• Production: 145,000 barrels of oil equivalent per day; oil averaged 113,000 barrels per day.
• Adjusted EBITDAX: $402 million.
• Free Cash Flow: $141 million.
• Cash Balance: Over $200 million.
• Liquidity: $1.15 billion.
• Capital Expenditure: $79 million.
• Shareholder Returns: $76 million returned, including $34 million in dividends and $42 million in share repurchases.
• Annual Synergies from Aera Integration: More than 55% of $235 million implemented.
• Oil Hedging for 2025: 72% of oil production hedged at an average floor price of $67 per barrel.

• Warning! GuruFocus has detected 1 Warning Sign with SMRT.

Release Date: November 06, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• California Resources Corp (NYSE:CRC) successfully integrated Aera Energy, becoming California's largest producer with a portfolio of high-quality, low-decline, and low-capital intensity conventional fields.
• The company exceeded expectations in operating results, driven by strong production, improved operational efficiencies, and lower costs compared to the previous quarter.
• CRC generated $402 million in adjusted EBITDAX and $141 million in free cash flow, with cash costs approximately 4% below guidance.
• The company has a robust liquidity position of $1.15 billion and is committed to reducing debt while continuing dividend and share repurchase programs.
• CRC's carbon management business is gaining momentum, with significant interest from stakeholders and multiple projects in various stages of development, including a new MOU for carbon solutions with a leading California power company.

Negative Points

• Despite progress, CRC still faces challenges in fully implementing the remaining $100 million of Aera synergies, particularly in operational areas.
• The company is reliant on regulatory developments for CO2 pipeline regulations, which are necessary to scale their carbon management business.
• There is uncertainty regarding the political landscape and its impact on the Inflation Reduction Act (IRA) incentives, which could affect CRC's carbon capture projects.
• CRC's future capital allocation for the carbon management business remains uncertain, with potential larger capital investments expected beyond 2025.
• The company faces ongoing challenges with obtaining drilling permits from CalGEM, which could impact future production and development plans.

Q & A Highlights

Q: Can you provide thoughts on the CO2 pipeline regulation in California and a timeline for it being addressed? A: Francisco Leon, President and CEO, explained that CO2 pipelines are essential for scaling the business. The company is looking at both state and federal regulations to facilitate this. The market demand for reducing emissions is evident, and CRC is working on building a portfolio of brownfield emitters. The timeline for pipeline regulation is still uncertain, but progress is being made.

Q: How does the political landscape affect your carbon management agreements, especially with the IRA bill? A: Francisco Leon stated that carbon capture and sequestration have bipartisan support, and the IRA is crucial for advancing technology and investment. CRC's projects in California have multiple incentives, including the LCFS program and voluntary credit markets, which provide flexibility beyond the IRA.

Q: Can you give us a sense of the work building up behind the Class 6 permit and whether we should expect more news flow after getting that permit? A: Francisco Leon mentioned that obtaining the Class 6 permit is a significant milestone, and the company is well-positioned to capitalize on the opportunity. There is a strong market need for carbon management solutions, and CRC expects more developments and partnerships in the coming months.

Q: How should we think about capital allocation for the carbon management business next year? A: Francisco Leon noted that the first project, 35R, is a low-capital project costing less than $20 million. The company expects to reach FID shortly after receiving the EPA permit. Capital allocation for 2025 will focus on this project, with larger investments anticipated in 2026 as the business scales.

Q: What are your thoughts on oil realizations given the potential refinery shutdowns in California? A: Francisco Leon explained that California's demand for oil remains strong, with refineries built for California crude. CRC's crude is used as a blending source, maintaining high realizations even for heavy crude. The company expects this demand to continue.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.