California Resources Corp Q3 FY2025 earnings call

• CRC delivered strong Q3 performance with net production, adjusted EBITDAX, and free cash flow. • Aera integration is complete, allowing a lower base decline assumption, strengthening cash flow. • Merger with Berry Corporation is progressing, adding adjacent assets and synergies. • CCS project at Elk Hills is advancing, with first CO2 injection expected in early 2026. • Regulatory environment in California is improving with key legislation supporting oil and gas permitting, CO2 pipelines, and Cap-and-Invest program extension. • Partnerships with Capital Power and others are developed for carbon management solutions at La Paloma power facility.

CRC's E&P business had net production of 137,000 BOE per day in Q3 2025, with 78% being oil. Adjusted EBITDAX was $338 million, and free cash flow before changes in working capital was $231 million. The E&P business's production performance is strong with low base declines, and after Aera integration, the annual base decline assumption was adjusted to 8%-13% from 10%-15%, strengthening cash flow generation. The Carbon TerraVault business is advancing with the first CCS project at Elk Hills cryogenic gas plant expected to start CO2 injection in early 2026, and regulatory efforts are ongoing to expand the statewide storage network.

• 2026 plan assumes average of 4 rigs, with roughly 2/3 of 2026 production hedged at a Brent floor price of $64 per barrel. • Full year 2026 capital expenditures expected to remain within $280 million to $330 million range. • Preliminary 2026 plan doesn't include impact of Berry merger but anticipates meaningful synergies post-closing. • Dividend increased by 5% in Q3, with over $200 million remaining capacity for share repurchases through mid-2026.

Q: I want to start with the MOU on -- with Capital Power. It's been our view that brownfield emitters power plants in your vicinity would need to get involved to underwrite the CTV development. My question concerns your PPA efforts from this going forward. 200 megawatts, one could argue that maybe it's not big enough, but if you're collaborating with others and presumably, there's more megawatts on offer. So as you think about developing in this business, there are others in the area that you can perhaps pull into this joint effort. So maybe just kind of stepping back, can you talk about maybe next steps for the PPA?

A: Kalei, thanks for the question. Yes, we -- the market is getting hot. We're seeing far more opportunities today than we did 12 months ago. And I think the -- as we mentioned in the remarks, having 1 of the hyperscalers, Google going into natural gas powered with CCS is similar to when you hear the hyperscale is going into nuclear, right? So it's a big moment. It's a big market signal. So the vision that we've had for Kern County, which is on Slide 7 on our deck, is to build a hub for -- to serve their data centers or the grid but at big scale. And yes, our CalCapture project, our excess power at our own plant is a big component to that. It's an anchor element to it. But now we're -- as we move with partnerships with both Capital Power and Hall Street, we're putting a significant scale on the map. So as these hyperscalers are looking now for more inference, low latency you have a site here that can serve the LA market at scale and decarbonized. So it's coming together. It's coming together nicely and it's the story of not only building data centers or increasing power, which is what everybody is looking for. But we're particularly well positioned on both the gas supply, natural gas supply that we have in basin. But also take away the CO2 emissions and store them on our side. So it's a nice integrated project and with great partners like Capital Power is a fantastic independent power producer. I think the signal is CCS is here, and this site is going to be an attractive place for us to grow that power demand. So excited about the next steps. And yes, there's a lot more to come. I think the site continues to -- we continue to find ways to grow different power elements to it and the things are coming together nicely.

Q: It's really great to see the momentum across the portfolio. My first question is on the upstream side on the PDP decline. It struck me that your PDP decline improved from 10% to 15% to 8% to 13% since like this natural decline don't typically change. So can you just speak to what's driving that improvement? Is that a function of the portfolio or anything else you're doing operationally?

A: Yes, it's a combination of things. It really is an answer that has several components, Betty. But it's first of all, it's owning great assets and conventional assets are just good rock in assets that our team knows how to manage really well. So as we move the decline rates and now that we are a year plus with the Aera assets, and we can see that this team can really bring the most out of it, we feel comfortable changing the corporate assumption. In terms of tangible things that the team is doing, if you look at 2025 and the composition of our activity, a lot of it was focused on injection and injection at Belridge. So with pressure support in these great reservoirs the oil flows nicely. So the Belridge field is performing extremely well, an asset that we acquired from Aera. We also, on Elk Hills, it was more about technology, and it's about remote surveillance. So it's -- I mean, it's an AI component of being able to identify wells when they fail and quickly repair those wells, right? So any well that's down, it's cash flow. So our team has been seeing some improvements in that surveillance and that leads us to be able to manage the down list that you have in conventional assets and manage that more effectively. So and those are the 2 biggest fields. So Belridge and Elk Hills, if you're able to move those reserves, those decline rates shallower that cascades to the rest of the portfolio, right? So -- and it's really just -- I mean, I really want to comment on the team's performance. I mean, they are just completely on the ball and doing the right things in terms of managing the asset base. So that's how you get conventional assets to perform better. It's just this blocking and tackling, it's things like surveillance, things like injections that ultimately pay off big dividends.

Q: Francisco, Clio and Omar and team on several of the milestones achieved to date. I'm probably going to ask you more questions around a lot of things you're going to be asked on today. I want to go back to just the PDP decline. Curious like as we approach sort of year-end reporting for Francisco or Omar, how you think about are we recovering more oil in place at this point with performance revisions? Or are we shifting more recovery into earlier parts of the reservoirs economic life at this point?

A: David. I'll turn it to Omar to give any incremental highlights. But yes, these are some of the largest oil fields in the country. And if you look at oil in place, they are in the billions of barrels of oil in place. If you look at the ultimate recovery factors, these are sandstones that have both good permeability and porosity. So the ability to, in a lot of cases, maintain pressure support or to go through a bypassed oil enhances those recoveries. But -- so this is different than shales, right? Shales is all about drilling and completion and about how effective can you make that single event of drilling. Here, you're managing the reservoir and now that we have both permits and a very strong backdrop or from our ability to allocate capital to these projects, we're able to really work on life of field plans to maximize that output, bring a lot of that production forward. But maybe I'll turn it to Omar to see if he wants to add anything.

Q: And then maybe Francisco, can I ask on just the high-level thoughts on the '26 plan, which I think was a pleasant surprise for everyone, just given the capital efficiency. It appears as you kind of approach a maintenance level, I'm curious as with the pending opportunity now for increased permits. It seems like your approach to capital allocation is still very much rooted in maximizing free cash per share, if I have that correct. And I guess how do you think about that in the context of now more or less receiving a call from local governments to increase production in the state?

A: Yes, David. It's a great question. So you're absolutely right. Our focus is on growing cash flow per share. And so you do look at production as 1 of the components, but it's not the only one. So the way we're thinking about 2026 is a disciplined ramp-up on capital and we have a lot of flexibility. And 1 of the things that we talked about, the type of assets that we have, but the ownership of the assets, it's also create a key advantage that we have. We own 100% of our fields. And so we controlled the spend depending on the commodity cycle. So it allows us to be very efficient. And as you make these assets better, as we've talked about, then your capital deployment becomes 1 of the highlights -- so the way we thought through it is, as we look for the best and optimal way to grow cash flow per share, it's really through a combination of drilling and also leaving cash to that we can opportunistically buy back shares, right? So I think the combination of 2 -- of the 2 with a foundation of a very, very strong hedge book, we have 64% of our oil hedge into 2026. And that's only going to improve once we close the deal with Berry. So that gives us a really good place to start delivering we need to showcase the inventory, and we have a significant runway of great inventory to go after. But we've been in a permitting constrained scenario, right? So the reactivation needs to be measured, thoughtful discipline in a way that we can showcase what this business is capable of. But you're right, in terms of the signal from the government is we need more California production. We need more Kern County production in particular. So as the state is looking for increased activity in Kern County, we will look to participate as we look to, first, grow cash flow per share and look for inventory that gets developed. We will look to participate and our contribution is going to be to effectively double our rig count for now. But we'll continue looking and we'll obviously have to see where oil prices are. We'll have to see where our share prices are as we continue to think about capital allocation. But the way we are leaning into 2026, it's a good balance between buybacks and investing in our business.

Q: Maybe just sticking on the decline rates. You had previously discussed around a 6 to 8 rig, $500 million capital program in order to keep production flat. Now that you've had this reduction in the base decline rate I was curious if you could just kind of give us some color as to what that new maintenance level may be for CRC going forward?

A: Josh. Yes, I mean, we're below $500 million, clearly. I think with our 2026 preliminary guide. That's the number that you can triangulate around. Now as we mentioned, these numbers do not include the Berry assets. So as we bring -- we closed the Berry merger, we'll refresh that number inclusive of their assets and we'll provide a full corporate number to maintain -- the maintenance capital to keep production flat. But on a stand-alone basis, so CRC and Aera assets given the improvements that we showcased in the earnings call today, we're clearly now below $500 million. We've seen Berry be able to maintain their production, total capital, and that's all of the capital with about $70 million, but we need to be able to close the transaction and provide a refresh to the market, but the baseline assumption is improving.

Q: And then it's been a while since we've gotten an update on the Huntington Beach assets and what you guys are doing there and what the permitting and that process looks like. If you could just provide an update, that would be great?

A: Yes, absolutely. So things continue to progress well with Huntington Beach. We've made a number of public filings around preliminary development plans, 800 units that could be ultimately built at the site, once it's fully approved. That's all part of the process of engaging with the City of Huntington with all the local and regulatory agencies around the project. So things are marching forward. We have a dedicated rig abandoning the wells there as we go. We continue to produce, we have abandoned the wells as we get all the permitting lined up. As we said before, we think this project is going to be ready 2028 time frame. That doesn't mean that there's not a monetization sooner. But as we looked at this project in the past, the -- as you re-entitle the land for its best use, which is residential housing and you are able to abandon the -- abandon the wells, you're going to get to an optimal price, where the market appetite will be there. We provided guidance on the cost around $200 million to $250 million to abandon the property. That was a 2023 number. We have already made number of abandonments. So that number will come down as we look for that point to monetize the asset in 2028, but things are progressing well.

Q: Congrats on yet another strong quarter. Looking at Slide 8 with your existing power generation portfolio and with some of your investments to date, can you talk about your willingness to lean further into the power generation space beyond Elk Hills such as additional plan ownership or additional investment in some more leading-edge power generation solutions?

A: Nate. So I would say for right now, the focus is going to be on the feedstock, which is natural gas, low methane emissions gas and certified -- third-party certified gas, which we think is going to be very attractive and we're the largest natural gas producer. And then on offering a CCS solution on the back end. And that's the way we're positioning the company. I don't anticipate owners of -- ownership of natural gas combined cycle plans beyond what we have at this point. We are looking for other ways to bring power forward, things like fuel cells and geothermal, there's a lot of prospectivity in California for -- for geothermal, there's a lot of appetite on fuel cells to have a CCS solution. So we're looking to see what's the right mix of providing this both the carbonized, but also baseload power that we need to be able to serve the growing market. So -- but we are the solution on CCS, and we are the feedstock on natural gas. That plays to our strength, and that's where we're going to continue to advance. And as we continue to bring some of these ideas forward more and more technologies, more and more hyperscalers. I think we'll start looking at what we have and to build that vision for a Kern County power platform that we talked about earlier.

Q: I wanted to ask a little bit about on the capital plan for 2026. So as you're talking about running 4 rigs continuously for roughly $280 million to $300 million of D&C plus workover capital -- but if I just look at your kind of E&P spend in 2025, it was 200 -- I think it's $245 million to $275 million for kind of 1.5 rigs. So just the proportion seems a little bit out of whack there. So can you kind of help me just kind of square up the numbers a bit there?

A: Yes. I think you may be mixing Leo total capital versus D&C. So the D&C for '25 is lower. We have like you said, 2 rigs, and we didn't start the year with 2 rigs. We stepped into 2 rigs later. We do have a different facility spend and the facility spend that we talked about in this quarter, which is to bring the NGL project forward from Aera. And so what we're doing is we're building a pipe from Aera to Elk Hills to bring rich wet gas to Elk Hills run it through our cryogenic plant and extract the 1,000 barrels of NGLs. It's a particularly good project because it just follows the natural gas that's already in place. It's just a more efficient way to extract incremental value from the project. But in terms of the D&C numbers, they're definitely lower for 2025. I don't know, if -- what is the number, Clio? Clio Crespy: Yes, absolutely. Leo, you're comparing, obviously, our total capital versus what we're disclosing here related to the activity pickup. But for 2025, capital, we're effectively lining up to stay within our guidance. We haven't changed that. And that spend is all encompassing. It includes, obviously, the oil and gas spend as well as our carbon management spend and so that's where you're seeing the delta here as well as our corporate level spend. But going forward, there's definitely significant capital efficiencies those gains have been through the merger with Aera, consolidating those gains has been the story for 2025. And in 2026, you're seeing that come through in the numbers and the efficiency that we're able to get from that capital spend in the $280 million to $300 million range, that's really yielding a very significant arrest of the decline.