California Resources (CRC) - 2022 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Adjusted net income for Q2 2022 was $1.13 per fully diluted share, consistent with the prior quarter, and free cash flow generated was $83 million [9] - Total production averaged 91,000 BOE per day, an increase of 3,000 barrels from 88,000 BOE per day in Q1 2022 [9] - EBITDAX guidance for the full year was raised by 2%, and free cash flow guidance was increased by 10% [15][16] Business Line Data and Key Metrics Changes - Production was positively impacted by the return of the CGP1 plant, contributing an additional 5,000 BOE per day [10] - Production was negatively affected by asset divestitures (approximately 800 BOE per day) and PSC FX (1,000 barrels per day) [10] - The company experienced cost pressures in certain categories, particularly in well workovers and surface operations [12] Market Data and Key Metrics Changes - Average realized price for oil was $63.17 per barrel, while NGL pricing was $68.29 per barrel, significantly higher than oil prices [11] - Natural gas prices strengthened, with CRC realizing $6.72 per MCF, representing 103% of NYMEX [11] Company Strategy and Development Direction - The company is focused on shareholder returns, having returned over 134% of free cash flow generated year-to-date through dividends and share repurchases [16] - A partnership with Brookfield was established to advance carbon management projects, targeting the injection of 5 million metric tons per year [8][19] - The company aims to achieve net zero emissions by 2045, with a long-term goal of 1 billion tons of potential storage across its portfolio [59] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the operational execution amidst inflationary pressures and litigation challenges [6][10] - The company anticipates strong free cash flow in the second half of the year, driven by higher revenues from Lost Hills Power and stronger natural gas realizations [17] - The ongoing litigation regarding the Current County EIR is expected to be resolved by the end of the year, which will impact future drilling programs [41][42] Other Important Information - The company increased its capital program for 2022 to a range of $380 million to $410 million, including investments in carbon management [15] - The partnership with Brookfield is expected to optimize capital allocation and improve returns through project financing [62] Q&A Session Summary Question: Can you provide insight on the JV with Brookfield and its implications for the carbon management business? - Management indicated that Brookfield's $10 per ton contribution sets a value for the pore space, establishing a baseline for the carbon management business [29][30] Question: What is the pathway to resolution for the Current County EIR litigation? - Management noted that the litigation is ongoing, with a resolution expected by the end of the year, which has necessitated adjustments to the drilling program [41][42] Question: How will the $500 million from Brookfield be utilized within the JV? - The funds will be allocated towards pore space acquisition and capital investments in capture equipment and infrastructure [43][44] Question: What is the potential for additional projects beyond the initial 200 million tons? - Management stated that the long-term goal is to achieve 1 billion tons of storage, with plans to continue filing permits beyond the initial target [59]