Speaker 1:
Welcome to TD Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.
David Deckelbaum:
Welcome to our second annual TD Cowan Energy Conference podcast series. I'm David Deckelbaum. I'm joined by California Resource Corporation COO, Omar Hayat. Omar, thanks for joining us to talk about CRC. It's a really exciting time for the company right now. We've seen a lot of regulatory changes, talked about California oil coming back now. Maybe talk us through what this means for the company, how the shift in the regulatory landscape has really unlocked a lot of opportunity for CRC.
Omar Hayat:
Thanks, David. I appreciate the opportunity to join you here. Very exciting time for CRC. It is a huge shift in the regulatory environment in California from where we have been in the past. Where we have been was where we didn't have a pathway for permits for new wells. And what Senate Build 237 does is that it opens up that pathway. It basically says that the state is going to issue 2000 permits a year for next 10 years in Kern County. And we operate essentially in Kern County, 80, 90% of our business is in Kern County.
So it's a huge monumental shift for CRC in terms of leveraging our inventory and developing the resources that we want to develop the way we want to develop. So we are very grateful for the shift and the support that we have from Sacramento in addressing a potential energy problem that California may face if the domestic production continues to decline. So state is preempting that and taking action to address that issue, and we are partnering with the state in addressing that.
David Deckelbaum:
On the heels of that comment of just addressing the production requirements in California and declines that we've seen in the state, there's been declines in your own portfolio by limitations on the permitting side. The outlook for '26 is really different. Maybe talk through just the shift in what you're seeing on just the base decline, but the targeted decline next year of what I believe is 2% exit to exit, which is extremely meaningful relative to what we've seen in the past.
Omar Hayat:
That is correct. So if you look at the spirit of SB 237, what state is really trying to do is to support domestic production to at least at the very minimum, hang on to the share that they have for the total market. So today domestic production is about 23% of the total market. California consumes about 1.4 million barrels and domestic production is just under 300,000 barrels. And CRC, being the biggest producer, has a large portion of that.
Our plan is to increase activity. We have been operating two rigs leading up to this legislation. We will add two more rigs starting 2026, and we'll run the year with four rigs. That will result in arresting our decline from 6% in 2025 to 2% in 2026. And we'll continue to look at the opportunities to dial and optimize that count depending on the commodity price, and we'll respond to that.
David Deckelbaum:
You can talk a little bit about just the M&A environment. You all announced the acquisition of Berry Corporation. Preceding that, you all acquired Aera on the private side. How do you think about creating value with some of these bolt-ons, particularly with the regulatory environment shift?
Omar Hayat:
Yeah. So last year we announced Aera acquisition and have successfully integrated their operations. That was a big deal for us. It essentially doubled our scale, and we delivered $235 million in synergies tied to that deal, which if you compare that to the deal size, tends to be on a very high side for comparable deals that happen in the sector. The Berry deal is a repeat of what we did with Aera very successfully. It's very complimentary assets. We're going to go for 80 to $90 million in synergies tied to Berry, and it makes sense that CRC operates those assets.
Because of our scale, because of our processes and how we have integrated Aera, the next step is to bring in Berry and we will drive meaningful value for shareholders through both of these acquisitions. And we continue to see more. I think the numbers we have seen is something that we feel very confident. I'm very confident that we'll do better than that.
David Deckelbaum:
CRC has a lot of unique attributes, not just being an oil and gas company in California, but also Carbon TerraVault, a complimentary CCS initiative. Talk about the first project, which is coming up here around the Elk Hills cryogenic gas facility and what this is going to mean for the company and really the broader view for Carbon TerraVault in the years ahead.
Omar Hayat:
Yeah. One of the unique thing about CRC is that it's not another E&P company. The reason we have such an alignment and we have a seed on the table in Sacramento in providing input as to what the policy should look like around oil and gas and energy in general is because we believe in not only producing oil and gas today, but working towards cleaner energy for the future. And that's why we stood up our Carbon TerraVault business, which essentially aims to capture carbon from hard to abate industries and then store it in the depleted oil and gas res wars.
So we are putting a lot of work. We essentially build the market in California for that, being the first company to get class six permit from EPA. We have 300 million tons of permits in process with EPA. So we are essentially the company in California for this business. What is exciting is the whole change we are seeing around power demand with the AI coming to the scene. And we are going to leverage the work we have done to clean power for gas fired power plants in the region and then sequester that through our carbon business.
Where we operate, our first permit in CDV in Elk Hills is at a point where we have 2.4 gigawatts of power surrounding it within 20 mile radius, right? And we assign MOUs with the companies operating those power plants. So this is a very exciting time. We are in the early phases of figuring out what the commercial structure is going to look like, but we have scale here and we have all the pieces of the puzzle. So what you would see over the next few months and years is us leaning into it and looking at the ways to monetize that, which will not only obviously benefit our shareholders, but it's a great step forward for the state as well.
David Deckelbaum:
It seems like if I'm not being too forward that the company is kind of evolving from being more or less a value-oriented play over the last several years, focused predominantly on returning capital shareholders, optimization, buying back a lot of your own shares, and then moving towards maybe a growth company over time. Do you feel like you're at the precipice of making that inflection right now?
Omar Hayat:
I think the statement is not that off. One thing I would add is that our focus always is going to be the shareholder return and they invest in us, they trust us with their investment and their returns and wellbeing is going to be the top priority all the time. We'll optimize around that, right? But you are right. What has shifted though is that we now have more optionality to generate more value for our shareholders.
We have been focused on paying dividends and we have been focused on buybacks because that made a lot of sense in an environment where you don't have permits and you don't have other catalysts. We do believe that some of that will continue. We remain committed to that, but some of that cashflow can now be invested in the future and can be invested to generate more value for our shareholders through Carbon TerraVault, through investing back in the ENP, but it will always be solving for shareholder returns.
David Deckelbaum:
Omar, it's been great having you on the podcast today. We were out in Elk Hills with you guys looking at the first CCS initiative with CTV1. I saw a number of local community officials from Kern County that came out and you could feel the palpable energy that was there. There was a lot of excitement. Can you talk about just the sentiment now post SB 237 in Kern County and how motivated people are to kind of see the industry wake up again?
Omar Hayat:
There is a lot of optimism in the county. CRC was invited as part of a press conference. There was a county scheduled press conference. We were the only oil and gas company that was invited to stand along the county and talk about SB 237 and what it can do for the county. So we have a lot of support. We have a lot of good partners that have supported us in Sacramento, that stand by us, and we continue to be a responsible citizen in the county as well. We are one of the largest employers, one of the largest taxpayers in the county. And so by default, we have a very special place in that ecosystem, and we are very grateful for all the support that we're seeing from our partners.
David Deckelbaum:
Best of luck to you and CRC. Thanks for joining us. Thank you so much.
Omar Hayat:
Thank you for your time. Appreciate it.
Speaker 1:
Thanks for joining us. Stay tuned for the next episode of TD Cowen Insights.
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