管理層發言
Good day, and welcome to the California Resources Corporation Second Quarter 2026 Conference Call. All participants will be in a listen-only mode, followed by a question-and-answer session. After today's presentation, there will be an opportunity to ask questions. To withdraw your question, please press * then 2. Please note this event is being recorded. I would now like to turn the conference over to Daniel Juck, Vice President of Investor Relations. Please go ahead.
Good morning, and welcome to California Resources Corporation's Second Quarter 2026 Conference Call. We hope you have had a chance to review our earnings materials, which include our non-GAAP reconciliations. Today's call includes forward-looking statements and actual results may differ due to factors described in our earnings release and SEC filings. Following prepared remarks, our leadership team will take questions. As a reminder, please limit your questions to one primary and one follow-up. I will now turn the call over to Francisco J. Leon.
Good morning, everyone. We delivered a solid quarter in our oil and gas business, driven by strong operational execution, continued synergy capture, and sustainable drilling efficiency gains that strengthened our outlook. We also made good progress on our emerging carbon management and behind-the-meter power platforms, and announced two important midstream transactions that build on our long-term strategy to generate shareholder value from our California assets. Let me begin with some comments on our strategic plans. Clio will then walk through our quarterly results and outlook. While focused on near-term execution, our team is also looking to the future. The state's regulatory environment, once seen as an impediment to our industry, is now supporting local onshore production to the benefit of all Californians. Events in the Middle East have caused ripple effects throughout energy markets. Here at home, California's reliance on imported crude and refined products has created temporary transportation and price challenges across the state, highlighting the need for energy security and reliable, stable sources of local supply. That is precisely the need CRC is built for. For the last several years, CRC has been intentionally building a stronger and more integrated California energy platform. Our Aera and Berry mergers created scale, new avenues to profitably grow our business. As the largest producer in the state, the expansion of our midstream infrastructure and marketing capabilities was a logical step to bolster our long-term strategy. Greater control of critical infrastructure will provide options to enhance the commercial capabilities of our business and stability of our operations. This benefits CRC as well as other producers, working to move more local product to local markets and ultimately supports California's energy security and affordability. Last quarter, we took the first of two steps to strengthen our midstream position, purchasing the Line 100 pipeline from Phillips 66 for a nominal amount. The deal added about 120 miles of crude pipeline connecting key Central Valley production hubs along with over 1 million barrels of storage capacity and gathering, transportation, and truck loading infrastructure. That brings us to the Crimson acquisition we announced today. Crimson's midstream platform covers a roughly 2,000-mile network of California crude oil pipelines that run through the heart of our producing fields. The transaction advances our long-term strategy and connects our production directly to California's highest-value markets. As the state's largest producer, our integrated platform will provide greater flexibility to move both CRC and third-party volumes, improve price realizations, generate more diversified cash flows, and drive new efficiencies. The all-cash deal is financially accretive and is priced significantly below prevailing midstream sector valuation multiples. Because certain Crimson assets operate as a common carrier, the transaction requires CPUC approval. We recently received tentative approval with no conditions attached and we expect a final decision later this month. Recent market conditions have illustrated the strategic value that Crimson adds to our platform. Takeaway capacity over the last quarter was constrained due to what we expect to be temporary marketing disputes with a pipeline operator and certain off-takers, limiting our ability and that of other local producers to transport barrels to previously contracted markets and pressuring oil price differentials from replacement sales. We have taken proactive strategic steps to broaden our transportation and marketing options and improve the reliability of our market access through new agreements and partnerships. We fully expect these actions, together with the resolution of the ongoing disputes, to strengthen differentials and bring realizations in line with historical levels. Now, let me focus on the expansion of our growth businesses. On carbon management, we recently commenced CO2 injection and achieved first revenue at California's first Carbon Capture and Sequestration project at Elk Hills. This places us on an esteemed list of commercial-scale sequestration operators globally. We have demonstrated our ability to permit, construct, and operate an EPA Class VI project. The startup showcases our operating, technical, and regulatory competencies, all of which can be applied and scaled across the state. We are tracking the CPUC's Reliable and Clean Power Procurement Program, or RCPPP, as a potential market for natural gas with CCS. Updates from the state are expected this fall. This could be meaningful for CRC as we are well positioned to support California's growing demand for reliable, lower-carbon power. California has the potential to decarbonize approximately 17 gigawatts of power. For our Carbon TerraVault platform, this includes a near-term opportunity of approximately 2.4 gigawatts in the Central Valley. Using our Elk Hills power plant and adjacent infrastructure, we recently partnered with Beacon Data Centers, an energy-focused North American data center co-developer, to advance the Golden Valley Technology Hub. The proposed 275-megawatt campus would span 100 acres adjacent to Elk Hills and combine our proven permitting and operating experience in California with Beacon's data center expertise. With our co-developer partner funding early-stage development, the project will leverage industrial acreage, existing infrastructure, and firm power from our Elk Hills plant to help meet rapidly growing demand for power and AI. The proposed behind-the-meter design is expected to minimize power and water usage. We have submitted the conditional use permit and expect the environmental review process to advance later this year. Our ongoing discussions with a handful of global hyperscale data center operators have accelerated and reinforced our confidence in the commercial viability of the Golden Valley Technology Hub. We look forward to reporting on our progress in the coming quarters. With that, I will turn it over to Clio Crespy.
Thank you, Francisco. Let me cover our second quarter results and our outlook. Net production averaged 149 thousand barrels of oil equivalent per day, with oil representing 81% of total volumes. Oil realizations were approximately 95% of Brent before hedges within our second quarter guidance range. Operating costs were in line with guidance at $347 million. As expected, G&A declined nearly 9% reflecting Berry-related efficiencies. Second quarter adjusted EBITDAX was $338 million, while operating cash flow and free cash flow before working capital were $300 million and $151 million, respectively. We have implemented more than 100% of our 2026 Berry-related synergy target, six months ahead of schedule, representing approximately $103 million of annualized savings. Across our integration and broader cost reduction initiatives, we now expect up to $470 million of cumulative synergies and structural cost reductions through 2028. This reflects the quality of the combined portfolio and our ability to translate integration into durable margin improvement. Execution continued to improve during the quarter. In California, time to market improved approximately 25%, allowing us to complete more wells, sidetracks, and workovers than planned. In the Uinta, we drilled four wells ahead of schedule, reduced cycle times, and our D&C costs were below plan. The team continues to target first production in the fourth quarter as planned. These efficiency gains allowed us to pull activity forward into the second quarter, resulting in total capital of $149 million for the period. As a result, we have streamlined our development program, reducing planned 2026 D&C and workover capital by $10 million. We are redeploying those savings into targeted facilities investments, which is why our total capital guidance range remained unchanged. More importantly, we believe the underlying drilling and capital efficiency gains are sustainable. We now expect to operate an average of approximately five rigs in California during the second half of 2026 compared with six in our prior plan while maintaining nearly flat gross entry-to-exit production. Faster time to market is only half of the story. We have also materially improved well productivity. Approximately 80% of the wells drilled year to date have outperformed their type curve with average initial production more than 10% above expectations. As you know, production from our conventional wells peaks within six to 12 months after coming online and recent activity will benefit 2027 volumes. Together, accelerated cycle times and stronger well productivity are a powerful combination and have meaningfully improved our long-term maintenance capital outlook. We now estimate that California production can be maintained with six rigs on a normalized annual basis—one fewer than previously projected—and approximately 5% lower D&C and workover maintenance capital. Both represent meaningful structural improvements in the capital efficiency of the business. During the quarter, we refinanced our remaining 2029 senior notes with new senior notes due 2035. This extended our weighted average debt maturity from 5.5 years to 8 years, reduced annual expenses by $5.5 million, and achieved the lowest credit spread in CRC's history. Our capital allocation priorities remain unchanged: invest in high-return organic growth and strategic opportunities, maintain a strong balance sheet, and return meaningful capital to shareholders through a sustainable dividend growth model and opportunistic buybacks. Temporary takeaway constraints during the second quarter related to marketing disputes and subsequent operational needs required us to temporarily build inventory of approximately 1.5 thousand barrels of oil per day during the quarter, increasing operating costs and negatively impacting our differentials. Absent these temporary impacts, production would have exceeded guidance while adjusted EBITDAX and operating cash flow before working capital would each have been approximately $25 million higher. We are actively addressing this matter while executing on alternative logistics and marketing solutions. By the end of July, we had sold the substantial majority of this inventory. As a result, we expect third-quarter oil price realization of approximately 93% of Brent. We think it is a prudent assumption based on current market conditions. To be clear, we do not view that as a new long-term run rate. We expect realizations to improve as the commercial and logistics actions already underway take effect. Those actions will give us a broader slate of alternatives to move CRC and third-party barrels to California's highest-value markets while strengthening our cash flow outlook. Turning to guidance, we target full-year net production to average 153 thousand barrels of oil equivalent per day. While maintaining our full-year capital guidance of $520 million to $560 million, including Uinta, our outlook continues to reflect approximately 1% entry-to-exit production growth. Importantly, we continue to see our full-year realizations at about 94%, within our original 94% to 98% range. We expect to enter 2027 at the normalized California six-rig pace contemplated in our long-term maintenance framework. Updated 2026 guidance will be provided following the close of the Crimson transaction. Disciplined execution, lower costs including synergy capture, and strategic actions are supporting margins. Ultimately, stronger well performance and sustained operating efficiencies are enhancing free cash flow while lowering the long-term maintenance capital required to sustain our unique low-decline California production base. I will turn it back to Francisco J. Leon.
Thanks, Clio Crespy. Let me close with a quick summary before opening the line for questions. First, today's midstream transaction strengthens our California platform, reinforcing market access, improving margins, and increasing our ability to move local barrels to the state's highest-value markets. Second, we are executing very well: better wells, lower cost, and sustained efficiency gains are reducing long-term maintenance capital and rig requirements while reinforcing free cash flow resilience. Third, we are advancing our carbon and power platforms. The start of CO2 injection and revenue generation in California's first CCS project were great milestones, and our new planned project with Beacon Data Centers at the Golden Valley Technology Hub is leveraging growing demand for firm power and data center capacity. Together, these actions make CRC more integrated, more efficient, and better positioned to create durable value in California. Operator, we are ready for questions.
分析師問答
Thank you. We will now begin the question-and-answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please limit yourself to one primary and one follow-up. At this time, we will pause momentarily to assemble our roster. The first question today comes from Wei Jiang with Barclays. Please go ahead.
Hi, good morning. Thank you for taking my question. I want to start off with Crimson. Francisco, you mentioned earlier that the company has been intentionally building an integrated California energy platform over the last few years. That includes the expansion of midstream infrastructure. So can you just frame this Crimson acquisition within that broader strategy? What role does the asset play in that vision, and how long have you guys been thinking about this opportunity?
Hey, Wei. Good morning. Yeah. We have been thinking about midstream integration for some time. We started thinking about Crimson, in particular, about three years ago. But the first order of business was to acquire Aera and Berry, which gave us a lot of scale, a lot of remaining oil, and expanded our footprint considerably. As that footprint was growing, we felt critical infrastructure around those barrels was going to be key to step into, and it was truly a natural step. We already managed a lot of pipe in California, so we understand the systems really well. Now we are getting into common carrier, which adds contractor revenue that we really like. These are assets that are very difficult to replicate. If you think about our playbook, it really has not changed from an acquisitions perspective: we are looking for high-quality assets at attractive values, in assets where we have an advantage and where the integration that comes into our hands becomes even more valuable. So we think we have a good track record of doing that and Crimson fits that pattern. In terms of the asset, it's a 2,000-mile system that connects to most of our key fields and across multiple basins. It supports our production but also improves market access and strengthens connectivity to some of the highest-value markets in the state. Restoring capacity for this pipe was important too from a state perspective. It addresses a real constraint for other producers and ultimately that flows to consumers in the state. This pipeline system is needed, and I think you are seeing that reflected in a supportive regulatory process. As I mentioned earlier, we have tentative CPUC approval with no conditions and expect to receive final approval later this month. So if you step back, Crimson is doing exactly what an acquisition should be doing for us: it is adding more stable contracted cash flow and makes the broader California platform even stronger.
Got it. That makes sense. And maybe tying that to the differentials and the transport constraints that we are seeing right now, can you just help us understand a bit better just what is driving the current bottleneck? Maybe more color on this pipeline legal case that you mentioned earlier? What gives you the confidence that this pressure is going to be alleviated soon? And just maybe some outlook into 2027—how this differential improves from here?
Sounds good, Wei. I will give you some high-level perspective and Clio can talk about some of the impact in the quarter. We see this impact as being temporary. To start, let me give a little context on what we are seeing in California because a lot has changed over the last year. In our view, a lot of things are improving significantly. We are running about seven rigs in the state today, five of those rigs are CRC's. That is the highest level of activity we have seen in the state since 2023. If you heard some second-quarter earnings from refineries, they are starting to make significant capital investments back in the state. On top of that, production has been increasing and the pipes in the southern system are running full. If you take it as a whole, you will see that the signs of the market are significantly improving. Now you couple that with the Middle East conflict and it is leading to some near-term conditions that are favoring refiners. On top of that, we are dealing with a pipeline operator that is behaving in a manner we feel is inconsistent with established tariffs. We view those as temporary conditions and not structural changes to the California market. Again, we see the market as improving drastically. Our team has done a great job—between our marketing organization and our relationships with refineries, we have multiple transportation connections. We did a timely acquisition of Line 100 that provided a million barrels of storage and gave us a lot of options. What you are seeing is reported differential impacts for some producers in the basin approaching about $20 a barrel; we limited that impact for CRC to about $2 a barrel. We think we have seen the worst of the impact and are working really hard to improve to get back on track to historical levels. The other way to think about it is we are also thinking beyond the noise and disruption. Going forward, we see a potentially fragile global energy supply chain where reliable barrels produced under stable governments are becoming increasingly valuable, which makes owning this California infrastructure even more important. That is where Crimson came in. As we move into 2027, we like the greater control of midstream, the multiple market connections and storage. We have a strong marketing capability that allows us to move our barrels to the best markets and ultimately capture value. With that, I will turn it to Clio for financial context.
Thanks, Francisco. From a financial perspective, the key point here is that we view this as a temporary commercial issue rather than a change in the underlying earnings power of our business. There are three things to highlight. First, operationally this was a strong quarter. Despite the temporary disruptions, we still realized approximately 95% of Brent, which was within our second-quarter guidance range of 94% to 96% that we established at the beginning of the quarter before these transportation and marketing issues emerged. That speaks to both the strength of the underlying business and to the execution of the team, who adapted quickly and found alternative solutions. Second, the total financial impact during the quarter was $25 million, or less than $2 per BOE. Roughly half of that was timing related from the temporary inventory build, while the balance was primarily weaker differentials; transportation costs represent a smaller component. The substantial majority of those inventory barrels were sold during July, so that timing impact is largely behind us and those sales are already reflected in our guidance. Third, we are guiding for third-quarter oil realization of approximately 93% of Brent. To be clear, we do not view that as a new long-term run rate. We think that is a prudent assumption while the commercial and logistics actions that we have already put in place take effect. We expect the third quarter to represent the low point of realizations this year with our implied fourth-quarter guidance reflecting the beginning of the recovery. Stepping back, we currently expect full-year oil realizations of approximately 94%, which remains within the original 94% to 98% framework we established in March, before these temporary disruptions emerged.
The next question comes from Nitin Kumar with Mizuho. Please go ahead.
Hi, good afternoon, Francisco J. Leon and Clio Crespy. Thanks for taking my questions. I want to start on the Uinta. You mentioned a lot of the improvements in efficiencies in California. But if I remember correctly, you have three wells coming online by the end of this year. Can you maybe give us an update on the drilling in the Uinta and what are your plans for the asset longer term?
Yeah, sounds good. We are actually drilling four wells and we have been very pleased with the drilling performance to date. We are currently drilling the fourth well which should be done in the next few days. We're running ahead of schedule. Then we move in the completion rig in early September and we expect to have all four wells online and producing before the end of the year. On the cost side, these wells are roughly about $11.5 million each, and based on what we are seeing today, we expect to complete the wells ahead of and below the AFE. So good progress on the drilling. Now in terms of what is next, we are evaluating our strategy in the Uinta. It is a very large position—100 thousand acres with good resource potential—but it is largely undeveloped and it requires a significant amount of capital to develop to scale. So when we compare the Uinta assets with California, Uinta has higher capital intensity and higher breakevens, lower crude quality (waxy crude), higher transportation and operating costs, and steeper declines. Ultimately, it is a drag of about 1% on our realization. Putting it side by side with our California assets that have very low decline and generate better returns, it is hard to see us allocating a lot of dollars back into the Uinta. So I would say it is a non-core asset for CRC and we continue to evaluate the best way to maximize the value going forward. As of today, I do not see it competing for long-term capital in our portfolio.
Got it. Okay. And so maybe just to clarify, does that mean that with the four wells you have tested enough to say that maybe this is something that does not belong in the portfolio? And is there a timeline for the asset to be sold? Or are you going to wait for the results?
I would not say there is anything around the drilling that disqualifies it. Ultimately, we need the completion crews to come in. Based on what we have seen, we like the well performance. It is more around the type of asset—unconventional high-decline asset that is going to require a significant amount of capital. So like I said, we will see how the rest of the program goes, but if you want a long-term answer, I do not think it is core to our business.
Got it. I am sorry, want to sneak one more in, just quickly. You talked a lot about the integrated platform with this purchase of Crimson. Clio, maybe looking at Slide 10, from a capital allocation standpoint, how does the Crimson asset fit in and what was attractive about this specific asset?
Thanks, Nitin. That is a great question. The important distinction here is how we evaluate investments. Every dollar competes for capital, whether we are drilling a well, acquiring an asset, refinancing debt, or returning capital to shareholders. We apply exactly the same investment framework to every capital allocation decision. From that perspective, Crimson met every one of our investment criteria. We have been building toward an opportunity like this for a while. We were patient, and when strategy met opportunity at the right valuation, we acted. Strategically, it strengthens an integrated California platform that we believe has significant long-term competitive advantage. Financially, we are acquiring the asset at approximately 4.4x estimated 2027 EBITDA, which represents a very attractive entry point valuation relative to comparable public midstream assets. We also believe it is a highly accretive use of capital, particularly when you consider CRC-specific synergies and the commercial opportunities. We have demonstrated our ability to create value by integrating acquired assets within CRC's existing infrastructure—for example, connecting Bell Ridge to our Elk Hills processing system immediately increased gas and NGL production while improving the economics of the combined asset base. We do not evaluate Crimson solely on the cash flows generated by the pipeline itself; we also evaluate what it does for our broader California platform. It is improving market access, increasing commercial flexibility, enhancing realized pricing, and ultimately creating more value across the integrated business. If I put it simply, we believe Crimson is worth more inside of CRC than it would be as a standalone midstream company. We have been very deliberate about where we want to build the business and equally disciplined about the price we are willing to pay. We are very comfortable passing on opportunities until they meet both our strategic and financial objectives, and that is how we think about capital allocation: the right asset at the right valuation at the right time.
The next question comes from William Barber with UBS. Please go ahead.
Hi, Francisco and team. Thanks for the time. My first question is just around the Golden Valley Tech Hub. If you could just walk us through how the partnership with Beacon Data Centers came about. And then with the conditional use permit submitted and environmental review expected to advance later this year, can you outline the critical path forward from here? How should we be thinking about sequencing of hyperscaler commitments, power agreements, permitting, and, obviously, FID?
Thanks, William. We talked to a lot of developers and ultimately Beacon was the best fit for us. They are doing many large projects in North America with data centers, and they bring great engagement and current engagement with potential hyperscalers and tenants. They are experienced in construction and capitalization of projects. That is a nice complement to our land position, our power infrastructure, and our ability to permit and execute in California. We think it is a strong combination. Data center development is a bit different from what you see in some other sectors. We are comfortable starting with project development rather than with headline commitments because that is ultimately what gets projects done in California—that local development, permitting, and stakeholder engagement. We already have land, power, and permitted infrastructure; our focus is on de-risking the project relative to what hyperscalers actually need. In our conversations, hyperscalers are saying the power procurement cycle is evolving. The electrons that were readily available are gone, and they are focusing back on cleaner and reliable electrons. They care about certainty and timing, and they care about community relations. We think Golden Valley is well-positioned for that. As you noted, we filed the conditional use permit. On the power side, we have designed triple redundancy into the power solution; it will be a behind-the-meter solution so we are not dependent on waiting years for new grid interconnection. We also designed around two major friction points: water and community support. The project has very low water use with closed-loop cooling, and on the community side, we have documented support from over 100 local residents and business owners. From here, the workstreams advance in parallel: hyperscaler engagement and commercial agreements, permitting, engineering, and financing. That is how projects get done in California—advance multiple pieces together—and that is something our team knows how to do.
Got it. Thanks for that. Maybe switching over to the E&P business. You guys have improved execution enough to run California on five rigs through year-end and six going forward, and you stated a 5% lower maintenance capital required in 2027 and beyond while your 2026 wells are also coming in ahead of expectations. What were some of the key drivers and initiatives here? How durable are they? And ultimately, what does this mean for capital efficiency and your production cadence heading into 2027?
Thanks. We have talked a lot about acquisitions and how those assets are better in our hands, and I think you are seeing that come through in operating results. Our team is doing a great job operationally: days to total depth are down roughly 25%. We now have a continuous drilling campaign with dedicated rigs and crews and good coordination with the CRC operating team, which reduces idle time and gets wells online faster. About two-thirds of the wells we are drilling are in fields previously operated by Aera, so we are seeing the benefit of applying combined operating practices across the portfolio. Nearly 80% of the wells we drilled to date are outperforming the type curve—about 10% above expectations—so every rig dollar is buying more production than we underwrote on the deals. Those efficiencies translate into maintenance capital. We expect to run five rigs in California through the end of the year and plan to add a sixth rig at the beginning of 2027. The five rigs are delivering the same well count but with roughly $10 million savings for 2026, which sets up 2027. The go-forward maintenance drilling, completion, and workover capital is dropping about 5%, in the range of $450 million to $475 million. There is additional upside as the team continues to integrate and optimize, but we will only include that in outlook once it is demonstrated and sustainable.
The next question comes from Arun Jayaram with JPMorgan. Please go ahead.
Yes, good day. I had a question on capital allocation. Your framework has been built on a kind of balance, and this quarter you funded the Crimson acquisition with cash but did not do share repurchases. How should investors think about this trade-off? And what is your appetite for share buybacks going forward given the valuation of the stock and some of the unique growth opportunities you highlighted today?
Hi, Arun. I would not frame it as a trade-off. Our framework is intentionally balanced rather than sequential. We allocate capital to the opportunity we believe creates the greatest long-term per-share value for our shareholders. This quarter, we concluded that Crimson represented one of those opportunities. The absence of share repurchases this quarter is not a change in our philosophy or in our view of the intrinsic value of CRC. We continue to see compelling value in our shares at current prices. While we are actively executing strategic transactions, there are naturally periods when our ability to repurchase shares opportunistically is more limited; those are timing considerations, not capital allocation changes. Opportunistic buybacks remain an important part of our capital allocation framework. Importantly, we have the balance sheet to support flexibility: we are operating at approximately 1x leverage, have no meaningful debt maturities for the next seven years, and our revolving credit facility remains undrawn. That gives us the flexibility to invest in strategic opportunities like Crimson while maintaining capacity to be opportunistic across all capital allocation priorities.
Great. And my follow-up is on synergy capture. You are ahead of plan on the Berry synergies—over 100% of your targeted synergies for the year. How should we think about broader savings beyond 2026 through 2028? Maybe help us think about what is left to go in terms of G&A, operating costs and capital efficiency? What can we underwrite in the model even next year?
It is helpful to distinguish between integration synergies and structural operating improvements, because we are increasingly talking about the latter. The Berry integration itself is substantially complete, delivering more than 100% of our target six months ahead of schedule, which now represents more than $100 million of annualized savings. More broadly, we are entering the next chapter. We have already delivered about $400 million of the roughly $470 million target of cumulative synergies and structural cost reductions. We are about 85% of the way there. The nature of the remaining opportunity has changed. The first phase was largely about integration and eliminating duplicative costs. The next phase is increasingly about optimizing the combined footprint and operating assets more efficiently together than independently. Examples include infrastructure consolidation—connecting additional Berry fields to our cogeneration facilities to reduce purchased power costs; bringing stranded gas into central processing facilities to increase NGL recovery; optimizing oil blending and transportation; and continuing to improve capital efficiency across the portfolio. We demonstrated this playbook with the Aera integration and are applying it to Berry. For 2027 and 2028, I would increasingly view the remaining synergies as structural improvements to the economics of our platform—lowering operating costs, reducing maintenance capital, and improving long-term cash flow generation.
The next question comes from Octavian Jordan with RBC. Please go ahead.
Yes, good afternoon. Thanks for your time today. With CTV-1 now injecting CO2 and generating revenue, how does this milestone change the commercial outlook for the broader Carbon TerraVault platform? And how could programs like the RCPPP help accelerate future CCS and power opportunities in California?
Octavian, thanks. We are proud that our first-of-a-kind project in the state is now operational. We are capturing and injecting about 270 tons of CO2 per day, converted to roughly 5 million cubic feet per day. Everything is performing as expected. We are on target to have an annualized number of about 100 thousand tons per year of capture and storage. Having this project live and operational really changes the conversations. Potential customers and partners are no longer just evaluating or permitting; they can see a project that works and a lot of the mystery around CCS is removed. The project has increased engagement with technology providers and emitters, and we are seeing potential partners willing to fund portions of pre-FID development, which helps us be more capital-efficient as we advance. The RCPPP is an important potential market signal: it recognizes natural gas generation paired with CCS as clean and firm power. That procurement framework could expand the opportunity for us. We see a near-term opportunity of about 2.4 gigawatts of power in the Central Valley that can be decarbonized, just in the focal area where we have our first permit, and we are working on permits across the state. So both the RCPPP as a market signal and the operation of CTV-1 are key to advancing our carbon management strategy.
Got it. Thank you. And just for a follow-up, you have highlighted the big debt refinancing this quarter. How should we think about the capital structure going forward and why refinance now?
Thanks, Octavian. We chose to refinance from a position of strength rather than waiting until refinancing became a necessity. The decision was whether we could make an already very strong balance sheet even stronger; we believed the answer was yes. We achieved the tightest credit spread in CRC's history, which reinforced that point. More importantly, we eliminated our only meaningful medium-term maturity and created a clean, long-dated maturity profile. We do not know what financing markets will look like several years from now, and we chose to remove that uncertainty. The result is a stronger balance sheet and greater financial flexibility. Our objective now is to preserve that strength so we can spend less time managing the balance sheet and more time allocating capital to create long-term shareholder value.
The next question comes from Nate Pendleton with Texas Capital. Please go ahead.
Hey, good morning and congrats on the acquisition. Is there any update you can provide on Huntington Beach—how you are thinking about structuring that opportunity? More specifically, what roles could partners play there, how would a structure work, and how do you expect to capture value from that asset?
Hey, Nate. We are making good progress on Huntington Beach and remain on track to get a response from the city on re-entitlement sometime before year-end. After that, the process goes to the California Coastal Commission and we expect that to run through 2028. That re-entitlement is the key to unlocking value for Huntington Beach. We started the project in 2023 and are continuing to operate and produce the oil—about 3 thousand barrels a day gross—while systematically starting the abandonment process. It is premature to talk about a developer or capital structure; we want to wait until we get re-entitlement before discussing that because otherwise we risk giving away value to a developer at the expense of CRC shareholders. More to come, but we are making progress.
Understood. And then as my follow-up for Clio, you have talked a lot about capital efficiency and capital allocation as it relates to Crimson. As you evaluate where to deploy capital across your growing portfolio internally, what metrics are you using to inform your decisions and what metrics should investors really focus on externally?
Great question, Nate. Internally, we focus much more on the full-cycle cost of replacing production and on the returns generated on every dollar of capital deployed rather than simple operating cost per barrel comparisons. That is what drives long-term value creation. High-quality upstream inventory is becoming increasingly scarce, which is reflected in M&A valuations and A&D transactions. Today, our California drilling program is delivering new production at $22 thousand to $27 thousand per flowing barrel, which is below what we paid to acquire production through the Aera and Berry transactions (which were about $28 thousand to $30 thousand per flowing barrel). These are materially below many recent public transactions. Of course replacement cost is only one part of the equation; what matters is the return generated on that capital. We continue to see program-level returns of approximately 4.5x ROIC and very high IRRs in the 60% to 70% range. Those metrics capture the full-cycle economics and include operating costs; they comfortably exceed our investment thresholds. That is why today's announcement on capital allocation is about spending where it creates the greatest value. Every year going forward, a larger portion of our cash flows becomes discretionary rather than maintenance capital, giving us greater flexibility to allocate capital where it generates the most value. The framework I would encourage investors to use is to focus on our full-cycle economics of replacing production, the returns generated on that capital, and the free cash flow produced after sustaining the business. That is where CRC has become materially stronger over the last several years.
We have time for one more question from Emma Schwartz with Jefferies. Please go ahead.
Hi, Francisco J. Leon and Clio Crespy. Thanks for taking my question. I wanted to start by stepping back: how do you think about CRC's long-term growth vision across E&P, midstream, power, and CCS? Can you talk a little bit about what your vision is for this company going forward? And what is your position in California that specifically makes this integrated strategy difficult for others to replicate?
Hi, Emma. Great question to wrap up. The simplest way to think about it is we are building an integrated California energy platform with very high-quality assets that are nearly impossible to replicate. We are finding ways to generate and grow cash flow on a contracted basis that ultimately grows cash flow per share. That is all wrapped around an improving outlook for California. The diversification you see is not diversification for its own sake; we are extending a market advantage. California is the biggest economy in the U.S., a massive energy market with significant barriers to entry. We already own a lot of the critical infrastructure and assets—and now with the Crimson acquisition, more midstream footprint—and we know how to operate here. I would not think of our business as four independent companies; E&P, Midstream, Power, and CCS really reinforce each other. Every barrel we produce, every pipe we control, every megawatt we generate, and every ton we sequester all strengthen the underlying asset position and build competitive advantage. We are also taking a capital-light approach in areas like data centers and CCS: we bring scarce assets and then use third-party capital to grow around that base. Look at our portfolio: nearly two million acres of mineral position, over 200 thousand surface acreage, leading pore space position for multidecade oil, gas, and sequestration opportunities, a significant midstream footprint, power assets, and a first-class CCS project. That collection of assets and their combination is our strength and advantage. We see this as a growth platform beyond oil and gas, and midstream, data centers, and CCS businesses typically command higher multiples. We see potential for multiple expansion of CRC over time, and that is how we create shareholder value. In the meantime, because we are building many of these platforms we will continue to grow the dividend and be opportunistic on buybacks. We believe there is a meaningful gap between where our stock is trading today and the value of the business we are building, which makes share repurchases an attractive use of capital in the near term.
Thank you so much. This concludes our question-and-answer session. I would like to turn the conference back over to Francisco J. Leon for any closing remarks.
Thanks, everybody, for joining us. We look forward to connecting at some of the upcoming investor conferences. Have a great day.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.