Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Successful merger with Aera, doubling daily production volumes and increasing average net revenue interest to 90%.
- Strong cash flow growth, with a mid-10s cash flow per share growth from 2021 to 2023 and a 25% increase in dividend per share.
- Significant cost savings and synergies from the merger, with $235 million in total synergies expected over the next 15 months.
- Expansion of carbon management business, with over 300 million tonnes of CO2 under permit review and new projects in the pipeline.
- Solid financial performance in Q2 2024, with $139 million in adjusted EBITDAX and $63 million in free cash flow, driven by consistent base production and higher-than-expected oil sales.
Negative Points
- Permitting headwinds in California, which could impact future growth and operational efficiency.
- Recent economic developments have created a riskier outlook for the domestic and global economy, emphasizing the need for sustainable earnings.
- Ongoing integration costs and merger-related expenses, which will continue to impact financials in the near term.
- Dependence on regulatory approvals for carbon management projects, which could delay execution and impact timelines.
- Potential challenges in maintaining production levels without incremental permits, relying heavily on workovers and sidetracks.
Q & A Highlights
Highlights of California Resources Corp (CRC, Financial) Q2 2024 Earnings Call
Q: Can you discuss the economics of the CTB assets in relation to the carbon-free data center opportunity?
A: Francisco Leon, CEO: The CTB assets are strategically positioned to service emissions from the Bay Area, San Francisco, and Sacramento. The existing infrastructure is crucial for attracting data centers, which require 24/7 baseload power. We are exploring various power solutions, including combined-cycle facilities and other technologies like fuel cells and geothermal. The economics remain favorable, and we are confident in our pricing for storage-only projects.
Q: How do you see activity on the combined asset base with Aera, and what is the status of oil and gas permits?
A: Francisco Leon, CEO: We are confident in our one-rig inventory and the ability to deliver mid-single-digit declines even without new permits. The focus will be on workovers and sidetracks. We expect to maintain production stability and have a line of sight to improved permitting by the second half of 2025.
Q: What are the potential outcomes of data centers for your business, particularly in terms of volume growth?
A: Francisco Leon, CEO: California imports 80% of its natural gas, and local production is crucial. Data centers will require reliable baseload power, and our existing infrastructure can meet this demand. We are well-positioned to service these needs, and local production should be preferred due to its lower methane emissions and responsible sourcing.
Q: What are the decision drivers for moving forward with the Cal Capture project, and how does it tie to power purchase agreements?
A: Francisco Leon, CEO: The Cal Capture project involves retrofitting our Elk Hills power plant for carbon capture. The decision will depend on cost estimates, federal and state incentives, and long-term power purchase agreements. We are in the price discovery phase and will provide a comprehensive update once all variables are addressed.
Q: What are the calls on your free cash flow for the next several years?
A: Francisco Leon, CEO: We have returned $894 million to shareholders since 2021 and plan to continue this trend. We are committed to a fixed dividend model and share buybacks, especially at current trading levels. We aim to maintain a 0.5 turn net leverage and will preserve cash for potential debt repayment or refinancing.
Q: What is the latest cost estimate for the Cal Capture project, and how do you plan to fund it?
A: Francisco Leon, CEO: We haven't disclosed the cost estimate publicly. We are evaluating both cost and revenue drivers, including incentives and power purchase agreements. We see growing support from private equity and traditional lending for decarbonization projects.
Q: Can you provide more details on CTV.6 and its anticipated timeline for EPA approval?
A: Francisco Leon, CEO: CTV.6 is centrally located in California and has ample opportunities for both brownfield and greenfield emission sources. The timeline for EPA approval is consistent with other projects, and we hope overall timelines will compress as we gain more experience.
Q: How did you arrive at the specific fixed dividend, and will it grow over time?
A: Francisco Leon, CEO: We aim to provide a competitive yield compared to other E&P companies. Our low capital intensity assets support a growing fixed dividend model. We have consistently increased our dividend and plan to continue this trend.
Q: What is the current status of the 3,200-foot setback regulations and CO2 pipeline infrastructure in California?
A: Francisco Leon, CEO: The 3,200-foot setback regulations have no significant impact on our portfolio. We are working towards a stable regulatory pathway for CO2 pipeline infrastructure, which is crucial for scaling our carbon management business.
Q: Can you clarify the revenue streams for your electric generation business?
A: Jay Bys, Chief Commercial Officer: The revenue streams include energy sales and resource adequacy (RA) payments. For 2024, RA payments are approximately $104 million, increasing to over $150 million in 2025. Energy contributions vary based on market conditions, but RA remains a significant revenue source.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
