Leo Mariani: Okay. Great. Thanks for the clarification. And then just on the $55 million of cost savings, which you’re expecting next year, I just wanted to get a sense, are you seeing some of that already in the second half 2023 numbers? Or do you think that’s kind of an incremental $55 million when the calendar turns..?
Francisco Leon: From a modeling perspective, I would apply it in 2024, Leo. We are seeing already some modal savings this quarter, but there’s offsets, right? There’s severance costs, there’s a number of things that you have to — as you go through, big cost reductions that you have to take care of. So you will see the full impact of the $55 million plus for 2024.
Leo Mariani: Okay. That’s helpful. And then lastly, guys, is there any update on kind of pipeline regulation on the CO2 side there in the state?
Francisco Leon: Yes. So we’re looking for clean-up language around Senate Bill 905, which is the beginning of the conversation around pipelines in California. We are — there’s no new update. We’re anticipating beginning of next year when the budget gets set by the state to have the next opportunity for the legislature to pass the language. That’ll ultimately increase the framework for CO2 regulation. So we’ll look for that early next year in terms of new information. But our view is that the energy transition cannot wait and that’s why we’re excited about our greenfield projects, excited about the project that are captured to storage project at Elk Hills. We have the ability to make all of this a reality as we wait for things like the CO2 pipeline regulation to get passed.
So this co-location of emissions on top of the reservoirs really gives us an advantage over the rest of the market in terms of being able to get the cash flows from this growing business. But in terms of the pipeline, we feel there’s really good support from the administration, from the legislators. So again, hoping beginning of next year is when we get some progress made in that front.
Operator: Thank you. And our next question today comes from Nate Pendleton with Stifel. Please go ahead.
Nathaniel Pendleton: Good morning. Thanks for taking my questions.
Francisco Leon: Good morning.
Nathaniel Pendleton: Regarding the planned spending for the carbon management business on land and easements, how should we think about that type of spending trending into the future? And can you provide some insight into the competition you’re seeing in California for that pore space?
Francisco Leon: Nate, yes. So we have a strategy to build multiple areas around the state for the pore space in the CCS business. In Elk Hills, we happen to have all aspects of the business in one place, surface, minerals, emissions. But as we move to other parts of the state, we do have to acquire land to make sure we have the right size of the boom and that we’ve accounted for all the different elements to it. So the $20 million that you’re seeing of easements anticipated in the fourth quarter of this year is to expand some of our landholdings. As we get ready to submit permits, as we get ready to make the business reality in other parts of the state, we were buying land that we can develop over time. So that’s what that is.
It’s difficult to predict the intensity of that spend going forward. But what you can see, if you go through our slide deck, you can see a lot more specific details as to what we’ve been doing at CTV II and CTV III. So where we don’t — we’re building new sites, we’re submitting permits. We have a long queue. The easement is for the next wave of projects that are in the CTV IV, V, VI category where we’re looking to perfect those reservoirs and building the strongest position that we can in a market that is competitive. So we have seen where there is, I would say, competition out there for the land rights. We don’t necessarily see immediately this competition submitting permits, but we know they’re out there. Some big developers that are looking to build their own CCS platform.
So that’s — without being specific as to who’s out there, there is demand for land, there is demand for pore space. You just don’t hear it because the companies are not necessarily public or they are too big for this to register, but we do see demand. But we feel really good about our positioning that we’re building and building scale and multiple projects so we can grow the business beyond what we laid out for the market.
Nathaniel Pendleton: Got it. Thanks for the detail. And you have the potential for equity ownership in a number of the projects that plan to use CTV for CCS. So at a high level, can you speak to your framework for making an investment decision at the various projects, including the NLC RNG facility?
Francisco Leon: Yes, absolutely. So commercially, I think our team made a great decision to retain an option to participate. That gives us access into new markets and how those markets are coming together. As we develop the Clean Energy Park at Elk Hills, as we bring in new technology forward and enable these projects, understanding the value of their proposition and their offtake agreements is critical to the success of our CCS franchise. So the — certainly, there are some projects that are going to be better fit. There’s going to be projects that are more mature and there’s going to be an appetite to invest in some of these projects. We have the option alongside with Brookfield. So we go in together. We understand the scalability of the markets, the pricing points, the positioning that we have.
So if we feel there’s a strong return opportunity, then it’s something you’ll see us invest in. And if we think they’re going to take a little bit longer to develop, then we may not. So it’s good to have the option. I think we’re going to face the first decision here early next year in Lone Cypress. I feel it’s a very attractive project to develop the first clean hydrogen offering at scale in the state, again, a fast track to market, a low-cost producer potentially given all the advantages that we talked about as being between energy park. So we’re approaching that FID decision. First, we have to get the Class VI permit and then we’ll make a decision on the project. So we’re looking at it. It’s very difficult to be prescriptive because the projects are so different and their funding requirements are different, the capital behind them is different.
But I do like having the ability to think through the market of every project and how that’s going to play in California.
Nathaniel Pendleton: Absolutely. Thanks for taking my questions.
Operator: Thank you. And our next question comes from Scott Gruber at Citi. Please go ahead.
