California Resources Corporation

Good day and welcome to the California Resources Corporation fourth quarter and year-end 2023 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. 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 Joanna Park, Vice President of Investor Relations and Treasurer. Please go ahead.

Welcome to California Resources Corporation's fourth quarter and year-end 2023 conference call. Prepared comments today will come from our CEO, Francisco Leon, and our CFO, Nellie Molina. Following our prepared remarks, we will be available to take your questions. Please limit your questions to one primary and one follow-up. Our remarks today include forward-looking statements based on current expectations. Actual results may differ materially due to factors described in our earnings release and in our SEC filings. We undertake no obligation to update these statements as a result of new information or future events. We will also discuss our pending merger with ARRA. We encourage you to read our merger proxy statement when available because they will contain important information. Copies of this and other relevant documents will be available free of charge on our website and on the SEC's website. Additional information about the individuals participating in our proxy solicitation, such as our directors and officers and their interests, will be provided in our merger proxy statement. We've also provided information reconciling non-GAAP financial measures discussed today to the most directly comparable GAAP financial measures on our website as well as in our earnings release. I will now turn the call over to Francisco.

Thank you, Joanna. Welcome, everyone, and thanks for joining us. I realize we just held a call about two weeks ago when we announced our exciting agreement to merge with AR Energy. So we will keep our comments relatively brief, but we do have some important information to share with you. We will cover three topics today. First, we will summarize our 2023 results and how our strategy created significant value to shareholders. We took decisive steps to strengthen our asset base, lower our costs, and grow our carbon management business. These steps position us to continue to build value in 2024 and beyond. Second, we will cover an update on our CCS business, real estate portfolio, and merger with ERA. Lastly, we will summarize our 2024 outlook and steps we will take to deliver another year of strong results. Let's talk about 2023. We accomplished a lot over the last year. Our EMP operations had a strong year with a low base decline, which we achieved by deploying less capital than we had forecasted. Our team continued to find new and innovative ways to reduce costs and enhance margins. We accomplished these things with a continued focus on safety. In 2023, the team achieved the company's lowest total recordable incident rate, excluding the period during COVID. Our carbon management business continues to build for the future as we reach first-mover milestones, such as the EPA's release of the state's first draft Class VI permits for CCS that will accelerate the decarbonization of California. In addition, the California Direct Air Capture Hub in partnership with leading DAC technology companies, such as Climeworks and Avnos, was selected for DOE funding. We continue to prove that CRC is a different kind of energy company. We have a quality asset base with oil and gas fields that have low declines, which coupled with strong realizations allow us to generate meaningful free cash flow. This is a powerful combination. allowing us to maintain annual production levels using about half of our discretionary cash flow. This means the other half can be used to maintain our strong balance sheet and also return cash to investors. Over the last three years, we have generated $1.25 billion of after-tax cash flows, of which we return over $750 million to shareholders, while also building a strong cash position. Our merger with ERA, once completed, will further strengthen these cash generation capabilities and differentiate the CRC value proposition from peers. During 2023, we launched an initiative to reduce cost and streamline operations across the business. We achieved about 65 million in sustainable annual run rate cost savings. As we look ahead, we will remain focused on managing our existing cost structure and continuous improvement of our operations. TRC has proven its ability to successfully operate in California to help the state accomplish its goals. There's no better example than our anticipated combination with ERA. Our transaction will create a stronger enterprise to scale, complementary fit, and the potential for $150 million of annual synergies with Upside, which we will deliver within 15 months post-close. The merger with ERA will reduce the company's break-evens and put us on stronger footing to compete against out-of-state and out-of-country suppliers, which is good for California's local energy supply and, very importantly, the environment. With ERA, we more than double our premium pore space and will be better positioned to decarbonize hard-to-abate sectors for the economy, as well as to capture our own emissions. Our increased pore space capacity will make us the partner of choice. We are confident we will sign additional projects from both Brownfield and Greenfield to rapidly expand our carbon management business in the San Joaquin Basin, as well as in other parts of the state. In 2023, we submitted EPA Class VI permit applications for two new reservoirs, CTV4 and CTV5. adding an incremental 51 million metric tons of CO2 storage capacity. These storage reservoirs are strategically located in Northern California in proximity to major emission sources. Throughout 2023, we advanced five greenfield and one brownfield projects that added 860,000 metric tons per year of CCS. Four of these projects were our proposed CTV Clean Energy Park at Elk Hills and two were in Northern California. This week, the EPA and Kern County will hold a final hearing for our 26R draft permits. Over the past two years, the team has been carefully preparing for this event, and we're excited about the economic, social, and environmental benefits it could bring to California. Once we receive the final permit for the 26R reservoir, we plan to make a final investment decision on our previously announced pre-combustion capture project at our Elk Hills Cryogenic Gas Processing Plant with expected annual injection of 100,000 metric tons of CO2. This will be CRC's first CCS project and will enable an almost 7% reduction in carbon emissions intensity from the Elk Hills Power Plant and pave the way for the first injection of CO2 by the end of 2025. Receipt of Class VI permits for 26R will also advance our Elk Hills hydrogen project. This project will provide nearly 65 tons per day of clean hydrogen, and CRC will sequester over 200,000 metric tons of CO2 per year at CTV1. CRC and Brookfield will continue to evaluate a potential equity investment in this project. We look to FID this project in the second half of 2024. We have other CCS accretive deals in the works and look forward to sharing further updates later this year. Before I hand it over to Nelly to cover financial results, let me give you an update on our real estate portfolio. I'm happy to announce that we have entered into an agreement to sell a .9 acre parcel known as Fort Apache for about $10 million to a local real estate developer. Recently, we finished plug-in abandonment operations on six wells and removed some surface infrastructure, which cost us about $2 million. This transaction provides a good indication on the potential value of the Huntington Beach field. As many of you know, we have about 90 acres located along a one-mile track on Pacific Coast Highway at Huntington Beach. There, we operate a mature oil field that produces about 3,000 barrels per day. We plan to permanently plug and abandon about 48 of the 350 or so idle and active wells during 2024. As we remediate the property, we will continue to advance rezoning, re-entitlement, and other due diligence to prepare this unique asset for sale down the road. There are additional details in today's deck. And now, I'll hand it over to Nelly to cover financial results. Nelly?