California Resources Corporation

Good day and welcome to the California Resource 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 today's event is being recorded. I would now like to turn the conference over to Joanna Park, Vice President, Investor Relations, and Treasurer. Please go ahead.

Welcome to California Resources Corporation's third quarter 2023 conference call. Participating on today's call are Francisco Leon, President and Chief Executive Officer, Nelly Molina, Executive Vice President and Chief Financial Officer, as well as CRC's entire executive team. I'd like to highlight that we have provided slides in the investor relations section of our website, CRC.com. These slides provide additional information about 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 may differ due to factors described in our earnings press release and in our periodic SEC filings. 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 Francisco.

Thank you, Joanna. CRC continues to demonstrate what it means to be a different kind of energy company. We're executing on our low decline and high cashflow generating oil and natural gas business, increasing shareholder returns and advancing our leading carbon management business. We're doing this all while working to provide innovative energy solutions to help California meet its 2045 decarbonization goals. Cashflow carbon in California are our core strengths. and our quarterly results demonstrate substantial progress on all these fronts. Starting with cash flow, during the third quarter, we continue to deliver strong results, producing 85,000 barrels of oil equivalent per day and generating $71 million for free cash flow. We remain on track with our 5% to 7% entry to exit production decline expectation for the year and have progressed our business transformation efforts targeting $55 million of annual run rate cost savings that are expected to lower our EMP business cost structure by approximately $2 per barrel. Nelly will expand on the cost reductions achieved to date, our shareholder return progress, and cover the key business drivers for 2024. Moving on to carbon, we continue to expand our reach and strengthen our role as the market leader for CCS in California. Our first mover advantage is demonstrated through our multiple Class 6 permit applications with the EPA. A recently published tracker by the EPA shows our leadership in Region 9 with over 50% of all permits submitted to date and shows CTV1 on track to receive the first draft Class 6 permit in California by year end. Additional progress can be seen in our growing project queue as we develop pore space in other parts of the state. We're pleased to announce our own capture and storage project at CRC's Cryogenic Gas Processing Plant at Elk Hills. This project will install new equipment to capture 100,000 metric tons of CO2 per year from some of our natural gas production through a pre-combustion separation process and permanently sequester the CO2 in our CTB1 reservoir. We are targeting FID of this project during the first half of 2024 and first injection by the end of 2025. This project is co-located at Elk Hills with our CTV1 CO2 storage reservoir and is our fastest track to CCS adoption and to first CCS cash flow in California. CRC expects to earn 45 Q credits and other incentives and anticipates paying CTVJV an injection fee for CO2 sequestration services. CTVJV's economics are expected to be in line with previously announced storage-only deals with an EBITDA in the 50 to 75 per ton range. Further, this project will increase the operational efficiency of our cryogenic gas processing plant. which will benefit from improved propane recovery, higher production, and reduce the carbon intensity of the electricity generated from the Elk Hills Power Plant, which as a result will potentially lower the carbon tax for the plant. Today, we have also announced a new carbon dioxide management agreement, or CDMA, with NLC Energy, an innovative renewable energy partner. CTV will sequester 150,000 metric tons of CO2 per year from a new renewable natural gas facility that will be constructed at our proposed CTV clean energy park at Elk Hills. Once online, CRC will have the option of utilizing this product to supply facilities at our energy park with decarbonized energy, or we can sell the RNG to the market. With this new CDMA, combined with our Elk Hills gas plant capture project, we now have reserved 57% of the pore space in our CTV-1 storage reservoir. The CTV Clean Energy Park at Elk Hills will provide unique advantages and benefits to industrial partners. The park provides greenfield projects with access to land and proximity to a favorable end-user market where we can reduce the all-in cost of production and effectively transport decarbonized products by conventional means, effectively creating a virtual CO2 pipeline designed to decarbonize brownfield emissions by capturing the market for their products versus the CO2 at their facilities. The proximity of CTV storage reservoirs to major demand centers in the Bay Area, Los Angeles, and the broader Central Valley help make greenfield projects competitive with great products that are transported to California from thousands of miles away. Furthermore, CRC and CTV get an added benefit of access to renewable fuels for use in our own processes to help further lower our carbon intensity while also providing development and employment opportunities to our local communities. And finally, our California positioning is a key advantage that enables us to develop energy solutions for the state's future energy landscape. CRC has the leading permit application position, land and mineral ownership, strong partnerships, and California expertise. We control several key aspects and variables that allow CRC to de-risk the new energy projects and enable commercial scale CCS quicker than many others in the state or even the U.S. We are also well positioned as the largest natural gas producer in California. We believe low carbon intensity natural gas will play an important role in the energy transition. We want to grow our contribution of local supply by developing our inventory. As such, we have identified incremental resource of one TCF of natural gas in our existing fields in Sacramento and western San Joaquin. We're in the process of high grading the inventory and finalizing plans to develop this resource. Further, and to validate our low methane intensity positioning, we are pursuing third party responsibly sourced gas designation for our current and future production, which we expect to have in 2024. Over the past several years, CRC has primarily focused on developing our oil inventory. However, California's gas market continues to experience significant volatility due to the reliance on imported gas from other states and aging infrastructure. This, coupled with strong expected demand through 2045, will likely lead to continued premium pricing relative to the rest of the country. Our teams are working on development plans to unlock CRC's untapped natural gas potential to meet this need with local and responsibly sourced supply. At CRC, we're determined to lead the energy transition. We are committed to improving our products and providing carbon management solutions that help enable renewable and replacement fuels. And now I'll pass it over to Nelly to provide an update on CRC's financial position and several important points on our preliminary 2024 financial and operational outlook. Nelly?