California Resources Corporation this week reported financial and operating results for the fourth quarter and full-year 2023.

2023 Highlights:

• Generated $653 million of net cash from operating activities and $468 million of free cash flow
• Demonstrated strong capital efficiency with lower-than-expected total capital of $185 million delivering 6% entry to exit gross production decline
• Reported net income of $564 million, or $7.78 per diluted share. When adjusted for items analysts typically exclude from estimates (including gains on asset divestitures, business transformation costs and mark-to-market adjustments on commodity derivative contracts) adjusted net income was $372 million, or $5.13 per share
• Average annual net production of 86 thousand barrels of oil equivalent per day (MBoe/d). Oil production averaged 52 thousand barrels of oil per day (MBo/d)
• Returned $280 million to stakeholders, more than half of 2023 free cash flow, through share repurchases, debt repurchases and dividends
• Exited 2023 with a leverage ratio of 0.1 times, down from 0.3 times at year-end 2022
• Through the business transformation initiative, strengthened future outlook by achieving $65 million in annual, sustainable cost savings
• Announced receipt of California’s first U.S. Environmental Protection Agency (EPA) draft Class VI well permits for underground carbon dioxide (CO2) injection and storage at Elk Hills.

"Our 2023 results were exceptional, and our teams executed on our plan to build a stronger CRC while creating long-term value for all stakeholders," said Francisco Leon, CRC’s President and Chief Executive Officer. “We profitably grew our business and generated significant free cash flow that maintained our premier balance sheet and allowed us to prioritize cash returns to our shareholders. Our focus now is on securing the requisite approvals to close the recently announced merger with Aera Energy, while preparing for integration of their experienced team members and high value assets into CRC after closing. The Aera merger will provide CRC greater operating scale for the entire business, thereby improving our operating cash flows and liquidity profile. The Aera assets will also enhance CRC’s carbon management business from which CRC will accelerate the decarbonization of California.”

Fourth Quarter 2023 Financial and Operating Summary

The Company reported fourth quarter net cash from operating activities of $131 million and free cash flow of $65 million. Net income for the period was $188 million, or $2.60 per diluted share of common stock, and adjusted net income1 was $67 million, or $0.93 per diluted share. Adjusted EBITDAX1 was $179 million.

CRC’s daily gross production in the fourth quarter averaged 98 MBoe/d. Net production averaged 83 MBoe/d, including 50 MBo/d. Average realized oil prices during the period were 99% of Brent.

Operating costs in the fourth quarter of 2023 averaged $24.49 per Boe, compared to $24.96 per Boe in the third quarter of 2023 and reflect a positive impact of recent organizational changes. In August 2023, CRC took actions to better align its resources to strategic priorities and improve operational efficiency. The Company realized approximately $15 million of savings in the fourth quarter and expects these actions to result in approximately $65 million of savings in operating costs and general and administrative expenses on an annualized basis.

Capital investments in the fourth quarter were in line with expectations and totaled $66 million. Capital allocation during the period was focused on a one-rig program in the Los Angeles basin.

2023 Reserves

As of December 31, 2023, CRC’s proved reserves totaled an estimated 377 million Boe (MMBoe), of which 68% was oil and 331 MMBoe was proved developed. Estimated future net cash flows had a PV-10* value of $5.5 billion based on SEC pricing of Brent $82.84 per barrel for oil and Henry Hub $2.64 per thousand cubic feet (Mcf) for natural gas, as of December 31, 2023.

Pending Aera Merger

On February 7, 2024, CRC entered into a definitive merger agreement (Merger Agreement) to combine with Aera Energy, LLC (Aera) in an all-stock transaction with an effective date of January 1, 2024. Aera is a leading operator of mature fields in California, primarily in the San Joaquin and Ventura basins, with high oil-weighted production. At closing, Aera's owners will receive 21.2 million shares of CRC's common stock plus an additional number of shares determined by reference to the dividends declared by CRC having a record date between the effective date and closing. CRC also agreed to assume Aera’s outstanding long-term indebtedness of $950 million. CRC expects to repay a significant portion of this indebtedness with cash on hand and borrowings under its revolving credit facility. CRC expects to refinance the balance through one or more debt capital markets transactions and, only to the extent necessary, borrowings under a bridge loan facility.

The Merger Agreement has been unanimously approved by CRC’s Board of Directors and the shareholders of Aera. The transaction is subject to certain closing conditions, including among others, regulatory approvals and approval of the stock issuance by CRC's shareholders. The transaction is expected to close in the second half of 2024.

2024 Preliminary Outlook and First Quarter 2024 Guidance and Capital Program

CRC’s 2024 guidance estimates exclude the pending merger with Aera. The Company intends to update guidance after the transaction closes.

CRC expects its total 2024 capital program to range between $300 million and $340 million assuming normal operating conditions. Of this amount, $250 million to $260 million is related to oil and natural gas development, $30 million to $40 million is related to maintenance of one of its gas processing facilities and a power plant, both of which are located in CRC's Elk Hills field, $15 million to $25 million is for carbon management projects and $5 million to $15 million is for corporate and other activities.

Through 2024, CRC expects to run a one rig program executing projects using existing permits. Subject to the availability of well permits, the Company expects to increase to a four rig program in the second half of 2024. The actual amount of spending related to oil and gas development under CRC's 2024 capital program will depend on a variety of factors. In particular, the rate and amount of this spending depends on its ability to obtain new well permits in the second half of the year. If CRC is not able to obtain these permits, CRC could reduce its capital program by up to $100 million.

CRC expects its first quarter capital program to range between $65 million to $75 million. The program includes capital of $36 million to $42 million for oil and natural gas, and facilities development3, $4 million to $6 million for carbon management projects and $25 million to $27 million for corporate and other activities, including maintenance at CRC's Elk Hills power plant.

CRC expects to produce 76 to 80 MBoe/d (~60% oil) in the first quarter of 2024. The table below provides highlights of the Company's first quarter 2024 guidance.

Acquisitions and Divestitures

On December 29, 2023, CRC sold its non-operating working interest in the Round Mountain Unit in the San Joaquin basin for $35 million, before transaction costs and purchase price adjustments, recognizing a gain of $25 million. CRC retained an option to capture, transport and store carbon dioxide (CO2) emissions from the production at Round Mountain Unit for future carbon management projects.

On February 22, 2024, CRC entered into an agreement to sell its 0.9 acre Fort Apache real estate property in Huntington Beach to a local real estate developer for approximately $10 million.

Sustainability

“2023 was another important year in CRC’s sustainability journey,” said Francisco Leon, CRC’s President and Chief Executive Officer. “We are dedicated to becoming an even more sustainable energy company while continuously prioritizing health, safety, and the environment in all we do. We achieved our second-best safety rate in the Company’s history, our best since the period during COVID. Throughout the year, our skilled teams plugged and abandoned more than 600 wells, exceeding stringent local and state requirements. Furthermore, we received the 2023 S&P Global Energy Transition - Upstream Award recognizing CRC’s perseverance in developing solutions to help reduce carbon emissions and tackle climate change, one of many industry awards we received during the year.”

Additional 2023 sustainability highlights and achievements include:

• Eliminated 269 gas venting pneumatics, keeping CRC on track with its 2030 methane reduction ESG goal
• Delivered more than 113 million barrels of water for agricultural use, or more than 3 times the amount for CRC's internal use
• Qualified for 22 National Safety Awards for 2023 safety performance
• Provided more than $2.5 million in charitable giving to local groups, organizations, and nonprofits

KeyFacts Energy: Caliornia Resources US country profile