Contrarian Low-Cost Producer at a 15% FCF Yield + Excess Real Estate
Large margin of safety from the valuable real estate being monetized, underappreciated moat with key cost advantages, growth prospects thanks to new law taking effect in 2026. Mgmt buying back shares.
Today’s discussion:
60% market share in its geography with natural barriers to competition
Trades at a 15% FCF yield (6.8x FCF) with a healthy balance sheet
Company uses FCF to buy back shares
Growth prospects from a major new piece of legislation that is set to take begin on 1/1/26
Major cost advantages thanks to its market share and its owned assets
Valuable excess real estate, among other owned assets
Call option on the growth of additional revenue streams
In the last post, I outlined why I like the long-life reserves and low decline rate production of California and Canada, and why this differs so much from shale oil. Please review that post for more background (as well as a couple counterpoints below from some excellent reader feedback).
Today, I’ll discuss California Resources Corp (CRC) in more detail.
“In those days, Belridge was a pink-sheet company. It was very valuable. It had a huge oil field, it wasn’t even leased, they owned everything, they owned the land, they owned the oil field, everything. It had liquidating value way higher than the per share price -- maybe three times. It was just an incredible oil field that was going to last a long time, and it had very interesting secondary and tertiary recovery possibilities and they owned the whole field to do whatever they wanted with it. That’s rare, too.”
- Charlie Munger, talking about the Belridge Oil Field, which is now owned by CRC
On December 18th, CRC closed on its acquisition of the smaller Berry Petroleum (BRY). This was a great deal for CRC, which paid just $3 per share for $17 of proven oil reserves (PV-10, net of all debt).
Including the shares issued for BRY and the cash flow and reserves received from the deal, CRC now has roughly $80 per share of proven oil reserves (PV-10)1 vs the current $43 stock price.