California Resources Corporation

Good day and welcome to the California Resources Corporation second quarter 2024 conference call. All participants will be in a 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. And please note that this event is being recorded. At this time, I would now like to turn the conference over to Joanna Parks, Vice President of Investor Relations and Treasurer. Please go ahead.

Good morning and welcome to California Resources Corporation's second quarter conference call. This is our first call following the closing of our era merger and we are excited to share our progress. Prepared comments today will come from our CEO, Francisco Leon, and our CFO, Nelly Molina. Following their remarks, we will be available to take your questions. With us on the call, we also have other members of our senior leadership team. By now, I hope you have had a chance to review our earnings release and our supplemental slides. 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 will be making some forward-looking statements based on current expectations. Actual results may differ due to factors described in our earnings release and in our periodic SEC filings. Thank you for joining us today. I will now turn the call over to Francisco.

Thanks, Joanna, and welcome everyone. We are incredibly excited about the road ahead and the value creation levers we have for existing and future shareholders. TRC is a markedly stronger company today, and we're demonstrating what it means to be a different kind of energy company. Before discussing our second quarter financial and operating highlights, I want to spend a few minutes outlining the strength of our business strategy. We are committed to generating value for shareholders, and we do that by increasing our company's cash flow per share. Despite California permitting headwinds, our focus on improving margins combined with our strong and consistent share repurchase program resulted in mid-teens cash flow per share growth from 2021 to 2023. With the closing of the ERA merger, we again are targeting to grow cash flow per share in 2024. Importantly, we achieve this four-year growth without sacrificing our balance sheet strength. As we integrate with ERA, we will deliver our synergy targets in the next 15 months as we head to an improved permitting backdrop by the second half of next year. Recent economic developments have provided a riskier outlook for the domestic and global economy, placing greater importance on sustainability of earnings. Our low-decline assets, strong hedge book, and cash flow capability, supported by a strong balance sheet, provide us with a significant fortress in any volatile environment. The ERA transaction adds improved cash flow capacity and scale, and so let me take a few minutes to discuss the merits of the ERA deal. We expanded our conventional energy business, improving the reliability of cash flows, and enhanced our growing carbon management business to decarbonize California. We created operational scale and strengthened the durability of our business. Our daily production volumes doubled. California needs oil, and we will be here to provide it. The ERA transaction also increased our average NRIs. and today our fields deliver 90% average net revenue interest. When you compare this to the Permian, where average NRIs are less than 80%, this is an advantage that boosts our profitability. We're also capturing meaningful cost savings and see more synergies than originally forecasted. We now expect $235 million in total synergies which reflects $60 million of savings achieved with the refinancing of ARIS debt and $25 million of additional operational synergies. We expect to capture these run rate savings over the next 15 months to improve our bottom line. Our cash flow forecast is expected to more than double from where it would have been on a standalone basis and has led us to increase our dividend per share today by 25%. as we continue to consistently return more cash to shareholders. Lastly, CRC is a sustainability leader in California, and we operate our business the right way. Today, we have more direct control of infield emissions and more capacity to accelerate the decarbonization of our portfolio in California's emissions due to the advantage and unequal location of our assets. Over the last five weeks, since the closing of the merger, we have already made great strides. We are executing on our opportunities that will optimize our field operations, combining infrastructure and leveraging our combined scale to develop more cost-efficient supply chains. As an example, our teams already connected our two largest fields in the San Joaquin Basin to improve and expand natural gas deliverability. The interconnect allows CRC to take natural gas from our Elk Hills field to Bell Ridge for use in steam float operations. This connection will provide an additional outlet for Elk Hills gas during maintenance activities at our midstream infrastructure in Elk Hills and will benefit Bell Ridge by lowering fuel costs for steam generation for EOR. Another early win is the streamlining of well monitoring activity to the nearby Bell Ridge control facility. AIRA made dedicated investments in this area and applied AI technology to improve well performance and uptime with fewer staff. We are adopting their best practices and optimizing nearby satellite fields to benefit from more efficient well surveillance efforts across a broader base. Similarly, across the well service value chain, we are seeing early gains from vertical integration of services resulting in lower cost of our well maintenance and T&A activities. These examples highlight the strong industrial logic behind the merger. The proximity of our neighboring fields position us to find the most synergies out of this powerful combination, and we're just only getting started. On the carbon management front, we submitted another vault for permitting to the EPA for 102 million metric tons CO2 reservoir in Central California. This will be CTV6. As a reminder, we now have over 300 million tons under permit review. Like the other reservoirs, CTV6 is centrally located near major emission regions in California. In terms of execution, we're targeting the receipt of California First Class VI EPA permit and the FID of our cryogenic gas plant CCS project by year end. Our goal is to inject CO2 into CTV1 before the end of 2025. From a greenfield emissions perspective, CTV expanded our storage-only CDMA with NLC energy to 430,000 metric tons per annum of CO2 emissions. This project is slated for early 2028. We now have nearly 3 million metric tons per annum of CO2 projects under consideration throughout the state. You can find all the details in our CTV update release issued today. Now, I would like to move to another important opportunity for us. and that is to support the growth of data centers to service California customers while aligning with California net zero ambitions in what we refer to as the Carbon Valley, where Silicon Valley and the Central Valley meet. CTV's assets are uniquely positioned in the heart of a state that is home to two of the top 10 data center markets in the U.S., Silicon Valley and Los Angeles. We offer viable solutions for the demands of the tech industry today and a solid runway to meet the needs of tomorrow. First, we can provide data centers with the key ingredients they need to operate. Large plots of land, access to fiber networks, water, power infrastructure, natural gas, and related interconnections. Our LKILS complex, for example, is in the sweet spot and can meet the data center needs and provide accelerated time-to-market benefits that other potential competitors simply cannot match. Our second advantage is that we can utilize our resources and energy expertise to support the development of carbon-free baseload power before the end of the decade. California has few in-state dispatchable sources, and we believe retrofitting combined cycle natural gas with CCS is a solution that delivers both the market needs of low emission and reliable power. Alternatively, our 320 million metric tons of pore space throughout the state to support the decarbonization of over 2 gigawatts of new or alternative power to service co-locators and big tech alike. CTV's offerings align with the state's ambitious carbon neutrality goals without exacerbating power shortages or pressuring power prices in California, which are already among the highest in the nation. With that, I'll hand it over to Nelly.