California Resources (CRC) PT Lowered to $56 at Roth/MKM

Roth/MKM analyst Leo Mariani lowered the price target on California Resources (NYSE: CRC) to $56.00 (from $58.00) while maintaining a Buy rating.

The analyst comments "A California Appellate Court Ruled Against Allowing The Existing Kern County, CA EIR To Be Sufficient For Oil & Gas Well Permitting Purposes. A California appellate court overturned a lower court's decision to deem an existing environmental impact report (EOR) covering parts of Kern County, CA suitable for the purpose of issuing new oil and gas drilling permits in the county. CRC Contends That It Can Still Get Drilling Permits At Some Point Through Alternative Paths. CRC has stated many times that it still thinks that it can get drilling permits even if the court ruling was unfavorable through new environmental studies in different portions of Kern County, CA which can open these areas for permitting. However, the timing of these alternative path permits is not clear as CRC has said it could extend well into 2025. It Seems Clear That The Alternative 2024 Guidance Scenario For CRC Will Play Out; We Also Think Production Is Likely To Continue To Decline Well Into 2025. CRC had alternative guidance in place for 2024 if the Kern County EIR ruling was unfavorable, and it seems like a 5-7% production decline for 2024 exit to exit for $100mn less CapEx is very likely. It is hard to know if the oil and gas well permitting situation changes in 2025, but we think that it is safe to assume that production continues to decline next year. We are Cutting 2024 CFPS By 4% on Lower Production. We are cutting 2024 CFPS by 4% on lower production. However, our 2024 FCF estimate is increasing by $100mn. We are also cutting our price target by 3.5% to $56 based on lower 2024 cash flow estimates. We Don't Think The Permitting Issue Jeopardizes The Aera Deal. We don't think that the uncertainty around obtaining oil and gas drilling permits jeopardizes the willingness of CRC to continue with the $2.1bn Aera acquisition given that the deal still strengthens its free cash flow and has real synergies. CRC Expects A Decision On Final EPA & Kern County CCS Permits Around Mid-2024. CRC announced that it expects a decision on the approval of its EPA Class VI and Kern County EIR permits for the CTV 26R project in Kern County, CA around mid-2024. CRC Trades At A PremIum To Peers. CRC trades at a 4.6x multiple of 2024 DACF based on $77 per Bbl WTI oil, which is at a premium to peers. CRC also has a 16% free cash flow yield based on our 2024 estimates."

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