Leo Mariani: I wanted to focus a little bit on the production here. So, you guys certainly mentioned that first quarter production came in a little bit lower and sounded like some of that was extended maintenance at Elk Hills, and talking to the power plant. I was hoping you guys could kind of quantify, so how much did you lose, in the first quarter? And presumably, that’s all back in the second quarter. but then it sounds like you’re also losing some production here just to kind of lower gas demand. So maybe, you can help quantify that a bit. And presumably, those are some of the reasons why you guys lowered the production guidance a little bit and then also probably higher oil prices with some PSC impact. Is there anything else that kind of caused you to bring the production guidance a little bit lower here in 2024?
Francisco Leon: Hey, leo. So yes, first quarter, the delay of the power plant turnaround was about 800 barrels equivalent per day, so — but it’s all of it gas. And so that was the impact there. And as we talked about, this plant is growing in value every day and we have — our team does a fantastic job of maintaining the assets. We took the opportunity to do an expanded review of to make sure everything was functioning and looking at the steam turbines and doing an inspection. So that was completed successfully. The plant is running, got restarted, running at 100% capacity. And those are the — that’s primarily the impact in the first quarter. We also had some weather, a lot of storms, mudslides to contend with and then finally the PSC effect.
So, yes, that’s where we’re at the lower end of the range. More gas struggled a little bit more than oil. Oil actually was above on the high end of the range, but those are kind of the first quarter impacts. Now, second quarter comes around a little bit of the spillover of the turnaround for LKLs. but again, we got it back up and running in full in April. So, you’re back to having two primary issues for the second quarter. One is, we’re planning the second quarter at a higher Brent price. So, you do expect some impact to PSC as it’s against inversely correlated PSC to production. But what we’re seeing in the second quarter is, we’re having to take down the power plant to a lower capacity given that we’re seeing a lot of solar energy being generated in the second quarter.
And that allows — that brings prices for power down, so rather than send power into the grid in this environment, we decide to ramp down the plant on a temporary basis. I would say this is a seasonal aspect of how we’re seeing things unfold in California. We do have fixes on a go-forward basis. It’s one of the again, advantages of having the merger with Aera. And basically, what happens is there’s some permeate gas that is not up to specs for the utilities, but we’re able to run that to our power plant. As the plant goes from full capacity of 550 megawatts plus or minus, then you’re able to put all the gas into the plant. If you bring that down in terms of capacity, then you have less consumption of that gas. and so, you’re not getting to that sales point.
We’re able to after the merger closes to route that gas to Aera’s fields and offset some of the gas that they’re purchasing at Belridge as an example. The two fields are already connected with a pipeline. So, it gives us an effectively a relief valve to move that gas on a go-forward basis. But that’s effectively what’s going on. So, there are independent issues with the plant. The first one was a turnaround, the second one is market. And maybe, I’ll just ask Jay Bys to provide a little bit more color commentary on solar power generation in California?
Jay Bys: Good morning. Yes. California has actually become a net power exporter over the course of the last couple of years. In fact, power is going north to Washington State to capture GHG-driven pricing up there. Even with that, we’re seeing growing back downs on both solar and wind generation in these shoulder months. It’s interesting to watch this play out. Fortunately, we’ve got a couple of different value streams related to our power plant as Francisco points out. Even when we back the unit down, we’re not able to take full advantage of the off spec gas that would otherwise be burned. But we do continue to have the benefit of the planet behind the fence to give us very attractive rates and we’ve got a capacity revenue stream that goes with the power plant.
So, it’s going to be interesting to see how the broader circumstance plays out in California. But from our perspective, we’re pretty well situated. The addition of the Aera off ramp if you will to run this offset gas through steamers that’s only a benefit.
Leo Mariani: Okay. Appreciate the thorough answer there. And then just wanted to follow up on the oil and gas, drilling permit process here. So, it sounds like there’s been maybe somewhat of a hiatus, for CalGEM kind of outside of Kern County. Obviously, you’ve got the LA Basin operations, the SAC Basin operations. You mentioned the agency is kind of reviewing procedures out there. Just for some context, have they not really issued much in the way of drilling permits to anybody this year, as they’re kind of reviewing those protocols. and presumably, they’re going to have maybe, some updated protocols and perhaps a slightly modified permitting process later this year? Just how do we kind of expect that to play out? I assume you’ve been in contact with CalGEM about these things. So, maybe just a little more color, just because obviously you have assets outside of current and it’d be great to kind of drill some wells?
Francisco Leon: So that’s the thing you’ve got it, Leo. That’s exactly right. CalGEM is going through a fairly extensive review of their procedures and looking to improve how they think about permitting in California. Like I said, there’s side tracks and there’s progress being made in our fields and we’re seeing some approved in other fields throughout the state. There’s we haven’t seen new wells permitted this year under the new format. I think CalGEM is still working through that. Can’t speak for them as to when they’re going to be ready. We engage with them very frequently in looking to get back to full permitting capacity and full drilling program in outside of Kern County. So, hard to pinpoint the specific date when CalGEM will be ready.
but we do see progress — already meaningful progress on sidetracks and workovers, and anticipation is that we’ll get the new wells back on track soon so and so. I can’t put a timeline to it. but we see a lot of progress being made and the agencies are talking about us getting to hopefully the final steps in their process.
