California Resources Corp (CRC) (Q1 2024) Earnings Call Transcript Highlights: Navigating ...

• Adjusted EBITDAX: $149 million

• Free Cash Flow: $33 million

• Shareholder Distributions: $79 million via dividends and buybacks

• Remaining Share Repurchase Program: $675 million

• Total Capital Investments for 2024: Expected to range between $200 million and $240 million

• Adjusted Net Income: $54 million

• Earnings Per Share (EPS): $0.75 per diluted share

• Production: 76,000 barrels of oil equivalent per day

• Oil Production: 48,000 barrels per day

• Net Cash from Operating Activities: $87 million

• Total Capital Invested: $54 million in the quarter

• Liquidity: $880 million, including $403 million in cash

• Leverage Ratio: 0.2 times

• Expected Gross Production Q2: 93,000 barrels of oil equivalent per day

• Expected Net Production Q2: 74,000 to 78,000 barrels of oil equivalent per day

• Capital Deployment Q2: $50 million to $57 million

Release Date: May 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• California Resources Corp (NYSE:CRC) successfully maintained stable production levels with a one-rig program, demonstrating the strength and efficiency of its asset base.

• The company generated $149 million in adjusted EBITDAX and delivered $33 million in free cash flow, highlighting strong financial performance.

• CRC distributed $79 million to shareholders through dividends and buybacks, reflecting a commitment to returning value to shareholders.

• The pending merger with Aera is set to enhance scale, improve asset durability, and expand CRC's carbon management capabilities, positioning the company for future growth.

• CRC received a Grade A certification for methane emissions standards, underscoring its commitment to sustainability and environmental responsibility.

Negative Points

• Production challenges due to extended maintenance at Elk Hills power plants and adverse weather conditions impacted output.

• The company faces ongoing delays in the permitting process, which could restrict its ability to increase drilling activities and expand production.

• Despite maintaining production levels, the total capital investments for 2024 are expected to remain constrained between $200 million and $240 million, potentially limiting growth opportunities.

• The Kern County EIR revision process is ongoing, with a court order requiring additional environmental reviews, which could further delay drilling activities.

• CRC's net production is expected to experience modest natural declines, reflecting the challenges in boosting output under current operational constraints.

Q & A Highlights

Q: Can you provide more details on the Class VI permit and the timeline for the EPA and Kern County to issue their respective EIR and final permits? A: Francisco Leon, CEO of California Resources Corp, expressed confidence in achieving the final permit and reaching FID on schedule. He noted that while the EPA permit is expected in the summer, Kern County's permit, which focuses on above-ground aspects, is targeted for August, slightly behind the EPA's schedule. Leon emphasized the importance of establishing a gold standard for CCS permitting in the U.S., acknowledging the need for thorough processes due to the significant stakes involved.

: Regarding the Aera merger, what are some immediate synergistic opportunities that could benefit the combined company in the near term? A: Francisco Leon highlighted potential synergies in infrastructure, supply chain, and G&A, expected to generate $150 million annually. Omar Hayat, EVP of Operations, detailed opportunities such as leveraging proximity to optimize power, gas, oil, and water movement across fields, which could improve margins or reduce operational costs. He also mentioned potential insourcing and outsourcing opportunities due to increased scale.

Q: With the upcoming closure of the Aera merger, how will cash be allocated between buybacks, debt reduction, and other priorities? A: Francisco Leon discussed the strategy post-Aera merger, emphasizing the importance of improving the balance sheet and reducing leverage to below 0.5. He mentioned the potential for increasing dividends and continuing aggressive share repurchases, especially as permits for oil, gas, and CCS are finalized.

Q: Can you discuss the impact of AI and data center power demand on CRC's strategy, given its significant position in the California natural gas market? A: Francisco Leon and Christopher Gould, EVP and Chief Sustainability Officer, discussed CRC's unique position to meet the power demands of data centers in California. They highlighted the potential for co-locating data centers with CRC's CTV reservoirs to provide baseload carbon-free energy, which is crucial as California transitions away from nuclear power.

Q: What are the terms discussed with parties interested in reserving pore space for CCS, particularly regarding volume commitments or pricing? A: Francisco Leon explained that discussions with brownfield emitters are focused on CO2 pipeline connectivity, which is pending legislative clarity in California. For greenfield emitters, discussions are around optimizing pore space allocation with storage fees expected to range from $50 to $75 per ton. He emphasized the importance of finalizing the Class VI permit to unlock these opportunities.

Q: What are the expected impacts and timelines for drilling permits outside of Kern County, given CalGEM's ongoing review of their procedures? A: Francisco Leon noted that while CalGEM is reviewing its permitting procedures, CRC has seen progress with sidetracks and workovers. He mentioned that new well permits have not been issued this year but expressed optimism that full drilling programs will resume soon as CalGEM finalizes its review.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.