really to deliver the targets ahead of schedule and we keep doing that so there's an element of that that you know as we lay out the incremental targets and the synergies are.
Speaker Change: The team that team has been able to identify a number of the.
Speaker Change: Great projects and those are going to be they have been activated they've been already put in place and now that that's when you realise style misses when he counts.
Speaker Change: But I'll turn it to Walmart to give a perspective on the second part of the question, which is there is a timing component and then there are some really interesting projects. We're working on that are going to be ready later in the year and really in full force by the beginning of next year. So Omar do you want to share some of that please.
Speaker Change: Thanks [noise]. Thanks.
Speaker Change: Thanks, Francisco and Hi, David.
Speaker Change: Yeah. If you if you look at the rest of the 2025, David and how we're thinking about synergies.
We are really focused on delivering operational efficiencies.
Speaker Change: Two infrastructure consolidation.
Speaker Change: So we have excess capacity in our major fields around gas processing produced fluid treatment and in some cases power and what we're working on is bringing production from our various field in the basin.
Speaker Change: These these central facilities to.
Speaker Change: To fill in the access capacity and and and it does two things for us it eliminates the need to maintain and operate multiple facilities once you consolidate them.
Speaker Change: And it also helps us monetize.
Speaker Change: <unk> produced oil gas and natural gas liquids and I'll give you a couple of more concrete examples around the second point also we acquired venture I Didnt, even feel as part of that acquisition.
Speaker Change: A few of that has associated gas, but doesn't have the facilities.
Speaker Change: Fractionate natural gas liquids from that gas, so we would actually paying a third party.
Speaker Change: That production off our hand, what we're doing now is we're bringing that that that natural gas liquid production through our kills where we have capacity in our cryogenic gas plant and monetizing that production stream.
Speaker Change: Similarly, a battle ridge, which is a major field, we acquired as part of the acquisition also has associated gas, but do not have gas processing and we have excess capacity in our cryogenic gas plant. So we are working on a project to connect that gas to CGP cryogenic gas plant.
Speaker Change: Dropped liquids and monetize the revenue around that so some of these projects.
Speaker Change: That time scale.
Speaker Change: Some some initial capital investment and we are progressing going forward they.
Speaker Change: They will all be completed by the end of third quarter or end of 'twenty five.
Speaker Change: But some of the revenue stream, we will see in first quarter 'twenty six and onwards. So hopefully that was helpful. So we're making the investment now we see the benefit of incremental Ngls in 2026, and so we're going to count the synergies when they come in 'twenty six.
Speaker Change: I appreciate the color Omar and Francisco and maybe just as a follow up I'll stay on the weeds here for a little bit just.
Speaker Change: When you look at the first quarter.
Speaker Change: You hit your numbers and be kept up significantly it was maybe $10 million of savings relative to your initial plan or guide you reiterated full year. So I'm curious if you see that as an element of just mix of activity that was that was.
Speaker Change: Now just a coincident with the first quarter or if there's elements in your capital program that Youre also had on this year.
Speaker Change: It is a mix and we see there's sufficiency in the numbers.
Speaker Change: But we also planned a year, where we expected the light capital first quarter increase in the second quarter and then we're also increasing potentially the activity as the as the second half of the year comes in with a second Greg. So there will be a ramp up in activity that ultimately leads to a higher D&C capital as the year.
Speaker Change: Aggressive, but we are seeing efficiencies in savings through the supply chain discussions.
Speaker Change: Around capital as well so it's a little bit of a mixed story as a whole is very good.
Speaker Change: Thank you guys.
Speaker Change: The next question comes from Nate Pendleton, with Texas Capital. Please go ahead.
Nate Pendleton: Good morning, Congrats on another strong quarter, taking a step back and looking at the value you can add with era and the ability to decarbonize production streams can you talk about your willingness to pursue bolt ons in California should assets become available in this market.
Nate Pendleton: Yeah Nathan Thanks for the question. So we're very focused on executing our business right. Now. She is you saw I think it was really important for us to get the transformational deal completed with their as you can see by a lot of our messaging.
Nate Pendleton: The key is to have the the infrastructure in place the consolidation too.
Nate Pendleton: To be able to really extract value from for many acquisitions.
Nate Pendleton: Acquisitions are an important part of our strategy going forward, we do feel that our assets in California are going to be better in our hands from from every standpoint. So.
Nate Pendleton: So in terms of bolt ons, when we see something that's really makes sense and can be accretive and I would say significantly accretive to cash flow per share.
Nate Pendleton: This is something that we would consider.
Nate Pendleton: But we have strong inventory, we have a lot of uses for capital in our portfolio. So it's a really high bar to think about bolt ons, but it is part of the strategy as we as we finalize and think about.
Nate Pendleton: All the achievements, we done where there are and then what are we going next.
Nate Pendleton: Got it thanks.
Nate Pendleton: I wanted to shift over to the Ccs space understanding that your business is primarily focused downstream of the capture for third party volumes can you provide any update on recent carbon capture technology advancements and how maybe that's impacting discussions with emitters for C O two offtake.
Nate Pendleton: You need to when we the approach we've taken from day one.
Nate Pendleton: He used to be agnostic on cake technologies are understanding there's a lot of capital in a lot of progress being made.
Nate Pendleton: But where others focus their time and effort in developing that technology. We're really our advantage comes from our land ownership our mineral ownership, it's really the poor space is where we see the value in California, Ccs. So that's where we put our efforts forward now as we unlock the permitting.
Nate Pendleton: Pathway as we bring our meters both are within.
Nate Pendleton: Within Elk Hills, and Dell rich and outside.
Nate Pendleton: We do have a much more of a sense of what the technologies are coming together, we want to see costs come down and we want to see efficiencies being achieved but I think that's better done with with third party capital.
Nate Pendleton: Have our partners that are developing like Brookfield developing their own technology will give them a sandbox to come in and compete for the best offering and we do have the ability to customize the.
Nate Pendleton: Technology solutions for the Florida, the type of source and as we get Florida. There further into post combustion capture we'll talk about what these technologies can do in a lot of ways, where it's not also a lot of innovation in this space, it's pretty simple eamonn units. So.
Nate Pendleton: It's really about the cost aspect of it and who can deliver a competitive price recapture in a go forward basis.
Speaker Change: The next question comes from Betty Jang with Barclays. Please go ahead.
Betty Jang: Hi team. Thank you for taking my question.
Betty Jang: The I want to ask.
Betty Jang: I asked about the basic base decline M D.
Betty Jang: As capital.
Betty Jang: What's stocked out this quarter is that if I look at your <unk> production versus three Q last year.
Betty Jang: Oil volumes, just only down 2% and then over that period.
Betty Jang: On your capital.
Betty Jang: Round.
Betty Jang: 200 million and I know theres timing of the of the sad, but can we just get an update on where you think maintenance capital is going for.
Betty Jang: Really trying to get to is.
Betty Jang: Unconstrained permitting environment once you take into account all of these cost savings as synergies.
Betty Jang: How would you lower cut maintenance capex versus what we thought before.
Speaker Change: Yes. Thanks for the question it really highlights one of the reasons are one of the ways that were different than the rest of the sector.
Speaker Change: We most companies' lead by talking about drilling and type curves and how oh effect or their fracs are that's not CRC Trc, we do a lot of our works with base decline mitigation surveillance and then so that's opex dollars and then we move on to.
Speaker Change: Very efficient capital in Workovers and sidetracked, So we're doing.
Speaker Change: All of that in the normal course. So then the question comes okay.
Speaker Change: With a known good speed permitting a scenario what would you do.
Speaker Change: I would say, we're not ready to guide into that unconstrained scenario, even though we're seeing a lot of optimistic signs on the permits.
Speaker Change: Part of it is because we know that were bigger and we have all these new assets to work with.
Speaker Change: The team has continued to deliver as you pointed out the oil production very low decline quarter over quarter with very little capital. So what that means is that the the blocking and tackling of surveillance Workovers and sidetrack is working extremely well so to project that into the future let's look at.
Speaker Change: The inventory that comes in on the wall permitted bases, the well mix.
Speaker Change: And we'll be able to guys that are on a go forward basis. What we said before is you know it should take about six to eight rigs to keep production flat.
Speaker Change: But we need to continue to evaluate it given the performance of the team I'd like to come back when we're ready once we have the full inventory of permits ready to go for a little bit longer runway.
Speaker Change: We can start putting more capital to work.
Speaker Change: The next question comes from Leo P. Mariani with Roth. Please go ahead.
Yes, hi wanted to follow up a little bit here on the production.
Speaker Change: So looking at the second quarter guidance. It looks like production is going to be down versus <unk> slightly over 4% are using kind of at the midpoint of your guidance, obviously that decline would be in excess of the annual decline that you guys have kind of spoken about and clearly.
Speaker Change: Not nearly as good as the performance that you've been achieving the last couple of quarters, which is shallower declines for less capital. So just wanted to see if theres anything specific about the second quarter or maybe there's some some maintenance shut ins or whatnot I did see that in your slides you talked about 10 million a day of production, which sounds like that's going to be.
Speaker Change: Going offline to kind of replace some field use gas. So just any more color on that would be helpful.
Leo: Yeah Leo Thank you for the question I think it's a very important clarification to make so.
Leo: Yes, the the production on a Boe basis steps down, but cash flow goes up at lower prices right. So how do we do that well. The reason is and Theres a slide slide 13 on the deck that that's a new slide that we put to be able to highlight the dynamic that we have in place really.
Speaker Change: The answer to the question Leo It goes to a power plant. So we have these combined cycle gas power.
Speaker Change: Power generation that is a very flexible power plant has a flexible configuration.
So the way we run it.
Speaker Change: Typically it's call it two by one so that means there's two gas turbines for one steam turbine that's in the normal course, where we're sending the full capacity.
Speaker Change: In periods during the year were in California, Theres, a big solar penetration.
Speaker Change: With it displaces a lot of the base load during parts of the day. So we have the ability and that's our our discretion to bring the plant to a one by one mode. So what that does is is one which is what you pointed out it reduces the natural gas production.
Speaker Change: The gas is actually still very very useful instead of counting it as production. What we do is than we historically have been injecting that gas back in the rest of the board if it didn't make sense to produce it now we have an alternative another one of the benefits of the euro merger, where we can send that gas to bell rich. So remember these are.
Speaker Change: <unk> feels that are next to each other.
Speaker Change: And by sending that gas to Vale Ridge, we accomplished two things one that gas C. So it's opex energy cost at El Rich. So we're buying less gas from third parties have bell rich instead, where we're moving our non spec gas north.
Speaker Change: And then also by going to a one by one configuration, we're able to save Opex on the plant itself. So what you have is a situation where yes optically you're seeing net production boe's, which sell at 10 million a day of gas go down but what are you seeing also at the same time as increased cash flows by rich.
Speaker Change: Are you seeing your cost and because our view is we're here to maximize value and cash flow and not production. It's severe very easy choice to make as we have this kind of redundant system, where we can send the gas to the optimal use.
Speaker Change: Okay I appreciate that thorough answer now.
Speaker Change: Just jumping over to kind of oil and gas permitting side, you certainly talked about how things are improving of late but can you get a little bit more specific in terms of where the I R.
Speaker Change: And kind of Kern County, you know sort of stands today my understanding was I think maybe the public commentary. It is maybe recently kind of wrapped up and just can you give any kind of color on where we stand and what you think the timeline is for a judge to be taking a hard look at that in the near term.
Speaker Change: Yeah, I think thanks for the question on permitting it's really been a tremendous highlight a we're very encouraged by the progress being made on the permitting front.
Speaker Change: And the focus has been on the IR, but as we've talked about before we have multiple alternatives and motion.
Speaker Change: Which we think all of them will work into the future. So.
Speaker Change: We're very optimistic first of all because we have what we need in terms of sidetracked and Workovers, we reached what I would say, it's a regular way process.
Speaker Change: And have all the permits that we need for 2025, we are building inventory into 2026 for our drilling program.
Speaker Change: Specifically as it relates to the Kern County, I R. A litigation process continues but the county is expected to adopt your revised ER later in the year to address the address the deficiencies identified by the course should we expect some resolution and progress towards the second half of the year.
Speaker Change: But at the same time, we're doing what's called a conditional use permit which is an alternative route with a different agency, where we have about 90% of our proven developed reserves in four fields and we're developing a field specific permitting process around those so.
Speaker Change: I would say if you look at it as a whole if you step back from the the the specifics on the I R and kind of what's in the public domain. If you step back we have a very constructive dialogue with multiple agencies. There is a need for more local production I think there's a much better understanding and done in the past that the solution.
Speaker Change: To affordability and cutting emissions as local production and we want that to be a CRC barrels so.
Speaker Change: This year, we decided even if we get a little more progress on permits to continue with a two rig program, but what we're doing is we're really building that inventory of high quality projects and gaining more and more confidence we will be ready to go.
Phillips Johnston: The next question comes from Phillips Johnston with capital one. Please go ahead.
Phillips Johnston: Thanks for the question just wanted to clarify the wording in the press release regarding the potential PPA and read that you guys are engaged in discussions with multiple large scale industrial customers for PPA.
Speaker Change: Francisco It sounds like from your comments on the call call here that doesn't imply that you're no longer negotiating with other types of potential counterparties.
Phillips Johnston: Hearing that right.
Phillips Johnston: Yeah.
Phillips Johnston: Hey, Phillips thinks things for clarifying so we're very much focused on data centers.
Phillips Johnston: The off taker for Ford Elk Hills power 200 megawatts plus.
Phillips Johnston: The implication around incremental industrial players really is more about new inbounds on that.
Phillips Johnston: Are also looking for clean Baseload power.
Phillips Johnston: We were California short power and short Baseload power and I think we've seen a lot of examples globally. What happens if you have an overdependence on renewables. So we have similar dynamics here and the interest level on on what's one of the most efficient plants in the state of California that can be turned into Kuwait.
Phillips Johnston: Our carbon capture into a low carbon to new emission plant. It's a very interesting proposition that goes beyond data centers. So are the.
Phillips Johnston: The signal is not about a shift the signal is more about an expansion of interest beyond data centers, but we still are very much engaged with our data.
Phillips Johnston: Data centers, both hyperscale or some co locators.
Phillips Johnston: Okay that sounds great.
Speaker Change: Cleo you noted the share buyback was really strong in the first quarter. It was basically two X. The pace. That's what you bought back in the prior two quarters.
Speaker Change: Can you maybe talk about what you're thinking about in terms of the pace of buybacks going forward.
Phil: Hi, Phil it's.
Speaker Change: Well happy to give you a bit more context around our decision around in Q1 and obviously that's.
Speaker Change: That's going to give you color effectively on how we are how we prioritize buybacks and how we consider that versus other capital opportunities. So we see great value in our equity and we're committed to retaining and returning shareholder.
Speaker Change: Increasing shareholder returns so we saw clear value dislocation in our stock in Q1, and we were in a strong position to act decisively and as a reminder, by the year end 2024, we have rebuilt our cash balance there was over $350 million. We hadn't done that you know in six months. After they are a merger close.
Speaker Change: And we took steps to Delever in February so, we redeemed $123 million of our 'twenty six notes and that demonstrated our commitment to our balance sheet strength and also our disciplined capital management.
Speaker Change: With the excess cash share repurchases what are the most compelling use of capital at the time, she really drive long term shareholder value.
Speaker Change: And if you put this into perspective since the merger closed in July last year, we've repurchased 20% of the shares issued at the merger close and we did so at an average discount of about 9% versus issuance price.
Speaker Change: So that's really further enhances what was already a highly accretive deal and I'd say it underscores our disciplined value focused approach to capital allocation.
Phillips Johnston: Now if I look forward Phillips here to your comment well, yes, we remain opportunistic in our approach will continue to evaluate our buybacks alongside the other capital priorities, but you can expect us to remain focused on maximizing returns and really delivering value to our shareholders.
Speaker Change: The next question comes from <unk> Kumar with Mizuho. Please go ahead.
Speaker Change: Hey, good afternoon, guys and thanks for taking my question I wanted to you talked about the cost savings, but the electricity margin guidance for the year increased quite substantially.
Speaker Change: Just wanted to dig into that a little bit and see is that a better pricing or lower cost or a combination.
Speaker Change: Hey, Nathan so as I was explaining the how we manage the power plant. So the way to think about the margins is where merchant power.
Speaker Change: Prices fluctuate in and we're solving for that by going into from a tool by one to a one by one operation.
Speaker Change: The resource adequacy, which is what we call in California. The capacity program that is fixed that's contracted.
Speaker Change: And so that as we've been talking about it's $150 million for 2025. So when you see an expansion in the margins that means that the the steps that we also are taking on the <unk> going to buy one by one increases that margin right. So it's the combination of how we might manage the merchant aspect of it plus the incremental value that we're <unk>.
Speaker Change: Being in the contracted.
Speaker Change: In the contract that aspect of Ari.
Speaker Change: Great. Thanks, I'll leave it there.
Nick: Thanks, Nick.
Speaker Change: The next question comes from Noel Parks with Tuohy Brothers investment. Please go ahead.
Noel Parks: Oh, Hi, good afternoon, just a couple of things. So you mentioned earlier that we.
Noel Parks: We should be able to look for some some new program announced problems not for carbon terrible later this year I'm. Just wondering can you just maybe sort of characterize the.
Noel Parks: No the agreement or the process to getting there I'm. Just you can just give us an idea of what those the homestretch look like in and getting into some of these deal.
Speaker Change: Hey, no. So yeah. The right now the focus for carbon terrible to executing on our first project, we're breaking ground in a few weeks.
Speaker Change: Really important that we get that first project underway.
Speaker Change: We're looking to have C O two injected by the by the end of the year this year.
Speaker Change: Which means first cash flow for Ccs in all of California.
Speaker Change: The team has been also progressing the conversations with the EPA around incremental permits I think we have six or seven permits that have been into Q4 for a couple of years that should be getting very close to the final issuance at least in draft form so that will increase the force base, that's permitted and really expand.
Speaker Change: The capacity that we have in the state.
Speaker Change: What we've seen is as we take what we get the first of a kind permits in the state as we make progress.
Speaker Change: More and more interest comes from from emitters. So what I would say is the focus right now is Elk Hills. Its first project, but the way this should expand it it will be around a lot of our northern reservoirs.
Speaker Change: Close to the Bay area, where we have a lot of our potential customers were from existing power sources for new power sources in particular, but theres other industrial customers that are going to look for solutions.
Speaker Change: Bring their their emissions Shlomo.
Speaker Change: So most of our fields.
Speaker Change: Remember in California, we have a forcing mechanism beyond the incentives, which you say growing carbon tax so.
Speaker Change: From a financial perspective, it makes sense for these companies to be looking.
Speaker Change: The store away, that's here too and we want to be ready for that market opportunity. So I would say the announcements what are the the progress that youll see on both permits and emitters to start moving.
Speaker Change: We have had a lot of focus on the Central Valley in California, They should start moving up north and that's what we're looking to expand and that's what the team is focus next.
Speaker Change: Great. So.
Speaker Change: Is it fair to say that.
Speaker Change: You know since carbon capture carbon sequestration is.
Speaker Change: Going to be new in the in the state.
Speaker Change: And as new.
Speaker Change: New generally at scale is it just that theres, a little bit of a stand off on the one hand, there's a recognition of the importance of it.
Speaker Change: Benefits and.
Speaker Change: And there is interest out there, but there are I guess isn't enough of a sense of urgency to make.
Speaker Change: Customers are afraid that they're all going to have to you know cry.
Crowd through the door at the same time, and so I guess I'm, saying, so the the awareness that the available pore space, though the largest finite.
Speaker Change: It isn't enough to make people maybe be more aggressive about committing to.
Speaker Change: The capacity you have.
Speaker Change: Yeah, maybe to reframe the question a little bit I don't.
Speaker Change: And this really agree with the view that a well how you framed the question around.
Speaker Change: Any any sort of delays are it is a new a new business. It's a new opportunity, we're making tremendous progress. If you look at the progress that carbon terrible has made compared to others nationally. We're right up there in terms of speed now there's a lot of a lot of aspects to cover and we have both.
Speaker Change: E figuratively, we have a big pipeline of of meters. We also are working on physical pipelines right. That's the the part that our focus has been to really unlock and the scale of the business is there's never been a need the transports shield two in California. So now that there is a need and there's some market need and there's a government ambition.
Speaker Change: And then we need to get those pipelines permitted that takes takes time that takes time of year that takes time and any any basically in any states, but we're seeing a lot of progress we're actually very optimistic about the momentum once you had two pipelines.
Speaker Change: We had we're getting by both the Senate and the assembly have bills in the California legislature, where there.
Speaker Change: <unk> seen the framework by which we're gonna be able to to use a retrofit tier two pipelines in the state. So I look for that so that's a big catalyst for for the CTV business. We feel the momentum is there and in the moratorium should be lifted.
Speaker Change: Later this year, there's a there's a lot of support and a lot of interest both on the.
Speaker Change: Market and from.
Speaker Change: From regulators to be able to flow seal too soon so ones that unlocks then the ability to talk about it mirrors, who would be able to talk about the business model is going to start crystallizing a lot more but we need that physical connectivity that comes with tier two pipelines being approved.
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: Great. Thank you so much I, we're looking forward to seeing you were gonna do several conferences throughout the summer.
Speaker Change: But thanks again for listening and have.
Francisco Leon: Have a good day thanks.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Goodbye.
Speaker Change: [music].
Speaker Change: Yeah.