Yahoo Finance California Resources Corporation (NYSE:CRC) Q1 2024 Earnings Call Transcript
California Resources Corporation (NYSE:CRC) Q1 2024 Earnings Call Transcript May 8, 2024
California Resources Corporation isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day and welcome to the California Resources Corporation First Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would like now to turn the conference over to Joanna Park, Vice President of Investor Relations and Treasurer. Please go ahead.
Joanna Park: Welcome to California Resources Corporation's first quarter 2024 conference call. Prepared remarks today will come from our President and CEO, Francisco Leon and our CFO, Nelly Molina. Following our prepared remarks, we will be available to take your questions. Please limit your questions to one primary and one follow-up. Our remarks today include forward-looking statements based on current expectations. Actual results may differ materially due to factors described in our earnings release and in our SEC filings. We undertake no obligation to update these statements as a result of new information or future events. We will also discuss our pending merger with Aera. We encourage you to read our definitive merger proxy statement issued on May 7th, 2024, as it contains important information.
Copies of this and other relevant documents will be available on our website and the SEC's website. Additional information about the individuals participating in our proxy solicitation, such as our directors and officers, and their interests will be provided in our merger proxy statement. Last night, we also provided information reconciling non-GAAP financial measures discussed today to the most directly comparable GAAP financial measures on our website. We also issued our earnings release and a new quarterly presentation. I'll now turn the call over to Francisco.
Francisco Leon: Thank you, Joanna. Welcome, everyone and thanks for joining us. During our first quarter in 2024, we continued our strong operational execution from 2023 and made good progress on our long-term goals. We hit the ground running with the announcement of our pending Aera merger. We remain focused on closing this transaction and have passed key milestones such as the HSR waiting period and the filing of the definitive proxy statement with the SEC and are tracking toward a mid-year 2024 close. This highly accretive transaction builds scale, strengthens the durability of our conventional business and significantly expands our carbon management opportunities to solidify CRC's differentiated strategy and advantage position.
We remain confident in our ability to execute our strategy, and deliver sustainable free cash flow to our shareholders and low carbon intensity energy to Californians. For today's discussion, I'll be highlighting a few key topics: one, the strength and quality of our assets and operational excellence of our team; two, an update on the Aera merger and how it will unlock incremental shareholder returns and three, our advantage position to provide the energy and decarbonization solutions California needs. So, let's begin. During the quarter, gross production remained flat entry to exit while operating a one-rig program demonstrating the strength of our asset base. Our portfolio consists of conventional reservoirs with stable and low-decline production profiles associated with water floods and steam floods, in contrast to unconventional reservoirs with high initial production followed by steep declines.
Conventional reservoirs also lend themselves to significant workover potential, which provides an efficient means to bring on production at a fraction of the cost of the new well. In addition to workovers, our operations team performed well maintenance and artificial lift optimizations that helped offset the production decline even further. As such, CRC was able to invest just $22 million in the first quarter in drilling and workover capital to achieve this result. Our large base of PDP production also provides predictability in cash flow and financial stability. Our business generated $149 million in adjusted EBITDAX and delivered $33 million in free cash flow. These strong financial results set the foundation for our strong distributed $79 million to shareholders via dividends and buybacks, and nearly $95 million through April.
The total cash payout from this initiative implies an annualized yield of approximately 8%. We currently have $675 million remaining on our share repurchase program and our board intends to evaluate further increases to our dividend following closing of the Aera merger. As we look forward, we remain focused on providing much needed local energy for today, as well as lower carbon intensity energy and carbon solutions for the future. Total capital investments for 2024 are expected to range between $200 million and $240 million running a one-rig program for the remainder of the year. Similar to 2023, this year's program is expected to deliver entry to exit net production decline of 5% to 7%. At this point of the year, we have not seen sufficient improvement in the permitting process to support the multi-rig drilling program and expect to maintain lower activity throughout the balance of the year.
As an update on the Kern County EIR, in March, the court ordered the county to prepare a revised EIR that should address three key items, mitigation of agricultural impacts, health assessments and water supply analysis. We currently expect the county to certify a revised EIR and adopt a revised zoning ordinance around year-end 2024 and estimate that the stay on drilling could be lifted by the trial court sometime in the second half of 2025. Separate from Kern County's efforts, our team continues to work diligently toward progressing alternative paths to navigate these delays. Slide 18 of our deck details these pathways. First, our current approvals allow us to support a one-rig program through 2025. Second, the county can meet CEQA requirements by approving conditional use permit and conducting a field-level CEQA review, which would form the basis for a new drill permits to be issued.
Third, our broad footprint in and outside of Kern County allows for multi-basin development. We are targeting a potential return to an increased level of activity in the second half of 2025. Moving to Aera. we remain focused on closing the merger. We expect this transformational transaction to create significant scale and asset durability to meet California's growing energy needs. Aera's conventional assets are similar to CRCs with low royalty burden and multi-stock producing zones with 10% to 13% corporate production declines before capital. The transaction also expands our leading carbon management platform, adding premium pore space and co-located CO2 capture opportunities that further strengthened our ability to help the Golden State meet its ambitious climate goals.
We remain confident in our ability to deliver $150 million in annual synergies from the combined businesses and create meaningful long-term value for our shareholders. To-date, the CRC and Aera teams have worked together to identify meaningful synergies around G&A, supply chain and infrastructure optimizations. This great work gives us a path to deliver $50 million of these run rate synergies within six months of closing. We are targeting to close the transaction in mid-2024 and will provide more detailed guidance post-close. Regarding the sustainability of our business, we recently received a Grade A certification through MiQ’s Methane Emissions Performance Standard from our operating assets in Los Angeles and Orange Counties. This rating highlights CRC's dedication to high sustainability standards, continuous monitoring and methane reduction in our operations.
As a reminder, we set an initial goal to lower methane emissions by 50% from our 2013 baseline by 2030. We surpassed this goal in 2018, 12 years ahead of schedule. We then set a new goal in 2022 to further reduce methane emissions by 30% from our 2020 baseline also by 2030. CRC's methane reduction goals and execution exceed the 2030 goals that California has set for the state. Turning to Carbon TerraVault. on March 28th, Kern County announced that based on the comments received during the public comment period, our CTV 1 permit will require further environmental review and the county recommended continuation of the process to the August 22nd Planning Commission hearing this year. As a reminder, the EPA and Kern County have worked hand in hand on advancing this first of a kind permit in California in a matter that complies with California's environmental standards, which are undoubtedly the highest in the U.S. The comments received were a result of our four joint EPA, Kern County public workshops that were voluntarily held to maximize the opportunity for public comment.
These workshops along with EPA's voluntary extension of the public period from 45 days to 90 days facilitated the desired engagement with the public in the permitting process. The natural outcome of which is not unsurprisingly the need for more time to consider those comments. CTV supports this approach, as it sets the goal standard for CCS permitting. And as previously communicated last quarter, we continue to expect the final EPA and Kern County permits in the second half of 2024, enabling us to meet our target FID on CTV 1 in the same window, and begin CO2 sequestration by the end of 2025. And now, let me turn the call over to Nelly to cover our first quarter performance and second quarter 2024 guidance in more detail. Nelly?
Nelly Molina: Thanks, Francisco. In the first quarter of 2024, we generated $54 million of adjusted net income or $0.75 per diluted share. We produced 76,000 barrels of oil equivalent per day and 48,000 barrels of oil per day, all within our guidance range. Results reflected a strong execution of our operations team amidst a scheduled major maintenance at our Elk Hills power plant. The scope of the turnaround was expanded and the longer downtime impacted gas sales volumes beyond initial guidance, but allowed for the maintenance to increase reliability at nominal impacts to cash flow. The power plant resumed operations back in early April. Production volumes also reflected the divestiture of our share of non-operated field at Round Mountain, as well as natural decline.
Moving to cash flows. first quarter net cash from operating activities was $87 million. Our total capital invested during the quarter was $54 million with workover capital expenditures of $22 million. We generated $33 million in free cash flow during the quarter. We maintain our strong balance sheet with $880 million of liquidity, which includes $403 million of cash and $477 million of available borrowing capacity under our revolver credit facility. We ended the first quarter with a leverage ratio of 0.2 times. In March and in connection with the Aera merger, we secured a commitment to increase our borrowing base from $1.2 billion to $1.5 billion and increased our revolver elective commitment from $630 million to $1.1 billion. Those increases will become effective upon the merger closing and will improve our liquidity by $470 million.
We are committed to preserving a solid balance sheet and believe we have financial flexibility to deliver on our strategic objectives. Turning to second quarter, gross production is expected to average around 93,000 barrels of oil equivalent per day, reflecting modest natural declines. Net production is expected to range between 74,000 and 78,000 barrels of oil equivalent per day and 61% oil. We anticipate sequential quarterly net production to remain relatively flat due to the softer natural gas pricing environment and growing seasonal supply of solar power. These will result in less natural gas sold and consumed at our Elk Hills power plant. Let me remind you that our net production volumes represent our sales volume and can fluctuate based on market conditions, whereas gross production reflect the actual reservoir capability and performance.
We expect to deploy $50 million to $57 million in capital in the second quarter and we'll continue to focus on operating efficiencies. With that, I'll pass it on to Francisco for his final remarks.
Francisco Leon: Thank you, Nelly. In conclusion, I'm proud of the accomplishments of the entire organization. Over the next 18 months, our efforts will focus on the closing and integration of the Aera merger, while unlocking our targeted synergies. The CRC team is excited to work closely with the Aera team to build a stronger California-focused organization, combining the best that both teams have to offer. Aera is a great company and their execution over 25 years is a testament to the great people that work there. I am optimistic about our E&P business and our ability to return to an increased level of drilling activity in the second half of 2025. I am also encouraged by the progress made by the CTV team, clearing key milestones towards California first ever CO2 injection permit.
CRC is well positioned to generate competitive returns, decarbonize California's hard-to-abate sectors and deliver sustainable cash flow for years to come. Thanks for your time today. Operator, please open the lines for questions.
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