Earnings Call Transcript - CRC Q4 2022

Operator, Operator

Good day, and welcome to the California Resources Corporation Fourth Quarter Earnings Conference Call. I would like to turn the conference over to Joanna Park. Please, Joanna, go ahead. Welcome to California Resources Corporation's Fourth Quarter 2022 Conference Call. Participating on today's call are Mark McFarland, President and Chief Executive Officer; Francisco Leon, Executive Vice President and Chief Financial Officer; along with the entire Executive Committee. I want to point out that we have provided slides on our Investor Relations section of our website, www.crc.com. These slides offer additional information about our operations and fourth quarter results. We have also included information reconciling non-GAAP financial measures discussed to the most directly comparable GAAP financial measures on our website and in our earnings release. Today, we will be making forward-looking statements based on current expectations. Actual results may vary due to risk factors outlined in our earnings release and in our 10-K and other periodic SEC filings. As a reminder, we have reserved extra time for Q&A at the end of our prepared remarks. With that, I will now hand the call over to Mac.

Mark McFarland, CEO

Well, great. Thank you, Joanna. Good morning, everyone, and thank you for joining us today. Over the past two plus years, following the company's emergence from its financial restructuring, we have evolved CRC into an enterprise focused on generating the highest cash flow from our assets and returning that cash to shareholders. Case in point, in 2022, we returned 120% of free cash flow to shareholders through share repurchases and dividends. And we bought back 14% of the company's outstanding shares since our emergence in late 2020. We also saw a tremendous opportunity for carbon management and have built a solid business around that. As any focused company should do, we continue to evolve. As we look forward to 2023 and beyond, we are announcing a strategic realignment of the company's business operations and structure to adapt to current circumstances and build on our strong momentum. As I have said before, and to say it simply, we are focused on generating the highest cash flow per share possible from our E&P business so we can return that cash to shareholders. Another case in point, if you take 2022 free cash flow of $311 million and the average fully diluted shares outstanding of 77.6 million during the year, we delivered $4 of free cash flow per share in 2022. And if you take the midpoint of our '23 guidance, the $385 million of free cash flow and the fully diluted shares outstanding of 73.6 million at the end of January, we would expect to deliver $5.23 of free cash flow per share in 2023. That would be roughly a 30% increase in cash flow per share, and that is before we buy any more shares back in 2023, which would drive the results even higher. That is the benefit of our low decline assets and the toggles we have available to us in the business. In connection with the strategic alignment, we are announcing management and Board changes to support the eventual separation of our E&P and carbon management businesses. We are also cutting costs to match activity levels, and we plan to increase our financial flexibility to accelerate shareholder returns. By taking these steps, we believe we can create a different kind of energy company and drive cash flow per share growth. With the revised corporate structure, Francisco Leon will succeed me as CEO, and I will step back from the day-to-day management role. I will continue to serve on the Board of CRC and will chair the newly formed Board of our Carbon TerraVault subsidiary, which is devoted to overseeing the continued growth of the carbon management business. Two existing CRC non-executive Directors, Andrew Bremner and James Chapman, will also serve on the subsidiary board. Together, we will provide the business with insight into the commercialization of new technologies and provide expertise in corporate and financial structuring as well as knowledge relevant to early movers for carbon capture and storage in California. I've had the tremendous opportunity to work with the great people of CRC and forged many great friendships. And having spent more than two years working with Francisco side by side, I am confident he is the right person to lead us at this exciting time and going forward. I'll now turn it over to Francisco to share more details on the steps we're taking to position our business for success. Francisco?

Francisco Leon, CFO

Thanks, Mac, and thank you, everyone, for joining the call. I will focus my comments on the actions we are taking to enhance value and deliver stronger shareholder returns and to maximize cash flow per share of the business. But first, we have provided detailed analysis about our 2022 quarterly and yearly financial and operational results and also our 2023 guidance in the attachments to our earnings release and in our slide deck. I will refer you to those documents for that information rather than cover them on this call. But as you will see, 2022 year-end financial results were very strong, with over $300 million of free cash flow, helping showcase our resilient and valuable portfolio of assets. As we delivered on all of our 2022 priorities and look at what's in front of us in the next chapter, we must continue to evolve. So here's our plan for 2023. We are going to focus our development and drilling plan on developing the highest returning projects with permits in hand. That, combined with well servicing and downhole maintenance, will help reduce our base production declines. We will do this by reducing capital investment to 1.5 rigs, which is based on permits in hand in the Wilmington field for high rate-of-return projects with short paybacks. This constitutes a run rate E&P CapEx program of $155 million per annum as demonstrated with our 2023 program, and as you can see on Slide 10 of our presentation. We're also adding OpEx dollars to downhole maintenance, increasing our rig maintenance count by 6 to 38, which, combined with our capital program, we expect to deliver a 5% to 7% total decline for the company. We have a backlog of about 1,000 wells that we can go after and return to service and return to engineering that allows us to make high-impact investments with very little incremental operating expenditure dollars. Given reduced activity levels across our E&P business, we're also looking to reduce all other non-energy operating costs and adjusted E&P corporate and other G&A costs by 5% to 10% by year-end, aligning our cost to activity level. We have successfully implemented similar strategies in the past and believe the company is well positioned to identify and achieve additional cost reductions while maintaining the high operational and safety standards that CRC has achieved over the years. In addition to the revisions to our operating plan, we're also pursuing ways to increase our financial flexibility to bolster the company's ongoing shareholder return program and enable a potential future separation of the company. To help achieve this financial flexibility, we intend to refinance the $600 million high-yield notes and extend or replace our RBL. Clearly, having Carbon TerraVault operate on a stand-alone basis will broaden capital sourcing options for that business. Our continued focus on costs and our ability to maintain production due to the high quality of our assets gives us confidence in our cash flow projections. And as such, CRC's Board has authorized a 30% increase to the share repurchase program for a total of $1.1 billion, with $640 million remaining in dry powder. With this plan in 2023, we expect to generate $455 million of E&P free cash flow and total corporate after-tax free cash flow of $385 million. Of this, we intend to return 100% to shareholders in 2023, continuing our track record of returning more than 100% of cash to shareholders and maximizing cash flow per share. If market conditions persist in 2024 and beyond, we will repeat this plan. If we assume a 1.5 rig count going forward, we are confident that we can lower our capital plan of approximately $155 million of drilling and completion capital. We can make the appropriate reductions to our cost structure that we expect will ensure that we deliver improving operating and financial metrics on a per share basis. I am really excited about the future of CRC and look forward to working with our talented team to take the steps to separate our quality, low decline, low carbon intensity, and high cash flow generating E&P business from our California leading Carbon TerraVault, which will help us unlock the company's full potential for delivering value to shareholders. I want to take a moment to thank Mac for his leadership these last two years and look forward to working with him to accelerate the growth of our carbon management business. Thank you for your interest in CRC, and thank you for joining us on the call today. We'll now open the line for questions. Operator?

Operator, Operator

Our first question comes from Scott Hanold from RBC Capital.

Scott Hanold, Analyst

Francisco, congratulations on your promotion, it’s well-deserved, and Mac, congratulations on your leadership so far and in the future. It’s great to see those changes taking place. My first question is about permitting. It might be a bit complex, but I'll give it a try. Can you share your perspective on the decision to adjust to a 1.5 rig count and a lower activity pace? Has your outlook on the ongoing litigation in Kern County changed as a result? Additionally, could you provide information on how many total permits you currently hold and in which basins? This would help us understand how much runway you have beyond 2023.

Francisco Leon, CFO

Thank you for your kind words and the question. When we issued the 8-K a few weeks ago regarding the appeal process in Kern County, our goal today was to share our forward-looking plan after gathering feedback from our investors. The 1.5 rigs will be concentrated in the Wilmington field. We operate in three basins: the Sacramento Basin, Kern County, and the San Joaquin Basin, along with the L.A. Basin. The ongoing litigation concerns only Kern County, giving us the flexibility to focus on the other two basins. We are directing our efforts in the L.A. Basin, particularly in the Wilmington field, where we see significant potential. Securing permits is an independent process, and the appeal situation remains unchanged. If we receive favorable updates, we are also developing alternative plans for individual fields. It's important to remember that this is a Kern County-wide permitting process, but we can pursue full permits for individual fields as we work through the situation. Our intention was to show our shareholders our strategy in case the appeal process prolongs. We see potential in our approach and believe we can maintain 1.5 rigs going forward if the appeal continues to extend.

Scott Hanold, Analyst

Okay. I appreciate all that color. And as my follow-up question, I mean, there's a lot of different questions I could ask here, but obviously, you have to talk about the strategic kind of repositioning of the company. And could you give us your view of the vision for what you think is going to transpire? And how you get there on the timeline? So it sounds like you're separating the 2 businesses. Do you have separate management teams? And is the path to separation first to get the EPA Classics permit in hand and then go down that path? Or is it a little bit more of a longer or shorter process?

Francisco Leon, CFO

No, Scott. We haven't established a specific timeline yet, but Mac and I, along with other team members, have built Carbon TerraVault together, and we believe it's a great business. We're very excited about it. As we engage with investors, they’re seeking a clearer understanding of how each of the two businesses is progressing moving forward. We want to begin this process by having Mac return to the Board, allowing him to have more direct oversight of Carbon TerraVault through a dedicated Board seat at the sub-level. This arrangement will enable him to provide continued guidance. We're also exploring capital cost solutions and evaluating the operational flexibility of both businesses, ensuring that we have appropriately assigned personnel and resources for each, as we ultimately believe they should operate separately. However, this transition will take time, and today marks the initial steps and messaging regarding our structural decisions. Mac may want to offer additional insights about Carbon TerraVault.

Mark McFarland, CEO

So look, I'm really excited about sharing the Carbon TerraVault subsidiary Board and helping advance that. But you're exactly right. Look, we have a vision that these 2 businesses over time need to be run and potentially separated. And that will mature over time. This is just the first step of many. As you look to stand up a business, it takes a lot of work, but we're ready to meet that challenge, and I'm excited about it. It is not dependent upon what happens with respect to different commercialization activities of Class 6 or any of that. It's just over time, there's a lot of connective tissue, if you will, between the 2 businesses, and we're going to start looking at how do we effectuate change into an eventual separation down the road.

Scott Hanold, Analyst

Okay. Okay. Understood. And I would assume the financials are going to be separated going forward? Is that going to happen, or will we see that pretty soon here?

Francisco Leon, CFO

Yes, that's the intent to start giving much more visibility into the cost structure and the financials of the business in the near future.

Operator, Operator

Our next question comes from Nate Pendleton from Stifel.

Nathaniel Pendleton, Analyst

Congratulations Francisco.

Francisco Leon, CFO

Thanks, Nate.

Nathaniel Pendleton, Analyst

For my first question, regarding the recent announcement about your planned Direct Air Capture hub. Can you speak to how you view the potential for DAC compared to point source capture projects from an economic and an opportunity perspective for Carbon TerraVault going forward?

Francisco Leon, CFO

Yes, absolutely, Nate. We're very excited about the DAC consortium. And I'm going to let Chris Gould who's the architect to that answer the question. Go ahead, Chris.

Chris Gould, Team Member

Yes, happy to share that. So the value proposition for Direct Air Capture, obviously starts with this DOE opportunity, right? It's a $3.5 billion funding opportunity that came out of the DOE for a technology that's at the beginning stages of maturing and coming down the cost curve, much like wind and solar did in the past. We see the opportunity for Direct Air Capture to have a very long runway, building over time. It's estimated to be in the neighborhood of 15% to 20% of the requirements worldwide in California for emissions removals actually. So it's a substantial, significant emissions opportunity for CTV. The state has set, to my knowledge, the leading target for Direct Air Capture of north of 60 million tonnes per annum through 2045, and that's the evidence of the size and scale of it. So we think it's a great opportunity for us to come in with the DOE funding and progress. You'll know that the incentives for Direct Air Capture from 45Q are $180 per tonne. So they are the largest incentives in that program. And in addition to that, California is home to the largest concentration of carbon direct removal credits from Fortune 100 companies and tech companies that are very eager to purchase these sorts of instruments to offset and fulfill their net zero goals.

Nathaniel Pendleton, Analyst

That's really helpful.

Mark McFarland, CEO

It's Mac. I just want to mention a couple of things. First, on the economics, the revenues are currently the highest flowing through 45Q, as Chris mentioned, in relation to Carbon TerraVault or the credits that we consider as revenues. However, there are more credits associated with 45Q for Direct Air Capture than for other forms of carbon capture. While this is significant, it's still not sufficient, as we're dealing with parts per million capturing, which involves very low concentrations from the air and sequestering. Nevertheless, we are quite enthusiastic about the work with the Department of Energy and the consortium that Chris has assembled. We are making progress and responding to the DOE's request, and we hope to establish one of the DAC hubs here in California through that consortium, which is really exciting. I must say that the scope and the number of participants in our DAC consortium are much greater than I ever anticipated. Chris has done an exceptional job in this regard. The response from the government, local communities, colleges, and others has exceeded our expectations. I look forward to maintaining the momentum on what Chris has developed, and it's truly a remarkable opportunity for us.

Nathaniel Pendleton, Analyst

Absolutely. Thanks for the color. As my follow-up, staying on the carbon management business for a moment. Can you provide any color around conversations or how they're progressing with future CDMA agreements?

Francisco Leon, CFO

Yes, Nate. As you saw, we have been working with two CDMAs and are excited about blue hydrogen and blue ammonia. Then the DAC hub came into play. Within a few months, we've shared some developments related to more greenfield projects, and we are engaging with various emitters. We are confident in our leading position in the state and have several million tons of permits in the queue, resulting in significant deal flow. I’ll now turn it over to Jay Bys, who is leading the discussions on the emitter front, in case he wants to add anything further.

Jay Bys, Team Member

Thanks, Francisco. No, I think, Nate, Francisco captured it. We're continuing conversations both with existing emitters and greenfield emitters. It's actually a pretty exciting time to be in the business. But just as with the arrangements we've announced to date, we'll announce subsequent arrangements really when we've gotten to detailed parameters and terms. We're just trying to be responsible in that regard. But I think the market is going to be pleased.

Francisco Leon, CFO

Yes. And I guess the last point I raised, existing emitters, we have to go through the price discovery, that takes time at the end of the day. Our conditions in California are very different than the rest of the country around CCS and the incentives that we receive. So there's really no model. We're building it. We're having these commercial negotiations, but that will take time, but we still focus on point source emissions. We're also very focused on our own emissions through CalCapture. We made some really good progress on our FEED studies. I think that's going to be a really viable project. So more to come, but we're, like I said, we're talking to a lot of emitters and seeing a lot of deal flow, and it's just a matter of time before we can talk about incremental activity there.

Operator, Operator

We now have a question from Leo Mariani from ROTH MKM.

Leo Mariani, Analyst

Just wanted to follow up on the kind of future of the E&P business here. You guys are obviously talking about this kind of 5% to 7% type of decline in the production. You're going to do your best to stave it off. I just wanted to get a little bit more information around that. Do you see this as more of a long-term strategy for the company given that California hasn't been all that friendly to oil and gas companies? You made a comment in your prepared remarks that this is the plan for '23, but if market conditions persist, perhaps this continues. Do you see this as more of a likely long-term strategy, or for whatever reason, if the permitting situation finally gets straightened out, would you guys potentially go back to holding production flat in the next handful of years, I think, which was the original plan?

Francisco Leon, CFO

Leo, yes. We're not going to provide guidance for years beyond 2023. However, I believe the market has seen our performance in 2022 when we operated four rigs while maintaining flat production. That model is clear to the market. What may not be as obvious, and what we're aiming to clarify today, is the new challenge posed by the appeal process and how it will impact our company's management going forward. I want to emphasize the very low decline in our assets. The majority of value for CRC is concentrated on PDP. We have never operated as a capital-intensive business, requiring many rigs to sustain production and generate cash flow. This can be observed in our numbers. In a year without all the permits, we plan to operate 1.5 rigs unless we have favorable outcomes from the appeals process. While 1.5 rigs won't maintain production, the cash flow generation from the business is exceptionally high, and we intend to use every dollar to repurchase shares. As for 2024 and beyond, we are uncertain about the outcome, but we demonstrated our capabilities in 2022 with the permits we had, and we will show what we can achieve in 2023 with a more limited set of permits and a 1.5 rig program.

Leo Mariani, Analyst

Okay, let me rephrase this. If you had unlimited permits in 2023, would you be experiencing a decline in production?

Francisco Leon, CFO

So if we had a full permit, we would be doing what we did in 2022.

Leo Mariani, Analyst

Okay. That's what I was trying to get at. Okay. And then just following up on the plan for this year. Everything is in the Wilmington field, it sounds like focused on oil. Obviously, gas prices in California have been pretty volatile, but generally speaking, have been very robust. Why not try to drill some gas out there as well in California? Obviously, have, I think, some opportunities and permits to do that, I believe.

Francisco Leon, CFO

We observed particularly strong natural gas prices in January, around $47 per Mcf. As you know, we produce more natural gas than we consume, specifically about 30 Bcf more. We see these strong prices, but gas pricing tends to be seasonal, making it harder to time our actions. We are definitely focused on natural gas and looking to increase our inventory. I’m not sure if Jay wants to add anything regarding our January insights. Also, we are now implementing quarterly guidance, and you can see the expected natural gas realizations reflected in our Q1 estimates.

Jay Bys, Team Member

Okay. To speak to the realizations and what happened in December, we generally market most of our sales gas on a first-month index basis. So during the month of December, for example, when prices ran up mid-month, we were not there to participate. Now obviously, that approach served us pretty well in that first-month sales process. Served us well in January and again in February. To Francisco's point, roughly 90% to 95% of the natural gas consumed in California comes in from out of state. We'd like to have a larger impact going forward, and that's part of our plan to figure out where can we have that positive impact.

Francisco Leon, CFO

Maybe Mac has one more thing to add.

Mark McFarland, CEO

Yes. I mean that's the benefit of being a long natural gas producer. We produce more than we consume. And it was a nice result in January and February. Leo, I just wanted to go back and address something. You had posed a question in the hypothetical about rig count. Unfortunately, we don't deal in hypotheticals. We deal in the circumstances that are in front of us. And the circumstances that are in front of us is that we've laid out a drill plan that's based off of permits in hand and have reduced the uncertainty associated with any outcome associated with Kern County or any additional permits down the road. Obviously, the question about gas is a good one, because gas, in the future, has the possibility of being a transitionary fuel, if you will, or at least it's viewed that way, and it's needed for the electrical grid out here. And so that's good to have that vision. But the reality is, is we're dealing with circumstances all the time. And what we look at in reality, non-hypothetical situation is, is how do we maximize cash flow generation? And then what do we do with that cash?

Operator, Operator

We have a question now from Kalei Akamine from Bank of America.

Kalei Akamine, Analyst

My first question is on cost. So CRC has always screened at the higher end of unit cost in the peer group. Pre-COVID, my understanding is that you guys did as much as you possibly could, yet you're focusing your efforts here. So I want to understand what's different today? Or maybe to ask it differently, under what premise are you guys cutting costs? Because you guys are declining this year between 5% and 7%. Are you now optimizing your permanent cost structure around a declining business?

Francisco Leon, CFO

Yes. No, Kalei. Definitely, we've taken a lot of cost over the last couple of years. And we'll continue to be focused on cost. We did see, like everybody else, inflationary pressures, and those inflationary pressures that are driving cost in the business need to be offset so that we can maintain the margins. So I think we're just committed to continue to evaluate cost in a year like this year where we're guiding to lower production, we need to align that cost structure to the production, right? That's kind of what we're saying, but it's obviously a focus on cost. It's just for the long-term viability of the business, something that we always do.

Kalei Akamine, Analyst

What is the sustaining CapEx at the moment?

Francisco Leon, CFO

Yes, we want to maintain our production levels, and there are various factors involved. Our operating and capital expenditures contribute to keeping production steady. We estimate that approximately $300 million is needed to maintain production from start to finish. This program is intended to establish a consistent operating rate, and we anticipate a decline of around 5% to 7%.

Kalei Akamine, Analyst

Got it. My second question is on the Huntington Beach monetization. So pre-bankruptcy the thought was that this land was worth about $1 billion, less remediation cost. What do you think that net value is today? And what is the pathway to readying that asset for sale and ultimately executing on the sale?

Francisco Leon, CFO

Yes. Yes, there's a lot in that question. And I think what we've answered in the past is, we're focused on a smaller property because there's a lot of things to work through as we sell assets, but we have a fantastic real estate portfolio of assets that can be turned into real estate or in Elk Hills, for example, it's the mid-tier industrial park. So we can do a lot with our fields. The Huntington Beach Field is the largest, probably the most attractive piece of that portfolio from a future development. But what we're doing there is we're starting abandonment. We started the entitlement process, which is needed to change the surface use to the most appropriate and best use going forward. We're still producing oil, and it's a very valuable, very profitable field. So we're taking the steps. We're trying to assess where to go. But right now, we're focused on monetizing the smaller property that ultimately helps inform the plans for the bigger piece of land.

Kalei Akamine, Analyst

Do you think it's going to be difficult to get the rights to change the use of that land from oil and gas production to commercial development or real estate?

Francisco Leon, CFO

We don't know. It happens frequently in California. There are many significant developments, with land previously used for oil and other purposes. You can see these projects being completed, but the timeline varies, and that's the work we are beginning to undertake.

Kalei Akamine, Analyst

Francisco, congratulations for both of you guys.

Francisco Leon, CFO

Thanks, Kalei.

Mark McFarland, CEO

Thank you.

Operator, Operator

Our next question comes from Eric Seeve from GoldenTree.

Eric Seeve, Analyst

Congratulations to both of you on the announcement and the title changes. My first question is about the production guidance. Can you provide an overview of your average production for 2023 and, beyond the first quarter where you've already given guidance, what should we expect for the production cadence in the second, third, and fourth quarters at the exit rate level?

Francisco Leon, CFO

Yes, Eric, we are anticipating a very moderate decline as we progress through the year. We began the year with three rigs and will carry that into this year. Now, we are reducing activity to operate one full-time rig in Wilmington. This decrease in activity will lead to a decline over the next few quarters, and we believe we can increase OpEx dollars. The most effective use of those dollars will be focused on downhole maintenance, which involves getting existing wellbores back online. This will be followed by capital workovers that tap into different zones of the same wellbore, and finally, drilling new wells. By scaling back new drilling activities, we aim to fully counterbalance the decline, targeting an overall decrease of about 5% to 7% year over year.

Eric Seeve, Analyst

You've provided guidance for Q1, with the midpoint at about 90,000 BOE per day. For the full year, the midpoint is approximately 88,000. This suggests that production could gradually decrease by about 1,000 BOE per day each quarter. Is that a reasonable way for investors to consider the progression, keeping in mind the potential for unexpected changes?

Francisco Leon, CFO

Yes. I mean you quoted your numbers. We have obviously ranges, there may be some differences there. But in terms of the way to think about it, that's right. So we have production coming in from last year that benefits Q1, but then you would expect a very gradual decline after that.

Eric Seeve, Analyst

Okay. Great. And just want to make sure I understand. You talked about a 1.5 rig program throughout the year. Does that mean 3 rigs in Q1 and then stepping down just to 1 rig for quarters 2, 3, and 4?

Francisco Leon, CFO

Yes. We exited with 3 rigs in '22, which means we entered in Q1 of this year in 3 rigs, but now we stepped on to just 1 rig at Wilmington. So that's right.

Eric Seeve, Analyst

And I understand, obviously, the permitting issues in San Joaquin Basin now. But in the L.A. Basin, why only 1 rig there? It seems like given some of the dynamics around permitting there, it would seem like an ideal time to be more active. Why only run 1 rig there?

Francisco Leon, CFO

Yes. This year, our priority has been to optimize cash flow. We have experience in making these decisions; sometimes we choose to ramp up activities, while other times we opt to scale back. This year, we determined that investing in operational expenditures, downhole maintenance, and capital workovers would yield the best returns, as we are evaluating our portfolio based on returns. Thus, we believe that focusing each dollar on these areas is most effective. This doesn't mean that adding another rig at Wilmington isn't appealing, but given our strategy for the year and the returns we expect from investing in operational expenses and capital workovers, it made sense for us to proceed this way.

Mark McFarland, CEO

Eric, it's Mac. I just want to echo what Francisco said. And I think that the key to this year with the 1.5 rigs is to reduce uncertainty. So this is a plan based off of permits in hand. And as we go forward, if the circumstances change, we'll consider those. But right now, after going through last year, several different rig lines of rig lines, we wanted to put forth a plan that stabilizes and then maximizes the cash flow, as Francisco said, for the year.

Operator, Operator

We have a follow-up question from Leo Mariani from ROTH MKM.

Leo Mariani, Analyst

Just wanted to follow up very quickly on the separation of the 2 businesses. So you clearly talked about laying some groundwork here and understand there's preliminary steps involved here. But it sounds to me like you guys are pretty much intent on eventually getting these businesses separately. Do you envision potentially the carbon management business being a separate public company sort of down the road? Just trying to get a little bit more color around what the vision might be on the separate businesses here.

Francisco Leon, CFO

Great question. I don't know if I will answer it very clearly because we were working on a lot. And we are focused on maximizing the value of the company. I would tell you, Leo, that if I look at the reserves of the company, and if you look at the PDP value of the company, and then I look at what we think is the value of carbon management, we don't think it's there reflected in the stock price. So we're going to take the steps to unlock that. But in what form and what the timeline is, we still need to work through that to make sure we have the optimal outcome here.

Leo Mariani, Analyst

I appreciate that. Regarding hedging, considering the current lower focus on capital, do you anticipate doing less hedging with reduced forward CapEx? What is your perspective on this?

Francisco Leon, CFO

Yes. We previously mentioned that many of the hedges we established were put in place when we went through bankruptcy. Those hedges are now starting to expire. We're seeing benefits from this, particularly in 2024, as we move away from the impacts of the bankruptcy hedges. We believe a certain level of hedging is necessary for this business to ensure returns as we continue to invest. We'll keep evaluating our position and monitor how the year unfolds and how the oil market performs. For now, we believe 2023 is sufficiently hedged, and we'll determine our perspective on 2024 as the year progresses.

Operator, Operator

And this concludes our question-and-answer session. I would like to turn the conference back over to Francisco Leon for any closing remarks. Please, Francisco, go ahead.

Francisco Leon, CFO

Great. Thanks, everybody, for listening in. I look forward to seeing a lot of our shareholders next week at the various conferences, and thanks for tuning in.

Operator, Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.