Francisco J. Leon to Succeed Mark A. McFarland
as President and Chief Executive Officer
McFarland to Continue as a Non-Executive
Director and Chair the Board of Carbon TerraVault, CRC’s Carbon
Management Business, to Oversee its Continued Growth
California Resources Corporation (NYSE: CRC) (“CRC” or the
“Company”) announced today a strategic realignment of the Company’s
business operations and structure. The Company intends to reduce
costs to align with activity levels, increase its financial
flexibility and optimize its portfolio of assets. The Company
believes that the combination of these actions will allow it to
continue to strengthen shareholder returns. The Company is also
repositioning the business to capitalize on future opportunities
with Carbon TerraVault. In conjunction with this strategic
realignment, the Company also announced that Francisco Leon,
currently Chief Financial Officer, will succeed Mark A. (“Mac”)
McFarland as President and Chief Executive Officer and join the
Company’s Board of Directors, effective at the Company’s 2023
Annual Meeting in April.
“As demonstrated by our 2022 year-end financial results, CRC has
a very resilient and valuable portfolio of assets,” Mr. Leon said.
“While the Company’s financial performance has been strong, our
market has evolved and therefore we are adjusting accordingly by
optimizing our capital plan and increasing our focus on reducing
costs. We believe our revised plan will enhance shareholder returns
while positioning the Company for continued success into the
future.”
The revised plan realigns CRC’s operating strategy while
adjusting the Company’s corporate and management structure as set
forth below:
- Revised Corporate Structure - CRC will adjust its
corporate operating structure to facilitate the separate operations
of its E&P and carbon management businesses. This change will
allow investors and other CRC stakeholders to garner a better
awareness and understanding of the Company’s discrete businesses as
CRC’s leadership continues efforts to maximize shareholder value
across the portfolio of assets.
- Accelerate Carbon Management Business - CRC will manage
its carbon management business on a standalone basis over time,
providing the flexibility to consider strategic options including a
potential separation from the E&P business. This is a natural
evolution given the great strides made in 2022, including the
formation of Carbon TerraVault’s joint venture with Brookfield
Renewable. The joint venture was formed to create a partnership
focused on carbon capture and sequestration development, along with
carbon management service agreements with parties such as Lone
Cypress Energy and Grannus, LLC, to provide permanent carbon
storage. In 2023, CRC is focused on signing up additional emitter
projects, advancing CalCapture and the California Direct Air
Capture Hub, and submitting additional Class VI permit
applications. CRC has also established a separate board for the
Carbon TerraVault subsidiary to focus on growing and developing the
carbon management business.
- Leadership Changes - With the revised corporate
structure, Mr. Leon will assume the CEO position, effective at the
Company’s Annual Meeting. As CFO, Mr. Leon has been instrumental in
the creation of the Company’s carbon management business. He also
has a deep knowledge and understanding of CRC’s extensive E&P
business. As such, Mr. Leon is extremely well positioned to lead
CRC in the years ahead. In May, Mr. McFarland will transition to
his former role as a non-executive director and will also serve as
non-executive Chair of the newly formed Board of the Carbon
TerraVault subsidiary. Two existing CRC non-executive directors,
Andrew Bremner and James Chapman, will also serve on that
subsidiary board. The Company has an ongoing search for a new
CFO.
- Future E&P Development Activity - The Company will
reduce its rig count to 1.5 in 2023 with a drilling program focused
on developing the highest-returning projects with permits-in-hand
in conjunction with a continued focus on well servicing and
downhole maintenance to reduce the base production decline to
approximately 5 to 7 percent. At the planned rig pace, CRC can
enhance the operational and capital efficiency of its rig program
and maximize the Company’s ability to return capital to
shareholders. On a go-forward basis utilizing a 1.5 rig program,
CRC expects to spend ~$155 million in E&P drilling and
completions and workover capital. This level of spending excludes
one-time items and CMB capital which is anticipated to be funded by
projected CTV JV contributions over time.
- Focus on Cost Reductions and Value Enhancing Portfolio
Optimizations – CRC’s leadership team, working closely with the
Special Finance Committee of the Board, is focused on cost
reduction initiatives across the Company that align with the
projected level of activity and revised strategic direction. CRC is
targeting a 5% - 10% reduction in non- energy operating costs
(excluding downhole maintenance) and Adj. E&P Corp & Other
G&A1 on a combined basis by year end. These cost reduction
initiatives in conjunction with increased downhole maintenance
target maintaining margins and driving higher cash flows. CRC’s
leadership team and Board have successfully implemented similar
strategies and believe the Company is well positioned to identify
and achieve cost reductions while maintaining the high operational
standards that CRC has achieved. In addition, CRC will continue to
pursue the monetization of its Huntington Beach surface acreage as
well as other real estate surface ownership in its portfolio.
- Enhance the Company’s Financial Flexibility - CRC is
intending to amend and extend or replace its existing reserve-based
lending credit facility, as well as refinance its $600 million
senior unsecured notes. This is expected to allow the Company to
lengthen its debt maturities and provide financial flexibility to
increase the Company’s ongoing shareholder return program. Further,
this flexibility is expected to support the potential separation of
the carbon management business. Finally, operating Carbon
TerraVault on a standalone basis will broaden capital sourcing
options for the carbon management business.
- Boost Shareholder Return Program - CRC intends to
optimize capital allocation and focus on cost reduction
opportunities in 2023 to drive cash flow generation that it
believes will allow it to increase shareholder returns. To that
end, CRC’s Board has authorized a nearly 30% increase to its
shareholder repurchase program for a total of $1.1 billion, with
~$640 million remaining on its authorization as of December 31,
2022, and after taking account the increase. In 2023, CRC is
positioning to return approximately 100% of free cash flow through
buybacks and dividends.
- CRC’s strategy is repeatable with a focus on maximizing cash
flow per share - So long as the current conditions persist, the
Company expects to repeat its strategy. This means continuously
focusing its activity on locations where the Company has permits in
hand, re-aligning costs with activity levels and maintaining its
financial flexibility. CRC believes that the repeatable nature of
the strategy will allow the Company to continue prioritizing
returning cash to shareholders through share repurchases and
dividends.
“I am honored to assume the CEO role,” Mr. Leon said. “Over the
last few years, the Company has significantly improved its
financial profile and optimized its operating portfolio, providing
a strong foundation for growth and value creation. Now, as we face
new opportunities and challenges, I look forward to working with
Mac and the rest of the Board and management team to execute on our
new strategic direction to drive cash flow generation, advance and
accelerate our carbon management business, and increase our
financial flexibility to return more capital to shareholders. I am
confident that if we continue to elect to run a lower capital plan
(~$155 million of drilling and completion capital) we can make the
appropriate reductions to our cost structure that we expect will
help ensure we deliver improving operating and financial metrics on
a per share basis.”
“I am extremely proud of all that our talented team has
accomplished over the past two years, successfully transforming the
Company into a lean and efficient operator with robust cash flows,”
Mr. McFarland said. “We achieved these results while launching an
exciting new business in carbon management.” He continued,
“Francisco has been a fabulous partner, with extensive knowledge of
CRC’s E&P business while being instrumental in the creation of
our carbon business. As such, he is uniquely positioned to lead the
Company in its next phase of strategic development.”
“While Mac is stepping down from a day-to-day role at CRC, I
look forward to working closely with him as a CRC board member and
in his role as Chair of the Board of Carbon TerraVault to
accelerate CRC’s carbon management business and help California
achieve its ambitious energy transition goals,” said TJ Thom Cepak,
Chair of the Company’s Board of Directors.
In a separate release today, the Company disclosed its fourth
quarter and full year 2022 financial results. The Company will host
a conference call with investors and analysts today at 10:00 a.m.
PT / 1:00 p.m. ET to review its financial results.
(1)
Represents a non-GAAP measure.
For all historical non-GAAP financial measures for CRC please see
the Investor Relations page at www.crc.com for a reconciliation to
the nearest GAAP equivalent and other additional information. See
slide 35 of CRC’s 4Q22 earnings presentation for
reconciliation.
About Francisco J. Leon
Francisco Leon has served as EVP and CFO of California Resources
Corporation since 2020. From 2014 to 2020, he was VP of Business
Development, Portfolio Management and Strategic Planning at CRC. He
also served as Director of Global Acquisitions and California
Resource Assessment / Evaluation at Occidental Petroleum. He began
his career at Petrie Parkman in 2001. Mr. Leon holds a bi-national
Bachelor of Arts degree in International Business from San Diego
State University and CETYS Universidad in Mexico and an Masters of
Business Administration from the University of Texas McCombs School
of Business.
About Mark A. (Mac) McFarland
Mr. McFarland has served as President and Chief Executive
Officer of California Resources Corporation since March 2021 and
has served on its Board of Directors since October 2020. Beginning
in October 2020, he served as Chairman and then Executive Chair of
the Board and interim Chief Executive Officer prior to his
appointment as President and Chief Executive Officer in March 2021.
He previously served as Executive Chairman of GenOn Energy, Inc.,
an independent power producer, and currently serves as a Director
on the Company’s Board. Prior to that, he was the President and
Chief Executive Officer of GenOn and served on its Board of
Managers. Mr. McFarland served in a succession of management roles,
including Chief Executive Officer, Chief Commercial Officer and
Executive Vice President, Corporate Development and Strategy of
Energy Future Holdings, at Luminant Holding Company, a subsidiary
of Energy Future Holdings Corporation, and a large independent
power producer. Earlier in his career, Mr. McFarland served in
various roles at Exelon Corporation, including as Senior Vice
President, Corporate Development. Mr. McFarland earned his Masters
of Business Administration from the University of Delaware and a
Bachelor of Science degree in Civil Engineering (Environmental
Concentration) from Virginia Polytechnic Institute and State
University.
About California Resources Corporation (CRC)
California Resources Corporation (CRC) is an independent oil and
natural gas company committed to energy transition in the sector.
CRC has some of the lowest carbon intensity production in the US
and CRC is focused on maximizing the value of its land, mineral and
technical resources for decarbonization by developing CCS and other
emissions reducing projects. For more information about CRC, please
visit www.crc.com.
About Carbon TerraVault (CTV)
Carbon TerraVault Holdings, LLC (CTV), a subsidiary of CRC, will
provide services that include the capture, transport and storage of
carbon dioxide for its customers. CTV is engaged in developing a
series of CCS projects that inject carbon dioxide (CO2) captured
from industrial sources into depleted underground reservoirs and
permanently store CO2 deep underground. For more information about
CTV, please visit www.carbonterravault.com.
Forward-Looking Statements
Certain of the statements contained in this document should be
considered forward-looking statements. These forward-looking
statements may be identified by words such as “may,” “will,”
“expect,” “intend,” “anticipate,” “believe,” “estimate,” “plan,”
“project,” “could,” “should,” “would,” “continue,” “seek,”
“target,” “guidance,” “outlook,” “forecast” and other similar
words. Such statements include, but are not limited to, statements
about the actions the Company may take to realign its strategy, the
Company’s ability to reduce permitting uncertainty, the
implications of the Company’s leadership changes, the Company’s
ability to amend its debt agreements and strengthen its financial
flexibility, the growth of the Company’s carbon management
business, the Company’s shareholder return program, the Company’s
plans, objectives, expectations, intentions, estimates and
strategies for the future, and other statements that are not
historical facts. These forward-looking statements are based on the
Company’s current objectives, beliefs and expectations, and they
are subject to significant risks and uncertainties that may cause
actual results and financial position and timing of certain events
to differ materially from the information in the forward-looking
statements. These risks and uncertainties include, but are not
limited to, legislative or regulatory changes; availability or
timing of, or conditions imposed on, permits and approvals; changes
in business strategy and the Company’s capital plan; the Company’s
ability to realize the benefits contemplated by the business
strategies and initiatives related to energy transaction, including
carbon capture and storage projects and other renewable energy
efforts; the Company’s ability to successfully identify, develop
and finance carbon capture and storage projects and other renewable
energy efforts, including those in connection with the Carbon
TerraVault JV; changes in the Company’s share repurchase program
and its ability to repurchase shares under its debt agreements;
insufficient cash flow to fund the Company’s capital plan and other
planned investments, stock repurchases and dividends; and the other
risks and uncertainties set forth in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2022 (especially in Part
I, Item 1A. Risk Factors and Part II, Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations) and in the Company’s other filings with the SEC. There
may be other factors of which the Company is not currently aware
that may affect matters discussed in the forward-looking statements
and may also cause actual results to differ materially from those
discussed. The Company does not assume any obligation to publicly
update or supplement any forward-looking statement to reflect
actual results, changes in assumptions or changes in other factors
affecting these forward-looking statements other than as required
by law. Any forward-looking statements speak only as of the date
hereof or as of the dates indicated in the statement.
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Joanna Park Investor Relations 818-661-3731
Joanna.Park@crc.com
Richard Venn Media 818-661-6014 Richard.Venn@crc.com
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