CRC - Earnings call transcript Q2 2018 | California Resources Corporation

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Operator

Good day and welcome to the California Resources Corporation Second Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference call over to Mr. Investor President, Senior Espenshade, Relations. Scott Mr. is Espenshade, sir. the floor yours,

Scott Espenshade

is our on Senior of Vice Corporation’s Executive Investor risks you. today’s securities quarter GAAP I’m cause Executive Welcome President those of Today’s second financial release. CRC’s as Officer implied available President we team. in Espenshade, Scott statements. call on Mark financial into and quarter website, statements would Participating Resources Thank I are our certain of Relations. of the Officer, CRC; and Smith, provided executive Vice non-GAAP plus insights the conference call slides to Investor highlight conference information call. in Stevens, and measures expressed Relations have additional Todd contains operations, President website XXXX several Senior Chief provide second that section as and well Chief Investor slides earnings their These to information. www.crc.com. in like meanings our uncertainties Financial the and members our other portions and Relations within differ laws. to these from in to reconciling comparable These additional results measures statements of to Also, discussed and forward-looking our that federal is results, or projections subject actual may directly most California

our XX-Q, today’s operations X CRC the A when transcript statement will that get factors following believe cautionary on great is in least self-side New strategic our the ask and our be available earnings We in and analysts. company’s in and information that update plans filed available Day Additional XX be will which York this October our made release. the available and on days an later note, a to detail. opportunity will could in and results following it on will available We a is hosting to for website being run cause review City investors call you would an through for institutional replay Analyst be today. on Please call. at be differ

a time limit primary our questions for the would similar now remarks; of ask at their follow-up. end prepared Todd. As participants over I’ll and call and to have we earnings that turn a reminder, allotted Q&A to a the

Todd Stevens

you, Scott, earnings attending for you thank everyone to call. Thank and today’s

quarter delivered value second the for shareholders. of During our XXXX, CRC solid

We strong XXXX build continue investment to our We’ve to in operational increased and demonstrated momentum XXXX. into strengthen lean balance capital sheet execution. and

operations to value-oriented aligned is to with approach cash margins. deliver long-term drive purposely growth strong strategic Our

focused have underpin Our runway execution clear strategy we our shareholder and to strengthening position deliver value. financial enhanced and a

America and CRC’s stacked with expertise more in Over past we the across the We XP is our operating billion rich of new months, investors. with our peers that feedback assets discuss our the with California X.X Reserves many is of is than scope had opportunity among to net acres unmatched North several we’ve unrivaled. million business received way lead reservoirs. The the $X.XX

most like the to shallow breadth primary from chain, players. not to value California recovery our flexibility we’re simply waterflood allows from exceptional and the across optionality all steamfloods, portfolio So produce limited steamflood mechanisms, and to shale. of for Rather, and

and upside optionality infrastructure. integrated expiration the conventional a have also we characterized opportunities premiums Simply company, We and Brent differentiated are to to put, our unconventional by high based significant on capture pricing. by

pressure We cycle. who have management the been have successfully and and operational through navigating teams, commodity tested

around high growth year. robust to the to our drive our flow, at hedges momentum cash assets from in of extend value-oriented projects. base to We end low-decline particularly in and our with as are generating VCI we significant XXXX production fields place the put off this price life ceilings our Now roll sustain of asset our look

rate Additionally, while operating has our of absolute EBITDAX focus coming We continues improved annual returns bring down been. to deliver we growth enhanced to continuing a double-digit the to which of as our since compound level all CRC to debt, been top and expect this, accomplish savings cost priority over efficiencies deliver on years. intend it’s

a Of mid-cycle business mindset, strength control With capital our diverse to model is course, reflect flexibility us of allows in high-degree assets this our to prudently which CRC increased have we that the pricing current resilient our environment. operational across capital invest manner. program in disciplined

for commitments measured more. to partners annualized capital approximately our increasing capital very between JV $XXX to of by range approach an $XXX XXXX. million investment a taking from million includes our We’re This or million $XXX of $XXX million

capital increased performance, operational of flows synergies enhanced by to year prices NGL strong due to generations program expanded higher for supported increased from our cost cash and a consolidation addition the Elk Our and revenue in the Hills. oil realized

cash fundamentals commodity crude accordingly production We’re and oil capital markets and to flow and keenly performance. value-oriented monitoring growth reflects enhance our our plans

of maximize value portfolio, our As remain demonstrability and the cash differentiator competitive our that CRC. to continue for expect optionality we key within the long-term over we a

slate now is tranche we currently flexibility, supplemented XXXX, their which includes total – date, first to $X.X annually. human drive further commitment committed to believe enhance we million. which invest MIRA’s serves the of We’re JV with inventory million. value-oriented up our capital our operational by or has JV of commitment capital approximately This $XX operational to have million the To $XXX deployed. have been increasing project of deployed to in project $XX and second underscore the $XXX quarter aggregate billion million growth inventories tranche BSP To Capital, managing to strong third flexibility. production our of cash committed flow

is growth a depicted Elk to at significant next is The on for X. stage of interest Hills inventory proving Slide the be at robust asset. consolidation flagship Our driving catalyst our of

it the has the and Washington XXX approximately the a Houston. equivalent, size are reminder, oil in United approximately Hills surface in than barrels of or a the place fields area in is Elk Regional of Loop larger field As of billion States. the one largest oil estimates DC XX

infrastructure the optimize of to ideas our annualized outpacing couldn’t With coming this now of of of surface, $XX from the operations and Hills and over in we field annualized field. months streamlining consolidating proud Elk targets, are With of Hills opportunities acre I XX working is in how target field the saving Elk the synergies XXX% interests, ideas team to our production identified, equity from and months. the of around fully be four the reconfigure to team implementing $XX The the integration near-term in million confident also as operators. various Consolidation minerals, operations short and field XX,XXX acquisition exceed by able additional cost XXX% combine infrastructure. can of new XXX% we’re synergies our more efforts we’re and legacy in rapidly zones. million approximately leading just the

will our the As and Elk we we in continue Hills of integrate showcase to fields. how low-cost leverage redeploy equipment, California adjacent facilities operations to enable scale eliminate inefficiencies, production from

about excited plan future details Investor very more at Hills Elk share on our progress the to and Day our of October. We’re in

second the the like production. day, Now XXX,XXX I’d our midpoint cover BOE was to Production quarter performance, of for starting above XXXX was per quarter guidance. which with highlights of

per Brent. This demonstrates than deliver significant at for fields. This had team Angeles thermal the we second at which as well increase opportunities expected, key a with our activity than within our performance is the is exemplary a more with more The in Elk three can in Buena have supported that we achieved in Our XX-day in reflecting performed further Basin, day. at a delivering seven also higher technical At quarter, of XXX two XXX believe our of well our wells Wilmington are the success single than barrels value a Los the being mature the waterflood IP day. discovery, in by still Ventura. pay in as Vista production another production find fields. well available, maintenance, better by addition of Hills $XX consolidation surveillance program times average, operations, to in We base barrels bypass coming boost particularly VCI and active with delineated of exceeding these [indiscernible] to oil

in we with rather high-margin flat drilling rig. rigs low-cost, based Ventura, maintained a than Additionally, production workover

program, industry-leading exploration deliver Our smaller primarily joint to continues through active ventures success. funded exploration

to months, additional conventional to investment of with through increase been $XX new PXX met modest approximately million. resources of net assuming with program has to per The almost value prospects last NPV exploration the CRC Over discovered share XX million a This $XX multiple further the evaluated equates us have potential have prices. the appraisal. of we and successful drilling current $X

We’re of its really our of performs high-grade portfolio. the quality as results outstanding it proud

expect our meaningful the production XXXX We more with pricing, growth of exploration third in also deep plan second-half and strong aligned the joint we mid-cycle performance XXXX. drilling engage driven inventory prospects continue from have parties to to additional with discuss analog inventory, to our be in With of current capital a ventures. of growth to

Specifically, in quarter current pricing, per in to we BOE range XXX,XXX XXX,XXX the between to production third day. anticipate that

to yields. the our at an refineries of the Our CRC that Brent garnering and grade A&S the XX% improving no of crude. States California’s in independent one of largest for of sought has further favorable makes and the our E&P in pipelines more world, before state’s the complex in barrels some oil Since believe the portfolio which United of fifth in highly our hedges. With the California realizations XX% of we price elevated recently after XX% second California, we the refinery coming averaged by CRC’s an production was economy, remained XXXX, hedges to This quarter premiums highest oil supporting margin after the profile. stronger Brent. effects were produced in valuable approximately spin, in built the optimize quality

to realizations XXXX. market dynamics, expect these we Given into strong continue

are Our cash assets generating significant flow.

which million EBITDAX quarter ability. strong adjusted core of XXXX, for was cash our $XXX demonstrates second the generation Our

by that cycle. period, us – recall crunch our XXXX preserve the initiated provided time during And for paid calls. hedges may during time, that helped and commodity XXXX we and protection point this downside we low flow. our protect that At in that cash in hedges the selling You XXXX at balance this cash those cash that for sheet

are now mid-cycle pricing, our However, we shifted. is in strategy

building significantly hedge to our position without protect our XXXX We’re downside our limiting risk upside.

we on are positioning team realizing value mobilizing bring forward. to laser-focused are value and our and this We

in to of our our a align the perspective, are goals. quarter, that and organization to creatively During to while assets collaboratively, way VCI maximizes real internal margin teams cash value safely and designed from we from operational ensuring our our the working achieve a restructuring benefits continue that see

part As with a our accountability. of we empowered line along authority increased supervisors with greater the process,

future. the to that Our returns Throughout This mindset. process, into CRC will and stepped they has we team collaboration arrive entrepreneurial way cost see well our same vigilant in a margin that improvements this increased that approach expand big to truly leaning in our breaks translated an our in has operating one the forward It’s safety. play to day with up work. the savings the each to priority remain top – margins on condition team home tangible

tell, our financial can managed be the downturn, reflect since CRC has position. you reasonably evaluation that Accordingly, and our strengthened asset As more our through should effectively and value. our believe spin business net the we

current execution strip, with operational through to have near time. over the we With continued address on EBITDAX, and sheet balance our investment-grade achieving status focus growing our

Although will at ability streamlined be a debt our our our opportunistic away chip toward our credit sheet. limit to bonds, move to continue currently agreements and balance repurchase and we

combination see facility with beginning our on is the continue we to flexibility production on happen significant portfolio execute The and ahead credit financial is structure the notes. of recognize and secured a this. expansion of several on our that reflects return to tranches growth that strength path us. with objectives our as traditional of of we we horizon feel margin to to are longer-term of the Our and unsecured opportunities the strong profile, efforts trajectory make market revolving banks We the to a increasing

call as to more our Mark. on strengthening quarter over XXXX like turn now sheet, For I’d the as details second well to balance performance, on our

Marshall Smith

Todd. Thanks,

front financial We strides front, continue the well operational make both the the as business. of to in as

plan our and thoughtful, sheet deliberate strengthening We’re fashion. strategic a and our executing in balance

world-class the discussed As our balance balance the we’ve balance near asset. financial investment continue to simplification. fully must to Ultimately, to of our returning debt rate on focus our our we’re the cost charges. savings balance repurchasing of sheet and before, grade interest grade sheet versus focused to sheet benefits our and is reduce simplify fixed complement We investment

built to continue second into the were transaction-related the our to and leveraging During This we million XXXX, of equity our that filled previously notes baskets quarter for joint accomplished and issuance. face due opportunistically purchasing delever of was during second value credit $XXX $XXX million. secured venture areas lien agreements

hedging our strategy shifting positions. our continue manage to thoughtfully also as we commodity We’re

Brent Given and Similarly, proactively to proactive This taken more increases commodity healthy pricing into our on for of notional one prior work through floating strategy. in our we’ll XXXX rates ceilings the potential. steps XXXX interest from to preserving lift leverage exceeds our price a while in and environment, upside hedging to interest This our May XXXX us our protection provides implementing $X.X protection billion some floors if cash are debt. of rate we’ve initiate X.XX%. rate side, month LIBOR on amount XXXX,

our our allow we’re inventory noted, for plan time us to prudently increasing joint fund additional strategically targeted our investments capital and expansion. flexibility. capital XXXX, to manage As our derisk venture activity will augment our using to to capital This

its of of to was second during quarter. million tranche committed $XX deployed BSP third of highlighted, Todd which million as capital, $XX the Additionally,

million million And We’re wells and $X second of we second $XX of quarter venture wells quarter initiation internally since joint XX invested the drilled of with also all, XX during funded the the capital capital during with capital. has funded agreement. the

results delivered of second-half growth allocation production to year. the in capital has value-driven to tangible the our a Our profile transition

expect will amplified We into be this XXXX.

good XXXX, and we costs, and in of For quarter capital midpoint the We’ve the of accelerate value-oriented XXX,XXX will guidance. second-half the per of progress efficiencies above applying BOE year production an made the second processes produced beyond. well improved our reducing of that on average day

reported contracts, rigs the the San production in the of Angeles of ended running XX in impact a quarter. costs unit Joaquin the the affected While sharing sequential PSC, operating We or three recent quarter and has has had in and production basin. seven PSC quarters, in minimal impact second rigs, Los rigs basin XXXX including second

this focused two had our exceptional conventional focused three of In on rig we production, steamfloods, on Again, and highlights drive mechanisms, focused primary diversity on focused of four on terms rigs waterfloods, one exploration. field.

back-half move flexibility the into we As have the we into lean XXXX. year, of to

to Hills pricing which as which before we they approximately strong During were continue Production partially year-over-year XX% effect impacted Elk strength continue realizations $X.XX Brent-based quarter premium in within of after decrease maintenance lower reflected Todd range. BOE XXXX equipment average. in operations higher the costs. a of continued of Lower This surface The quarter, effect efficiencies sequential from favorable CRC reflect trends. Hills energy second from we resulted and of seasonality, but from XX% reflect was of cost Absolute $XXX basis, production excluding in year. Elk have registering review activity the cost were from produced for downturn. the the in natural also strong from a due by additional quarter per barrels cost exports, last On production excluding Elk costs lower from over or of lower unit higher cost savings the were focus healthy would production per strategic oil as been are equity Brent greater adjustments $X and facilities, differentials stock as NGL compensation, or by to company gas the transaction, second planning realizations higher hedges per increased million, the and made hedges, the This wells quarter unit offset $XX.XX the to cost cost, benefit $XX.XX, addressed. lower XXXX and per continue Production and to reflected the barrel. seasonality acquisition. of $XX.XX acquisition, during in would the resulting decrease costs Oil Slightly sharp Hills. the well-servicing PSC first largely carried incremental guidance BOE. effects in have This uptime and BOE realizations, unit reflected our remain higher $XX.XX. well levels price, realizations costs cost been the for the sequential stated at in which uptime

and to elevated incentive three as operating through note May was of forward, cash than is well expenses. due of compensation costs, as settled, third per paid a are increased that higher energy increased in over continue our General granted in and the cash the phantom price, affect long-term primarily our of in higher that summer These G&A, portion price. months and us compensation component corporate certain our in XXXX. October. rise $X.XX of costs quarter of rates please stock to years which the non-executive shares timing based Looking administrative we operating on which expected, The stock through meaningful will costs BOE, rates were pay and expenses long-term,

For attributable that per such stock, derivative or core reported would $XX a are net to we XXXX, infrequent excluded and earnings generally items or share. $X.XX our losses, diluted by Adjusting million the been per of share. $XX unusual quarter $X.XX diluted million, loss analysts, non-cash second net from our have of for common loss investment as

cash hedge of quarter Our a losses provides core second with which $XXX adjusted one compensation better underlying for excludes which CRC’s and stock-based the EBITDAX, expense million, generation sense cash was capability.

from adjusted reported, interest was demonstrate $XXX of performance. $XX $XX million $XX strategy. gas of well the second our months the larger as to reflected stock This CRC’s for prior We stronger compensation fourth capital strong and taxes, XX% incentive consolidated year to activities to improvement million, tax our that in as Elk execution second interest, XXXX. from of working generally team period, timing the six quarter. in Hills use settled first by increased price quarter well as the million second higher pricing. the hedges, a as payments, impact and experience As of million margin which property $XXX benefit the up included to was This and of offset from we EBITDAX of prior XX% XX%. continues for reflecting expansion of quarter the million and operating reported cash of greenhouse due flow Recall approximately

earnings to margin as to We always, detailed delivering the our proactively key financial position. items release, we’ve And production note on earnings continuing remain guidance and provided expansion, presentation. We as of information challenges XXXX to our well third as enhanced and adjusted growth focused approach, that and in value expect they arise. as any in remain supplementary shareholders. while value-driven quickly to opportunities Please addressing our strengthen for analysis deliver we our balanced quarter in our attachments responding

the provided we on G&A equity costs. on enhanced disclosure Additionally, and impact expenses of compensation production

IR to is our happy call. have team over the of on Our that might questions, Q&A the these portion ready walk now results back you take details you our of I’ll Todd. And Thanks. any on to through any other questions during be also aspects if to call have information turn

Todd Stevens

Thanks, Mark.

second-half XXXX. transitioning a the effectively about had We mid-cycle foundation very to a We’re for excited of value-add growth, measured production plan. strong investment

to investing efficiencies expertise deploy synergies operating We’ll to return inventory assets. focus high-value drive to experience, with and sustained growth, large a and We’re our savings optimize going our production margin forward deep expansion. on

of As move we a toward the sheet. full capture we’ll balance investment-grade investment-grade assets, potential steadily our near

and performance We of now XXXX going forward. questions. production to driving as with will strategic shareholder value Our into more caps EBITDAX along welcome the your the growth force approach lead serve hedging elimination and significantly enhanced for increase meaningful

Operator

sir. you, Tank

[Operator of Bank begin from Our Merrill the session. go now ahead. will Instructions] America of Please question Doug Lynch. will Leggate first We question-and-answer come

Kalei Akamine

Hey, on guys. for Kalei This actually Doug. is

Todd Stevens

Kalei. Hey,

Kalei Akamine

off, congratulations. First

to good be a this You’d return quarter, been long road. definitely CRC growth to see

Todd Stevens

Kalei. Thanks,

Kalei Akamine

just I’m to share a will please. your evolve how I’m a therefore, for bigger about can see about got production can from focus And hoping bigger the what a So portfolio think looks momentum have it year? talk and near-term going And XXXX, like they spending XXXX? primary coming into follow-up, early response as is a then we lot on expecting modeling I’ve So wonder if and and opportunities just some thoughts? plan capital you I of you that the

Todd Stevens

Yes.

the back-half the into should they’re The some are You get XXXX with going, going the the year, and response steamflood. the dedicated outlined, here would XQ the – about towards show there. to rigs of it activity the conventional where waterflood half delayed to in the up to at projects we start more and about and kind going as – currently half But of clearly, type then we’re effect. other them can of be look balance, Mark

exploration. our one to again excited is about of had control try XXXX, in to our forget I have of really opportunity, we accordingly. creating to of we’re calls guys real have job the the together June put here. and with And the wouldn’t about But putting roll started We’ll manage with XXXX, a hedges flow off. in our We’re just that value place program I starting obviously in still and to lot measured a paid as be get people’s we JV just flexible in kind and XXXX highlight – XXXX it’s but a utilizing going remarks and capital my be Historically, a cash been. for that in head were that that’s operational steam doing money. We’ve other a successful our great program, thing

the and that XXXX. into year we’re about of this excited So opportunity back-half going

Kalei Akamine

to this as spending organizational the year. you talked can think, And efficient And it. your being for $X us capital? $XXX of about getting level to capacity million remind about you closer just most my you’re CRC spend level spending. follow-up, Got I of billion this

more this capital for So has more capacity as your appetite change? becomes scares JV

Todd Stevens

we move there, a probably and would that our our We number, that actually also remember, human be utilize as is adding operating closer %X.X. I contractors billion. feel cases doing include value But we’re can to like to capital, But accordingly we a opposed JV that to successful. of And capital as employees. real from flex most really as work. all flex almost you’ll typically perspective because cases, or capacity, with billion to we we see think, we’ll like bunch $X $X.X get I outlined,

the feel of too where we So good we cause drawing where to want manage up many too at, kind don’t because fast resources. and being the perspective, opportunity from are and – can ramping about or inventory we too by we set, the our pretty inflation

So approach. coming approach and our by measured us, the our into we going is that The of strategy for think feel obviously the out downturn. underpinned change year I balanced hedging at next

Kalei Akamine

Great. Thanks, guys.

Todd Stevens

you, Kalei. Thank

Operator

Next we Capital. of have Jason Wangler Imperial

Jason Wangler

Good afternoon, guys.

Todd Stevens

Hey, Jaason.

Jason Wangler

Wanted to may last question of some be and different in of you’ve that Todd. a ask way, kind it, answered

As position is you think or at looking real because own that, about the JVs you think on need obviously at pretty or how getting just stronger what anymore, million you’re in, do look you’re offs, to really some $XXX which much approaching getting you levels and into now? any about the maybe maybe obviously robust one or financial get you can that CapEX see and activity also is Do even so. your

Todd Stevens

Yes.

generate the can the current of, that is from our are high-grade a how So do quandary, out, these particularly ventures. that just good our it need if quandary venture ones I you going And going inventory perspective flow ones when get cash going our value to to look far think our off, account. prudent or to from our cash, balance you want or as bring you’re you’re from as If it – from look think say, and of that to don’t in monetize too in plans far these perspective, are joint too standpoint more an the appropriate cash hedges them. about deals, we future you forward a you that to the you’re think about at to out roll or XXX-plus is to license more them or you joint managing of But to they’re maybe all manner. ventures, a to draw of joint divest you’re going investment deal you have, the our internally being

activity it gives reserve, as us maximum manages right cash set. So many know, flexibility de-risk flow, I our manages helps and our us think, you things, provides it now,

our from something perspective, it’s very think it’s So we important.

ventures, think So there like large-scale at ventures, different we’ve when this more think huge the too. the year, exploration But joint be which I try more and BSP end of more I least ones year done continue ventures talk about five had coming to at into and look one at to going we’ve some joint discrete like would be those. to six we our small joint and Macquarie, or I think, I of of could we development they’re those

So ones particular field. even sophisticated to a the particular and the are mechanism and base execute larger-scale party are ones more drive smaller the difficult particular with counterparty in usually interested or more

they’re prices. of So model, of sustainability I wouldn’t with inventory, economic important but rule them out, the part because our business our given enormous current more level of

getting So more terms but also picky – perspective, from going but it’s being our better forward.

Jason Wangler

I Thanks, Mark, Todd. appreciate that. And maybe, then for you.

Could of where being you of in the guys you have. us update agreements? you still maybe terms On to repurchase debt the under came able just basket repurchase debt, I current do out that that assume the are

Marshall Smith

as portion But that the built. as assets, significant and those constraints, well as time pricing under in they of filled as fully baskets equity Ares utilized. monetization Good issuance. they and we terms We baskets on both amendment get and developed in – a lapsing executed those baskets question. constraints Those the well before ere are on seventh ended There we time of as a were of fully were the back borrowing-based transactions, result bonds. get both up

Jason Wangler

Okay. And – go ahead. just then

Todd Stevens

maximize given to be the flexibility take financial more to of going advantage our our discount baskets. this the enhanced opportunity position I is that as one was Todd. stronger want to around say, we because those able forward, trade to Jason, We priorities going set have to the have. flexibility is of to that, that

going you’re make some So try outcome. affect that see us to to moves to

Jason Wangler

and why appreciate to That’s I forward much. Thanks asked. very I look it.

Todd Stevens

bet. You,

Operator

of Tarek JPMorgan have we next And Hamid

Unidentified Analyst

Hi, Tarek. in good evening. John for This is actually

Todd Stevens

John. Hey,

Unidentified Analyst

and had Elk XX-month color a the guys little mean, I job on Hills drove wondering, that? a the guys it, the surrounding more integration just really the you quarter. realizing provide you acquisition, timeline? synergies this So versus great of rapid acceleration Could acquisition I what the was And

Todd Stevens

is understand complex I you Hills Elk, fairly versus have major equity interests going typical a had producing it’s CRC. This Yes, where Chevron horizons It horizon. discrete five to and one thing. they discrete into this. think Elk has all of was different you producing think field, a not numerous

then have those auditing for lack we to account to and Chevron, partner, it separate separate aspects And – us it. had with then compressions, we part that had of and was our deal units, facilities separate So way. our

we thing you effort was do and other We think we equipment, when use really move pipes how fields units. duplicative last we and take surface elsewhere. lack realized excess when manpower and facility So sometime spent about and an eliminate was time, couldn’t neat got And just other ours. Elk that, how and through could of we couldn’t to inventory, it excess Hills the unit it duplicative

this that Here, I and when nature free I Kerns’ that field our of ownership. out going tells trying perspective. think, they were of from can hard the sandbagging, taking Shawn for we of to guys adjacent – XXX% could are really finished synergies the achieve cost the that we’re consolidating that and the from to And an of argue were move costs get to me system, but savings a think working now I that I parts the we Chevron own really acquisition know they’re really field because we

our of have guys and know the in front don’t of that’s them. objectives but goals if I that’ll happen, So kind

Unidentified Analyst

Understood.

guys the off there’s any do just you to synergies of potential potential from that think So increase acquisition? going that,

Marshall Smith

Definitely.

hit months, just see million a $XX were meaningful are low, million to we’re probably think Analyst I quick ready our yet, think, this. within $XX we’ve particularly hear four we’ll this. that given I the I gotten the probably because so little next real think, more don’t Day, target about a diligently to or on target give lot call But a by working you’ll clearly, they the

Unidentified Analyst

how barrels assets. production And guys or guiding Hills do day? Elk sure. XX.X,XXX on, think previously acquired question to just just from you the For then do last around I know a the – were you came much you newly

Todd Stevens

into bit got closed a I it we quarter. than less to remember, the think, and was bit little little a that,

Unidentified Analyst

Okay. Thanks.

Operator

Pavel have we James. Raymond of Next Molchanov

Pavel Molchanov

count, nothing California, taking of the for in means rest producers currently two-thirds state that Thanks the have coming mature the question. are along of rigs to of with their the for the state anticipate in all lines drilling the radar the essentially you of you By which what context, guys were investing up you other of kind my do assets do sale In in assets. the below Chevron? to little that able

Todd Stevens

and investment when the a think, and are company in joint you Chevron Exxon they have look worldwide Shell different run I enormous criteria. venture huge they and and priorities Aera, at by

activity, that, ourselves. really there’s some of to producers, it. got California think, XXX than of because that we remember to set a But the the other what would can’t speak amount assume but their owned I asset. I of at discrete with lot out also reservoirs stack want enormous of equity I you The sponsor, point have private in activity their to pay, will smaller we by they there think, think happen So money you you’re if a get

gets on would to pick activity I this to trying going up a in drilling and the rig what I heads expect needing they’re here day. lot of a to on. opposed speak workover what’s to set from can’t execute our But value in necessarily really rig. their as Our But competitors you

Pavel Molchanov

Okay, understood.

that going given putting state pre-XXXX increasingly, issue work the when and off days more kind back your Could hard table were an caused various delays. is to permits activity? that in level of by to geographies As from come of you’re to be the rigs or current the various

Todd Stevens

see I think, from our permits. getting perspective, we

regulations hit getting be again timing on in line kind longer, XX set. XX permits We to that. I work going we of been work We our But you country, of months we but some good to strive more sit of it stringent a case, and more kind here sight the there’s But and that ready We’ve something how challenge plan projects. thoughtful, going our But know wherever of it’s forward forward. more all than next for here into calendar days to just for in that of marks we activity generally, going that year. longer. our of our year, but it’s really little ensure to permit. some in almost activity We through to takes have a have kind XX there’s think California, getting of for

of good with set, – activity the I a going it’s And of activity. the our permits here. concerned So forward. about when pace – real the good think profile investment run I’m folks not in getting had how those that But to we we’ve talked I are and feel who engaged

Pavel Molchanov

guys. it, Appreciate Right.

Todd Stevens

Pavel. Thanks,

Operator

we Goldman Brian Next Singer, Sachs. have

Brian Singer

Good Thank afternoon. you.

Todd Stevens

Hey, Brian.

Brian Singer

on move and was numerator production pluses decisions to increases as denominator question if How again do your at get pay relative it sustained via that free here at Just EBITDA the look And let’s do now one you’re weigh – are that end. my making minuses think focus the that, could how that net versus debt you change EBITDA denominator, CapEx you the multiple about down focusing decision leverage not seems the and the higher. how the calculation on flow? cash and oil you How growing to prices i.e., levels? the debt these and

Todd Stevens

balanced from and debt, into paying cash our Brian, some gas to And discount. those. through by at from our perspective, think, things trade debt natural our But down back both our value and like also we’re by on our a getting through and to our limit based I facility a on working change still like value perspective that. approach margins I on obviously, us and our barrels EBITDAX some our gross is molecules, said, our growing bank margins

at something your continue whether I to absolute it it’s of it debt or the at the balance you discount down secured some from value capital notes. over of a simple time. and facility a We hinted unsecured on later I real as bunch out structure senior structure. had a had be spin going it’s or down with if revolver, do unsecured that paying think We we buying But do. we that to there’s down the So became bringing paying a came can very

like give and part of have try during management. closer as to the the sheet restructure to you get to I basis on to the in Will shareholders. what Maybe. made get downturn since we’ve now value evaluate think most look create that more the what get sheet made to the and our opportunity just liability we debt worst sheet. at debt that we cycle have to we’re to May our But opportunities the overnight? instruments our some going purposely back markets And the when a through complicated simpler makes by downturn to balance liability a balance of calls daily you our sense were now we’d happen and it the you, will issued during balance for

I to think, numerator balanced after the just do getting attack us, approach not the really numerator It’s the value. So you of create it’s a for denominator. that and

Brian Singer

you very Thank much. Great.

Todd Stevens

Brian. Thanks,

Operator

Societe Next of we Herrlin John have Generale.

John Herrlin

Hi, Yes. couple a of ones. quick

Todd Stevens

John. Hi,

John Herrlin

[indiscernible] at also could Looking I why any production get NGL explain and why was sequential gas you wondering of by? deal here, where didn’t close you if sort uplift

Todd Stevens

this this year. prices of time bit it’s seasonal. year, a little of typically, NGL time They weaken

into gotten had some were We that volatility weaker next will then NGL basis. the in with gone hot end spells a see NGL continue weather Natural natural mild winter. a credible bit, had good was We that, gas of say, California. the bit – a actually the seasonality in June since the on gas daily started a think June real first I’ll fall – prices a little in And current We’ve into quarter fairly the weakening little July quarter. little It prices. pricy you So and of some through has quarter. market really it, prices. we’ve

John Herrlin

Okay.

about you had talking production While I gas and biometrically was more XQ? volumes

Todd Stevens

part That’s the because gas, was Basin associated enhanced – value Hills production. there from really volumes fairly the yes, we the perspective, really what’s Elk flat. the the That – Sacramento that important in was obviously of is an

John Herrlin

Yes.

next XX% Okay, looks a like a is one allocation. up it net like On basis, with your come Ex kind me. to bump Cap for has of

curious if had you basically…? Just

Todd Stevens

look California. Yes. rig to got it, at about When think we you’ve in lines

line rig the depending to for a between is $XX a sometime the of So million on be – going $XX year, type rig. and somewhere year million

two back-half rigs, it from about think that’s going any year it. idea effectively to just That’s $XX behind million. facilities or if the of spending. us an including process you’re other of the you’re million, the So $XX thought But give to – add not

John Herrlin

what rig? are say, a you natural So versus workover splitting then drilling rig between,

Todd Stevens

you look if at our kind So of…

John Herrlin

[Multiple Speakers] more workovers?

Todd Stevens

Yes.

for back-half about There’ll goes chart in our and a to And goes but look kind of look we that a and the smaller or we we facility where less year. chart that just pie at the facility. But Macquarie, it XX% joint to how you cash year of other purposes XX% XX%, for partners I facilities also XX% you So flow purposes at front-loaded. some this of smaller understanding could have for look But our invest, we it. if think workovers, ventures. consistent, BSP feel that our fairly with really was at the investment this, partners gives how at pie be in we stays goes flex that of

comfortable to ourselves the year We We into the into going up moved prices have XXXX end or at if go of forward. feel and that’s flexibility manage look to cash to I flow So the one to enabling down try going think thing. the by accordingly.

John Herrlin

That’s Todd. Okay. Thanks, fine.

Todd Stevens

Thanks, John.

Operator

we Guggenheim. Sneeden have of Sean Next

Sean Sneeden

do repurchase about to junior Hi, stuff? taking just are questions. for of discount a ability you down just for generation, prior the Is paying And question. to like follow-up you you thanks flow I the think on level mentioned of had mentioned there or as on to to referring here. Todd, Maybe absolute that reduce the some think, we I how the that? think, are one debt quick desire cash of the some through or limitations that the debt,

Todd Stevens

Yes.

acceptable in price our absolute I think, understood way about that We in right wasn’t of spun even XXXX. off were the proper to was, we debt think it environment. level

liability monetization were we looking quickly a to price debt became much debt the the we and to for bring level. an opportunity So than at down us level got environment down then management bring different different into and otherwise, ways

proceeds raise try We’ve to for conducting levels. gotten the fire to to on But sale be really point not absolute Now table. back bring us, to we we’re same down going a to thing survived it’s where the debt the the cycle.

it some do have through We’ll We’ll enhancing and flow EBITDAX and grow monetization. be We’ll all some think, some the will I approach. probably above ventures. probably of inventory cash joint margins. more cash

I our One is that try occur. for and two think the time. And of advance you the well of is and that to littlie maturity. significant will and a every we any exploration, think, reversions are about of people bit those debt set occur there; ventures missed in highlight joint opportunities

idea and So material And flow then put material that to an of do basket, but and we’re you of I let give think value it. we people actually there to some that, debt, the talking those if about, forget have as that are because Mark far as buy what I’ll more limitations, company. the understand cash limitations models we company their in where to still can in on

Marshall Smith

up of you was timed Yes. payment restricted we through [indiscernible] a John, what know, gone just We saying. to as downturn. went add series Todd baskets. – We the our essentially through

factors. try by And recapture to of those we us to triggered we’ll are baskets debt so, work or we’ve got Those essentially other extent for to And build can. the that some some in baskets limited to repayment. monetizations allow provisions there

we’ll absolute help? look levels look As outstanding. Tood at got some these Does in to that other build of as actions, and those said, to executing we reduce we ability of debt baskets, have the at order we’ve on the the

Sean Sneeden

And think sense. that I Yes. makes

a how size? about the like rough think So just ballpark, should we current basket

Marshall Smith

got built had and issuance. actually monetization much result utilize. for to – we of Ares million a transaction approaching we how you’ve the we $XXX sense a Well, as the And baskets equity the

the to significant ability cetera. got of plan that on restoration try those working baskets. amount And we we’ve executed get extent, ability, that. et to then some So we build expired. on to to the things that’s a monetizations, it got of the the We’ve additional of And

Sean Sneeden

Gotcha.

sense. makes that think I

Todd Stevens

Okay.

Sean Sneeden

– just balance And Mark. push maturities then on here. for one you Is the another the potential do you the is out how about think sheet

think specifically as loan couple that and there. about more table term kind guys to savings a and on of to in for have expensive relative in of that’s well as kind the the you terms something interest Is XXXX building You runway? of

Marshall Smith

to structure, you’ve if think Of want you I – you way the to our good probably – a of point. of in to want that refer to most capital refer that terms interest that you period in challenging highlighted cost. is think, I terms Well,

proactive act us as seen that in windows us open long-term they market in to seen over fashion up. ways take to position a the very try act were You’ve perspective of thoughtfully and and you’ve advantage ourselves

are those kinds the you’re that so right, And thinking of things we’re about.

need We’re thinking long-term about and take. the the we steps about to we’re thinking

we in a relationship to the have guys As those right seat us. keep our very you know, good front work with with we banks and

we our ways of can our extend well, ongoing key dialogue arise to reduced in structure as terms have place advantage of so and them in focus fixed has, that And capital maturities opportunities as for our us. with together a take modifying as perhaps in charge which we work simple put to

then our take in said further up introduction, you and back to more the ability working will think which us in sheet proactively balance delever the – ways ground growth give organically. we’re ramp charges. As further his to reduce further our simplify we our will we Todd had about And that, to can the that capital and ramp fixed and in

that’s the way about. we think So can

Sean Sneeden

settlements $XX million had Okay, on question that’s helpful. you I And there. G&A. then just in one cash housekeeping know of

it’s just going event? is So be a we that something one-time forward, or should anticipating

Todd Stevens

executive a stock are The – Sean, the It’s mark-to-market. below have that that’s cash we level. Yes. units firm settled. employees

but the it quarter. like stock mark-to-market materially the every did in So price appreciates quarter, there’s a

upward and too, price mark-to-market have stock to but going obviously that’s is. a what have simply downward, does, depending We’re your what of could kind that movement on it

Marshall Smith

depths Yes. were we of And place back those were in underscore, just when point, sometime to the Todd’s put … at the

Todd Stevens

was in yes. the downturn That

Marshall Smith

downturn. the That’s

Sean Sneeden

I awards of? it. was Got programs those think still kind for or that is simply – new today in that Are place

Todd Stevens

preservation like time need if that by a that give occur because comp could have of would restructuring we a To awards at Chairman cash restructuring. felt downturn for the easier the to have sort an the employees, our more you committee idea during was there during

think we’re two was was to for that utilizing of there time settled. period, but I back but was cash a employee – offerings stock And stock-based, compensation. now So, traditional it compensation more

Sean Sneeden

sense. much. Okay very Thank that you make

Todd Stevens

John. Thanks,

Operator

have Lynch. we Next, America Bank Merrill Brody Gregg of

Gregg Brody

were the All deck guys. Hi asked. questions

I will ask So, not any.

deleverage haven’t maybe what JV you you of just create we to the, And that awhile. remind monetization the leading value some today for then about on opportunities candidates see could you I’m there. help just you may room midstream further? Just maybe type think are in to talked might curious what us create

Todd Stevens

think and things Ares could be the joint exception [ph], venture, part Hills Hills and to Gregg, in million everything the still XXX plant, inside Ares I the you of Yes, Elk could power a We across is different Elk and there Elk at at the monetized which when processing board the anthropogenic barrels excess there’s I in about power capturing outside particularly from of were COX look with that’s plant venture. one joint the of long-term in plants field There’s and sales. compete ways. might looking that’s downturn. Hills. that we’re And it the around our mean, plant for look which potentially don’t the things when life at We We that flood capital. other assets, it made of we food of fire do our is big of plant Hills, do preserves. infrastructure through need to not potentially conduct Elk is well COX or projects power the lot concerned

So, a in think at and that bringing at and where looking some different monetize I actively way. opportunities we’re partners there’s like looking

we downturn in So, better things assets to our our preserved us it of and do downturn the value create make we’re and really goes back a now to all to for here company to, get to looking all I during looking my and we’re of the preserved outlined comments. to net value in We depth like and now value asset do our that create capture the things silly the and shareholders. value

Gregg Brody

there appreciate the interesting Maybe JV said specific that’s in early don’t you’ve of been terms that you very of it’s point just days been is outside opportunities? consistent. is, there, about of that’s have just kind or there I anything I guys that delivering out JV, the You in but on that. you know

Todd Stevens

venture No, time. the around power the joint things over plant the plant. And is could and tweak processing we

And you have to Ares we that was very partner you’d criteria pleased see who us we’re them, and talk work folks going. think for long-term they’re if be I with how a they’d are the of great partners. are pleased with. want good not easy very And things to to one

a things of our do yes, So, Hills. a just fair could other a of mean you there’s at like amount huge amount because at infrastructure there’s and is at reserves Elk Elk fair I production of and PRC Hills amount that

significant. there to continuing lot So, on opportunities – that in that add four million will to along look as – something field we’ve can’t months of lot you’ll I with I be if lines particularly and got that the of see that know creation But adjacent kind synergies we there’s up of there’s over time a the consolidate factor. where we’ve create you $XX annualized. think like of a promise value

Gregg Brody

Got it. last question. And just

there down little updated two you same gave a it that is guidance is pace full-year Is the stuffing possibility XQ or in fair and you’ll So, maintain that assume CapEx guidance. as XQ quarter to bit? or fourth

Todd Stevens

into are, XXXX our unhedged we upside. the obtaining There’s it’s with managing We’ll but a going relatively off issues got almost floors from really first after our you it a of and little then do we going to but into quarter, preserve few place, or just in have perspective swaps upside. there’s prices go what you’ve is, our can one in floors that preserving bit remember

sold not we swaps you pay calls XQ XXXX. some do but again swaps, So, we this in were in for our – puts year have that to

synergies. in set, go that up are flow important to momentum enterprise. the the managing manage for preserving XQ And the into the stark activity from cash whenever you change flow important the very all but because you got XQ. activity will and going and issues for So, managing and the going that cash And year, those set us is down be to in be safety activity also to the

So, and cash from to we’ll best where the we’ll and us shift see we to flow that manage a our of you’re manage to in hedging. that flow continue quarter-to-quarter cash challenge huge do going have within because could have try to

Gregg Brody

Got Thank it. very much. you

Todd Stevens

Gregg. Thanks,

Operator

Morgan Jacob our go afternoon from Gomolinski-Ekel sir, Please head. Stanley. question of final Sorry this will come

Jacob Gomolinski-Ekel

Hi, and for thanks here. in good evening me squeezing

far in accelerate in by kind up CapEx And the XXXX some goalpost that growth translate substantial QX production and ramped you just seems be growth X.X% you QX to more XXXX? $XXX into what growth provide implied into about of will it XXXX, As million this like for – can terms growth to help just for year. far you of

So, any framing be for great? about we will XXXX think should how

Todd Stevens

Yes, from $XX to we and I investment, we’ve investing net it’s of deck there’s year year, and you maintenance I of talk $XX into our for at look invested was this first our of had our brand. capital about the investment scenario no standpoint the we that flow how reinvest investing we beyond at think if Coming and if JV happen been. we the scenario things cash capital, give but look at more where when Last it time we’ve between when invested since you other into think level business growth. all a our level a look getting you

earlier and can dedicated production flow which more times. forms not steam I than typically cash rigs is half response of but flood the what can part think think of but I water got how, growth, about You given that, growth, about remember twice talk I see talked important have to the are flood. you steam about did conventional towards longer you Water the floods we’re too and half floods

XXXX have where going more then back-half we’ll elevated you’re to XXXX. will And us of response relative more to see get as the have that we So, a much into we be year into now.

Jacob Gomolinski-Ekel

Got it.

I’m the I what guess floods thinking floods kind And could mean growth assume QX water but how have guess implied you I the meant we I posts about it, I use if more QX. that. don’t steam but – I if I all inter around into I and next was be those to similar X.X% from I can I year. just, any just I know it? I or So, X, mean had I should QX, something I Slide guess of see that’s up guess goal ramp as to XXXX we see

Todd Stevens

Yes, yourself the as give we XX along deck you in I the think it of that questions gauge Joanne is in brand and to way those sit Slide and Scott where it at XX, I any point look time have a if other Brent. kind but there And that’s call. between lines think price you best have or XX

Jacob Gomolinski-Ekel

cash, kind on in have just those hikes dedicated all you gas off-taker? capitalize obviously are in mentioned volumes the earlier, the Okay. And then of or able California, recently to some craziness on to [indiscernible], net price you sort particularly the and of we’ve Citigate physical seen been an market

Todd Stevens

capitalize on We can it.

Jacob Gomolinski-Ekel

Okay, great.

Todd Stevens

And we have.

Jacob Gomolinski-Ekel

So, you must feel liking that?

Todd Stevens

a necessarily thing. When not Yes. it’s I thought, bad but

Jacob Gomolinski-Ekel

that you if help quick you’re long have one to Do time question. thinking use understand working. and I you it? AC mean, And or it terms housekeeping right ATM then can as opportunity the available? Yes, so, your how real of still as is in about us

Todd Stevens

have it We available. do

haven’t it I I before be the and said from of set it. over Again, used it to we worked have the to from We more creating mean it was as tools a of opportunity to it’s think tool standpoint XXXs. don’t available synthetic as – and use perspective, a tool at us. our to simplistic We all we is there. box. want preserve the

do we paying like sides downturn, by on of XXXs shareholders. we presented not both that again, you and did opportunity utilizing But this As most created had that self we a that know value the for big real deal. some the our could the we during if felt itself synthetic basis we’ve

from in think what I was And to at. would that utilize point kind standpoint environment our So, where look that time. of not looked this we we it’s the at

Jacob Gomolinski-Ekel

Okay, thanks very appreciate much it.

Todd Stevens

Thanks, Jacob.

Operator

remarks. over our turn conference Well back will to for now call closing the Stevens Sir. that conclude would the Todd Mr. to question-and-session. like I

Todd Stevens

value Thanks us since capital robust the spin. operating Mike. on CRC’s call. focus the and Thank preserving you time joining of everyone on today’s plan most our for

outlined flexible from the We’ll Analyst to York next deploy the us We our our you seeing our increase showcase of this we delivered is We full seeing way. operating business quarter, grade expect for high you a everyone. where balance resource benefit near to with mid-cycle Investor please VCI New sheet forward investment capture grade expertise deep our Day to our commodity in capital in shareholders toward the in as significant model at along our X the on and leverage October investment shareholders This Thank join steadily further large potential our in base. Also, environment. CRC’s their investment projects and to creation. talent will you in going move value us on we’ve look value and road.

Operator

you And we have the and time your care management sir disconnect a Thank for take may everyone. now your Again, thank you concluded. time, and team great this day. also of today. At is to you, lines call rest conference the

California Resources (CRC) 2 Aug 182018 Q2 Earnings call transcript