California Resources Corp. (CRC) is realigning its business operation to separate its carbon and E&P businesses and optimize its asset portfolio, among other aims, and named a new CEO to lead the company beginning in April.
The company sees the strategic moves as a way to strengthen shareholder returns and reposition its business to capitalize on its Carbon TerraVault subsidiary, which provides capture, transport and storage of CO2, the company said in a Feb. 24 news release.
In conjunction with the strategic realignment, the company also announced that CFO Francisco Leon will succeed Mark A. “Mac” McFarland as president and CEO and join the company’s board of directors, effective in April.
“As demonstrated by our 2022 year-end financial results, CRC has a very resilient and valuable portfolio of assets,” Leon said in the press release. “While the Company’s financial performance has been strong, our market has evolved and therefore we are adjusting accordingly by optimizing our capital plan and increasing our focus on reducing costs. We believe our revised plan will enhance shareholder returns while positioning the Company for continued success into the future.”
According to CRC, the company’s revised operating strategy includes:
• Revising its corporate structure: CRC will adjust separate operations of its E&P and carbon management businesses. The change will allow investors and other CRC stakeholders to distinguish between the discrete businesses as CRC continues efforts to maximize shareholder value across the portfolio of assets, the company said.
• Accelerating carbon management business: CRC will manage its carbon management business on a standalone basis over time, providing the flexibility to consider strategic options, including a potential separation from the E&P business. “This is a natural evolution given the great strides made in 2022, including the formation of Carbon TerraVault’s joint venture with Brookfield Renewable.” The joint venture was formed to create a partnership focused on carbon capture and sequestration (CCS) development, along with carbon management service agreements with parties such as Lone Cypress Energy and Grannus LLC to provide permanent carbon storage.
In 2023, CRC is focused on signing up additional emitter projects, advancing CalCapture and the California Direct Air Capture Hub and submitting additional Class VI permit applications. CRC has also established a separate board for the Carbon TerraVault subsidiary to focus on growing and developing the carbon management business.
• Slow E&P development activity: The Company will reduce its rig count to 1.5 in 2023 with a drilling program focused on developing the highest-returning projects with permits-in-hand. The reduction comes as CRC focuses on well servicing and downhole maintenance to reduce the base production decline to approximately 5% to 7%.
At the planned rig pace, CRC can enhance the operational and capital efficiency of its rig program and maximize the company’s ability to return capital to shareholders. Utilizing a 1.5 rig program, CRC expects to spend about $155 million in E&P drilling and completions and workover capital.
• Reduce costs and optimize portfolio: CRC’s leadership team is targeting a 5% to 10% reduction in non-energy operating costs (excluding downhole maintenance) and lowering G&A costs. CRC will continue to pursue the monetization of its Huntington Beach surface acreage as well as other real estate surface ownership in its portfolio.
• Enhance financial flexibility: CRC intends to amend and extend or replace its existing reserve-based lending credit facility, as well as refinance its $600 million senior unsecured notes. In addition to lengthening its debt maturities and provide financial flexibility to increase the company’s ongoing shareholder return program, “this flexibility is expected to support the potential separation of the carbon management business,” the company said. Operating Carbon TerraVault on a standalone basis will broaden capital sourcing options for the carbon management business, according to CRC.
The company also plans to boost its shareholder return program, including a 30% increase in its shareholder repurchase program to $1.1 billion. As of Dec. 31, and taking into account the increase, the company had about $640 million remaining in its buyback program.
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