California Resources Corporation

Good afternoon and welcome to the California Resources Corporation third quarter earnings conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note This event is being recorded. I would now like to turn the conference over to Scott Espenshade. Please go ahead.

Thank you. I'm Scott Espenshade, Senior Vice President, Investor Relations. Welcome to California Corporation's third quarter conference call. Participating on today's call is Todd Stevens, President and Chief Executive Officer of CRC, and Francisco Leon, Executive Vice President and Chief Financial Officer, as well as several members of the CRC executive team. I'd like to highlight that we have provided slides in our investor relations section on our website at www.crc.com. These slides provide additional insight into our operations and third quarter results plus additional information. Also, information reconciling non-GAAP financial measures discussed to the most directly comparable GAAP financial measures is available in the investor relations portion of our website and in our earnings release. Please note that our third quarter information is being issued as a debtor in possession and our emergency share count and basis of accounting will change due to CRC implementing fresh start accounting in the fourth quarter. As a result, the fourth quarter results will not be comparable to the third quarter. As a reminder, we officially withdrawn any and all guidance that relates to 2020 in our operations due to our emergence in the fresh start accounting. Today's conference call contains certain projections and other forward-looking statements. within the meetings of federal security laws. These statements are subject to risk and uncertainties that may cause actual results to differ from those expressed or implied in these statements. Additional information on factors that could cause results to differ is available on the company's 10-Q, which will be filed later today. We'd ask that you review it in the cautionary statements in our earnings release. A replay and a transcript will be made available on our website following today's call and will be made available for at least 30 days following the call. I will now turn the call over to Todd.

Thanks, Scott, and thank you to everyone for attending CRC's third quarter earnings call. We're glad to be back reporting our results and look forward to discussing the significant value opportunity within CRC. CRC has always had a low decline, stable, high margin, world-class asset base to deliver affordable, reliable, and sustainable energy to Californians. With Chapter 11 behind us, CRC now has a strong balance sheet and one of the best leverage ratios in its peer universe. Even in the face of market volatility, we are exceptionally well situated to thrive and create substantial value for our shareholders. First, I want to acknowledge and welcome our new board of directors, whose members share our values of character, responsibility, and commitment. The board has already shown keen insight into our business, market dynamics, and governance. We're excited to work with the board in setting CRC's strategy to create and deliver value for investors in 2021 and beyond. For those of you who are new to CRC, let me give a short introduction as we are quite advantaged over most companies in our sector. CRC is a differentiated energy business known for our low-decline conventional oil production, low capital intensity, and exposure to the Brent crude oil markets, which benefits our realized pricing. In addition, CRC has an integrated midstream infrastructure, highly efficient power plants, successful marketing and trading function, and an enviable suite of sustainability projects that strengthen our ability to generate free cash flow while enhancing our capability to operate safely and productively in California. We are now unburdened from the capital structure imposed upon us by our former parent at our spin almost six years ago. Not the way we wanted to get here, but hey, we're here. With a new and much stronger balance sheet, you can expect CRC to build on the strengths of our underlying business. Our low-decline capital-efficient assets provide a high degree of operating flexibility, which enables us to consistently operate within cash flow and maintain a disciplined focus on return on investment capital through our value creation metrics. With a solid financial foundation, we are confident that we have the right portfolio and team in place to deliver value to our shareholders. Our simplified balance sheet, combined with our disciplined capital allocation, phenomenal assets, and strong relationships in California positions us well to succeed through the commodity price cycles and meet consumer needs and investor priorities. We invite you to track our efforts to drive down costs, maintain a strong balance sheet, and deliver solid returns and cash flow. Let me first talk about our new balance sheet. Our restructuring process has simplified our balance sheet and eliminated the midstream JV at Elk Hills. Additionally, we've also taken the opportunity to further improve and optimize CRC's cost structure to be competitive and profitable in the current Brent price environment. Our balance sheet and credit metrics now reflect a crossover credit right on the crest of the investment grade that matches our high-quality portfolio of assets. We will continue to utilize our capital discipline to maintain this strong financial foundation, which we believe is a major differentiator for CRC. Through 2020, we flattened CRC's cost structure and made it leaner. All told, cost-cutting efforts have achieved a reduction of well over $300 million in lower production costs and G&A. annualizing the difference between the third quarter of 2019 and 2020. These actions promote our ability to operate profitably in a $40 Brent environment, maintain crude oil production, and deliver free cash flow. However, we are never satisfied. We'll continue to focus on ways to decrease our cost structure, enhance our revenues, and drive further efficiency. Our unique asset base provides CRC and our new board with multiple levers to drive free cash flow for the company as we develop our 2021 investment plan. We have also continued to demonstrate strong capital discipline. Year-to-date, we have invested a total of $131 million with $37 million of CRC capital and $94 million of capital from our joint venture partners. The vast majority of that amount was invested during the pre-pandemic period with only $7 million of internally funded capital invested in the second and third quarters. We will have limited capital investment in the fourth quarter. Let me now give you a deeper dive into what we see as the major investment attributes of CRC's business and the elements of our strong and sustainable foundation. First, we have reinforced our longstanding value focus. We have maintained the same CRC DNA that investors have come to respect over the past six years. We'll continue to live within our cash flow, focus on reducing costs, enhance margins, and utilize our VCI metric, which supports disciplined capital allocation to generate attractive returns on investment through the cycle. Recall that our value creation index is a cash-on-cash return metric or present value index that we utilize to test every new investment we consider, ensuring we are maximizing returns. In this commodity price environment, we rely heavily on payback metrics as well. As the largest producer in California with over a 2 million acre land position, we are well situated to focus on growing value from the Golden State's prolific yet underdeveloped resource base. Our diverse portfolio of low-decline assets with low capital intensity uniquely positions us to generate strong cash flow. Second, these are assets we know exceptionally well. CRC's business encompasses all four major productive bases in California with integrated operations that provides a unique opportunity set and synergy for sustainable operational excellence. We operate in world-class oil fields where our highly skilled team deploys technological innovations to deliver value through primary, secondary, and enhanced oil recovery. The state's recent energy supply challenges and its over-dependence on imports reinforces the value of our resource portfolio and infrastructure for the world's fifth largest economy. Finally, CRC's culture is built upon a commitment to ESG leadership, which is detailed in our third annual sustainability report that we released last month. This report illustrates the longstanding commitment and dedication of our workforce to apply ingenuity and technology to meet Californians' needs for sustainable, affordable, and reliable energy, and to contribute to our communities. This report also summarizes our progress on our 2030 sustainability goals for carbon, methane, water, and renewables, which aligns us with the state's climate goals. As I noted, CRC has an industry-leading portfolio of sustainability projects, and our 2019 climate disclosure was recognized by CDP earlier this year with an A- ranking at their leadership level. I encourage you to read our sustainability report. Our 2030 sustainability goals aren't mere aspirations. Achieving annual sustainability project milestones and HES metrics is directly tied to the annual incentive compensation of our management and workforce. We believe CRC's sustainability strategy exemplifies ESG leadership that is directly aligned with the state of California. Further, I want to provide a specific example from the third quarter that demonstrates the diligence of our workforce. in helping our fellow Californians overcome the current challenges. In August, California was hit with a heat wave and significant wildfires that jeopardized the state's electricity supply. Our operations team responded rapidly by restarting a dormant cogeneration plant and reducing our electricity demand during peak demand hours to conserve electricity for our communities. Our state's challenges with energy liability have shined a spotlight on California's needless dependence on imports for more than 70% of our oil, 90% of our natural gas, and nearly a third of our electricity. To meet California's climate goals, we believe it is essential for California leaders to apply the same safety, labor, and environmental standards on the production of imported energy that we adhere to in every day in our operations. Doing so would ensure that California's leading policies and ambitious goals improve the global environment and would encourage more producers worldwide to implement leading sustainability goals and ESG practices like CRCs. I would like to thank all our employees for their dedication, focus, and efforts throughout 2020. They have simultaneously preserved and protected the business and delivered significant cost savings while maintaining record safety performance during the pandemic. I'm particularly proud of our plant and field workers who have delivered every day the energy that is needed day in and day out during this challenging year. I'd also like to thank all of California's essential workers who continue to meet our state's daily needs for food, water, medical care, and energy. As economies are struggling to restart around the world, we have seen a partial return of petroleum demand, but it is a long road to full recovery. We anticipate that progress on COVID-19 vaccines or treatment will eventually restore economic activity and further support petroleum demand, particularly for jet fuel. While we don't expect improvement in crude oil prices heading into 2021, The curtailment of capital investment in the sector across the globe should eventually balance supply and demand. We'll continue to apply our VCI and payback metrics in evaluating our investment alternatives in this price environment. At this point, I'd like to introduce Francisco Leon to many of you at CRC's new CFO. Francisco has been with CRC and its predecessor for over 15 years and has served in many roles, most recently as EVP of Corporate Development and Planning. I've worked with Francisco for many years, and I feel that his skillset in capital allocation and value creation will be a major plus in his new role as CFO. He has been an instrumental part of our restructuring and our cost reduction efforts. Francisco will summarize the core elements of our emergence and third quarter results.

Thanks, Todd. Good afternoon, everyone. First of all, I am honored to participate in this call as CRC's new CFO, and I'm grateful to help lead this tremendous organization of women and men who continue to showcase the resilience of our assets. We will continue to provide safe, affordable, and reliable energy for California by using our technological innovation and our environmental leadership. We began trading on the New York Stock Exchange with the CRC ticker on October 28th after emerging from our restructuring process, the details of which I will elaborate on shortly. As Todd noted, CRC Solid Foundation encompasses our strong financial fundamentals, discipline value focus, sustainable operational excellence, and ESG leadership. Our financial performance will be defined by our continued capital discipline, return-driven asset development, and integration of our cutting-edge sustainability projects into our core oil and gas operations. Even after emerging with peer-leading balance sheet metrics, we are not done strengthening our balance sheet. In fact, we will target at least a one-time leverage profile, even in the current price environment. I would like to provide high-level details of our restructuring process that was completed in three short months during the pandemic. Today, we have approximately 83 million shares and 4 million warrants in total with a four-year term. These warrants have an exercise price of $36. As Todd mentioned, we view ourselves as a crossover credit. Our emergence, we had $535 million of net debt consisting of a $300 million note with Ares, which is secured by our Elk Hills Power Plant and associated gas processing facilities, and a $200 million secondary note with the remainder on our revolver. Our RVL has a commitment level of $540 million, providing ample liquidity of $350 million at emergence. Our simplified balance sheet will significantly improve our ability to generate free cash flow. We conducted a thorough review of our costs during the restructuring process and streamlined our organization to strengthen our margins and drive further efficiencies. When comparing to the third quarter of last year, we were able to reduce our operating and G&A costs by well over $300 million, analyzing the difference between the third quarter of 2019 and 2020. We expect to retain over half of these reductions going forward. Our actions favorably position CRC to succeed in the current price environment with peer-leading industry financial metrics, a competitive cost structure, and a stellar balance sheet. While we expect to retain the majority of our savings achieved during the recent downturn as we focus on our margins, we will return higher yielding wealth to service, thereby modestly increasing our operating costs. This leads us to capital investment. In my previous role, I supervised CRC's capital allocation across our large portfolio of assets. We have always used strong capital discipline in allocating to the highest return projects in CRC's portfolio. This will not change, as we will continue to live within our cash flow and rely on our vast, high-quality asset portfolio with an average NRI of approximately 87%. Turning to this quarter's financial and operational figures. I would like to remind you that the third quarter results were significantly impacted by with bankruptcy related charges and also reflect our pre-bankruptcy share count. We expect to finalize fresh start accounting in the fourth quarter, which will be reflected in our 2020 10K. As Todd noted, with the commodity price downturn from the double impact of COVID-19 and the Saudi-led oil price war during the second quarter, we curtailed our capital investment program to a level that maintains the mechanical integrity of our facilities while operating them in a safe and environmentally responsible manner and preserving cash through the restructuring process. Net production for the third quarter was 106,000 barrels of oil equivalent per day, leading to a quarterly adjusted EBITDAX of $103 million and an adjusted EBITDAX margin of 25%. Our strong rent-linked oil realizations together with robust capital California natural gas market dynamics and our consistent capital discipline, partially offset by bankruptcy costs, resulted in third quarter free cash flow of $44 million after internally funded capital. For the third quarter, we reported an adjusted net loss of $55 million. In the third quarter, our operations team continued to focus on safely protecting the base, controlling the controllables, and building inventory. On OPEX, we added three maintenance rigs during September to return higher margin wells to service. Also, during the third quarter, CRC invested internally $4 million of capital with no additional JV capital contribution during this period. For a more detailed look at the net production, we produced a net average of 106,000 DOEs per day during the quarter, consisting of 64,000 barrels per day of crude oil production, 14,000 barrels per day of NGLs, and 168 million cubic feet per day of natural gas. The San Joaquin Basin produced 78,000 net DOEs per day. The Los Angeles basins produced 22,000 and both the Ventura and the Sacramento basins produced 3,000 VOE per day, respectively. At the start of the pandemic, due to economic conditions, we started shutting in certain wells to enhance our cash flows. During the third quarter, we had 3,000 VOE per day of shutting production. Excluding the shutting production and the effect of significantly reduced well repair activity, our assets continue to perform within our industry-leading decline rate. For those of you who are new to CRC, California is an energy island with approximately 72% of its crude oil being imported from outside the state, primarily via foreign supertankers. As a result, our commodity realizations tend to reflect Brent and have continued to be relatively strong versus the rest of the lower 48. CRCs realized crude oil prices in the third quarter of 2020, excluding the effect of settled hedges, registered 96 percent of rent. Hedges enhanced our realized oil price by 32 cents per barrel during the third quarter, for an average realized price of $42.15 per barrel. Turning to NGLs, prices for the quarter averaged $25.16 per barrel and came in at 58 percent of rent. Prices for NGLs increased slightly for the three-month end of September 30, 2020, compared to the same period in 2019, due to improvements in negotiated sales differentials, along with stronger NGL values relative to crude. These levels are still our premium to our peers across the U.S. Natural gas markets saw seasonal strengthening during the third quarter of 2020, and CRC's realized prices averaged $2.22 per thousand cubic feet or 115% of NYMEX. As of October 31st, 2020, CRC has hedges in place that protect approximately 64% of our expected fourth quarter 2020 oil production. This includes 75% of our oil production for both November and December. For further information on our hedging program and volumes, please see our slides posted earlier today. Production costs for the third quarter of 2020 were $141 million, or $14.52 per DOE. Due to our team's continuous efforts and our focus on safely controlling costs, we were able to lower our third quarter production costs both on an overall basis by 36% and on a per DOE basis by 23%, compared to the same prior year period, which averaged $18.82 per DOE. The decrease in production costs was primarily due to lower well repair and surface operations activity across our fields, as well as cost savings from the fourth quarter 2019 and third quarter 2020 workforce reductions. Excluding PSE effects, our third quarter 2020 production costs would have been $13.37 per DOE. During our restructuring, we further streamlined our organization for CRC to succeed and profitably operate in a lower commodity price environment. We reduced our staffing in the third quarter of 2020 by approximately 12% when compared to year in 2019. As a result, we anticipate ongoing employee-related cost savings of approximately $40 million annually. with approximately 75% of the reduction in DNA expenses and the remainder reflected in production costs. Our third quarter 2020 general and administrative costs averaged $6.59 per VOE, 16 cents below the previous quarter, primarily due to ongoing cost savings efforts and the third quarter workforce reduction. These savings were partially offset by higher incentive and retention awards. which were made with court approval during our restructuring process, and the effect of lower production. Third quarter 2020 general administrative costs, excluding incentive and retention payments, decreased by $11 million year over year, or by $1.13 per DOE. Taxes other than on income, which are largely comprised of ad valorem taxes, based on the value of minerals in the ground, as well as our greenhouse gas costs, came in as we expected at $42 million in the third quarter. In the third quarter of 2020, we reported a net loss of $29 million attributable to our common stock. Adjusting for the non-controlling interest in our Elk Hills Midstream JV, we had income of $2.20 per diluted share. When also adjusting for unusual and infrequent items and other non-cash items, such as reorganization and restructuring, together with severance expenses that are generally excluded from core earnings by investment analysts, our net loss would have been $55 million. Adjusted EBITDAX for the third quarter of 2020 was $103 million, compared to $278 million from the prior year quarter, primarily due to 38% quarter-over-quarter decline in realized oil price driven by the ongoing pandemic. As commodity prices modestly increased from April lows, our adjusted EBITDAX margins recovered to 25 percent in the third quarter of 2020 from 7 percent in the second quarter. This increase in third-quarter adjusted EBITDAX was largely driven by higher commodity prices. Despite the challenging commodity markets, our trailing 12-month EBITDAX remains healthy and stands at $681 million. TRC reported cash flow from operations of $48 million in the third quarter of 2020, which was significantly higher than the second quarter, primarily due to the recovery in commodity prices. In the third quarter, we generated approximately $55 million in discretionary cash flow and $198 million through the first nine months of the year, which compares favorably to our internally funded capital investments of $37 million through the first nine months of the year. CRC has a high level of operational control over our diverse portfolio, which continues to allow us to pivot our organization during these volatile periods and to also rapidly adjust our activity to an expected change in task flow. Historically, we have a proven track record of focusing particularly on value-driven projects and staying nimble with our operations. As such, we will continue to respond and to adapt quickly and decisively in order to succeed throughout the price cycle. We believe our operational knowledge and financial discipline are demonstrated by our track record, even during an unprecedented sector downturn and an ongoing pandemic, to operate within our means while generating free cash flow. Finally, please note that we have provided detailed analysis of adjusted items in the attachments to our earnings release. Due to continued market uncertainties and implementation of our fresh start accounting, we will not be providing our normal guidance for the fourth quarter. I will be happy to take any questions you may have on our results during the Q&A portion of this call. Thanks, and I'll now turn the call back over to Todd.

Thanks, Francisco. As we emerge from with a new capital structure, we have taken steps to enhance CRC's resilient foundation and invite you to invest in a conventional, low-decline, value-focused energy company with an enviable ESG track record. We are looking forward to creating value for our shareholders. We believe our recent emergence with top quartile leverage metrics provides a very attractive value proposition compared to our peers. We have a history of generating free cash flow and look forward to updating you on the investment program and opportunities at CRC. I will now open the floor to any questions.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. The first question is from Stephen Wagner with Wagner Financial. Please go ahead.

Hey, Todd and Francisco. Nice presentation. I've been a longtime investor in CRC, and obviously we know what has occurred over the last few years, much of it out of your control. I guess one of my biggest questions is a two-part question. Number one is, you guys have navigated a much needed reorganization. Quite frankly, many of us were dumbfounded in the spinoff from Oxy that you were settled with so much debt in the first place. So much needed reorganization. And clearly, you know, we shareholders got wiped out as a result of it. Now you guys reorganize, come out at 19, and now you're at 12 or high 11s right now as a result of this earnings report. In a good market, even with other energy companies doing fairly well. So I would like you to address that. Generally, I never like to address stock price with executives because generally you folks have no control over the day-to-day stock price movements, and I don't expect you to have. No good investor does. But it seems to me in this situation, timing was everything. Again, the bad taste is still very much there on behalf of those shareholders and my clients, by the way. I'm a RIA here in Ventura. So I'd love you to address that. The other thing is you mentioned your renewable goals. It seems like a rebranding. I'd like you to kind of expand on that a little bit more. We always viewed you as a natural gas and oil play. It's nice that you're rebranding yourselves. I went to your website, looked at it. Very, very nice. But maybe be more specific on this whole idea of, hey, we're a renewable company now. So I'll let you folks answer those questions.

Hey, thanks, Stephen. Yeah, the first one, I think, you know, we just emerged. We have a different shareholder base and we have three very large shareholders that So it's highly illiquid shares. I think the way I would look at it is it's almost like those folks who always talk about direct listings. When you come out of a restructuring, this is like what a direct listing looks like. It's highly illiquid. We have no analysts following. We're trading maybe a few hundred thousand shares a day. And a lot of the folks who in the restructuring built up their positions, they did so because they see a valuable alternative here at CRC that's highly competitive and And they appreciate it long term. So they're not going to be so willing to part with their shares. So when you think about it, it's highly fairly illiquid right now. And until that trading starts, it won't change too much. But, yeah, I view it really as what a direct listing looks like because there's just not a lot like that. And so that's really what I can say is that, you know, we have a bunch of very large shareholders. There's three of them, Golden Tree, Aries. and Fidelity, who, you know, almost two-thirds or more of the shares. So it's a lot. On the other part, this has kind of always been a part of our CRC DNA. We're big believers in all of the above and using all of our resources to create value. Oil and gas, obviously, is a huge part of our business, but complementing that with renewables, particularly when you look at how the electricity prices in California are at some of our locations that aren't fortunate enough to be tied into our Elk Hills power plant with our lower cost electricity, you can take advantage of that duck curve during the day by having complimentary renewable energy. And I think we have to continue to look at things that are going to add value. And oil and gas is clearly, you know, our number one item. But if we can be complimentary and it competes for capital, we're going to look to do that too, whether it be geothermal, hydrogen, or some other things that people are contemplating. And a lot of times we look at this with, you know, JVs with other people's money who want to come and look at our assets. We already have received quite a few lease rentals and payments for people putting solar on top of our mineral acreage and us allowing that to happen. So it's not something that I think is brand new, but I think we've probably highlighted it a little more here than we have historically, particularly in our sustainability report we just put out.

Okay. I guess the biggest thing is that I would, and I appreciate that. So, you know, back to the share price. And again, I hate to hark on this because honestly it is out of your control, but you're right. It is illiquid, but who the hell is selling?

I don't, I don't know.

I mean, we've gone from 19 to 12. I mean, maybe I need to look at these three quote unquote large shareholders and see what it is they're doing and maybe look at the covenants and the You know, the way the loans are arranged, and I'll probably need to do that, and I will. I've got a weekend ahead of me to do that. I mean, look, we see the opportunity, all right? I accept what you guys are saying in terms of, as you said it earlier, quote, unquote, substantial value opportunity. Okay, so, I mean, that means a lot when the CEO of a publicly traded company says the word substantial. You know, that is a forward-leading statement, but, hey, it is what it is. But, I mean, honestly, you know, I've seen a lot of these deals before fall apart. And, you know, it's like, okay, you've only got these three major shareholders. There really is no other shareholder base. So why are some of these people selling shares? I guess I'll have to figure that out for myself because somebody's selling. We've gone from 19 to 12 in a week. And that, again, after the, you know, fall off a cliff, you know, that all of us have been through in the last, you know, six months, it continues to leave a very bitter taste.

Thanks, Steve. We appreciate that and appreciate. Clearly, it's thinly traded, and there's a bunch of shareholders out there that are trading it, but it's very thinly traded.

The next question is from Chris Durand with Depper. Please go ahead. Hi. Can you hear me?

Yeah. Hello?

Oh, great. Great. So when you were spun off from Oxy like five or six years ago, you had a PV-10 system. of around, what, $16 billion. And you had about $5, maybe $6 billion in debt against that. And so I was wondering, you know, you've got a similar, I guess you have, what's the blend now? You have about $4 or $5 billion in PV10. I'm just looking at what are you going to do different this time? I guess that's my big philosophical question.

Yeah, I think the big difference is the capital structure. We are obviously, when you thought about the debt equity split, we were given debt for a much different price environment, kind of $100 plus oil. And that quickly, the rug was pulled out from under us in early December 2014. And dealing with that millstone and trying to chip away at it, our peak postman debt was $6.8 billion. We were able to chip that down to about 4.9 at the beginning of this year. But it was just too big of a millstone for the absolute value. Now our PV10, if you look at 731 strip, is about $4.7 billion. We have great conventional reservoirs with low capital intensity. I think the opportunity set here is different because you don't have the millstone of that debt. We can look at creative ways with the type of asset base we have through return cash to shareholders or reinvest in the business or do different things that really weren't ever an alternative for us when we were spun off from our former parents.

Okay. And prior to the bankruptcy, you guys were scrambling to sell stuff. Are you still trying to sell stuff?

I wouldn't say we're scrambling. We're always looking at ways to create value. Like I tell people, everything's for sale at the right price. Except Elk Hills, you have to buy the company if you want to own Elk Hills. But we're not going to conduct a fire sale. If someone wants to pay us PV25 and two times cash flow or something like that, it's better for us as a company to retain that free cash flow and invest it in the business, return it to shareholders in some fashion. That's yet to be determined. We just met with our board of directors recently. We're still working out you know, forward strategy from that standpoint. But we know that we're value-focused. We're focused on creating a lot of free cash flow. And how and what we do with that, we'll let you know in short order.

Okay. Prior CRC never bought back a single share or paid a dividend to shareholders. Do you anticipate changing that policy?

I wouldn't say we never bought back any shares, but we did pay a dividend to shareholders when we first spun off. And we, you know, clearly as we went into 16 and late 15, we had to get rid of the dividend. But, yeah, we were spun off that there was a very modest dividend paid. I would anticipate if you thought about it, these are kind of the perfect assets for paying dividend or rewarding shareholders in some way, whether it's buying back shares, paying a dividend, investing in the business, however you think about it. These are kind of the perfect assets, low decline, conventional, low capital intensity.

Excellent. And when you shut off 3,000 barrels a day of production during the COVID pandemic, what's the capex to turn them back on? What's the loss?

There's no real capex. When you look at where we shut in and we had more shut in during the downturn, we have a fairly sophisticated way where we can look pattern by pattern, well by well from an economic standpoint, whether it's creating value and cash flow for us. And so as the downturn continued at its bottoms, We had maximum shutoff, I believe, of almost 9,000 barrels a day. And now as we've come back, we use the work over rigs and the like to turn back on the production that is now economic and makes cash flow. Remember, we don't have a bunch of lease commitments or anything like that where we have to worry about keeping production flowing. We're only going to allow production to flow that's cash positive.

Gotcha. Okay, well, I – I wish you good luck going forward. And addressing the prior callers issue, I encourage you as management also to look up north to the Canadian producers like Tourmaline and Micros, and they put shareholders first, and that really makes their cost of debt really low, and everyone's much happier up there. So anyway, good luck to you guys, and I'll jump off now. Thanks again.

Thanks, Chris.

As a reminder, please limit your questions to one with a single follow-up The next question is from Ethan Dan with RAD Investments. Please go ahead.

Hi, how's it going? So just a couple of quick questions. I'm hoping to get a little bit of a picture on the listing strategy for the warrants coming out of the bankruptcy. I understand right now that they're quite illiquid compared to, for example, whiting petroleum warrants, which have a much higher value, even though the strike price is much higher. It's like $76 versus CRC 36. Number two, strategy and valuation on the real estate assets that CRC has. I understand there should be a huge opportunity to return cash to shareholders there. Thank you.

So Ethan, I got something about the warrants. You were a little broken up there. Our warrants were part of a settlement during the restructuring with the creditors committee. And obviously, there's two sets of them, and they're struck at $36. The other question, we do have our real estate. We own the surface at our Huntington Beach property, which has substantial value. We continually monitor the real estate value versus the oil and gas value. And as you know, building any kind of real estate and titling that in Southern California can be quite a feat. So we're looking to maximize value for shareholders and looking at ways, particularly as we come out of this pandemic, to realize that value for our shareholders, whether it be some combination of that or pure real estate or oil and gas.

The next question is from Tim McKee with TDM. Please go ahead.

Yes, gentlemen, I was... I was investing in your company during the pandemic starting in March and expected to continue and then found out that you had declared Chapter 11 in June and the shares were subsequently moved to CRCQQ. And as we know today, they are basically bottomed out at about two cents a share. As I understand it, I have absolutely no recourse. And if this were only a few thousand dollars, it wouldn't be an issue. But this is major money. Is there something that can be worked out? Is there shares that can be offered? Is there anything to the shareholders like myself?

Yeah, I'm sorry. This is, you know, we went through the restructuring and Believe it or not, we fought really hard for our shareholders. We had a complicated capital structure, heavily indebted from our prior parent, and this is where we ended up.

This concludes our question and answer session. I would like to turn the conference back over to Todd Stevens for any closing remarks.

Thanks, everyone. I am extremely proud of our workforce during this time of uncertainty. They have conducted themselves with professionalism as we have strengthened our ability to generate cash flow while operating safely and productively during the pandemic. CRC has many valuable assets, including our employees and the relationships we have with our vendors, state and local leaders in the communities where we live and work. We appreciate everyone's attendance on today's call and look forward to delivering results for our new shareholders. We invite you to invest in CRC as we proudly supply reliable and affordable energy for California by Californians.

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