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Thursday, Mar 28, 2024

At CRC, Cash Limited Despite Higher Oil Prices

California Resources Corp., the second largest oil producer in the state next to Chevron Corp., appears to be open to more acquisition opportunities in 2019, moving away from deleveraging its assets. Pavel Molchanov, energy analyst for Raymond James & Associates Inc., reported in November an adjusted earnings per share at 81 cents for the third quarter, topping a consensus estimate of 43 cents. This marks the first “purely organic growth” for the Chatsworth company since 2015, Molchanov said. Looking forward, the analyst expects a “modest upward trend” in oil production volumes throughout the year, with upticks in liquids and flat gas. Growth is expected to be 5.5 percent for 2019, compared to 2.8 percent in 2018. California Resources isn’t expected to have much free cash flow in 2019 however. “For 2019, we anticipate (free cash flow) turning positive, albeit only slightly. Here is what we find fascinating (and rather counterintuitive): the forecasted free cash flow in 2019 is actually less than what it was in 2016, when West Texas Intermediate (crude oil) averaged $43,” added Molchanov. By contrast, West Texas crude closed on Feb. 13 at $53.95 a barrel. “To be clear, we are not suggesting that management should go back to the hyper-austerity days of 2016; rather, we are simply making the point that this stock, unlike an increasing number of E&Ps, should not be seen as a free cash flow story,” Molchanov concluded. The Raymond James report comes after California Resources acquired the remaining working, surface and mineral interests of Elk Hills, a 47,000-acre field in the San Joaquin Basin. The company paid Chevron $460 million plus 2.6 million shares of stock. Molchanov points to the acquisition as a primary driver for production growth in the second quarter. Overall, CRC believes it is in a good position to continue sustainable growth after significantly reducing its debt. “We’re running 10 rigs. We produce an average of 136,000 barrels of oil equivalent per day. That’s up 6 percent over the prior year period, producing 62 percent oil,” said Mark Smith, senior executive and chief financial officer for California Resources Corp. during a finance conference in December sponsored by Bank of America Merrill Lynch. “During the quarter we invested $158 million, all internally funded. The remaining $38 million of capital was funded by our partners and was dedicated to our joint venture projects. We’re pleased with our performance over the quarter and we’re looking forward to the remainder of the year and how we’re positioning ourselves for 2019,” Smith added. The company’s fourth quarter conference call is set to take place Feb. 23. Shares of California Resources closed on Feb. 13 at $19.53.

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