California Resources Corp

NYSE:CRC

Earnings Call Transcript 2019-Q1

[Operator]

Good day, and welcome to the California Resources Corporation First Quarter 2019 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Scott Espenshade. Please go ahead, sir. Mr. Espenshade, your line is lost.

[Scott Espenshade, executive]

(Technical Difficulty) Chief Executive Officer. I'll start again for Tom. Thank you, I'm Scott Espenshade, Senior Vice President of Investor Relations and Land. Welcome to California Resources Corporation's first quarter 2019 conference call. Participating on today's call is Todd Stevens, President and Chief Executive Officer; and Mark Smith, Senior Executive Vice President and Chief Financial Officer, as well as several members of the CRC executive team.

I'd like to highlight that we have provided slides in our Investor Relations section on our website, www.crc.com. These slides provide additional insight into our operations and first quarter results, plus additional information. Also, information reconciling non-GAAP financial measures discussed to their most directly comparable GAAP financial measures is available in the Investor Relations portion of our website and in our earnings release.

Today's conference call contains certain projections and other forward-looking statements within the meaning of federal security laws. These statements are subject to risk and uncertainties that may cause actual results to differ from those expressed or implied in these statements. Additional information on factors that could cause results to differ is available on the company's 10-Q, which is being filed later today. We'd ask that you review it, when available, and the cautionary statement in our earnings release. A replay and a transcript will be made available on our website following today's call, which will be available for at least 30 days following the call.

As a reminder, we have allotted a similar time for earnings Q&A at the end of our prepared remarks. And would ask that participants limit their questions to a primary, plus a follow up.

I will now turn the call over to Todd.

[Todd Stevens, executive]

Thank you, Scott, and thank you to everyone for attending today's earnings call. CRC started 2019 with a great first quarter and made significant progress towards strengthening our balance sheet. We demonstrated the flexibility of our business model as well as our ability to quickly adjust to market conditions and align our value-driven capital program, with expected cash flow. CRC benefits from the differentiated scale and diversity of our world-class portfolio, which provides exceptional optionality that enhances our operations in California, while navigating commodity price volatility.

As we highlighted on our last earnings call, we lowered the number of rigs in late 2018 to respond to this volatility and we reduced our activity as we entered the year and moved through the quarter. As always, our 2019 plan focuses on living within cash flow, enhancing cash margins and maximizing the value of our investments. There's been a lot of recent interest in California legislative activity and I want to start out by providing context to our state's energy landscape. California has an incredible thirst for petroleum products, which underpin our modern lifestyle, well beyond gas for our cars and trucks. Californians consume an immense amount of energy. On a standalone basis, we're the fourth largest global consumer of energy. To meet this need, the state imports 73% of its crude.

Last year, Californians effectively sent over $32 billion to Saudi Arabia, Iraq and Kuwait and other places outside the state by importing oil. By comparison, this is the equivalent of 26% of California's general-fund budget last year. Californians consume every drop of oil produced in the state and we represent a vital industry that provides high paying, middle class career path, that enables Californians to achieve the American dream. CRC produces under the world's leading environmental safety, labor, and human rights standard and is inherently aligned with the California's progressive values.

Native production doesn't just benefit our shareholders, workforce and consumers, the California's State Lands Commission is one of the largest mineral owners and the oil and gas industry contributes substantially to state and local revenues. For example, our Long Beach operations alone have generated over $4.8 billion in the last 15 years for the state, Los Angeles County and the City of Long Beach. Legislation that would export jobs, diminish much needed public revenue, increase reliance on oil imported from countries that don't share our values and environmental standards is both irresponsible and misguided. In fact, just shipping imported oil to California already burns over 250 million gallons of marine fuel per year. Replacing native production with imported oil would burn nearly an additional 100 million gallons of marine fuel per year, further increasing overall worldwide emissions.

Responsible policymakers in Sacramento and across the State recognizes these facts in a critical would of our industry and workforce. We expect there is thoughtful leadership to prevail as it has in the past. Looking ahead, CRC's greatest competitive advantage rely in our long life, low risk, high-quality resource base operated by our exceptional team. One factor that highlights this strength is our R/P ratio of nearly 15, supported by low capital intensity, low declining assets.

The majority of our proved reserves nearly 3 quarters are in the proved developed category, which further highlights the low risk predictable and long live nature of our California resource base. This provides for a healthy pipeline of development opportunities ahead, as well as continued growth in our 3P reserves. Another factor that highlights our resource base is our significant inventory that meets or exceeds our internal VCI metric of 1.3. The strength of this pipeline has also been validated through continued joint venture interest. At $65 Brent, our actionable inventory currently stands above 800 million barrels of oil-equivalent and over 1 billion barrels of oil equivalent at $75 Brent.

Finally, CRC's resource advantage was further demonstrated by our attractive organic and finding and development costs, which have, which has run approximately $750 per barrel over the last 3 years. This low F&D cost aids in our value-driven full cycle economics and translate to cash margin expansion.

I'm also pleased to say that our valuable resources were validated just yesterday, with the reaffirmation of our borrowing base at $2.3 billion. We'll continue to strategically leverage CRC's resource advantage, are made prudent with our capital investment. We expect relatively flat production from the second quarter through the end of the year, with investments focused primarily on crude oil. While there appear to be many factors point to higher prices throughout the year, we are prepared for future volatility. We remain responsive, enhance our hedge book as needed and continue to pursue disciplined capital allocation.

Based on the current strip, we believe our 2019 capital program, which was based on $60 Brent will allow CRC to generate substantial free cash flow. This amount of free cash flow will ultimately depend upon realized prices for the remainder of the year and it could be significant, particularly relative to the size of our planned program. We will dedicate this free cash flow in addition to the proceeds from potential transaction activity, towards strengthening our balance sheet. This will enable CRC to achieve our objective of applying 10% to 15% or more of our discretionary cash flow towards that end.

On the transaction front, we have progressed multiple discussions with several counterparties, following a pause during the crude oil market downturn during the fourth quarter of 2018. We maintain in all of the above approach to reducing our debt burden. We know there are multiple ways to achieve our balance sheet objective and we intend to be strategic as we continue these discussions. On that point, we closed on the monetization of a producing asset yesterday, selling a 50% interest and operatorship of certain shallow zones at our Lost Hills steamflood field in a transaction with a private E&P company for total consideration in excess of $200 million. This consisted of $168 million in cash and a minimum carry on our remaining 50% non-operated working interest of $35 million. This reflects a valuation of 88,000 per flowing barrel including the carry. The carry covers 100% of our investment in 200 development wells through 2023. CRC will retain all of our deep rights. Prior to the sale, our Lost Hills oil field produced approximately 4,600 net barrels of oil per day.

Our diverse portfolio of assets is generating interest on many fronts, including producing properties, minerals and infrastructure transactions. We continue to execute against our capital program and pursue JVs, as they makes sense to bring value forward for our shareholders. We posted solid cash flow during the first quarter and EBITDAX was $301 million. Production was down slightly from the prior quarter due to downtime at one of our gas plants, and other factors. Although, occasional downtime is to be expected given CRC's large scale operations. We're able to consistently maintain a high level of reliability, thanks to our team's quick turnaround time to ensure continuity across our operations. With this laser focus on operational excellence, we also maintain a relatively flat cost structure during the first quarter on the operation side, despite higher energy costs.

During the quarter, we also benefited from higher crude oil realizations, which were up about 10% year-over-year, including hedges. As you know, we received attractive Brent based pricing as waterborne crude drives the California market. California has complex refineries for which, CRC's crude is ideal. International analogous that CRC grade crude remain in high demand. Additionally, the same in state refineries produce the spec product of gasoline and low-sulfur diesel. These factors position CRC well for the shift to the International Maritime Organization sulfur standards next year, instead of strong demand for native California crude for the foreseeable future. At the same time, we are thoughtfully putting hedges in place to underpin our cash flow, opportunistically through the cycle.

Details on our first quarter performance and our borrowing base affirmations, I will now turn the call over to Mark.

[Marshall Smith, executive]

Thanks, Todd. CRC's asset base performed as expected in the first quarter of the year, delivering production within our guidance range, while maintaining relatively flat production costs. Our overall economics in margin performance remains strong, underscoring the diversity and optionality of our asset base as well as our operational focus on driving value. We registered production of 133,000 barrels of oil equivalent per day during the first quarter, contributing to quarterly EBITDAX of $301 million, EBITDAX margins of 38% and adjusted net income of $31 million or $0.63 per diluted share. After the Lost Hills transaction, we expect relatively flat production through the end of the year under our current capital program.

As Todd highlighted, we responded quickly to the steep decline in commodity prices experienced in the fourth quarter of last year. We began the first quarter of 2019 by initiating a lower capital program, aligning our activity with expected cash flow and a continued focus on efficiency. Capital in the quarter was largely directed to activity in the San Joaquin and Los Angeles basins. We drilled 60 wells, [ sooner ] primarily on our core San Joaquin Basin properties, including Elk Hills and Buena Vista fields. The Los Angeles basin saw activity in both the Huntington Beach area and Wilmington field, while both Sacramento and Ventura operations continued to show remarkable resilience. By maintaining flat production on a sequential basis, with no capital directed towards drilling new development wells, relying instead on limited work-overs and thorough well surveillance.

During the quarter, we controlled the controllables and delivered consistent cash flow generation from our high margin, low decline asset base with opportunistic hedges to underpin our capital program and JV Capital to supplement our internally funded capital program, we look to extend our proven track record in 2019, capitalizing on healthy Brit base differentials and capturing the full value of our world-class resources.

As we've discussed, we have multiple monetization opportunities within our large portfolio of assets to strengthen our financial position. As Todd noted, the Lost Hills transaction garnered over $200 million of considerations and that's excluding $168 million in cash, which we applied to pay down our revolver. In addition, during the first quarter, CRC purchased an aggregate 18 million face value of our second lien notes in the open market for a price $14 million, demonstrating our commitment to balance sheet strengthening. Through debt repurchases in the quarter, and debt reduction from the proceeds of the Lost Hills transaction, we've made good progress in lowering our total debt to $5.1 billion. I'm pleased to advise that our bank group reaffirmed our borrowing base at $2.3 billion effective yesterday, which we consider another point of external validation of our commitment to balance sheet strengthening.

Now, turning to the details of our financial performance for the first quarter of 2019, we produced an average of 133,000 Boe per day during the first quarter, that's up 8% over the prior year period. Our performance included oil production averaging 84,000 barrels per day, which was up 9% over the prior year period. First quarter 2019 results included negative PSC effects, the gas plant downtime that Todd mentioned earlier as well as power outages. We continue to benefit from premium Brent based pricing and realizations in the first quarter of 2019. Oil differentials were robust, registering 99% of Brent before the effective of hedges.

Our hedge program, which underpins our capital program by sporting cash flow in the face of bulk of commodity prices, enhanced our realized pricing by a $1.98 per barrel for an average realized price of $65.28 per barrel. NGL realizations were stronger than expected and came in at 67% of Brent, continuing to reflect compelling local markets. Natural gas realizations were at 106% of NYMEX to the seasonality trends magnified by limited third party storage within California. Production cost for the first quarter of 2019 were $233 million or $19.46 per Boe, within our stated guidance range. Despite higher energy prices, our focus on our controllable cost kept per barrel cost relatively flat versus the prior year period.

Excluding PSC effects, our first quarter production costs would have been $8.01 per Boe. General and administrative costs were $6.93 per Boe, in line with our guidance range. The majority of the increase over the previous quarter corresponded to a 51% increase in CRC stock price during the first quarter which drove higher cash-settled, equity-based incentive compensation costs at all levels of the organization. As we've previously discussed, changes in our stock price introduced volatility in our income statement, because a portion of our stock-based rewards are cash-settled, and our mark-to-market every quarter. Taxes other than on income, which are largely comprised of ad valorem taxes based on the value of the resource of the ground are paid and paid to the counties, plus our GHG cost came in as expected.

For the first quarter of 2019, we reported a net loss of $67 million attributable to our common stock or $1.38 per diluted share. Adjusting for unusual and infrequent items and other non-cash items, such as non-cash derivative gains and losses that are generally excluded from core earnings by investment analysts, our net income would have been $31 million or $0.63 per diluted share. Adjusted EBITDAX for the first quarter of 2019 was $301 million, up 20% from the same quarter last year, reflecting a stable adjusted EBITDAX margin of 38%. CRC reported cash flow from operating activities of $158 million in the first quarter of 2019. Cash flow was affected by a negative working capital change as fourth quarter 2018 levels rolled off as we moved through the first part of the year.

In the first quarter, we generated approximately $190 million in discretionary cash flow, comparing favorably to our internally funded capital investments of $104 million. This level of free cash flow generation demonstrates the flexibility of our business model, responsiveness to commodity prices during the fourth quarter of 2018 and our move to prudently adjusted capital program in the first quarter of 2019. We reduced our rig count from 10 rigs at the end of the fourth quarter, down to 6 rigs by the end of the first quarter of 2019, including rigs focused on JV drilling. This quick action lowered our internally funded capital by 40% and our total capital program by 30% from fourth quarter 2018 level.

A high level of operational control of our broad portfolio allows us to pivot during volatile periods and rapidly adjust plans to recalibrate our activity with expected cash flows. We have a proven track record of focusing on value and we'll continue to respond and adapt accordingly just to see it in a wide range of environments. Our philosophy regarding hedging continues to target up to 50% of our oil production, generally over 12 month to 18 month periods, in order to provide more certainty in cash flows and support our capital program. We recently added 5,000 barrels per day of swaps and 10,000 barrels per day of put spreads, covering the first half of 2020, bringing the total hedge volume to 25,000 barrels and 15,000 barrels for the first and second quarters of 2020 respectively. Please refer to our earnings release for the details on our hedge positions.

As we look ahead, we will continue to play to our strengths, developing our extensive inventory of actionable projects, working to capture the full value of our high-quality, long life and low-risk assets. We take pride in our flexible business model, which is designed to facilitate dynamic capital allocation and deliver value utilizing our VCI metrics across a varying range of price scenarios.

Additionally, we benefit from both our integrated infrastructure designed for scale, as well as a relentless drive for operational excellence. We'll continue to identify more ways we can add value for CRC shareholders. Please note that we provide a detailed analysis of adjusted items as well as key second quarter 2019 guidance information in the attachments to our earnings release. I'll be happy to take any questions you may have on that information and on other aspects of our results during the Q&A portion of the call.

I'll now turn it back over to Todd.

[Todd Stevens, executive]

Thanks, Mark. CRC continued to deliver solid results in the first quarter of 2019, with a disciplined capital program, a diverse low decline asset base with healthy Brent based realizations and our focus on margins that centers on controlling our controllable. CRC is able to register predictable and consistent results, quarter after quarter, demonstrating our optionality and importantly, meaningful cash flow generation. In addition, we remain keenly focused on simplifying our balance sheet, lowering the overall level of debt, while utilizing joint ventures to derisk and unlock the full potential of CRC's resilient asset base.

We are now happy to take your questions.

[Operator]

[Operator Instructions] And our first question today comes from Kalei Akamine from Bank of America.

[Kaleinoheaokealaula Akamine, analyst]

Todd, in your opening remarks, you started off by addressing the California legislation AB-345 and I'm not going to ask you to handicap the odds of this passing, but I will ask you to talk about where the bill is in the latest legislative process and any important dates that we should be a paying attention to over the course of this quarter?

[Todd Stevens, executive]

Yeah, Kalei, obviously I think topical in many ways, but it's really early in legislative process prematurely to speculate on this bill or other bills, but you got to remember, we have a proven track record of CRC of constructive outreach and policy issues that affect our state and our communities and we've done this for years. So this is not anything new. But when you think about where it is, like I said, it's fairly new, it's passed out of an Assembly Committee. I don't think anyone thought there was no chance, it -- there was a chance, it wasn't going to pass over the Assembly Committee. It would have to pass out of that -- now out of the Appropriations Committee where it sits and take into account the environmental, employee and other economic impacts, and I addressed some of that earlier, when we talked about it. And if it passed out of that, it would have to then go to the Assembly and then it will continue this process into the State Senate, and if we assign to a Senate Committee, and then it go -- and as we pass out of that and go into the appropriation side of the Senate and then, it would have to go to the full Senate. And then if this goes, then it would end up in the Governor's desk. In this timeframe, to give you an idea, the Legislative Session for -- would end sometime in September or October, with these bills could end up on the Governor's desk. But I think the fact that, the way the bill sits in its current form are essentially -- the odds are really close to zero, if not zero, be ending up in some substantially its current form by the time, if it somehow made it through all this to that.

[Kaleinoheaokealaula Akamine, analyst]

I appreciate you answering that. My second question, just on Lost Hills, just want to understand a little bit better. It looks like a pretty, fairly priced deal that could improve in your favor as the asset grows. Wondering if you can share a little bit about the rationale, why this asset? Why now and your broader philosophy about monetizing upstream cash flows?

[Todd Stevens, executive]

Yes, as you know, we -- everything is done around our VCI metric. And we rank order our inventory on our VCI metric and we look for things that compete for CRC Capital. While we live within cash flow, then we look at things that could be potentially JV or in effect, if we didn't think it could be JV, is there a way to monetize it, that makes sense. And I think what we did here is effectively create a hybrid JV, while monetizing 50% of our interest in transferring operatorship and control the asset, while having a carry on our remaining interest, because we don't think it'll probably would repeat for our internal capital going forward. And so, but we like the asset and we think that the new operator has an opportunity now to improve on the economics and invest that company's capital in the asset. So I think this is the potential win-win with kind of this hybrid JV monetization that we did here. And really -- we're pleased with the upfront monetization, we're pleased with the opportunity to grow the value and hopefully, get it to compete for capital in the future. And also you got to remember, here we retain the deep rights and as you know, California is fairly prolific with over 400 different producing horizons. And this is pretty -- this is really the shallow steamflood is what we're talking about that was monetized here at Lost Hills.

[Operator]

And our next question comes from Silvio Micheloto with Mizuho. Please go ahead with your question.

[Paul Sankey, analyst]

This is Paul Sankey with Silvio alongside me. One just quick question is a follow-up on the California stuff is what -- I don't know if this is my question or not, but why did the stock so heavily hit on this when as you said, it wasn't really a surprise and probably won't go anywhere?

[Todd Stevens, executive]

I think there is this heightened awareness given -- we've had this type of activity in California for many, many years and we --

[Paul Sankey, analyst]

Yes, because Silvio and I cover refining in California as well for many, many years and we've sort of been through this movie before.

[Todd Stevens, executive]

To give you an idea, you see this, like in California, you have a severance tax proposed this year. I think in the last 30 years, there's probably hasn't been a year that wasn't one proposed including a ballot measure, but they've never come to fruition. Again, I think you get through the kind of misguided and irresponsible legislation and it has to work its way through all the gateways of the system. And I think, the heightened awareness of the activism that has gone on for here in California, for years, it's has gone to Colorado and elsewhere. So I think that when there was somebody, I can't remember the name of it, they published the awareness of AB-345 and it just spooked everyone. And I think they sold first and asked questions later and we had that terrible down day last week, but I think fundamentals haven't changed at all. We've dealt with these type of -- like I said, misguided legislation in the past, and frankly, very reckless when you think about the California economy. So again, it's ordinary across of business, is that things will work through, and we think, I mean, thoughtful people in Sacramento will eventually come to bear and understand what this mean.

[Paul Sankey, analyst]

Understood. So that if I could ask you a question which I think you will be probably lot happier talking about, but I was intrigued that you highlighting your degree of flexibility and you talked about how you've been able to change the number of rigs as rapidly as you through, what's been the extraordinary volatility really over the last, what is it now 8 months in oil? I was just wondering, can you dig a bit deeper on the ability to change -- it seems --- I don't now understand quite heck, contractually you could -- you could drill rigs as quick as you can or pick them up again. For example, any other observations you have about that. Thank you.

[Scott Espenshade, executive]

Yes, Paul, Good question. I think it highlights really our asset base, but also the supply chain market for services here in California. I think when you look at our asset base, we really have the assets of a super major buried and independent. So we have effectively operating control over almost every one of our assets, now we've lost sales obviously we ceded operatorship. So the ability to quickly shift activity, we have that within our grasp. We're not in anyone else's behalf. The supply chain, when you think about the type of rigs and the type of services that are in California, most of that iron doesn't really leave the state. It's really the deep iron will leave the state, the deep more complex rigs, but the shallower rigs, the medium rigs, they typically stay in the state. So you're able to being the largest operator in most active driller, both drilling rigs and workover rigs in the state, we were able to price in this flexibility and enable us to have this kind of optionality because we, we've had to manage through this downturn since inception. So it's been important for us to be able to manage our activity, and manage our cash flow appropriately.

[Operator]

And our next question comes from Pavel Molchanov with Raymond James.

[Pavel Molchanov, analyst]

I -- apologies, but I'm going to ask another one about AB-345. To your knowledge, is there any -- anybody from the Governor's office that is encouraging or pushing this effort in the legislature?

[Todd Stevens, executive]

Not to my knowledge and I think that if you were to ask the long line of people, not just our industry, but business, agriculture, everyone else up in Sacramento and the all kind of responsible citizens that are up against this, I think it will be hard to find someone that's pushing behind the scenes with the exception of probably some irrational activists, who want to send us back to a pre-industrial age.

[Pavel Molchanov, analyst]

Okay. And there are some reporting in the media that Governor knew some plans to issue his own kind of oil and gas policy in the near future. Any sense of what the process will be for that, and any indications on what he may say?

[Todd Stevens, executive]

We have no indication, and know what -- it's a -- I think it'd be speculative and premature me to say anything that I think, just so you know, he's been around Sacramento and understands what drives the state, what drives the state economy, and I know the thoughtful heads will prevail here at the end of the day. But, he is also driven to try and drive to a more balanced approach, and in driving more renewables into the system, which we've done in the state, effectively, but I think also understands the value that our industry brings in the meantime.

[Pavel Molchanov, analyst]

Okay. And then lastly on the same topic, are there any outside groups environmental or labor or otherwise that have been lobbying either for or against AB-345 and I'm -- I mean outside of oil and gas groups obviously, but anybody outside of that, are they involved in the process of shepherding this bill or opposing it?

[Todd Stevens, executive]

I think the only people that we're aware of that have been for the bill, have been environmental groups. Again, you're trying to deindustrialize the country but as opposed to, I know that labor has been on our side, agricultural groups other business groups, community groups. I think the vast majority of folks have been on our side and see this as frankly, like I said, irresponsible and reckless.

[Pavel Molchanov, analyst]

Okay, I'll leave it there.

[Operator]

And our next question comes from Sean Sneeden with Guggenheim.

[Sean Sneeden, analyst]

I guess just, Mark, like to start off, can you talk about the borrowing base a little bit? Is that inclusive of the Lost Hills transaction or should we expect that actually gets revised at all post closing and can you also just remind us what the remaining basket is at this point on the junior buybacks?

[Todd Stevens, executive]

Sean, this is Todd. What I'll say is, as you know, we've been thoughtful as commodity prices have risen and we pulled things out of the borrowing base, Lost Hills was not in the borrowing base. So this will be no adjustment to our borrowing base. And we've been thoughtful and done this through the process as we look to monetize things and whether it'd be a royalty or producing assets or infrastructure. So with that said, I'll let Mark get into the other question.

[Marshall Smith, executive]

Yeah, Sean, so following on to Todd's comment that the Lost Hills assets constituted non-borrowing based assets for purposes of the credit agreement, we were able to build basket -- in that basket for repurchases which you described now stands at $305 million.

[Sean Sneeden, analyst]

And I guess when we try to think about the kind of remaining non borrowing based assets, is there any kind of directional guidance of how we should think about that? And I think you've talked about royalties and some -- the like in the past, but can you help kind of shape our thinking around how to think about potential valuations around that?

[Todd Stevens, executive]

I mean, for us, it's been an all of the above approach, and like I said earlier, we go through the process of looking at the value of our assets and our inventory and what we're going to invest in with our capital or with the JV Capital. And if we don't see a window for investment in a reasonable time-frame, we want to accelerate that value, we'll look at monetizing different things. We are not conducting a fire sale. We want to get a value that makes sense for our shareholders. So -- and then we felt like this was a win-win here with Lost Hills. We were looking at everything from infrastructure to royalties to -- as you know, we have a comprehensive set of assets, that's really a business, not just assets from midstream, upstream and everything in between. So, we're continuing to evaluate that and we had been in active negotiation for not just that, but also for new joint ventures, as I've outlined before and kind of meaningful joint venture. So, I think this is something that for you to understand that we're not just targeting one thing, we're looking at many things, and we're only going to do what makes sense at the end of the day.

[Marshall Smith, executive]

And Sean, tying in again to what Todd said is, helping to frame it for you. Those significant infrastructure assets that Todd described are considered non-borrowing base assets. The way to think about it is infrastructure -- what's in the borrowing base is oil and gas producing assets. So that would exclude the non-borrowing based assets, the infrastructure assets and it would include select other properties, such as Lost Hills that we see that we may have the potential to -- potentially do something with or JV, et cetera. And we have a -- as you know, we have a very good working relationship with the banks and will keep them right in the front seat with us and will work closely with them in order to maintain the borrowing base on the one hand and preserve flexibility in terms of non-borrowing base assets on the other.

[Sean Sneeden, analyst]

Got it. That makes sense. And then, Todd, you had mentioned that you kind of think of the Lost Hills transaction as kind of a hybrid JV and we've previously talked about the potential for JV this year. Is that the Lost Hills transaction or is there still something more to come on that front?

[Todd Stevens, executive]

No, we are still in active negotiations with some larger JVs and also JVs with similar size.

[Operator]

And our last question will come from Gregg Brody with Bank of America.

[Gregg Brody, analyst]

Just -- so you mentioned that our production number associated with Lost Hills and I wanted to make sure that I -- that I heard it right, did you say 3500 net per day?

[Todd Stevens, executive]

Just before the sale, when it was a 100% owned by us, in the first quarter, it was 4,600 barrels of oil per day.

[Gregg Brody, analyst]

Yes, I thought I misheard. So that's 100%, so 100% and you'll keep 50%. Did you -- will you have any G&A reductions as a result of moving it to a non-operating position?

[Todd Stevens, executive]

It would be modest at best, some of the field level G&A that we're going to have an opportunity for the new operator to purchase. But it's the vast majority is coming from OpEx.

[Gregg Brody, analyst]

Got you. And your -- when I look -- I think it's the heavy oil field, so it's 100% oil, is that right?

[Todd Stevens, executive]

Correct.

[Gregg Brody, analyst]

Did you -- I wasn't sure what -- actually you gave the production guidance and I -- so I guess it's just -- it's simple as just adjusting that by 100% by 2.3 dozen barrels a day to figure out kind of what the pro forma oil, NGLs and natural gas will be going forward?

[Todd Stevens, executive]

We gave guidance out and then, this is basically oil coming off 2,300 barrels a day coming off and as you heard, Mark and I both say, we think we'll be roughly flattish and we just closed on this yesterday.

[Gregg Brody, analyst]

And it's flattish on crude oil or total production or both, I guess the total production will be both.

[Operator]

And this will conclude our question-and-answer session. I would like to turn the conference back over to Todd Stevens for any closing remarks.

[Todd Stevens, executive]

Thank you all for participating in today's call and your time and interest on California's political landscape. We plan to move forward and replicate the fundamentals of CRC's strong first quarter performance throughout 2019. We continue to be guided by disciplined capital allocation, aligned with expected cash flows to capture the full value of our high-quality, low decline and low-risk resource base. Aided by an unrelenting focus on operational excellence, our business model is built to perform through the cycle and deliver consistent value to our shareholders. We look forward to seeing you on the road. Thank you.

[Operator]

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