California Resources Corporation

Good day and welcome to the California Resources Corporation fourth 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 touch tone phone. 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 Joanna Park, Vice President of Investor Relations and Treasurer. Please go ahead.

Thanks. Welcome to California Resources Corporation's fourth quarter 2021 conference call. Participating on today's call is Max McFarland, President and Chief Executive Officer, 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 on our investor relations section of our website, www.crc.com. These slides provide additional information into our operations and fourth quarter results. And we've also provided information reconciling non-GAAP financial measures discussed to the most directly comparable GAAP financial measures on our website as well as in our earnings release. Today's conference call contains certain projections and other forward-looking statements. and these statements are subject to risks and uncertainties and may cause actual results to differ. Additional information on factors that could cause our results to differ are available in the company's 10Q and 10K. A replay will be made available for 30 days following the call on our website. As a reminder, we've allotted additional time for question and answer at the end of our prepared remarks. We ask that participants limit their questions to a primary and one follow-up. And with that, I will now turn the call over to Mac.

Well, great. Thank you, Joanna. 2021 was a year in which we repositioned CRC for the future. We continued to deliver safe, reliable production and advanced our carbon management business for the zero carbon fuel of the future. In our core oil and gas operations, we demonstrated the strength of our strategy on CRC's CRC's streamlined business model by generating $466 million in free cash flow in 2021, the highest level of free cash flow since the inception of CRC. We did that by providing low carbon intensity and low decline production of 100,000 barrels equivalent per day while maintaining our strong environmental and safety record. We also rationalized our portfolio through the previously announced acquisition of the working interest in MIRA and the sale of Ventura assets, demonstrating active portfolio management as a key element of our business strategy, which we continued in February by also divesting our non-core, non-operated interest in the lost sales assets. We exited the year with approximately 95,000 DOE per day of production, which reflects our 2021 portfolio activity. And we expect just under a 2,000 BOE per day impact from the Lost Hills divestiture in 2021, which has been included in our 2022 production guidance. Furthermore, we expect to exit 2022 basically flat on oil production. And Francisco will provide additional details and elaborate on this further. But you can also see this on page 25 of the accompanying presentation. Active portfolio management allows us to focus on CRC's fully operated fields with lower carbon intensity and future CCS optionality. On the carbon management business side, we were very active in 2021 and will continue to advance our strategy in 2022. We are expanding our new business by progressing CTV deal structures and project milestones, exploring future financing options, and moving forward with our discussions with numerous potential partners, stakeholders, and technology providers. We are advancing CTV-Admitter discussions for the first 1 million tons per annum for Carbon TeraVault 1, and we plan to provide additional details on these discussions later this year. While prospects and details continue to be discussed, the recurring theme in our discussions is the significant interest in the commercial-scale solution of carbon sequestration. We are preparing additional permit applications to meet our targeted injection of 5 million tons per annum in 2027. CRC is targeting filing new EPA Class VI permits for incremental CTV storage projects for a total of 200 million metric tons or more by the end of this year. That is inclusive of the applications we have already filed for CTV1. By filing these applications, it puts us on the path to receive permits by the end of 2025 And that allows us to stay on track for our goal of the 5 million tons of injection by 2027. Over the past few months, we have received fairly comprehensive comments from the EPA on the permits for A1, A2, and 26R, the combination of which is known as CTV1. The dialogue has been and continues to be constructive with the EPA and supportive of our previously outlined timing expectations. In addition to the EPA process, the local land use permit and environmental analysis for CTV1 are advancing under Kern County's leadership, and we would expect to see them completed next year. We look forward to working with both agencies while advancing our carbon management business. In 2021, as you'll see on the company slides, we are deploying approximately $85 million in our carbon management business across Capital, OPEX, and G&A. This allows us to advance pending permits, do early stage development and file the new applications for that first 200 million metric tons, unlock the next several hundred millions of tons of pore space after this initial 200 million metric tons, and deploy initial capital for CTV1. We believe this investment is consistent with our previously disclosed economic type curve. will develop projects with significant returns and these dollars represent a tangible investment in our low carbon strategy and a real commitment to california's zero carbon future with decades of data and operating experience we believe crc is well positioned to provide commercial and scalable carbon management solutions coupled coupling this with california's net zero ambition crc can make a significant impact not only from an environmental perspective but also by creating enduring value for our shareholders. Lastly, we plan to maintain our solid financial foundation and free cash flow generation. Looking into 2022 and after adjusting for our divestitures, our core E&P business is expected to generate nearly $400 million in free cash flow before our carbon management investments, highlighting the strength of our assets and the efforts of our employees. By our current forecast with liquidity of over $670 million and a leverage multiple of less than a half a turn net debt to EBITDA, CRC has a strong financial foundation that provides further support for our future goals, aspirations, and our strategic initiatives. As a result of our robust financial position, we are expanding our shareholder return strategy. We're doing this by maintaining our current fixed dividend strategy, which currently yields approximately 1.7%, and by raising the share repurchase program from $250 million to $350 million. And we're extending the program through the end of 2022. This increase in dollars represents a 40% increase to the overall program. As always, none of this is possible without the contributions of our CRC employees. I'd like to thank the team for all your efforts. Delivering these impressive results in 2021 during a transformative year, as well as dealing with COVID-19 was truly remarkable. We appreciate all of those joining on the call today and thank you for your ongoing interest in CRC. And with that, I'll turn the call over to Francisco. Francisco?