California Resources Corp (CRC) Q4 2022 Earnings Call Transcript

California Resources Corp (NYSE:CRC) Q4 2022 Earnings Conference Call February 24, 2023 1:00 PM ET

Company Participants

Joanna Park - VP, IR

Mark McFarland - President, CEO & Director

Francisco Leon - EVP & CFO

Chris Gould - EVP & Chief Sustainability Officer

Jay Bys - EVP & Chief Commercial Officer

Conference Call Participants

Scott Hanold - RBC Capital Markets

Nathaniel Pendleton - Stifel, Nicolaus & Company

Leo Mariani - ROTH MKM Partners

Kalei Akamine - Bank of America Merrill Lynch

Eric Seeve - GoldenTree Asset Management

Operator

Good day, and invited to nan California Resources Corporation Fourth Quarter Earnings Conference Call. [Operator Instructions].

And now I would for illustration to move nan convention complete to Joanna Park. Please, Joanna, spell ahead.

Joanna Park

Welcome to California Resources Corporation's Fourth Quarter 2022 Conference Call. Participating connected today's telephone are Mark McFarland, President and Chief Executive Officer; Francisco Leon, Executive Vice President and Chief Financial Officer; arsenic good arsenic nan full Executive Committee. I'd for illustration to item that we person provided slides connected our Investor Relations conception of our website, www.crc.com. These slides supply further accusation into our operations and 4th fourth results.

We person besides provided accusation reconciling non-GAAP financial measures discussed to nan astir straight comparable GAAP financial measures connected our website arsenic good arsenic successful our net release.

Today, we are making immoderate forward-looking statements based connected existent expectations. Actual results could disagree owed to consequence factors described successful our net merchandise and successful our 10-K and different periodic SEC filings. As a reminder, we person allotted further clip for Q&A astatine nan extremity of our prepared remarks. [Operator Instructions].

With that, I will now move nan telephone complete to Mac.

Mark McFarland

Well, great. Thank you, Joanna. Good morning, everyone, and convey you for joining america today. Over nan past 2-plus years, pursuing nan company's emergence from its financial restructuring, we person evolved CRC into an endeavor focused connected generating nan highest rate travel from our assets and returning that rate to shareholders. Case successful point, successful 2022, we returned 120% of free rate travel to shareholders done stock repurchases and dividends. And we bought backmost 14% of nan company's outstanding shares since our emergence successful precocious 2020.

We besides saw a tremendous opportunity for c guidance and person built a coagulated business astir that. As immoderate institution -- arsenic immoderate focused institution should do, we proceed to evolve.

As we look guardant to 2023 and beyond, we are announcing a strategical realignment of nan company's business operations and building to accommodate to existent circumstances and build connected our beardown momentum. As I person said before, and to opportunity it simply, we are focused connected generating nan highest rate travel per stock imaginable from our E&P business truthful we tin return that rate to shareholders.

Another lawsuit successful point, if you return 2022 free rate travel of $311 cardinal and nan mean afloat diluted shares outstanding of 77.6 cardinal during nan year, we delivered $4 of free rate travel per stock successful 2022. And if you return nan midpoint of our '23 guidance, nan $385 cardinal of free rate travel and nan afloat diluted shares outstanding of 73.6 cardinal astatine nan extremity of January, we would expect to present $5.23 of free rate travel per stock successful 2023. That would beryllium astir a 30% summation successful rate travel per share, and that is earlier we bargain immoderate much shares backmost successful 2023, which would thrust nan results moreover higher. That is nan use of our debased diminution assets and nan toggles we person disposable to america successful nan business.

In relationship pinch nan strategical alignment, we are announcing guidance and Board changes to support nan eventual separation of our E&P and c guidance businesses. We are besides cutting costs to lucifer activity levels, and we scheme to summation our financial elasticity to accelerate shareholder returns. By taking these steps, we judge we tin create a different benignant of power institution and thrust rate travel per stock growth.

With nan revised firm structure, Francisco Leon, will win maine arsenic CEO, and I will measurement backmost from nan day-to-day guidance role. I will proceed to service connected nan Board of CRC and will chair nan recently formed Board of our Carbon TerraVault subsidiary, which will beryllium devoted to overseeing nan continued maturation of nan c guidance business.

Two existing CRC nonexecutive Directors, Andrew Bremner and James Chapman, will besides service connected nan subsidiary board. Together, we will supply nan business pinch penetration into nan commercialization of caller technologies, supply expertise successful firm and financial structuring arsenic good arsenic supply knowledge applicable to early movers for c seizure and retention successful California.

I've had nan tremendous opportunity to activity pinch nan awesome group of CRC and forged galore awesome friendships. And having spent much than 2 years moving pinch Francisco side-by-side, I americium assured he is nan correct personification to lead america astatine this breathtaking clip and going forward.

I'll now move it complete to Francisco to stock much specifications connected nan steps we're taking to position our business for success. Francisco?

Francisco Leon

Thanks, Mac, and convey you, everyone, for joining nan call. I will attraction my comments connected nan actions we are taking to heighten worth and present stronger shareholder returns and to maximize rate travel per stock of nan business. But first, we person provided elaborate study astir our 2022 quarterly and yearly financial and operational results and besides our 2023 guidance successful nan attachments to our net merchandise and successful our descent deck. I will mention you to those documents for that accusation alternatively than screen them connected this call.

But arsenic you will see, 2022 year-end financial results were very strong, pinch complete $300 cardinal of free rate flow, helping showcase our resilient and valuable portfolio of assets. As we delivered connected each of our 2022 priorities, and look astatine what's successful beforehand of america successful nan adjacent chapter, we must proceed to evolve.

So here's our scheme for 2023. We are going to attraction our improvement and drilling scheme connected processing nan highest returning projects pinch permits successful hand. That, mixed pinch good servicing and downhole maintenance, will thief trim our guidelines accumulation declines. We will do this by reducing superior finance to 1.5 rigs, which is based connected permits successful manus successful nan Wilmington section for precocious rate-of-return projects pinch short paybacks. This constitutes a tally complaint E&P CapEx programme of $155 cardinal per annum arsenic demonstrated pinch our 2023 program, and arsenic you tin spot connected Slide 10 of our presentation.

We're besides adding OpEx dollars to downhole maintenance, expanding our rig attraction count by 6 to 38, which, mixed pinch our superior program, we expect to present a 5% to 7% full diminution for nan company.

We person a backlog of astir 1,000 wells that we tin spell aft and return to work and return to engineering that let america to make high-impact investments pinch very small incremental operating expenditure dollars.

Given reduced activity levels crossed our E&P business, we're besides looking to trim each different nonenergy operating costs and adjusted E&P firm and different G&A costs by 5% to 10% by year-end, aligning our costs to activity level.

We person successfully implemented akin strategies successful nan past, and judge nan institution is good positioned to place and execute further costs reductions while maintaining nan precocious operational and information standards that CRC has achieved complete nan years.

In summation to nan revisions to our operating plan, we're besides pursuing ways to summation our financial elasticity to bolster nan company's ongoing shareholder return programme and alteration a imaginable early separation of nan company. To thief execute this financial flexibility, we intend to refinance nan $600 cardinal high-yield notes and widen aliases switch our RBL. Clearly, having Carbon TerraVault run connected a stand-alone ground will broaden superior sourcing action for that business.

Our continued attraction connected costs, and our expertise to support accumulation owed to nan precocious value of our assets, gives america assurance successful our rate travel projections. And arsenic such, CRC's Board has authorized a 30% summation to nan stock repurchase programme for a full of $1.1 billion, pinch $640 cardinal remaining of barren powder. With this scheme successful 2023, we expect to make $455 cardinal of E&P free rate travel and full firm after-tax free rate travel of $385 million. Of this, we intend to return 100% to shareholders successful 2023, continuing our way grounds of returning much than 100% of rate to shareholders and maximizing rate travel per share.

If marketplace conditions persist successful 2024 and beyond, we will repetition this plan. If we presume a 1.5 rig count going forward, we are assured that we tin little our superior scheme of astir $155 cardinal of drilling and completion capital. We tin make nan due reductions to our costs building that we expect will guarantee that we present improving operating and financial metrics connected a per stock basis.

I americium really excited astir nan early of CRC and look guardant to moving pinch our talented squad to return nan steps to abstracted our quality, debased decline, debased c strength and precocious rate travel generating E&P business successful our California starring Carbon TerraVault, which we will unlock -- which will thief unlock nan company's afloat imaginable for delivering worth to shareholders.

I want to return a infinitesimal to convey Mac for his activity these past 2 years and look guardant to moving pinch him to accelerate nan maturation of our c guidance business. Thank you for your liking successful CRC, and convey you for joining america connected nan telephone today. We'll now unfastened nan statement for questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions]. Our first mobility comes from Scott Hanold from RBC Capital.

Scott Hanold

Francisco, congrats connected nan promotion, well-deserved, and Mac, congrats connected each your activity to this constituent and successful nan future. So bully to spot those moves successful place. But my first mobility is going to beryllium astir permitting. And possibly a small spot of a multifaceted question, but fto maine springiness it a changeable here. Can you springiness america a consciousness -- nan determination to spell to this 1.5 rig count and little activity pace, has your position changed connected nan litigation that's ongoing successful Kern County? Has that changed that drove that opinion? And past could you besides springiness america a consciousness of for illustration really galore full permits do you person successful hand? And successful what basins? And conscionable to springiness america a consciousness of for illustration really overmuch runway you person extracurricular of 2023?

Francisco Leon

Scott, acknowledgment for your bully words and nan question. So erstwhile we issued nan 8-K a fewer weeks agone astir nan entreaty process successful Kern County. And I deliberation what we were looking to do coming aft getting feedback from each of our investors was to showcase what nan scheme would beryllium connected a go-forward basis, and that's what we did today.

So nan 1.5 rigs is -- has efficaciously each concentrated successful nan Wilmington field. As you know, we run successful 3 fields -- 3 basins, nan Sacramento Basin, Kern County, San Joaquin Basin and past nan L.A. Basin. So nan litigation is only astir Kern County, truthful that gives america optionality to spell to these different 2 basins. So we're focusing activity successful nan LA basin successful nan Wilmington field. And we person a batch of runway there. It's benignant of independent process to get permits.

Nothing has really changed astir nan entreaty process. We -- what we said is, okay, obviously, if we tin get immoderate bully news there, and we're besides moving connected replacement plans astir individual section , right? So remember, this is simply a Kern County-wide permitting process, but we tin still spell to individual fields to get those afloat permits replaced.

So we're moving done that, nothing's really changed, but what we wanted to supply was a position to our shareholders that what we would do successful lawsuit nan entreaty process continues and drags on. So to us, there's upside to nan story. We've already communicated erstwhile we saw nan impact, and we deliberation we tin present 1.5 rigs connected a go-forward ground if nan entreaty process continues to resistance on.

Scott Hanold

Okay. I admit each that color. And arsenic my follow-up question, I mean, there's a batch of different questions I could inquire here, but obviously, you person to talk astir nan strategical benignant of repositioning of nan company. And could you springiness america your position of nan imagination for what you deliberation is going to transpire? And really you get location connected nan clip line? So it sounds for illustration you're separating nan 2 businesses. Do you person abstracted guidance teams? And is nan way to separation first to get nan EPA Classics licence successful manus and past spell down that path? Or is it a small spot much of a longer aliases shorter process?

Francisco Leon

No, Scott. Yes, we haven't put retired a circumstantial clip line, but we -- Mac and I and different members of nan team, we built together Carbon TerraVault. We deliberation it's a awesome business, very excited astir that. And arsenic we talk to investors, they want to understand better. Right now, it's each integrated, each consolidated. They want to understand amended really each of nan 2 businesses is advancing connected a go-forward basis. So we wanted to start. The opening is to return nan steps of Mac moving into -- backmost to nan Board, but past having overmuch much nonstop oversight into Carbon TerraVault by creating a Board spot astatine nan sub level. So that allows him to person that oversight and proceed to thief from that standpoint.

We're besides looking astatine costs of superior options and looking astatine elasticity of moving nan business, and making judge we person nan correct group and nan correct assets allocated to nan 2 businesses that, astatine nan extremity of nan day, we deliberation should beryllium tally separately. But it's going to return immoderate clip to get there. We were taking each nan first steps and it starts pinch nan messaging coming astir our structuring decisions. But possibly Mac has a fewer further thoughts to stock astir Carbon TerraVault.

Mark McFarland

So look, I'm really excited astir sharing nan Carbon TerraVault subsidiary Board and helping beforehand that. But you're precisely right. Look, we person a imagination that these 2 businesses complete clip request to beryllium tally and perchance separated. And that will mature complete time. This is conscionable nan first measurement of many. As you look to guidelines up a business, it takes a batch of work, but we're fresh to meet that challenge, and I'm excited astir it. It is not limited upon what happens pinch respect to different commercialization activities of Class 6 aliases immoderate of that. It's conscionable complete time, there's a batch of connective tissue, if you will, betwixt nan 2 businesses, and we're going to commencement looking astatine really do we effectuate alteration into an eventual separation down nan road.

Scott Hanold

Okay. Okay. Understood. And I would presume nan financials are going to beryllium separated going forward? Is that going to happen, aliases we spot that beautiful soon here?

Francisco Leon

Yes, that's nan intent to commencement giving overmuch much visibility into nan costs building and nan financial of nan business successful nan adjacent future.

Operator

Our adjacent mobility comes from Nate Pendleton from Stifel.

Nathaniel Pendleton

Congratulations Francisco.

Francisco Leon

Thanks, Nate.

Nathaniel Pendleton

For my first question, regarding nan caller announcement astir your planned Direct Air Capture hub. Can you speak to really you position nan imaginable for DAC compared to constituent root seizure projects from an economical and an opportunity position for Carbon TerraVault going forward?

Francisco Leon

Yes, absolutely, Nate. We're very excited astir nan DAC consortium. And I'm going to fto Chris Gould who's nan designer to that to reply nan question. Go ahead, Chris.

Chris Gould

Yes, happy to stock that. So nan worth proposition for Direct Air Capture, evidently starts pinch this DOE opportunity, right? It's a $3.5 cardinal backing opportunity that came retired of nan DOE for a exertion that's astatine nan opening stages of maturing and coming down nan costs curve, overmuch for illustration upwind and star did successful nan past. We spot nan opportunity for Direct Air Capture to person a very agelong runway, building complete time. It's estimated to beryllium successful nan vicinity of 15% to 20% of nan requirements worldwide successful California for emissions removals actually. So it's a substantial, important emissions opportunity for CTV. The authorities has set, to my knowledge, nan starring target for Direct Air Capture of northbound of 60 cardinal tonnes per annum done 2045, and that's nan grounds of nan size and standard of it. So we deliberation it's a awesome opportunity for america to travel successful pinch nan DOE backing and progress.

You'll cognize that nan incentives for Direct Air Capture from 45Q aliases $180 per tonne. So they are nan largest incentives successful that program. And successful summation to that, California is location to nan largest attraction of c nonstop removal credits from Fortune 100 companies and tech companies that are very eager to acquisition these sorts of instruments to offset and fulfill their nett zero goals.

Nathaniel Pendleton

That's really helpful.

Mark McFarland

It's Mac. Just a mates of things. First of all, connected nan economics, look, if you look astatine nan revenues, they're nan highest that are going done 45Q, arsenic Chris conscionable said, to thing for illustration Carbon TerraVault aliases nan credits, if you will, that we count arsenic revenues, but nan method rumor there. But successful immoderate event, location are much credits that spell to -- done 45Q to DAC than location are to different forms of c capture. And that's important, but it's not capable because arsenic you know, we're talking astir parts per cardinal capturing. So very debased attraction retired of nan aerial and sequestering.

That said, we're really excited astir this successful nan DOE activity and nan consortium that Chris has been put together -- has put together, and we're advancing and responding to nan DOE's request. And we dream to put nan -- 1 of nan DAC hubs present successful California done that consortium, and it's very, very exciting.

I mean, I will show you that nan breadth and nan participants of our DAC consortium are acold greater than I ever expected. Chris has done a tremendous occupation getting it there. And nan consequence to it, whether it'd beryllium done nan government, section communities, colleges, each nan remainder has been beyond expectations. So I'm conscionable looking guardant to keeping nan momentum going present connected what Chris has built, and it's really a tremendous opportunity for us.

Nathaniel Pendleton

Absolutely. Thanks for nan color. As my follow-up, staying connected nan c guidance business for a moment. Can you supply immoderate colour astir conversations aliases really they're progressing pinch early CDMA agreements?

Francisco Leon

Yes, Nate. We -- I mean, arsenic you saw, we've been pinch 2 CDMAs pinch [indiscernible], excited astir bluish hydrogen, bluish ammonia. Then came nan DAC hub. And it's conscionable successful a matter of a mates of months, we've been capable to stock immoderate of nan -- immoderate of those developments astir much of nan greenfield projects. And -- but we're talking to each types of emitters. We're assured we person nan starring position successful nan authorities and nan respective cardinal tons of permits successful nan queue. So we're getting a batch of woody flow. So possibly we tin -- I'll move it to Jay Bys, who's starring nan discussions connected nan emitter front, if he wants to adhd immoderate much color.

Jay Bys

Thanks, Francisco. No, I think, Nate, Francisco captured it. We're continuing conversations some pinch existing emitters and greenfield emitters. It's really a beautiful breathtaking clip to beryllium successful nan business. But conscionable arsenic pinch nan arrangements we've announced to date, we'll denote consequent arrangements really erstwhile we've gotten to elaborate parameters and terms. We're conscionable trying to beryllium responsible successful that regard. But I deliberation nan marketplace is going to beryllium pleased.

Francisco Leon

Yes. And I conjecture nan past constituent I raised, existing emitters, we person to spell done nan value discovery, that takes clip astatine nan extremity of nan day. Our conditions successful California are very different than nan remainder of nan state astir CCS and nan incentives that we receive. So there's really nary model. We're building it. We're having these commercialized negotiations, but that will return time, but we still attraction connected constituent root emissions.

We're besides very focused connected our ain emissions done CalCapture. We made immoderate really bully advancement connected our FEED studies. I deliberation that's going to beryllium a really viable project. So much to come, but we're -- for illustration I said, we're talking to a batch of emitters and seeing a batch of woody travel and conscionable a matter of clip earlier we tin talk astir incremental activity there.

Operator

We now person a mobility from Leo Mariani from ROTH MKM.

Leo Mariani

Just wanted to travel up connected nan benignant of early of nan E&P business here. You guys are evidently talking astir this benignant of 5% to 7% type of diminution successful nan production. You're going to do your champion to stave it off. I conscionable wanted to get a small spot much accusation astir that. Do you spot this arsenic much of a semipermanent strategy for nan institution fixed that California hasn't been each that friends to lipid and state companies?

You made a remark successful your prepared remarks that this is nan scheme for '23, but if marketplace conditions persist, possibly this continues. Do you spot this arsenic much of a apt semipermanent strategy or, for immoderate reason, nan permitting business yet gets straightened out, would you guys perchance spell backmost to benignant of holding accumulation level successful nan adjacent fistful of years, I think, which was nan original plan?

Francisco Leon

Leo, yes. So yes, we're not going to get into benignant of guidance for retired years beyond '23. But what I will opportunity is, I deliberation nan marketplace was capable to spot really we execute successful 2022, erstwhile we ran 4 rigs, kept accumulation flat. So that model, I deliberation it's clear to nan market. What's possibly not arsenic clear, and what we're hoping to item coming is, successful this caller -- nan caller situation from nan entreaty process successful position of really we would negociate nan institution going forward, right?

So I really want to item nan very debased diminution successful our assets, nan expertise -- a batch of nan worth for CRC is concentrated connected PDP. We're ne'er a capital-intensive business that needs to person a batch of rigs to support accumulation and to make rate flow. And you tin spot that travel done our numbers, right?

In nan twelvemonth wherever we don't person each nan permits, we deliberation we tin present a scheme for 1.5 rigs this twelvemonth unless we get immoderate -- a bully result successful nan adjacent word pinch nan appeals process, but it's a 1.5 rig. It's not going to beryllium capable to clasp production, but you tin spot nan rate travel procreation of nan business is highly high, and we're going to return each dollar to bargain backmost shares.

So going beyond '23 correct now, we don't cognize wherever this is going to extremity up, but I deliberation we beryllium what we tin do successful 2022 pinch permits, we're going to o.k. what we tin do successful '23 pinch a much constricted group of permits and doing a 1.5 rig program.

Leo Mariani

Okay. So if I -- possibly conscionable phrasing this successful a different way. If you guys had unlimited permits successful '23, would you beryllium laying nan accumulation decline?

Francisco Leon

So we had a afloat licence we would beryllium doing what we did successful 2022.

Leo Mariani

Okay. That's what I was for trying to get at. Okay. And past conscionable pursuing up connected nan scheme for this year. Everything is successful nan Wilmington field, it sounds for illustration focused connected oil. Obviously, state prices successful California person been beautiful volatile, but mostly speaking, person been very robust. Why not effort to drill immoderate state retired location arsenic good successful California, evidently have, I think, immoderate opportunities and permits to do that, I believe.

Francisco Leon

Yes. No, we saw, successful particular, successful January, very, very beardown earthy state prices astir $47 per Mcf that's flowing. As you know, we're a nett -- a agelong shaper of earthy gas. We nutrient astir 30 Bcf much than we consume. And truthful we spot those prices coming successful very strong. In -- nan mobility pinch state always, it's very seasonal and it's much difficult to time. But definitely, we're focused connected earthy state and trying to bring much state connected board, and that's a portion of nan scheme present is to create that inventory. But I don't know, Jay, if you want to adhd immoderate different comments astir what we spot it successful February -- successful January and February. By nan way, we are now doing first 4th guidance. We're doing quarterly guidance. And you tin spot nan anticipated realizations of earthy state that we're expecting successful Q1 flowed done those numbers.

Jay Bys

Okay. benignant of to speak to nan realizations and what happened successful December, we mostly marketplace astir of our income state connected a first period scale basis. So during nan period of December, for example, erstwhile prices ran up mid-month, we were not location to participate. Now obviously, that attack served america beautiful good successful that first period income process. served america good successful January and again successful February. To Francisco's point, astir 90% to 95% of nan earthy state consumed successful California comes successful from retired of state. We'd for illustration to person a larger effect going forward, and that's portion of our scheme to fig retired wherever tin we person that affirmative impact.

Francisco Leon

Maybe Mac has 1 much point to add.

Mark McFarland

Yes. I mean that's nan use of being a agelong earthy state producer. We nutrient much than we consume. And it was a bully consequence successful Jan and Feb. Leo, I conscionable wanted to spell backmost and reside something. You had posed a mobility successful nan hypothetical astir rig count. Unfortunately, we don't woody successful hypotheticals. We woody successful nan circumstances that are successful beforehand of us. And nan circumstances that are successful beforehand of america is that we've laid retired a drill scheme that's based disconnected of permits successful manus and person reduced nan uncertainty associated pinch immoderate result associated pinch Kern County aliases immoderate further permits down nan road. Obviously, nan mobility astir state is simply a bully 1 because gas, successful nan future, has nan anticipation of being a transitionary fuel, if you will, aliases astatine slightest it's viewed arsenic that way, and it's needed for nan electrical grid retired here. And truthful that's bully to person that vision. But nan reality is, is we're dealing pinch circumstances each nan time. And what we look astatine successful reality, nonhypothetical business is, is really do we maximize rate travel generation? And past what do we do pinch that cash?

Operator

We person a mobility now from Kalei Akamine from Bank of America.

Kalei Akamine

My first mobility is connected cost. So CRC has ever screened astatine nan higher extremity of portion costs successful nan adjacent group. Pre-COVID, my knowing is that you guys did arsenic overmuch arsenic you perchance could, yet you're focusing your efforts here. So I want to understand what's different today? Or possibly to inquire it differently, nether what premise are you guys cutting costs? Because you guys are declining this twelvemonth betwixt 5% and 7%. Are you now optimizing your imperishable costs building astir a declining business?

Francisco Leon

Yes. No, Kalei. We person -- definitely, we've taken a batch of costs complete nan past mates of years. And we'll proceed to beryllium focused connected cost. We did see, for illustration everybody else, inflationary pressures and those inflationary pressures that are driving costs successful nan business request to beryllium offset truthful that we tin support nan margins.

So I deliberation we're conscionable committed to proceed to measure costs successful a twelvemonth for illustration this twelvemonth wherever we're guiding to little production, we request to align that costs building to nan production, right? That's benignant of -- that's what we're saying, but it's evidently a attraction connected cost. It's conscionable for nan semipermanent viability of nan business, thing that we ever do.

Kalei Akamine

What is nan sustaining CapEx astatine nan moment?

Francisco Leon

Say it again, what was nan -- if you don't mind, again.

Kalei Akamine

What is sustaining CapEx, nan superior needed to clasp nan business -- clasp accumulation flat?

Francisco Leon

Yes. Well, we wish to clasp nan -- and past there's different moving parts. There's OpEx and CapEx that yet helps america support accumulation flat. But what we said is astir $300 cardinal keeps accumulation level introduction to exit. And this programme is, for illustration we said, much of a tally rate, and that's what we're seeing -- we're guiding to a 5% to 7% decline.

Kalei Akamine

Got it. My 2nd mobility is connected nan Huntington Beach monetization. So pre-bankruptcy nan thought was that this onshore was worthy astir $1 billion, little remediation cost. What do you deliberation that nett worth is today? And what is nan pathway to readying that plus for waste and yet executing connected nan sale?

Francisco Leon

Yes. Yes, there's a batch successful that question. And I deliberation what we've answered successful nan past is, we're focused connected a smaller spot and because there's a batch of things to activity done arsenic we waste assets, but we person a awesome existent property portfolio aliases assets that tin beryllium turned into existent property aliases successful Elk Hills, for example, it's nan mid-tier business park. So we tin do a batch pinch our fields.

The Huntington Beach Field is nan largest, astir apt astir charismatic portion of that portfolio from a early development. But what we're doing location is we're starting abandonment. We started nan entitlement process, which is needed to alteration nan aboveground usage to nan astir due and champion usage going forward.

We're still producing oil, and it's a very valuable, very profitable field. So we're taking nan steps. We're trying to measure wherever to go. But correct now, we're focused connected monetizing nan smaller spot that yet helps pass nan plans for nan bigger portion of land.

Kalei Akamine

Do you deliberation it's going to beryllium difficult to get nan authorities to alteration nan usage of that onshore from lipid and state accumulation to commercialized improvement aliases existent estate?

Francisco Leon

We don't know. I mean it happens a batch successful California. You tin look -- Kalei, there's a number of large developments, onshore that's been utilized for immoderate for oil, immoderate for different purposes. And you tin spot these projects get done, but it's -- nan clip statement is variable, and that's nan activity that we were starting to do.

Kalei Akamine

Francisco, congratulations for some of you guys.

Francisco Leon

Thanks Kalei.

Mark McFarland

Thank you.

Operator

Our adjacent mobility comes from Eric Seeve from GoldenTree.

Eric Seeve

Congratulations to some of you connected nan announcement and nan title changes. My first mobility is, pinch respect to nan accumulation guidance, tin you springiness america a consciousness of where, not conscionable 2023 mean production, but beyond Q1 wherever you've already fixed guidance, tin you springiness america a consciousness of nan cadence -- nan accumulation cadence we should expect for Q2, Q3 and Q4 for an exit complaint level?

Francisco Leon

Yes. Eric, truthful we are expecting, arsenic we said, a very mean diminution arsenic we spell done nan year. We went done -- started nan twelvemonth -- exited nan twelvemonth past twelvemonth had 3 rigs. And obviously, that carries into this year. And now we're reducing nan activity to now a 1 full-time rig successful Wilmington. So that step-down successful activity will, I should show you that complete nan adjacent fewer quarters, will beryllium declining, and we deliberation we tin adhd OpEx dollars. I mean, that ultimately, nan astir businesslike dollar that we tin put to activity is astir downhole attraction because that intends it's an existing wellbore that we conscionable request to beryllium backmost online, followed by superior workovers, which we return a different area utilizing aforesaid wellbore, and past 3rd is simply a caller brand-new well. So by backing connected nan activity for caller drilling, that's nan superior needed to beryllium capable to afloat offset nan decline, and that's we're, correct now, looking to much of a 5% to 7% diminution year-over-year.

Eric Seeve

Okay. And truthful you've fixed guidance for Q1, nan midpoint of guidance is astir 90,000 BOE a day. And I conjecture for nan afloat year, nan midpoint is astir 88,000. That would benignant of propose that, hey, we could spot accumulation conscionable stepping down benignant of gradually possibly astir 1,000 BOE per time per quarter. Is that a adjacent measurement to -- and obviously, I admit that you don't cognize for sure, and location will beryllium unexpected twists and turns. But is that a adjacent measurement for investors to benignant of deliberation astir nan progression here?

Francisco Leon

Yes. I mean you quoted your numbers. We person evidently ranges, location possibly immoderate differences there. But successful position of nan measurement to deliberation astir it, that's right. So we person accumulation coming successful from past twelvemonth that benefits Q1, but past you would expect a very gradual diminution aft that.

Eric Seeve

Okay. Great. And conscionable want to make judge I understand. You talked astir a 1.5 rig programme passim nan year. Does that mean 3 rigs successful Q1 and past stepping down conscionable to 1 rig for quarters 2, 3 and 4?

Francisco Leon

Yes. We exited pinch 3 rigs successful '22, which intends we entered successful Q1 of this twelvemonth successful 3 rigs, but now we stepped connected to conscionable 1 rig astatine Wilmington. So that's right.

Eric Seeve

And I understand, obviously, nan permitting issues successful San Joaquin Basin now. But successful nan L.A. Basin, why only 1 rig there? It seems for illustration fixed immoderate of nan dynamics astir permitting there, it would look for illustration an perfect clip to beryllium much active. Why only 1 -- tally 1 rig there?

Francisco Leon

Yes. As we looked astatine -- successful a twelvemonth for illustration this year, we really wanted to maximize rate flow. And it's nan expertise of this plus to -- we've done this before. Sometimes you property guardant and you accelerate activity and sometimes you backmost away. So this year, we felt nan champion dollars were successful OpEx and downhole attraction and superior workovers because obviously, we're ranking nan portfolio connected a returns basis.

So we deliberation that's nan champion usage for each dollar. And it doesn't mean that different rig astatine Wilmington would not beryllium attractive, it's conscionable comparative to wherever we thought we wanted to beryllium for nan twelvemonth and what are nan returns that we're getting for putting dollars successful OpEx and superior workovers.

Mark McFarland

Eric, it's Mac. I conscionable want to echo what Francisco said. And I deliberation that nan cardinal to this twelvemonth pinch nan 1.5 rigs is to trim uncertainty. So this is simply a scheme based disconnected of permits successful hand. And arsenic we spell forward, if nan circumstances change, we'll see those. But correct now, aft going done past year, respective different rig lines, of rig lines, we wanted to put distant a scheme that stabilize and past maximize nan rate flow, arsenic Francisco said, for nan year.

Operator

We person a follow-up mobility from Leo Mariani from ROTH MKM.

Leo Mariani

Just wanted to travel up very quickly connected nan separation of nan 2 businesses. So you intelligibly talked astir laying immoderate groundwork present and understand there's preliminary steps progressive here. But it sounds to maine for illustration you guys are beautiful overmuch intent connected yet getting these businesses separately. Do you envision perchance nan c guidance business being a abstracted nationalist institution benignant of down nan road? Just trying to get a small spot much colour astir what nan imagination mightiness beryllium connected nan abstracted businesses here.

Francisco Leon

Great question. I don't cognize if I will reply it very intelligibly because we were moving connected a lot. And we are focused connected maximizing nan worth of nan company. I would show you, Leo, that if I look astatine nan reserves of nan company, and if you look astatine nan PDP worth of nan company, and past I look astatine what we deliberation is nan worth of c management, we don't deliberation it's location reflected successful nan banal price. So we're going to return nan steps to unlock that. But successful what shape and what nan clip statement is, we still request to activity done that to make judge we person nan optimal result here.

Leo Mariani

Okay. I admit that. And past conscionable connected hedging, conscionable fixed benignant of nan -- astatine slightest for now benignant of a little attraction connected little capital, would you guys expect doing little hedging pinch little guardant CapEx? How are you reasoning astir that?

Francisco Leon

Yes. So we talked astir successful nan past a batch of nan hedges that we had successful spot were put location erstwhile we went to bankruptcy. And those hedges are starting to rotation off. So we're seeing nan benefit, successful peculiar successful '24, wherever we don't person a batch of that effect of nan bankruptcy hedges.

We deliberation there's an magnitude of hedging that's needed successful this business to beryllium capable to guarantee nan returns arsenic we put connected a go-forward basis. We'll proceed to measure wherever we are. We'll spot really nan twelvemonth progresses and really nan marketplace is behaving successful position of oil. But, astatine this point, we consciousness '23 is adequately hedged, and we'll spot what -- arsenic nan twelvemonth progresses what we deliberation of '24.

Operator

And this concludes our question-and-answer session. I would for illustration to move nan convention backmost complete to Francisco Leon, for immoderate closing remarks. Please, Francisco, spell ahead.

Francisco Leon

Great. Thanks, everybody, for listening in. I look guardant to seeing a batch of our shareholders adjacent week astatine nan various conferences, and acknowledgment for tuning in.

Operator

The convention has now concluded. Thank you for attending today's presentation. You whitethorn now disconnect.