California Resources Corporation

Good day and welcome to the California Resources Corporation first quarter 2024 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 a touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would like now to turn the conference over to Joanna Park, Vice President of Investor Relations and Treasurer. Please go ahead.

Welcome to California Resources Corporation's first quarter 2024 conference call. Prepared remarks today will come from our President and CEO, Francisco Leon, and our CFO, Nelly 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 ERA. We encourage you to read our definitive merger proxy statement issued on May 7, 2024, as it contains important information. Copies of this and other relevant documents will be available on our website and 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. Last night, we also provided information reconciling non-GAAP financial measures discussed today to the most directly comparable GAAP financial measures on our website. We also issued our earnings release in a new quarterly presentation. I'll now turn the call over to Francesco.

Thank you, Giovanna. Welcome, everyone, and thanks for joining us. During our first quarter in 2024, we continued our strong operational execution from 2023 and made good progress on our long-term goals. We hit the ground running with the announcement of our pending era merger. We remain focused on closing this transaction and have passed key milestones such as the HSR waiting period and the filing of the definitive proxy statement with the SEC, and are tracking toward a mid-year 2024 close. This highly accretive transaction builds scale, strengthens the durability of our conventional business, and significantly expands our carbon management opportunities to solidify CRC's differentiated strategy and advantage positions. We remain confident in our ability to execute our strategy and deliver sustainable free cash flow to our shareholders and low carbon intensity energy to Californians. For today's discussion, I'll be highlighting a few key topics. One, the strength and quality of our assets and operational excellence of our team. Two, an update on the era merger and how it will unlock incremental shareholder returns. And three, our advantage position to provide the energy and decarbonization solutions California needs. So let's begin. During the quarter, rose production remained flat entry to exit while operating a one-rig program demonstrating the strength of our asset base. Our portfolio consists of conventional reservoirs with stable and low-decline production profiles associated with water floods and steam floods. in contrast to unconventional reservoirs with high initial production followed by steep declines. Conventional reservoirs also lend themselves to significant workover potential, which provides an efficient means to bring on production at a fraction of the cost of a new well. In addition to workovers, our operations team perform well maintenance and artificial lift optimizations that help offset the production decline even further. As such, CRC was able to invest just $22 million in the first quarter in drilling and work over capital to achieve this result. Our large base of PDP production also provides predictability in cash flow and financial stability. Our business generated $149 million in adjusted EBITDAX and delivered $33 million in free cash flow. These strong financial results set the foundation for our strong first quarter cash returns, in which we distributed $79 million to shareholders via dividends and buybacks, and nearly $95 million through April. The total cash payout from this initiative implies an annualized yield of approximately 8 percent. We currently have $675 million remaining on our share repurchase program, And our board intends to evaluate further increases to our dividend following closing of the era merger. As we look forward, we remain focused on providing much needed local energy for today, as well as lower carbon intensity energy and carbon solutions for the future. Total capital investments for 2024 are expected to range between $200 and $240 million, running a one-rig program for the remainder of the year. Similar to 2023, this year's program is expected to deliver entry-to-exit net production decline of 5 to 7%. At this point of the year, we have not seen sufficient improvement in the permitting process to support the multi-rig drilling program and expect to maintain lower activity throughout the balance of the year. As an update on the Kern County EIR, in March, the court order the county to prepare a revised EIR that should address three key items, mitigation of agricultural impacts, health assessments, and water supply analysis. We currently expect the county to certify a revised EIR and adopt a revised zoning ordinance around year-end 2024 and estimate that the stay on drilling could be lifted by the trial court sometime in the second half of 2025. Separate from current county's efforts, our team continues to work diligently toward progressing alternative paths to navigate these delays. Slide 18 of our deck details these pathways. First, our current approvals allow us to support a one-rig program through 2025. Second, the County can meet CEQA requirements by approving a conditional use permit and conducting a field level CEQA review, which would form the basis for a new drill permits to be issued. Third, our broad footprint in and outside of Kern County allows for multi-basin development. We are targeting a potential return to an increased level of activity in the second half of 2025. Moving to ERA, we remain focused on closing the merger. We expect this transformational transaction to create significant scale and asset durability to meet California's growing energy needs. ERA's conventional assets are similar to CRC's with low royalty burden and multi-stack producing zones with 10 to 13% corporate production declines before capital. The transaction also expands our leading carbon management platform, adding premium pore space and co-located CO2 capture opportunities that further strengthen our ability to help the Golden State meet its ambitious climate goals. We remain confident in our ability to deliver $150 million in annual synergies from the combined businesses and create meaningful long-term value for our shareholders. To date, the CRT and ERA teams have worked together to identify meaningful synergies around GNA, supply chain, and infrastructure optimizations. This great work gives us a path to deliver $50 million of these run-rich synergies within six months of closing. We are targeting to close the transaction in mid-2024 and will provide more detailed guidance post-close. Regarding the sustainability of our business, we recently received a grade A certification through MIQ's methane emissions performance standard from our operating assets in Los Angeles and Orange counties. This rating highlights CRC's dedication to high sustainability standards, continuous monitoring, and methane reduction in our operations. As a reminder, we set an initial goal to lower methane emissions by 50% from our 2013 baseline by 2030. We surpassed this goal in 2018, 12 years ahead of schedule. We then set a new goal in 2022 to further reduce methane emissions by 30% from our 2020 baseline, also by 2030. CRC's methane reduction goals and execution exceed the 2030 goals that California has set for the state. Turning to carbon terevolts. On March 28th, Kern County announced that based on the comments received during the public comment period, our CTV1 permit would require further environmental review, and the county recommended continuation of the process to the August 22nd Planning Commission hearing this year. As a reminder, the EPA and Kern County have worked hand-in-hand on advancing this first-of-a-kind permit in California in a manner that complies with California's environmental standards, which are undoubtedly the highest in the U.S. The comments received were a result of our four joint EPA-Kern County public workshops that were voluntarily held to maximize the opportunity for public comment. These workshops, along with the EPA's voluntary extension of the public period from 45 to 90 days, facilitated the desired engagement with the public in the permitting process, the natural outcome of which is not, unsurprisingly, the need for more time to consider those comments. CTV supports this approach as it sets the gold standard for CCS permitting. And as previously communicated last quarter, we continue to expect the final EPA and Kern County permits in the second half of 2024, enabling us to meet our target FID on CTB1 in the same window and begin CO2 sequestration by the end of 2025. And now, let me turn the call over to Nelly to cover our first quarter performance and second quarter 2024 guidance in more detail. Nelly?