California Resources (NYSE:CRC) reported first-quarter financial results on Wednesday. The transcript from the company’s first-quarter earnings call has been provided below.
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The full earnings call is available at https://event.choruscall.com/mediaframe/webcast.html?webcastid=NUvMT3b9
Summary
California Resources reported a strong first quarter with adjusted EBITDAX of $304 million, 17% above the midpoint of their guidance, and raised their full-year guidance.
The company is increasing drilling activity with three additional rigs, focusing on both California and Utah, aiming for approximately 1% production growth by year’s end.
California Resources completed construction of California’s first commercial-scale carbon capture and storage project, expecting EPA approval soon, marking a significant milestone in their carbon management business.
The Berry merger synergies exceeded expectations, with 80% implemented and an increased target, driven by cost reductions and operational efficiencies.
Management highlighted improved capital efficiency, reducing the number of rigs needed for production maintenance and enhancing returns, with a strong free cash flow outlook projected to exceed $800 million for the year.
Full Transcript
Operator
Good day and welcome to the California Resources Corporation first quarter 2026 conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing Star then zero on your telephone keypad. After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press Star then one, then on your telephone keypad. To withdraw your question, please press Star then two. Please note this event is being recorded. I would now like to turn the conference over to Daniel Juck, Vice President of Investor Relations.
Daniel Juck (Vice President of Investor Relations)
Please go ahead. Good morning and welcome to CRC’s first quarter 2026 conference call. Following prepared comments, members of our leadership team will be available to take your questions. I hope you have had a chance to review our earnings release and supplemental slides. We have also provided information reconciling non GAAP financial measures to comparable GAAP measures on our website in our earnings release. Today we’ll be making forward looking statements based on current expectations. Actual results may differ due to factors described in our earnings release and SEC filings. As a reminder, please limit your questions to one primary and one follow up as this will allow us to get more time for your questions. I’ll now turn the call over to Francisco.
Francisco
Thanks Danny Good morning everyone. We’re off to a solid start in 2026 with unprecedented energy market volatility creating meaningful tailwinds and opportunities for our business. Before getting into the quarter, let me share a few thoughts on the macro environment and why CRC’s business is well positioned to create value through the cycle. Events across the Middle east have reminded the world of the importance of oil and energy security. Global supply chains have shown to be vulnerable and countries have been forced to seek reliable, diversified sources of energy. While the United States has been relatively insulated due to our strong domestic production, California faces a unique and precarious position. Today, over 60% of the oil consumed in California comes from foreign sources. In recent weeks, our state’s inventories have been reduced by more than 20% as oil destined for California has been diverted to Asia at substantial premiums. The importance of in state production has never been more critical both to ensure supply and preserve affordability. As the Golden State’s largest producer, CRC is positioned to be the solution, delivering local barrels that shorten the supply chain, lower transportation cost and associated emissions and helping keep gasoline affordable for Californians. CRC has a deep, primarily Brent linked high quality inventory of oil development opportunities and recent legislative efforts to improve permitting are proceeding as expected. Our recent mergers were well timed with transactions priced well below today’s strip and set a strong foundation for future growth. We’re now deploying capital into these assets to drive disciplined long term value. California is starting to recognize that local production is essential to affordability, reliability and the state’s climate objectives and CRC is ready to support all three. Today we’re moving decisively to accelerate development. We are increasing drilling cadence this summer by three rigs, two in California and one in Utah. This will allow us to return to our long term production maintenance capital program ahead of schedule and accelerate high return projects to unlock value. In California we’re drilling new wells and adding capital efficient workovers that will translate quickly into production. And in Utah, our highly contiguous acreage position provides meaningful upside that we have only begun to capture. Let me spend a moment on the Uintah acreage because this opportunity is compelling. Since 2020 production in the basin is up 100% reflecting both improved results at the well level and expanded more mature regional infrastructure. Recently drilled CRC and offset wells have substantially de risked our acreage and we’re planning to perform additional appraisal work. With over 200 gross Utland viewed locations already in the portfolio and additional benches under consideration, we have considerable running room to support a scalable growth pipeline platform. Our planned acceleration and activity to seven rigs will meaningfully enhance our financial outlook for the full year. We’re now targeting approximately 1% entry to exit gross production growth and raising our adjusted EBITDAX guidance by over 40%, outpacing the expected rise in Brent. We’re also increasing our Berry merger synergy target which Cleo will cover in detail in a moment. Our carbon management business CTB is on the cusp of a historic milestone. We completed construction and commissioning of California’s first commercial scale carbon capture and storage project at our Elk Hills cryogenic gas plant and we expect to receive final notice of determination from the EPA any day now. That approval will clear the way to first CO2 injection, marking the first time in California’s history that carbon emissions are permanently stored. It will also place CRC among a small group of US Oil and gas companies with active CCS operations. Put simply, this is a defining moment not just for crc, but for California’s ability to deliver on its climate objectives while preserving energy reliability and affordability. We expect carbon capture at our Elk Hills cryogenic gas plant to be the first of many more projects to come. Our storage reservoirs sit within reach of approximately 17 gigawatts of baseload power generation across California that we believe has the potential to be retrofitted for CCS and we have submitted over 350 million metric tons of carbon storage capacity to the EPA with additional rest awards tracking for draft permits through 2026. Our data center conversations continue to gain momentum. As previously announced, a top tier national data center developer is investing several million dollars to accelerate early stage site readiness and permitting at Elk Hills, a clear vote of confidence in the opportunity. As AI transitions from training to inference and other states face mounting power constraints, Tech’s appetite for scale clean power in California is growing. PRC is uniquely positioned to meet that demand. We can permit deliver firm gas supply, offer available land adjacent to existing infrastructure and pair it all with ccs. Power is the binding constraint for AI growth and we are one of the few platforms that can solve it the Reliable and Clean Power procurement program or RCPP. We expect the next major update in the second half of 2026. Natural gas with CCS is not yet eligible, but support is building and three of five CPUC commissioners have publicly endorsed inclusion. California already offers some of the highest stackable CCS incentives globally. RC Triple P eligibility would make the economics even more compelling. Our enhanced 2026 outlook reflects the positive impact of these developments as well as the continued execution of our strategy. With that, I will turn it over to CLEO to walk through our first quarter results and updated 2026 guidance.
Cleo
Cleo, thank you Francisco and good morning. We delivered a strong first quarter with adjusted EBITDAX of 304 million approximately 17% above the midpoint of our guidance and we are raising our full year guidance. The combination of disciplined execution, higher oil prices and accelerated activity has improved our outlook for 2026. In the first quarter, operating cash flow before changes in working capital was 247 million ahead of our expectations and reflecting the stronger Brent backdrop relative to our previous guidance. Net production averaged 154,000 boe per day with oil at 81% of the mix and realizations at 96% of Brent pre hedge in line with plan adjusting for PSC effects. Underlying production was in line with our quarterly guide. GNA for the quarter was above guidance due to the timing of legal expenses and a higher cash settled equity compensation reflecting share price appreciation. GNA is already trending down with further reductions driven by berry synergies which we expect to capture in 2026. Total capital deployed in the quarter was $131 million at the high end of guidance. The increased spend was by design as we pulled forward pre spud timing on development wells and accelerated facilities spend to support the activity ramp Francisco outlined. Even with that accelerated capital deployment, free cash flow before changes in working capital was 116 million, a strong start to the year. In March, we priced a 350 million add on to our 2034 notes. We upsized from 250 million with a book more than five times, oversubscribed, and used the proceeds to redeem our 2029 notes. This extends our weighted average maturity to approximately six years, lowers or interest expense and further strengthens the balance sheet. Net debt ended the quarter at 1.3 billion with net leverage at 1.1 times last 12 months. EBITDAX we returned 46 million to shareholders during the quarter, including 36 million in dividends and 10 million in share repurchases, bringing cumulative returns since mid-2021 to more than 1.6 billion, a track record that reflects the consistency and the durability of this business. Current conditions across domestic energy markets arguably provide the most constructive backdrop for our business and the industry than we have seen in quite some time. For the second quarter we expect net production of 149,000 boe per day, reflecting the impact of PSC effects at higher prices and a planned short maintenance window. At our Elk Hills power plant, we expect capital deployment of approximately 130 million, reflecting increased drilling activity in June GNA of 95 million and adjusted EBITDAX of 390 million, assuming an average Brent price of of $105 per barrel. As usual, we provide both quarterly and full year sensitivities to Brent to help frame the impact of commodity price volatility for the full year. We’re raising our outlook across the board. We now expect 2026 exit gross production of 175,000 boe per day, roughly 1% entry to exit growth and building momentum into 2027. To deliver this growth, we are increasing full year midpoint of total capital guidance to 540 million. DNC and workover capital is 100 million above our prior plan, reflecting a second half ramp to a peak of 7 rigs. Partially offsetting this increase is a reduction TO facilities capital of 10 million, reflecting ongoing field level facilities rationalization. Allow me to pull all of this together in one important comparison. We previously forecasted that our maintenance capital framework to hold production flat required seven rigs and approximately 485 million of DNC and workover capital this year and given our portfolio’s flexibility, we are expecting to deliver entry to exit growth with an average of 5 rigs and DNC and workover capital Utilization of less than 400 million, fewer rigs, less capital and we are now growing. The return profile on Our full year 2026 capital program is compelling. At current strip prices we expect a multiple of approximately 4.5x on invested capital, up from 3.8 times previously and IRRs approaching 70%, roughly 40% higher than our prior estimate. We now expect full year free cash flow before changes in working capital to exceed 800 million. Turning to berry merger related synergies, we have already implemented over 80% of our original target and are now raising that target by 12% or an additional 10 million. That’s driven by field consolidation and contractor to crew conversion across the combined footprint. Our cumulative synergy and structural cost reduction target through 2028 now stands at upwards of 460 million. We expect full year adjusted EBITDAX at a midpoint of 1.45 billion assuming an average Brent price of $91 per barrel. This increase reflects both higher commodity prices and underlying margin expansion. Brent is up approximately 38% while our EBITDAX outlook has increased by approximately 42% with a positive difference driven by high return drilling, structural cost discipline and incremental synergies all supporting higher cash flow per share. That gap between commodity upside and Ebitdax upside reflects the value of our integrated strategy compounding and it is the kind of outperformance we can sustain through the cycle. Cash flow per share growth, high return reinvestment, a de risk balance sheet and structural margin expansion that is 2026 in a nutshell. With that, I’ll turn it back to you Francisco.
Francisco
Thanks Cleo. Before we open the line for questions, let me share a few closing thoughts. PRC remains a different kind of energy company and this distinction could not be more evident. Our integrated strategy is delivering on three fronts at once. A low decline, conventional business accelerating into a stronger price environment. California’s first commercial scale CCS project on the doorstep of CO2 injection and a power and data center opportunity gaining traction. The path forward is clear. We’re scaling activity across California and delineating the uinta. We’re converting structural margin expansion into cash flow growth. We’re returning capital through a durable dividend and opportunistic buybacks and we’re advancing our leading carbon management platform. Our priorities are unchanged. Develop our resource base responsibly, unlock the full value of our portfolio, maintain a premier balance sheet and allocate capital with discipline. That is how we create durable long term shareholder value. Operator, we’re ready for questions.
Operator
We will now begin the Question and answer session. To ask a question, you may press star then one on your telephone keypad. If you’re 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 Press Star then two. Please limit yourself to one primary and one follow up. this time, we will pause momentarily to assemble our roster. The first question comes from Scott Hanold with RBC Capital Markets. Please go ahead.
Scott Hanold (Equity Analyst at RBC Capital Markets)
Yeah, thanks. Good afternoon. Looks like you have it all coming together. You got the permit reform, you identified the inventory, now you’ve got the price. So …
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