California Resources Corp. (CRC) has switched to a more aggressive strategy despite continuing volatile commodity prices . Its CEO said he doesn't see any of the major exploration and production companies similarly increasing their activity in the nation's third-largest oil-producing state.
"From what we have seen, there hasn't been any step-up of activity by any of the competition in the state," CEO Todd Stevens said in response to an analyst's question during a 1Q2017 earnings conference call on Thursday. "And we still have oilfield service companies calling us and wanting to go to work, so I think there is an ample supply of service providers here."
Stevens said there are ample rigs available to increase drilling activity in California. "Remember that the shallow rigs never really leave the state, and most of the medium ones stay here," he said.
It is really just the deep rigs moving in and out of California, according to Stevens. "When you consider [the total rigs in] our past peak activity, along with the competition in a much higher oil price environment, I don't think that price environment is in anyone's imagination at this point in time," Stevens said. "Therefore, 30 [rigs], plus or minus, is probably the capacity."
CRC will be adding two rigs in the second quarter, bringing its rig count to six: one for steam floods, two on shallow, two on water floods, and one on conventional reservoirs, Stevens said. Five of the rigs will be in the San Joaquin Basin and one in the Los Angeles Basin. "They will help us execute our internally generated program, along with the added opportunities tied to our joint venture [JV] investments," he said.
In reporting a profitable first quarter compared to losses for the year-earlier period, Stevens spent most of the call giving details on the two JVs CRC has launched so far this year that will allow the company to lower its capital spending in 2017.
In a second JV this year, CRC and Macquarie Infrastructure and Real Assets (MIRA) in April formed a "strategic JV" in which MIRA committed $160 million to develop oil and gas assets in the San Joaquin Basin. Subject to future consideration, MIRA could invest up to $300 million eventually.
On the conference call, Stevens characterized the Macquarie JV "as good or better than all the similar deals we have seen in the public domain."
In February, CRC announced a $250 million JV with Benefit Street Partners LLC (BSP) designed to boost California oilfield production. BSP is developing opportunities in multiple producing fields.
"In total, these joint ventures increase our flexibility to deploy capital, lower the risk of our portfolio, add reserves, and ramp up production in 2018 and beyond," Stevens said.
BSP will invest up to $250 million for development opportunities in both CRC's conventional and unconventional assets in California, starting with a $50 million investment and continuing in tranches of up to $50 million each during the next two years.
Stevens said CRC has built up some "positive momentum," and the company intends to continue to build on it. He said that longer term, CRC could deploy up to $1.5 billion of capital annually through a combination of its own resources and deals with JV partners.
In 1Q2017, CRC reported net income of $53 million ($1.22/share), compared to a loss of $50 million (minus $1.30) for the same period last year.