California Resources Corp. has made strides during the first quarter in its efforts to provide reliable and affordable energy as well as maintaning a continued focus on energy transition and the replacing of fossil fuels with low-carbon energy sources.
Mark “Mac” McFarland, chief executive of the Valencia-based oil and natural gas company, said in a conference call with analysts in early May that its core low-carbon intensity exploration and production business delivered on expectations in the first quarter.
“Quarterly production was in line with guidance, which accounted for our previously announced CGP1 (Elk Hills cryogenic gas plant) maintenance, along with the Lost Hills divestiture,” McFarland said during the call.
In February, CRC sold its 50% non-operated working interest in certain horizons of the Lost Hills field located in the San Joaquin Basin for cash proceeds of $55 million, which will be used for general corporate purposes, according to a release from that month.
The Elk Hills cryogenic gas plant maintenance resulted in a shutdown of roughly six to eight weeks. As a result of this turnaround, CRC expects a decrease in the production of approximately 6,000 barrels of oil per day in the first quarter, according to the February release.
Throughout the first quarter, the company continued to advance its commitment to the energy transition, McFarland said during the call.
The carbon management team submitted Class VI permits for two new carbon sequestration projects in the Sacramento Basin. These two permit applications represent the company being halfway to its goal for the year of 200 million metric tons of CO2 of completed permit applications submitted, he added.
Carbon TerraVault is Cal Resources’ project to capture carbon dioxide and inject it into underground storage sites. If successful, Cal Resources would be the first company in the state to carry out such an endeavor.
On Carbon TerraVault One, known as CTV 1, the first such project still undergoing the permitting process from Kern County, Cal Resources is targeting the end of the year for selection of the first 1 million tons per year emitter contract, McFarland said.
The company has submitted a conditionaluse permit application and an environmental impact report to the county; it has also submitted a monitoring, reporting and verification plan to the Environmental Protection Agency.
“And we are working to submit an LCFS (low-carbon fuel standard) application for CTV 1 in the third quarter of this year,” McFarland said during the call. “These efforts highlight CRC’s uniquely positioned asset base that allows us to provide much-needed low-carbon energy today and net zero fuel for the future.”
The CO2 for the Carbon TerraVault project is from third-party providers that are among the hardest to decarbonize such as power plants, oil refineries, cement plants, processing plants and other similar facilities.
Financials
On May 5, California Resources reported an adjusted net income of $91 million ($1.13 a share) for the quarter ending March 31, compared to an adjusted net income of $102 million ($1.22 as share) in the same period a year earlier. Revenue decreased from the prior year by 58% to $153 million.
Shares in the company’s stock have gained about 12% in the 52-week period ending June 23, when shares closed at $36.52. Shares closed at $39.46 on June 29.
Scott Hanold, an analyst who follows California Resources at RBC Capital Markets, called the company in a research note after the first quarter earnings were released “more than just an oil company” and said that he continues to see the carbon management business as a significant upside option.
There are two catalysts to that business to watch over the next 12 to 18 months, he said.
The first is agreements with third-party emitters amounting to 1 million metric tons of CO2 a year by the end of the year, and secondly, the approval by the EPA of its first of two Class VI permits in mid-2023.
“Until then the core oil & gas business is generating strong FCF (free cash flow) at current heightened commodity prices,” Hanold wrote in the report. “Shareholder returns should remain a prominent outlet for FCF with CRC increasing its buyback authorization by 86% to $650 million.”
During the conference call with analysts, Hanold specifically asked about the buyback program and how the company went about doing it.
“Have you considered looking at privately negotiated kind of transactions to suck up some of the liquidity from the non-traditional holders?” Hanold asked.
Shawn Kerns, the chief operating officer of Cal Resources, said the company has the capacity to look at other forms of buybacks going forward.