California Resources Q1 2025 Earnings Call Transcript

Skip to Participants
Operator

Good day, and welcome to the California Resources Corporation First Quarter twenty twenty five Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Joanna Park, Vice President of Investor Relations and Treasurer. Please go ahead.

Joanna Park
Joanna Park
Vice President of Investor Relations, Treasurer at California Resources

Good morning, and welcome to California Resources Corporation's first quarter twenty twenty five conference call. Following our prepared remarks, members of our leadership team will be available for questions. 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 financial measures on our website and in our earnings release. Today, we will be making some forward looking statements based on our current expectations.

Joanna Park
Joanna Park
Vice President of Investor Relations, Treasurer at California Resources

Actual results may differ due to factors described in our earnings release and in our periodic SEC filings. As a reminder, please limit your questions today to one primary and one follow-up as this allows us to get more of your questions today. And now I will turn the call over to Francisco.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

Good morning, everyone. Thanks for joining our call and for your interest in our company. CRC is executing very well. We delivered a solid quarter and are reaffirming our full year 2025 outlook. Our business strategy is designed to mitigate commodity price volatility and generate cash flow to execute our operations, maintain a strong balance sheet and sustainably return cash to shareholders.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

Before Cleo covers our first quarter financial and operating highlights, let me open with some thoughts on how CRC is positioned to withstand the uncertainty in today's macroeconomic environment. First, the strategic steps we have taken to strengthen our business were timely. We have achieved critical scale. The Era merger made us bigger and better, proving 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.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

We have now realized more than 70% of our total $235,000,000 in announced annual synergies and expect to achieve the full target in early twenty twenty six. Second, our cash flow is underpinned by a strong hedge portfolio and diversified revenue stream. For the remainder of the year, we have approximately 70% of our oil production and 70% of our natural gas consumption hedged at attractive levels relative to the current strip. In addition, our power and natural gas marketing strategy are delivering meaningful margins, further underscoring the strength of our business. 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.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

Third, we have high quality conventional assets. They 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 sidetracks. Low capital intensity provides an advantage over peers. We're also able to control the pace of activity due to our high ownership interest where we own both surface and mineral rights.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

We have a solid inventory of development projects and recent improvements in the state's oil and gas regulatory environment provide confidence that we will continue to build our permit inventory through several avenues later this year. 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. In the first quarter, we returned a record $258,000,000 to stakeholders through dividends, share buybacks and debt redemption. We continue to show that CRC is a different kind of energy company.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

I'll turn it over to Cleo to summarize our first quarter results and some of the drivers behind our strong outlook.

Clio Crespy
Clio Crespy
Executive VP & Chief Financial Officer at California Resources

Thank you, Francisco. Good morning, everyone, and thank you for joining us. This quarter, our results exceeded the Street's expectations. We delivered flat net production quarter over quarter at 141,000 per day and realized prices that were 98% of Brent. Adjusted EBITDAX was $328,000,000 net cash flow before changes in working capital was $252,000,000 and free cash flow totaled $131,000,000 all of which came in above consensus.

Clio Crespy
Clio Crespy
Executive VP & Chief Financial Officer at California Resources

This performance was primarily driven by our continued cost discipline. In Q1, our combined operating and G and A costs were $388,000,000 approximately 5% better than what we had guided. Looking ahead, we expect to reduce our operating costs in the first half of twenty twenty five by nearly 10% compared to the second half of twenty twenty four. We remain focused on delivering value to shareholders. This quarter, we repurchased a record $100,000,000 in shares, nearly double our historical average and paid $35,000,000 in dividends.

Clio Crespy
Clio Crespy
Executive VP & Chief Financial Officer at California Resources

Altogether, that's $135,000,000 returned or about 103% of our Q1 free cash flow. With a strong start to the year and despite nearly a 16% decline in oil prices, we are reaffirming our full year adjusted EBITDAX guidance of 1,100,000,000.0 to $1,200,000,000 driven mostly by our low decline assets focused on cost reduction and hedge book. We continue to target average annual production of 136,000 BOE per day with D and C capital investments between 165,000,000 and 180,000,000 Now I want to take a moment to talk about our financial resilience and highlight three core strengths. First, balance sheet strength. We have a strong financial foundation.

Clio Crespy
Clio Crespy
Executive VP & Chief Financial Officer at California Resources

Our leverage is below one time. We have more than $1,000,000,000 in liquidity and nearly $200,000,000 in available cash. Earlier this year, we redeemed 123,000,000 outstanding twenty twenty six notes at par, and we expect to address the remainder later this year. This balance sheet strength gives us the flexibility to reduce debt, return capital and invest in disciplined opportunities. We also have access to third party capital from Brookfield to support the growth of our carbon management business.

Clio Crespy
Clio Crespy
Executive VP & Chief Financial Officer at California Resources

Second, our cost reduction progress. As Francisco mentioned, we realized 173,000,000 in annual run rate Era related synergies based on our Q1 results. We expect those to be sustainable and enhance our future margins. Third, executing on our strategy. Our integrated approach is gaining traction.

Clio Crespy
Clio Crespy
Executive VP & Chief Financial Officer at California Resources

We're capturing value through resource adequacy payments for standby power capacity, natural gas marketing, commodity derivatives and emerging opportunities in carbon management. We're executing on our broader vision. Our gas to power and carbon capture strategies are not only actionable, but they're also scalable and position us to deliver long term value while reducing risk. We are pleased with how we've started 2025 and confident in our ability to execute for the rest of the year. We're executing today and building for tomorrow.

Clio Crespy
Clio Crespy
Executive VP & Chief Financial Officer at California Resources

Thank you. Back to you, Francisco.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

Thank you, Cleo. Before we move to Q and A, let me quickly summarize today's call and offer a few things to watch for as the year unfolds. Through our carbon management business, we continue to build scale and expect new vaults and projects to be announced later this year. Industrial partners are turning to us for solutions to energy challenges and desire for clean reliable power. We have a leading CO2 storage reservoir business in various stages of permitting with multiple CCS projects under consideration.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

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. 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. Our firm supply of gas, speed to market, access to land, proximity to CCS and scalable infrastructure are key attributes in our portfolio. The proximity of our assets to large industrial centers in the world's four largest economy creates multiple advantages as we progress these discussions. Stay tuned for more later this year.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

CRC is executing and we sit in an advantaged position. With a strong balance sheet, quality assets, a low and declining cost structure and well priced hedges, our margins are well insulated from near and medium term reductions in commodity prices. We certainly recognize the challenges presented in today's markets, but CRC has a plan. In closing, let me reiterate my opening comment. CRC is well positioned.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

Our durable assets and integrated business strategy are yielding strong results today. Operator, we're now ready for questions.

Operator

The first question comes from Scott Hanold with RBC Capital Markets. Please go ahead.

Scott Hanold
Scott Hanold
Managing Director - Energy Research at RBC Capital Markets

Thanks. Thanks all. Nice quarter. I was wondering if you all could walk through how you're able to achieve the similar EBITDA using a much lower Brent assumption. I mean, you pointed to some things like lower costs being one thing, but is that is there things incrementally happening from the prior outlook that has been a tailwind?

Scott Hanold
Scott Hanold
Managing Director - Energy Research at RBC Capital Markets

And can you give us some specifics on what really is driving some of those OpEx costs down?

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

Hey, Thanks for the question. Yes, definitely we're seeing a lot of tailwinds related to our synergy targets. We've the team is just what we 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 getting the Air assets integrated into CRC. So think about it as three stages.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

The first stage was around refinancing and the people aspect of a merger. The second one was around leaning in on our supply chain advantage and renegotiating good contracts to have long term runway. What we're doing right now is we're consolidating infrastructure. And that's where we're seeing tailwinds. We're moving cost savings earlier.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

And that in combination with our very strong hedge book is what positions the company to be able to not only reaffirm guidance, but continue to invest in this business. So excited with the progress and the results from the merger and we expect to continue getting every dollar from our target in the synergy bucket.

Operator

The next question comes from Josh Silverstein with RBC Capital Markets. Please go ahead.

Josh Silverstein
Josh Silverstein
Managing Director at UBS Group

Yes, thanks. Good morning. Just I had a question on the breakevens that you guys were highlighting. Obviously, they're very low. And you just mentioned that the hedge book.

Josh Silverstein
Josh Silverstein
Managing Director at UBS Group

Can you give us a sense as to what it may look like on an unhedged basis? Is it closer to those other kind of workover and sidetrack costs that you guys were alluding to earlier in that slide as well?

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

Hey, Josh. Yes. So let me spend a couple of minutes talking through why how we got We have been four years working to position the company for to be able to manage the ups and downs in the cycle. Volatility is a given commodity prices in a commodity industry. So we have to be able to build a resilient business and deliver sustainable capital return to shareholders.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

So when we look at 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 and A with Era, we put the hedges in place, we maintain an absolute pristine balance sheet and we're taking a proactive view on cutting cost. The result of that is, as you pointed out, our corporate breakeven is around $34 Brent or about $30 per WTI.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

So that's how we run the business. And we took all these actions to get ready for this moment. So when we look at the go forward basis, that's what you should expect. It's not a reactive nature or getting caught by surprise by any macro. It's about being ready so we can deliver that certainty to the investors and so we can continue to return cash to shareholders predictably.

Josh Silverstein
Josh Silverstein
Managing Director at UBS Group

Got it. And then a follow-up question for me, think I asked this a couple of quarters ago, but we've seen another refinery shutdown in California. Is there a growing concern of about who you guys are able to sell to or the Brent premium that you guys receive? Thanks.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

Yes. So no concern on the refinery shutdowns. We're able to place our crude with the existing refineries. And as a reminder, what we have is the refineries here were built for California crude. It's the Wright Nelson complexity.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

It has our production has low sulfur. So the answer to why do we have really high realizations very on par with Brent is because of that preferential market to our crude. California is in a tough spot. I mean, we're the largest fourth largest economy in the world, big consumer of gasoline. I think we're second to Texas.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

We're the largest consumer of jet fuels in The U. S. And the state is in a difficult situation with reduced refining capacity. But what we talk to the government, what we talk to refineries is, there are solutions, there are ways to improve 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.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

So it's the refining situation could be improved, but we're to help solve that by producing more of our barrels that is really what the refineries need.

Josh Silverstein
Josh Silverstein
Managing Director at UBS Group

Got it. Thanks guys.

Operator

And we have Scott Hanold from RBC Capital Markets. Please go ahead.

Scott Hanold
Scott Hanold
Managing Director - Energy Research at RBC Capital Markets

Yes, For my follow-up from my earlier start, Francisco, was wondering if you could give us a sense of what you're seeing and hearing on the political landscape both in California and Washington. I know you stay pretty active and close to that. And what kind of progress is occurring on things like CO2 pipeline regulation, carbon tax credits,

Scott Hanold
Scott Hanold
Managing Director - Energy Research at RBC Capital Markets

oil

Scott Hanold
Scott Hanold
Managing Director - Energy Research at RBC Capital Markets

and gas permitting specifically in the state? What kind of progress are you seeing at this point? And is it encouraging? Are you seeing some movement by some of the politicians to be more open to, I guess, oil companies in the state?

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

Yes, Scott. I really appreciate that question. Definitely, we're seeing it's very encouraging how this is playing out. We're really trying to solve for two things. One is to cut emissions, which aligns very well with California's objectives, but also to produce California has a natural advantage by having some of the best oil and gas reserves, remaining reserves in The U.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

S. So we can achieve both cutting emissions and improving affordability of energy and also delivered to energy security. So as we talk through messaging in Sacramento and Washington DC, we feel there's a lot of alignment and our projects are really the bridge between the two ideologies. There is a win win and part of it is what we're delivering. So we do see progress on CO2 pipelines.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

You mentioned we do see progress on cap and trade. We see progress on oil and gas permitting. I would say across the board, we're seeing indications of much more constructive engagement, progress, tangible progress to be able to put capital to work, whether it's in the new energy space or in the legacy industry. So we have a very positive outlook in terms of engagement on both Sacramento and Washington DC.

Operator

The next question comes from Kalei Akamai with Bank of America. Please go ahead.

Kalei Akamine
Kalei Akamine
Analyst at Bank of America

Hey, good morning guys. 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 the real estate to potential buyers. And if you could give us an update on the remediation timeline, that would be great.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

Yes, Kalei. So absolutely. So we as you mentioned, we submitted a proposal with the city Huntington Beach. We're going through community reviews. But to be very clear in terms of marketing, the assets for sale, we would sell it for the right price right now.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

There's nothing holding those 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 the best and optimal use, which for this property, we've done a lot of work on preliminary development and it's going to be a mixed use community that has 800 homes, three fifty plus hotel rooms. So it's going to be a very nice development. This California and LA in particular needs a lot of housing. So this will be a great project.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

And so we're launching those plans. We have had a continuous rig abandonment program since 2023. So we're making progress on that front. And really it's about when can we get the right value to monetize in some form the property. So that's underway.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

If you look at the kind of the local media, 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 to CEQUA environmental impact reviews. I'm not sure yet if that can be fast tracked, but we're doing our part to get the stress and ready to go and try to bring some incremental value for shareholders.

Kalei Akamine
Kalei Akamine
Analyst at Bank of America

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?

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

So your 1B question, Kelly. Okay. So we're not we don't have a formal bidding process. We just have announced to interested developers that to come talk to us. And these are big projects.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

If you recall, we sold a small property next to Huntington Beach for about $10,000,000 an acre. So these are big dollars. It takes a developer with a great vision for the future. We see rates coming down, interest rates coming down that helps the project development. So rather than talking about a universe of bidders, think about this as a very unique property that has a lot of interest and we're marching forward to try to get the best value for it.

Kalei Akamine
Kalei Akamine
Analyst at Bank of America

Got it. This is my follow-up question. I want to ask on the Elk Hills PPA. The way that we understand is that the PPA could create demand for clean energy that you could 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.

Kalei Akamine
Kalei Akamine
Analyst at Bank of America

So wondering if you could offer any latest thoughts on funding?

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

Yes. The way to think about Calcapture, we see it the final investment decision very much connected to a PPA. So you have the clean energy incentives. We have 45Q. We have LCFS.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

We have avoidance of 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 complete new business model, which is baseload 20 fourseven natural gas fired with carbon capture. And that's kind of the mission to be able to find the right partner, the right PPA for that. So that we're advancing all fronts.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

Calcapture is doing, we're doing a lot of the engineering, try to optimize some cost. But we're also looking at the funding behind it and that comes with a view of okay, is this power plant going to be a merchant power plant, which is today? Is it going to participate in the resource adequacy, which also is today? Or are we selling that power to a third party and that third party has the values, the clean baseload electrons. So we're getting a lot of inbounds, lot of interest on the power and we think there's going to be hyperscalers are coming back to the table.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

We're also seeing other off takers coming back to the picture. Maybe I'll turn it to Cleo. So Cleo joined as everybody knows at the beginning of the year. And in her prior job, she was kind of looking at the other side of PPAs working with technology companies. Maybe she wants to offer a few remarks.

Clio Crespy
Clio Crespy
Executive VP & Chief Financial Officer at California Resources

Thanks, Francisco. And hi, Kelly. Yes, so Kelly, 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 hyperscalers, that's your co locators and power asset owners. And that's where really I recognize the significant potential of CRC's power business and how that fit a clear market need and fit that very well. One of the most exciting opportunities I saw was related to the Elk Hill Power Plant was the behind the meter partnership model and opportunity that we have been progressing.

Clio Crespy
Clio Crespy
Executive VP & Chief Financial Officer at California Resources

Now I've got a more in-depth view of our operations, of our assets in the market, and so I'm even more confident in the strength of our value proposition to data centers and to large off takers. Our offering really is not only differentiated, but it's resonating strongly in ongoing discussions and those are advancing constructively.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

So just to kind of close out the question, getting the right long term partner, we won a ten year plus PPA with the right partner that not only recognizes how valuable this opportunity is, hyperscalers want speed to market, we can deliver that. We have capacity today, we have land. So we want the right PPA structure in the right way. But we also are looking to solve for the Northern CTV reservoirs where we see a lot of demand potential natural gas power generation, big emitters need a solution and if we can unlock this at Elk Hills, it should ultimately also scale to our Northern reservoirs and create a further business opportunity there. So a lot of things to solve for, but we are making progress, we're getting the land ready, we're getting our permits in good shape, so that when we finalize the details of contract with a third party, it will something that really can unlock value for us.

Operator

The next question comes from Daniel Deckelbaum with TD Cowen. Please go ahead.

David Deckelbaum
Managing Director: Sustainability & Energy Transition at TD Cowen

Hey, Francisco, Cleo, everyone. Thanks for taking my questions today.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

Hey, David.

David Deckelbaum
Managing Director: Sustainability & Energy Transition at TD Cowen

I was just curious, just going back to the synergies. You've effectively almost achieved your $25,000,000 target. And I want to say that you all had left, call it, around 60,000,000 of additional synergies in 2026 as perhaps upside. Is there any reason why that should remain in 2026 versus being pulled forward? Or is the timing of certain projects that you're looking at?

David Deckelbaum
Managing Director: Sustainability & Energy Transition at TD Cowen

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?

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

Yes. That's lovely question. It really speaks to our ability to our team's ability really to deliver the targets ahead of schedule and we keep doing that. So there's an element of that, that as we lay out the incremental targets and the synergies, team has been able to identify a number of great projects and those are going to be they have been activated, they've been already put in place and now that it's when you realize them, this is when it counts. But I'll turn it to Omar to give a perspective on the second part of the question, which is there is a timing component and there's 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.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

So Omar, do you want to share some of that please?

Omar Hayat
Omar Hayat
Executive VP & Chief Operating Officer at California Resources

Yes. Thanks, Francisco. Hi, David. Yes, if you look at the rest of the 2025, David, and how we are thinking about synergies, we are really focused on delivering operational efficiencies tied to infrastructure consolidation. So we have excess capacity in our major fields around gas processing, produced fluid treatment and in some cases, power.

Omar Hayat
Omar Hayat
Executive VP & Chief Operating Officer at California Resources

And what we are working on is bringing production from our various fields in the basin to these central facilities, to fill in the access capacity. And it does two things for us. It eliminates the need to maintain and operate multiple facilities once you consolidate them. And it also helps us monetize our produced oil, gas and natural gas liquids. And I'll give you a couple of more concrete examples around the second point.

Omar Hayat
Omar Hayat
Executive VP & Chief Operating Officer at California Resources

So we acquired Ventura Avenue Fuel as part of the Era acquisition, a field that has associated gas but doesn't have the facilities to fractionate natural gas liquids from that gas. So we were actually paying a third party to take that production off our hand. What we're doing now is we're bringing that natural gas liquid production to Elk Hills where we have capacity, in our cryogenic gas plant and monetizing that production stream. Similarly, Belleridge, which is a major field we acquired as part of the Era 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, the cryogenic gas plant, drop liquids and monetize the revenue around that.

Omar Hayat
Omar Hayat
Executive VP & Chief Operating Officer at California Resources

So some of these projects, on that time scale need some initial capital investment and we are progressing them forward. They will all be completed by the end of third quarter or end of twenty twenty five, but some of the revenue stream we'll see in first quarter twenty twenty six and onwards. So hopefully that was helpful.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

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 2026.

David Deckelbaum
Managing Director: Sustainability & Energy Transition at TD Cowen

Appreciate the color, Omar and Francisco. And maybe just as a follow-up, I'll stay in the weeds here for a little bit. Just when you look at the first quarter, obviously hit your numbers and beat CapEx significantly, it was maybe $10,000,000 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 just a coincident with the first quarter or if there's elements in your capital program that you're also ahead on this year?

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

It is a mix and we see there's efficiencies in the numbers. But we also plan the year where we expected a light capital first quarter increase in the second quarter. And then we're also increasing potentially the activity as second half of the year comes in with a second rig. So there will be a ramp up in activity that ultimately leads to higher D and C capital as the year progresses. But we are seeing efficiencies and savings through the supply chain discussions around capital as well.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

So it's a little bit of a mix. The story as a whole is very good.

David Deckelbaum
Managing Director: Sustainability & Energy Transition at TD Cowen

Thank you, guys.

Operator

The next question comes from Nate Pendleton with Texas Capital. Please go ahead.

Nate Pendleton
Nate Pendleton
Vice President at Texas Capital

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?

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

Yes, Nate. Thanks for the question. So we're very focused on executing our business right now. As you saw, I think it was really important for us to get the transformational deal completed with Era. As you can see by a lot of our messaging, the key is to have the infrastructure in place, the consolidation to be able to really extract value from any acquisitions.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

Acquisitions are an important part of our strategy going forward. We do feel that assets in California are going to be better in our hands from every standpoint. 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. This is something that we would consider. But we have a strong inventory, we have a lot of uses for capital in our portfolio.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

So it's a really high bar to think about bolt ons, but it is part of the strategy as we finalize and think about all the achievements we've done with Era and then where do we go next.

Nate Pendleton
Nate Pendleton
Vice President at Texas Capital

Got it. Thanks. And 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 CO2 offtake?

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

Yes, Nate. So what we've the approach we've taken from day one is to be agnostic on technologies, understanding there's a lot of capital and a lot of progress being made. 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 pore space is where we see the value in California CCS. So that's where we put our efforts forward.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

Now as we unlock the permitting pathway as we bring emitters both within Elk Hills and Delridge and outside, We do have much more of a sense of where the technologies are coming together. We want to see costs come down. We want to see efficiencies being achieved. But I think that's better done with third party capital. We have our partners that are developing like Brookfield developing their own technology.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

We'll give them a sandbox to come in and compete for the best offering. And we do have the ability to customize the technology solution for the type of source. And as we get 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 the space. It's pretty simple aiming units.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

So it's really about the cost aspect of it and who can deliver a competitive price recapture on a go forward basis.

Operator

The next question comes from Betty Jiang with Barclays. Please go ahead.

Betty Jiang
Betty Jiang
Senior Equity Research Analyst - US Integrated Oil and E&Ps at Barclays

Hi, team. Thank you for taking my question. I want to ask about the base decline and the maintenance capital. What stuck out this quarter is that if I look at your 1Q production versus 3Q last year, your oil volumes is only down 2%. And over that period, your capital was just around $200,000,000 And I know there's timing of the spend, but could we just get an update on where you think maintenance capital is going forward?

Betty Jiang
Betty Jiang
Senior Equity Research Analyst - US Integrated Oil and E&Ps at Barclays

And then what I'm really trying to get to is in an unconstrained permitting environment, once you take into account all these cost savings and synergies, how much lower could maintenance CapEx go versus what we thought before?

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

Betty, thanks for the question. It really highlights one of the reasons, one of the ways that we're different than the rest of the sector. We most companies lead by talking about drilling and type curves and how effective their fracs are. That's not CRC. At CRC, 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 very efficient capital in workovers in sidetracks.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

So we're doing all of that in the normal course. So then the question comes, okay, with an unconstrained permitting scenario, what would you do? 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. Part of it is because now that we're bigger and we have all these new assets to work with, 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 blocking and tackling of surveillance workovers and sidetracks is working extremely well.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

So to project that into the future, let's look at the inventory that comes in on a well permitted basis, the well mix and we'll be able to guide that on a go forward basis. What we said before is, it should take about six to eight rigs to keep production flat. But that 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 where we can start putting more capital to work.

Operator

The next question comes from Leo P. Mariani with Roth. Please go ahead.

Leo Mariani
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

Yes, hi. Wanted to follow-up a little bit here on the production. So looking at the second quarter guidance, looks like production is going to be down versus 1Q, slightly over 4%, using kind of 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 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 there's anything specific about the second quarter or maybe there's some maintenance or shut ins or whatnot.

Leo Mariani
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

I did see that in your slides you talked about $10,000,000 a day of production, which sounds like that's going to be going offline to kind of replace some field use gas. So just any more color on that would be helpful.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

Yes, Leo, thank you for the question. I think it's a very important clarification to make. So, yes, the production on a BOE basis steps down, but cash flow goes up at lower price, right? So how do we do that? Well, the reason is and there's a slide 13 on the deck that it's a new slide that we put to be able to highlight the dynamic that we have in place.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

Really the answer to the question, Leo, it goes to our power plant. So we have this combined cycle gas power generation that is very flexible power plant. It has flexible configuration. So the way we run it typically it's called a two by one. So that means it's two gas turbines for one steam turbine.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

That's in the normal course where we're sending the full capacity. In periods during the year, where in California, there's a big solar penetration with it displaces a lot of the baseload during parts of the day. So we have the ability and that's at our discretion to bring the plant to a one by one mode. So what that does is one, which is what you pointed out, it reduces the natural gas production, but the gas is actually still very, very useful. Instead of counting it as production, what we do is then we historically have been injecting that gas back into the reservoir if it didn't make sense to produce it.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

Now we have an alternative, another one of the benefits of the Era merger, where we can send that gas to Belridge. So remember, these are fields that are next to each other. And by sending that gas to Belridge, we accomplished two things. One, that gas saves us OpEx energy cost at Belridge, so we're buying less gas from third parties at Belridge instead we're moving our non spec gas north. And then also by going to a one by one configuration, we're able to save OpEx on the plant itself.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

So what you have is a situation where yes, optically you're seeing net production BOEs, which is about 10,000,000 a day of gas go down. But what you're seeing also at the same time is increased cash flows by reducing your cost. And because our view is we're here to maximize value on cash flow and not production, it's a very, very easy choice to make as we have this kind of redundant system where we can send the gas to the optimal use.

Leo Mariani
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

Great. Appreciate that thorough answer. Now, just jumping over to the 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 EIR in kind of Kern County sort of stands today? My understanding was I think that maybe the public comment period is maybe recently kind of wrapped up.

Leo Mariani
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

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 near term?

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

Yes, clear. Thanks for the question. On permitting, it's really been a tremendous highlight. We're very encouraged by the progress being made on the permitting front. And the focus has been on the EIR.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

But as we talked about before, we have multiple alternatives in motion, which we think all of them will work into the future. So we're very optimistic first of all because we have what we need in terms of sidetracks and workovers. We've reached what I would say is a regular way process and have all the permits that we need for 2025. We're building inventory into 2026 for our drilling program. Specifically, as it relates to the Kern County EIR, litigation process continues, but the county is expected to adopt a revised EIR later in the year to address the deficiencies identified by the court.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

So we expect some resolution and progress towards the second half of the year. 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 proof on developed reserves in four fields and we're developing a field specific permitting process around those. So I would say, if you look at it as a whole, if you step back from the specifics on EIR and kind of what's out in the public domain, if you step back, we have a very constructive dialogue with multiple agencies. There's a need for more local production. I think there's a much better understanding than in the past that the solution to affordability and cutting emissions is local production.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

And we want that to be a CRC barrel. So this year, decided even if we get a lot 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'll be ready to go.

Operator

The next question comes from Phillips Johnston with Capital One. Please go ahead.

Phillips Johnston
Senior E&P Analyst at Capital One Securities, Inc

Thanks for the question. Just wanted to clarify the wording in the press release regarding the potential PPA. It read that you guys are engaged in discussions with multiple large scale industrial customers for PPA. Francisco, it sounds like from your comments on the call here that doesn't imply that you're no longer negotiating with other types of potential counterparties. Am I hearing that right?

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

Hey, Phillips. Thanks for clarifying. So we're very much focused on data centers as the off taker for Elk Hills power 200 MW plus. The implication around incremental industrial players really is more about new inbounds that are also looking for clean baseload power. We were California short power in short baseload power.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

And I think we've seen a lot of examples globally what happens if you have an over dependence on renewables. So we have similar dynamics here. And the interest level on what's one of the most efficient plants in the state of California that can be turned into with a carbon capture into a low carbon to no emission plant. It's a very interesting proposition that goes beyond data center. So 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 data centers, both hyperscalers and co locators.

Phillips Johnston
Senior E&P Analyst at Capital One Securities, Inc

Okay. That sounds great. Clio, you noted the share buyback was really strong in the first quarter and was basically 2x the pace as what you bought back in the prior two quarters. Can you maybe talk about what you're thinking about in terms of the pace of buybacks going forward?

Clio Crespy
Clio Crespy
Executive VP & Chief Financial Officer at California Resources

Hi, Phillips. Happy to give you a bit more context around our decision around in Q1. And obviously, that's going to give you color effectively on how we prioritize our buybacks and how we consider them versus our other capital opportunities. So we see great value in our equity and we're committed to retaining and returning shareholder increasing those shareholder returns. So we saw a clear value dislocation in our stock in Q1 and we were in a strong position to act decisively.

Clio Crespy
Clio Crespy
Executive VP & Chief Financial Officer at California Resources

As a reminder, by the year end 2024, we had rebuilt a cash balance that was over $350,000,000 We had done that in six months after the Era merger closed and we took steps to delever in February. So we redeemed $123,000,000 of our 26 notes and that demonstrated our commitment to balance sheet strength and also our disciplined capital management. But with the excess cash, share repurchases were the most compelling use of capital at the time to really drive long term shareholder value. And if you put this into perspective, since the Era merger closed in July, 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. So this really further enhances what was already a highly accretive deal and I'd say it underscores our disciplined value focused approach to capital allocation.

Clio Crespy
Clio Crespy
Executive VP & Chief Financial Officer at California Resources

Now if I look forward, Philippe, to your comment, well, yes, we remain opportunistic in our approach. We'll 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.

Operator

The next question comes from Nitin Kumar with Mizuho. Please go ahead.

Nitin Kumar
Nitin Kumar
Senior Analyst at Mizuho Financial Group, Inc.

Hey, good afternoon guys and thanks for taking my question. I want to you talked about the cost savings, but the electricity margin guidance for the year increased quite substantially. Just wanted

Nitin Kumar
Nitin Kumar
Senior Analyst at Mizuho Financial Group, Inc.

to dig into that a

Nitin Kumar
Nitin Kumar
Senior Analyst at Mizuho Financial Group, Inc.

little bit and see is that better pricing or lower costs or a combination?

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

Hey, Nitin. So as I was explaining that how we manage the power plant. So the way to think about the margins is where merchant power prices fluctuate and we're solving for that by going into from a two by one to a one by one operation. The resource adequacy, which is what we call in California the capacity program that is fixed, that's contracted. And so that as we've been talking about, it's $150,000,000 for 2025.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

So when you see an expansion in the margins, that means that the steps that we also are taking on the going to buy one by one So it's the combination of how we might manage the merchant aspect of it, plus the incremental value that we're seeing in the contracted aspect of RA.

Nitin Kumar
Nitin Kumar
Senior Analyst at Mizuho Financial Group, Inc.

Great. Thanks. I'll leave it there.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

Thanks, Nathan.

Operator

The next question comes from Noel Parks with Tuohy Brothers Investment. Please go ahead.

Noel Parks
Managing Director - Energy Research at Tuohy Brothers Investment Research Inc

Hi, good afternoon. Just a couple of things. So you mentioned earlier that we should be able to look for some new program announced programs announced for Carbon TerraVault later this year.

Noel Parks
Managing Director - Energy Research at Tuohy Brothers Investment Research Inc

I'm just wondering, can you

Noel Parks
Managing Director - Energy Research at Tuohy Brothers Investment Research Inc

just maybe sort of characterize the agreements and or the process to getting there? And just if you can just give us an idea of what does the home stretch look like in getting to some of these deals?

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

Hey, Noel. So yes, the right now the focus for carbon terrible is executing on our first project. We're breaking ground in a few weeks. Really important that we get that first project underway. We're looking to have CO2 injected by the end of the year, this year, which means first cash flow for CCS in all of California.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

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 in the Q4 for a couple of years that should be getting very close to final issuance at least in draft form. So that will increase the port space that's permitted and really expand that capacity that we have in the state. What we've seen is as we take what we get the first of a kind permits in the state as we make progress, more and more interest comes 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 will be around a lot of our northern reservoirs close to the Bay Area where we have a lot of potential customers where from existing power sources or new power sources in particular, there's other industrial customers that are going to look for solutions to bring their emissions to some of our fields.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

Remember in California, we have a forcing mechanism beyond the incentives, which is a growing carbon tax. So from a financial perspective, it makes sense for these companies to be looking to store away that CO2 and we want to be ready for that market opportunity. So I would say the announcements or the progress that you'll see on both permits and emitters to start moving. We have had a lot of focus on the Central Valley in California. This should start moving up north.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

That's what we're looking to expand and that's where the team is focused next.

Noel Parks
Managing Director - Energy Research at Tuohy Brothers Investment Research Inc

Great. So is it fair to say that since carbon capture, carbon sequestration is going to be new in the state and is new generally at scale, is it just that there's a little bit of a standoff on the one hand, there's a recognition of the importance and the benefits and there is interest out there, but there I guess isn't enough of a sense of urgency to make customers afraid that they're all going to have to crowd through the door at the same time. And so I guess I'm saying, so the awareness that the available porous space, though the largest finite isn't enough to make people maybe be more aggressive about committing to taking up the capacity you have?

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

Yes, maybe to reframe the question a little bit. I don't necessarily agree with the view that how you frame the question around any sort of delays. It is a new business. It's a new opportunity. We're making tremendous progress.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

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 aspects to cover and we have both figuratively, we have a big pipeline of emitters. We also are working on physical pipelines, That's the part that our focus has been to really unlock and the scale of the businesses. There's never been a need to transport CO2 in California. So now that there is a need and there's a market need and there's a government ambition, then we need to get those pipelines permit.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

That takes time, that takes time a year, that takes time in any basically in any state. But we're seeing a lot of progress. We're actually very optimistic about the momentum on CO2 pipelines. We're getting both the Senate and the Assembly have bills in the California legislature where they're posing the framework by which we're going to be able to use retrofit CO2 pipelines in the state. So I look for that, that's a big catalyst for the CTV business.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

We feel the momentum is there and the moratorium should be lifted later this year. There's a lot of support and a lot of interest both from the market and from regulators to be able to flow CO2 soon. So once that unlocks, then the ability to talk about emitters, we're able to talk about the business model is going to start crystallizing a lot more, but we need that physical connectivity that comes with two pipelines being approved.

Operator

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
Francisco Leon
President, Chief Executive Officer at California Resources

Great. Thank you so much. We're looking forward to seeing you. We're going to do several conferences throughout the summer. But thanks again for listening and have a good day.

Francisco Leon
Francisco Leon
President, Chief Executive Officer at California Resources

Thanks.

Operator

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

Executives
    • Joanna Park
      Joanna Park
      Vice President of Investor Relations, Treasurer
    • Francisco Leon
      Francisco Leon
      President, Chief Executive Officer
    • Clio Crespy
      Clio Crespy
      Executive VP & Chief Financial Officer
    • Omar Hayat
      Omar Hayat
      Executive VP & Chief Operating Officer
Analysts
    • Scott Hanold
      Managing Director - Energy Research at RBC Capital Markets
    • Josh Silverstein
      Managing Director at UBS Group
    • David Deckelbaum
      Managing Director: Sustainability & Energy Transition at TD Cowen
    • Nate Pendleton
      Vice President at Texas Capital
    • Betty Jiang
      Senior Equity Research Analyst - US Integrated Oil and E&Ps at Barclays
    • Leo Mariani
      Managing Director, Senior Research Analyst at Roth Capital Partners, LLC
    • Phillips Johnston
      Senior E&P Analyst at Capital One Securities, Inc
    • Nitin Kumar
      Senior Analyst at Mizuho Financial Group, Inc.
    • Noel Parks
      Managing Director - Energy Research at Tuohy Brothers Investment Research Inc

Key Takeaways

  • CRC’s merger with Era remains on track, having captured 70% of its $235 million annual synergy target and expecting to achieve full run-rate savings by early 2026.
  • In Q1, CRC delivered a solid beat with flat 141,000 BOE/d production, realized prices at 98% of Brent, Adjusted EBITDAX of $328 million, net cash flow of $252 million and free cash flow of $131 million, while cutting operating costs by 5% versus guidance.
  • The company’s cash flow is underpinned by a diversified strategy with approximately 70% of oil and natural gas production hedged and strong power and gas marketing margins, supporting breakeven Brent prices down to ~$34/bbl.
  • CRC maintains a strong balance sheet with leverage below 1×, over $1 billion of liquidity and nearly $200 million in cash, and returned a record $258 million in Q1 via dividends, $100 million in share buybacks and debt redemption.
  • On the low-carbon front, CRC is breaking ground on its first Elk Hills CCS project with injection planned this year, expanding Carbon TerraVault storage permits and advancing power-purchase discussions with AI data centers for gas-to-power with carbon capture.
AI Generated. May Contain Errors.
Earnings Conference Call
California Resources Q1 2025
00:00 / 00:00

Transcript Sections