California Resources Corp Q1 FY2025 earnings call

Key Points

• CRC executed well, delivered a solid quarter, and reaffirmed full year 2025 outlook.
• Achieved over 70% of $235 million annual synergies from the Aera merger, expecting full target by early 2026.
• Strong cash flow underpinned by a hedge portfolio (70% of oil production and 70% of natural gas consumption hedged) and diversified revenue stream.
• High-quality conventional assets with low decline rates, high net revenue interest, and high ultimate recovery rates.
• Returned a record $258 million to stakeholders in Q1 through dividends, share buybacks, and debt redemption.
• Continued cost discipline led to operating costs being 5% better than guided, and expects to reduce operating costs in H1 2025 by nearly 10% vs H2 2024.
• Strong balance sheet with leverage below 1x, over $1 billion in liquidity, and nearly $200 million in available cash.
• Progress on cost reductions from Aera-related synergies, and progress in carbon management and power business with initiatives like the Elk Hills CCS project and power business opportunities.

In the first quarter, California Resources Corporation (CRC) had flat net production at 141,000 BOE per day. Adjusted EBITDAX was $328 million, net cash flow before changes in working capital was $252 million, and free cash flow totaled $131 million. Combined operating and G&A costs were $388 million, approximately 5% better than guided. Revenue contribution details weren't explicitly broken down by product segment in terms of percentage, but the overall financial performance was highlighted.

Guidance Points

• Reaffirmed full year 2025 adjusted EBITDAX guidance of $1.1 billion to $1.2 billion.
• Target average annual production of 136,000 BOE per day.
• D&C capital investment expected to be between $165 million and $180 million.
• Expect to reduce operating costs in the first half of 2025 by nearly 10% compared to the second half of 2024.

Risks

• Macroeconomic uncertainty and commodity price volatility.
• Potential challenges in refining capacity in California affecting crude sales.
• Uncertainties in CO2 pipeline regulation and carbon tax credit processes, though progress is seen in addressing these.

Q: How is CRC able to achieve similar EBITDA using a much lower Brent assumption?

A: CRC is seeing tailwinds from synergy targets, with the team outperforming in integrating Aera assets. It involves stages like refinancing, supply chain advantage, and infrastructure consolidation, combined with a strong hedge book.

Q: Can you give an update on the Huntington Beach property and potential real estate marketing?

A: CRC submitted a proposal to the city of Huntington Beach, going through community reviews. The asset is for sale, with plans for a mixed-use community with 800 homes and 350+ hotel rooms. It's expected to take roughly 3 years to get approvals, and there's interest from developers but no formal bidding process yet.

Q: What's the update on the Elk Hills PPA and funding for carbon capture?

A: The Elk Hills PPA is in progress, with interest from data centers and large offtakers. Funding for carbon capture involves considering revenue stacks like 45Q, LCFS, and avoidance of carbon tax, with progress in engineering and seeking the right long-term partner.