Kalei Akamine: Hey. good morning, guys. Francisco and Nelly, my first question is on the use of cash. So, the buyback this quarter had some support from the balance sheet. and I think that makes sense given the performance lag. The context there, I think is the EIR result. So, we like seeing you lean in. But with Aera now closing, I feel like there are now competing priorities for that cash with respect to leverage. So, I guess with those motivations as the backdrop wondering about the rough contours of your cash program post-Aera?
Francisco Leon: Yes. I think definitely, getting to the finish line Kalei, we need to improve the Aera balance sheet. We’re going to look opportunistically to refinance that debt and our commitment is to get to a less than 0.5 leverage ratio on the debt. but we think we can get there fairly quickly and the amount of cash generation from this business is absolutely tremendous. and so, we’re going to look to increase the dividend subject to Board approval after closing. And then you have a fantastic tool, which is the share repurchase program. I see an opportunity as we get to final permits on both oil and gas, and CCS and looking at the lag in the stock performance, continued to buy aggressively our share. So, I wouldn’t say, overarchingly there’s a change, I would say, it’s probably more to come.
We have a good track record of returning cash to shareholders. We’ll continue doing that and anything related to the Aera merger, we’ll address quickly, get the debt back levels down and then focus on distributing more cash to shareholders.
Kalei Akamine: My suspicion is that the quarterly cash sweep will probably be split between the buyback and debt reduction. But as you think about the cash balance that you currently have, that’s still very strong. How do you think that trends as we head towards that target leverage metric that you have in 2025?
Francisco Leon: Yes. I guess, one clarification is, remember, the effective date on the transaction is 1/1/24. So, there’s already cash in the system with Aera’s balance sheet that’s being used to delever already as we go. So, we do have a few things to take care of after closing or before closing. but I think the prime objective post-closing and once we get on track to get the leverage to 0.5 will be to distribute cash to shareholders. So, that’s what we did in 2023 when we have no permits for oil and gas, that’s what we’ll do in 2024 and into 2025.
Kalei Akamine: Got it, I appreciate that. My second question goes to pro forma guidance, CapEx, OpEx and ARO included. Closing is coming up for Aera and you suggested that program is basically a mirror of yours. but had it closed within a month or so. Wondering about any updated thoughts you have on 2024 guidance? And I’ll leave it there.
Francisco Leon: Yes. 2024 guidance, we haven’t communicated for the combined company. You have the view for CRC midpoint of production 70,000 BOEs per day. So basically, a continuation of what we have delivered in the first quarter. And our capital 200 CRC to 240 CRC. So, we’ll update 2024 guidance, we are not expecting to run any rigs on Aera’s fields in the second half of the year. So, I would say a light capital program on a relative basis for 2024. What we do see, once we’re able to get back to increased production and we have the ability to invest to keep production flat, we see investment of about $500 million to $600 million as maintenance for the combined company. That would be drilling completions and workovers, plus facilities and that varies every year.
That would be the objective once we get back to full permits. but in the meantime, low capital one-rig program on the combined basis and you can see some of the numbers for the slides. but it’s a low capital program until we can get permits back on track.
Kalei Akamine: In the absence of a drilling program on the Aera asset for 2024, what are your expectations for an oil decline rate?
Francisco Leon: Yes. So, on the slides, you’ll see that we showed Aera’s decline and CRCs from 2023, average of about 6% for both companies. And as I said, these assets are very similar, really good rock, low decline and you can basically get from the corporate decline rate of call it, 11.5%, you can get into the mid-single digits with workovers on sidetracks and increase workovers on capital and OpEx. And that’s effectively what Aera did last year, that’s what Aera is doing this year. So, 5% to 7% on a combined basis based on last year, I would expect something similar for this year with one-rig running between the two companies.
Operator: Our next question comes from Nate Pendleton of Stifel. Please go ahead.
Nate Pendleton: Good morning and thanks for taking my questions.
Francisco Leon: Good morning, Nate.
Nate Pendleton: My first question, AI and data center power demand has been quite topical recently. Can you provide your perspective on the opportunity that you see for CRC given your dominant position in the California natural gas market?
Francisco Leon: Hey, Nate. definitely watching it unfold. If you look at what the data centers are looking for, is 24/7 power, but they’re also looking for carbon free power. They need land, they need running room, they need water. we provide it all at Elk Hills, we’ll have it at Bell Ridge as well. If you look at California specifically, where you don’t have an ability to develop nuclear, we’re down to one plant. The only reliable sources of carbon free power are going to be natural gas fired power plants with CCS. So, we think we have the perfect solution to keep the data centers in California. In CalCapture, which is our Elk Hills power project becomes a fascinating opportunity to advance and look forward. So, early conversations are happening and maybe, I’ll turn it to Chris Gould to give a perspective of what we’re seeing on the datacenter side.
