California Resources Corporation

Good day and welcome to the California Resources Corporation third quarter earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a 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 Parks, VP of Investor Relations and Treasurer. Please go ahead.

Thanks. Welcome to California Resources Corporation third quarter 2022 conference call. Participating on today's call are Mac McFarland, President and Chief Executive Officer, Francisco Leon, Executive Vice President and Chief Financial Officer, as well as the entire Executive Committee. 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 our third quarter results. We have 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, we are making some forward-looking statements based on current expectations. Actual results could differ due to factors described on our earnings release and in our periodic SEC filing. As a reminder, we have allotted additional time for Q&A at the end of our prepared remarks, and we ask that participants limit their questions to a primary and one follow-up. With that, I will now turn the call over to Max.

Great, and thank you, Joanna. At CRC, we are a different kind of energy company. We are focused on delivering consistent and predictable free cash flow, We are focused on disciplined capital allocation and shareholder returns from the free cash we generate. And we are focused on advancing and accelerating our carbon management business. A simple but focused strategy. So let's discuss each of these in greater detail. First, consistent and predictable cash flow. During the third quarter, we continued to deliver strong results by producing 92,000 barrels of oil equivalent per day and $128 million of after-tax free cash flow. We did this despite externalities, including the continued litigation over the Kern County ERR, which has been recently resolved in the courts, as well as ongoing inflationary pressures. We were able to accomplish these results because we have a robust portfolio of assets that allows us to adapt to the ever-changing landscape. Our portfolio allowed us to ramp up to five DNC rigs during the year and increase our downhole maintenance activity to deliver on our production goals. For the full year 2022, we are projecting approximately $235 million of DNC capital expenditures while maintaining oil production, essentially flat, entry to exit. And that's after adding back the impact from the Kern County EIR litigation delay and taking into account A&D transactions from earlier this year. And while inflation has impacted our non-energy OpEx and CapEx costs, and as a result, slightly squeezed our margins, we are still delivering on full year 2022 expectations on the current price day. Francisco will describe this in greater detail, but as we have said, we anticipate long-term average DNC capital of approximately $300 million per year to keep oil production flat after adjusting for the inflationary pressures that we are seeing. We have a resilient portfolio that delivers consistent and predictable cash flow. Second, disciplined capital allocation. Until recently, we had a stated long-term capital allocation framework of recycling approximately 50% or less of our operating free cash flow to maintain our oil production. And then we would split the remaining free cash flow 50-50 between shareholder returns and investment in our carbon management business. Now, that has significantly changed with our carbon tariff all JV with Brookfield. Because the JV, excuse me, is expected to fund the carbon management business by our farm down of carbon terra vaults into the JV and the 10 ton buy in to these vaults by Brookfield, our carbon management business is essentially self funding through the end of the decade if the JV is successful in its objectives. That means we can now focus our free cash flow after CapEx for shareholder returns after making limited investments in early stage ctv storage vaults as we've said previously and that is our new discipline capital allocation framework in fact through the third quarter we have returned 105 percent of free cash flow through our share repurchase program and our dividend and because we are further committing to shareholder returns we are increasing our dividend by 66 percent to 28 and a quarter cents per share and increasing our share repurchase program by an additional 200 million for a total program of 850 million. And we are also extending the program through the end of 2023. In fact, if we complete our entire share repurchase program by year end 2023 and include our fixed quarterly dividend, CRC is on pace for nearly $1 billion of total shareholder returns on a cumulative basis. Finally, We continue to advance and accelerate our carbon management business. Last quarter, we closed the CTV Brookfield JV, and we are now focused on execution and continue to see a tremendous opportunity. With the passing of the Inflation Reduction Act and the increase in 45Q incentives, we see a growing and expanding target market opportunity. For permanent sequestration, we see a growing set of new opportunities for Carbon TerraVault in the new energy economy, new counterparties in hydrogen and ammonia, renewable diesel. These are greenfield opportunities that we believe can fit within our economic type curve for CMB, our carbon management business, because they have lower cost of capture and can be constructed in close proximity to our storage vaults, which limits transportation requirements. While this target market opportunity is not yet defined as our existing sources in the state, Many of the counterparties we have recently engaged with are part of this newly emerging economy and something we find very exciting. We continue to make progress in our advancing multiple CDMAs, or carbon dioxide management agreements, with our counterparties. These CDMAs are detailed frameworks which address the key project terms, including pore space, volume commitments, economics, development milestones, facilities, and the like. The CDMAs are also subject to conditions and provide a useful roadmap to reach agreement on final investment decisions on an expedited basis. We remain confident in our goal of signing a CDMA by the year end, putting us on track for first injection by the end of 2025. On the permitting front, we expect to end the year with approximately 140 million tons of filed permits. And while our previous stated goal was 200 million tons of permit on file by the year end, we remain confident in our backlog of permits. The fact is, as we advance permits for permanent storage in a constructive dialogue with the EPA, we are continuing to refine and define best-in-class permit applications and the standards for best-in-class continue to increase in the level of detail and rigor, something we are keenly positioned to meet. That being said, we have a significant backlog of permit applications, but we are assuring that we file permits of the highest quality while maintaining our credibility as a leader in carbon management. Our carbon management business was also bolstered by Senate Bill 905, which was focused on advancing and streamlining the process for permitting CCS in California. While the law itself can be improved with further details and clarifications, the author of the bill has acknowledged the willingness to work to improve the law further, and we look forward to engaging on these fronts. Given CO2 EOR was banned from Senate Bill 905 and the increase in 45Q tax credits, we are shifting our CalCapture project to permanent storage and continuing to advance the feed study. We remain excited about the prospects of this project. So in summary, consistent cash flows, disciplined capital allocation with focus on shareholder returns, and growing a carbon management business. That is how we are building a different kind of energy company. I'll now turn it over to Francisco for further details on our results, including how we continue to refine our portfolio. Francisco?