As the state’s second-largest oil company, and under pressure to offset the carbon dioxide emissions impact of its operations, California Resources Corp. has an ambitious goal of injecting 200 million metric tons of carbon dioxide into the ground over the next five years at an estimated cost of $2.5 billion.
But the oil company, which in May moved its headquarters from Santa Clarita to Long Beach, only last year emerged from bankruptcy and isn’t as well capitalized as its bigger brethren such as San Ramon-based Chevron Corp. or Houston, Texas-based ExxonMobil Corp.
That’s why earlier this month California Resources announced it has enlisted a financial partner for its Carbon Terra Vault program: Toronto, Canada-based Brookfield Renewable, which has an extensive portfolio of renewable energy-generation projects. The two companies have formed a joint venture – 51% controlled by California Resources and 49% by Brookfield Renewable – to implement the massive carbon dioxide injection program. Brookfield, through its global transition fund, is contributing $500 million up front and as much as $1 billion in total to the joint venture, which is being called the California Carbon Management Partnership.
“The strategic partnership with Brookfield advances our carbon management energy transition efforts and provides increased capital flexibility, with which we expect to pursue our overall corporate objectives and deliver on our financial goals and sustainability targets,” California Resources Chief Executive Mac McFarland said in the Aug. 3 announcement.
For its part, Brookfield gains a major new carbon dioxide offset program that it can offer to its customers.
With this joint venture, California Resources has begun to flesh out its carbon dioxide capture strategy, first unveiled exactly one year ago with the announcement of a planned underground storage site for carbon dioxide at its Elk Hills Oil Field operation in western Kern County, which would have a capacity of 40 million metric tons of carbon dioxide.
California Resources, which calls such sites carbon terra vaults, is in the midst of obtaining permits and environmental review for this carbon storage operation.
In recent years, oil companies have come under increasing pressure to offset or reduce their carbon dioxide emissions, particularly from ESG (environmental, social and governance) investors, climate funds and activist organizations. Carbon capture and storage – also known as carbon sequestration – is one way to do this; other methods include eliminating methane and other gas leaks in the pumping and production process, moving to cleaner-burning fossil fuels and using feedstocks that have fewer carbon dioxide emissions.
But the company is a bit late to the carbon sequestration field compared to some of its larger rivals.
“California Resources is one of dozens of oil companies around the world that is involved in such projects,” said Pavel Molchanov, managing director of renewable energy and clean technology for St. Petersburg, Florida-based financial services and equity research firm Raymond James & Associates. “Some big names involved include Occidental (Petroleum Corp.), Chevron, Petrobras (Petroleo Brasiliero) and Qatar Petroleum,” Molchanov continued.
“The majors can scale up these programs on their own,” Molchanov added. “California Resources, of course, is a much smaller player in the industry and therefore needs financial support to scale up this effort – hence the collaboration with Brookfield,” he added.
The new joint venture will first focus on the California Resources reservoir at Elk Hills. The announcement said this first carbon capture and storage project will have a value of $10 per metric ton of carbon dioxide stored.
Molchanov said that for oil companies involved in carbon dioxide sequestration, their own oil fields are the logical place to start.
“Approximately 75% of sequestration activity revolves around enhanced oil recovery, meaning injecting CO2 as part of oilfield production,” he said.
According to California Resources’ website, the company in May filed for permits to store an additional 80 million metric tons of carbon dioxide at two sites in the Sacramento Basin in the northern part of the Central Valley.
If all three sites get the necessary regulatory approvals, that would bring the company’s total carbon dioxide storage program to 120 million metric tons, more than halfway towards the joint venture’s target of 200 million metric tons of carbon dioxide storage.
New Long Beach HQ
Simultaneous with the carbon capture joint venture, California Resources also released its second-quarter earnings report, the first to be filed from the company’s new headquarters location in Long Beach.
According to California Resources spokesman Richard Venn, the company moved its headquarters to One World Trade Center in Long Beach from Santa Clarita in late May.
“While the company retains office space in Santa Clarita, the move helped right-size our building spaces to best accommodate our workforce and hybrid work model,” Venn said.
As for the earnings report itself, California Resources said it posted $747 million in revenue in the second quarter, up from $304 million for the same quarter a year earlier. The huge increase was due in large part to higher oil prices: on May 22, the price per barrel of West Texas Intermediate crude oil was $109.55, up from $65.17 a year earlier.
The company reported net income in the second quarter of $190 million, compared to a loss of $111 million for the same quarter last year, when the company had been out of bankruptcy only for six months. (California Resources filed for bankruptcy protection in July 2020 following the pandemic lockdown-induced plunge in oil prices.)
The company added that it increased its capital spending program for the rest of the year to a range of $380 million to $410 million, up from $340 million to $385 million projected at the beginning of the year. The increase reflects both higher oil prices and higher operating costs brought on by inflation.
“Where others have been forced to pause their programs, CRC continues to leverage our large portfolio of assets, which allows us to continue drilling,” McFarland told analysts in the company’s second-quarter earnings call. “In fact, we are running five drilling and completion rigs in California, which is the majority of the active rigs in the state.”
Since its spinoff from Occidental Petroleum, in 2014, California Resources has consistently ranked as the No. 2 oil producer in the state behind Chevron and the No. 1 natural gas producer.
