California Resources Corporation

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 a touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. And now I would like to turn the conference over to Joanna Park. Please, Joanna, go ahead.

Welcome to California Resources Corporation's fourth 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 fourth 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 in our earnings release and in our 10-K and other periodic SEC filings. As a reminder, we have allotted additional time for Q&A at the end of our prepared remarks. We ask that participants limit their questions to one primary and one follow-up. With that, I'll now turn the call over to Max.

Well, great. Thank you, Joanna. Good morning, everyone, and thank you for joining us today. Over the past two-plus years, following the company's emergence from its financial restructuring, we have evolved CRC into an enterprise focused on generating the highest cash flow from our assets and returning that cash to shareholders. Case in point, in 2022, we returned 120% of free cash flow to shareholders through share repurchases and dividends. And we bought back 14% of the company's outstanding shares since our emergence in late 2020. We also saw a tremendous opportunity for carbon management and have built a solid business around that. As any focus company should do, we continue to evolve. As we look forward to 2023 and beyond, we are announcing a strategic realignment of the company's business operations and structure to adapt to current circumstances and build on our strong momentum. As I have said before, and to say it simply, we are focused on generating the highest cash flow per share possible from our E&P business so we can return that cash to shareholders. Another case in point. If you take 2022 free cash flow of $311 million and the average fully diluted shares outstanding of 77.6 million during the year, we delivered $4 of free cash flow per share in 2022. And if you take the midpoint of our 23 guidance of $385 million of free cash flow and the fully diluted shares outstanding of 73.6 million at the end of January, we would expect to deliver $5.23 of free cash flow per share in 2023. That would be roughly a 30% increase in cash flow per share. And that is before we buy any more shares back in 2023, which would drive the results even higher. That is the benefit of our low decline assets and the toggles we have available to us in the business. In connection with this strategic alignment, We are announcing management and board changes to support the eventual separation of our E&P and carbon management businesses. We are also cutting costs to match activity levels, and we plan to increase our financial flexibility to accelerate shareholder returns. By taking these steps, we believe we can create a different kind of energy company and drive cash flow per share growth. With the revised corporate structure, Francisco Leone will succeed me as CEO, and I will step back from the day-to-day management role. I will continue to serve on the board of CRC and will chair the newly formed board of our Carbon TerraVault subsidiary, which will be devoted to overseeing the continued growth of the carbon management business. Two existing CRC non-executive directors, Andrew Bremner and James Chapman, will also serve on this subsidiary board. Together, we will provide the business with insight into the commercialization of new technologies, provide expertise in corporate and financial structuring, as well as provide knowledge relevant to early movers for carbon capture and storage in California. I've had the tremendous opportunity to work with the great people of CRC and forge many great friendships. And having spent more than two years working with Francisco side by side, I am confident he is the right person to lead us at this exciting time and going forward. I'll now turn it over to Francisco to share more details on the steps we're taking to position our business for success. Francisco.