CRC plans carbon spinoff, dials back oil investment
One of Kern County’s leading oil producers announced a strategic realignment Friday it said will eventually lead it to separate its growing carbon management business from the rest of the company.
The changes at California Resources Corp., including its CEO stepping down come April to take a non-executive director role overseeing its carbon management subsidiary, will be accompanied by decreased investment in its oil drilling and exploration operations — partly the result of a protracted legal fight over oil permitting in Kern County.
As the latest redirection of a company transformed by bankruptcy in 2020, Friday’s announcement came amid an acceleration of activity at the company’s carbon management subsidiary, Carbon TerraVault.
CRC said realigning the company will increase its financial flexibility, optimize its asset portfolio and strengthen shareholder returns.
“Look, we have a vision that these two businesses over time need to be run and potentially separated. And that will mature over time,” outgoing President and CEO Mark A. “Mac” McFarland said in a morning earnings conference with analysts, according to a transcript by Seeking Alpha. “This is just the first step of many.” No timetable was provided for Carbon TerraVault’s spinoff.
Carbon TerraVault has achieved multiple milestones during the past year. As CRC noted Friday, the division established a joint venture with an investor willing to contribute up to $1 billion, struck agreements with clean energy and industrial developers and, most recently, formed a broad coalition to pursue hundreds of millions in federal funding for a carbon capture and sequestration hub in western Kern.
In a pair of news releases Friday, CRC laid out 2023 plans reflecting greater emphasis on carbon management amid cost-cutting elsewhere.
The company said it will pare back to deploying just 1.5 drilling
rigs this year — half its total in the current quarter — as it refocuses on oil well maintenance and maximizing production from its existing operations. It said its goal is to trim its non-energy operating costs by between 5 percent and 10 percent this year, excluding downhole well maintenance expenses.
That’s expected to result in less oil production: CRC predicted its daily petroleum output this year will average between 85,000 barrels of oil equivalent and 91,000 barrels. The latter figure was the average during the fourth quarter of last year.
After spending $81 million on oil exploration and production during the final three months of last year, the company said it will spend just $155 million on such activity during all of 2023.
In explaining its planned cutbacks in production, CRC cited the “ongoing impact” of a halt to Kern’s streamlined oil and gas permitting system, which was again put on hold recently pending judicial review of changes the county made as part of efforts to come into compliance with the California Environmental Quality Act.
Meanwhile, the company said, Carbon TerraVault will work on signing up additional projects with carbon emitters, advancing plans to create a regional carbon capture hub and filing for additional permits so it can eventually begin injecting carbon dioxide permanently underground while receiving state and federal financial support in furtherance of climate policy goals.
McFarland will be succeeded by Francisco Leon, who has served as CRC’s chief financial officer since 2020. Before that, Leon served as the company’s vice president of business development, portfolio management and strategic planning.
McFarland took over as CEO in March 2021 after being named chairman and interim CEO in October 2020. He arrived as the company emerged from bankruptcy after struggling with some $6 billion in debt left over from its 2014 spinoff from Occidental Petroleum Corp., which left California for Texas.
McFarland said in a news release that Leon has been “a fabulous partner” with extensive knowledge of the company’s oil exploration and production work while at the same time being “instrumental in the creation of our carbon business.”
CRC said it has begun a search for a new CFO.