Executive Insights with CRC's Francisco Leon | The California Agenda: Sacramento Summit

Thank you, Kelly.

Absolutely. So, thanks again for having us here. Energy is the economy. So, it's such an important topic to navigate. So first to address the carbon neutrality goal. I think that's a remarkable goal for the state to have. And CRC has a publicly stated goal to lower emissions. So we're very supportive of that. We're also going to help companies achieve their own targets. So we're all in. Now if you think about energy, a lot of people compare energy to reduction in emissions. If you think about emissions in California, you'll say, okay, we made some progress. We're not as far along as we need to be. So you get kind of a passing grade, but the scorecard is not good. If you then talk about energy in the right way, which is emissions, affordability, and reliability, we're not doing very well. And the reason for that is really there are many factors, but to highlight just two of them. We've been looking at reducing supply, in-state supply, and forgetting that demand is still very much alive and well and the products needed. So that creates a secondary problem, which is okay, so if you're reducing your local supply, that by definition means you're importing a lot more. And if you think about any aspect of energy, the worst thing we can do is import. Worst thing. We're exporting our jobs. We're exporting emissions. They're bypassing taxes, regulation. We're actually passing through the cost to the consumer. We're actually forcing the consumer to shoulder the cost of the energy transition. So if you were to solve for a challenge, we're picking the worst out of all the different scenarios. What we should do instead is support the local production. California production is really what wins the day. It brings jobs. It's quality production and it's something that we should ultimately, we're ultimately guided by the world's leading environmental practices. So you have a very high bar as a state. If people can meet that bar, which is what CRC is doing, that should be the preferred barrel and not the imported barrel.

We're giving up a lot. Unfortunately, some of the state regulations have been restricting our local supply. The company that runs CRC, we haven't received a new permit to drill a well since the end of 2022. So, what's taking its place is imports. And some people may feel like, okay, well, that's a win. Big oil or oil, we're not, we're little oil, we're the green oil company, but that means that they're not producing, so we must be saving the planet from climate change. But what we actually are doing is we're becoming dependent on foreign oil. The more we reduce that supply, and we reduced about 33% of the California in-state supply, the more we're relying on that import. It's a crazy stat, but the US has become almost an exporter of energy, of oil in particular. But we still import. If you remove California from the rest of the other 50 states, then the US is a net exporter. We are bringing down the rest of the country and that's not a good look. So what we need to do is, and we're creating this scarcity around unnecessary because we have an incredible resource, enviable resource, oil and gas underneath our feet that we can develop locally. You know, someone else earlier today talked about fact-based. We being fact-based, we bring data to our analysis and we're having constructive dialogue with Governor Newsom around reestablishing permits for California. It's a really good thing because if you go to Kern County where the epicenter is of our oil industry, they want us there. They need the jobs. Their budgets are in trouble. And we can get it done, but we need to get going.

Yeah. And so, the good thing, I think part of the key messages I want to drive is that we're not dealing with mutually exclusive concepts. We can be climate leaders and improve the affordability. I mean, it's absolutely doable and that's what we're doing. We're pushing carbon management. It's our core climate technology that we're bringing into the state. Carbon TerraVault is the first and only permit in the state to inject CO2. This is going to go to industries in critical industries like cement, like data centers, and decarbonize their emissions, lower their emission footprint so they can contribute to society. But we're losing because our inability to be able to develop infrastructure is costing us in a big way. We are ultimately National Cement. So National Cement is a partner with us. They had a $500 million grant from the Department of Energy that got pulled back because of the inability to actually move the CO2 into our reservoirs. So we're losing projects. We're really losing ground to other states. And that's not climate leadership. So we need to support projects. Carbon management will work. We're convinced of that. We're going to have our showcase project near Bakersfield. That project should be up and running by the end of the year. And then we're going to scale, we're going to look to scale and there's a lot of things that we need to scale the business. But we're bringing that innovation, that technology into California and like I said, we can do both. We can reduce emissions and keep prices affordable for the consumers.

Yeah, the scorecard, like I said, today is not great, but the future looks bright. You know, I'm a first generation immigrant. I came to this country to make a difference. Now I get to run a different kind of energy company. We're completely disrupting the energy space and what we're doing, lead 1500 amazing employees at CRC. There's a lot to be excited about. And you know, we talk about affordability a lot. But I can tell you as I was thinking about, you know, what are the things that we're doing that make that difference? I'll give you a few things that have me excited. But affordability, the more we produce locally, the prices will come down at the pump. More production in California, refineries were built for California crude, not for Saudi crude, not for Canadian crude with high sulfur. They have to make a lot of investments that they don't want to make to be able to get that production here. So we can lower the prices at the pump for the consumers. We're also on a long transition. Transition is not going to happen quickly. You talked about 2045 neutrality goal, that's 20 years. What happens in those 20 years? Well, one thing we can do is have the cleanest barrel on the planet made in California. And again, fact-based, not only is it the cleanest, but we can also go to third-party certification, MIQ certified submissions. We go to them and we say validate that what I'm saying is a clean barrel is actually something that we can deliver. So lower prices at the pump, we can also deliver a clean barrel. We're also on a journey to prove that decarbonization is a market need, not just a policy-driven idea, but that companies want to decarbonize because that's good business. And that's our carbon capture projects. Cement, data, everything can be decarbonized. So California needs to think about producing locally and California products with California energy should be what we talk about. That's the competitive advantage. We need to kind of turn it around the import model and we need to export our products, our know-how, our innovation to other states. We're also pushing the boundaries on innovative corporate solutions. There's a need for voluntary credit markets, people that believe that you can decarbonize. And we did a partnership, we started a partnership last year with the LA Rams and the NFL. They are worried, they're a very conscious, really great franchise that's worried about their carbon footprint as they travel to away games or as their fan base comes into the stadium. So what we are doing is we're going to sell them carbon credits that we're going to generate in projects in Bakersfield in the backyard and they're going to then use that to offset their emissions. So it benefits them because they actually are walking the walk and developing solutions for their carbon footprint, but it's also helping us innovate and drive new energies in the space. Another thing that really has me excited is training workers. And we have, we are the only company in the state that produces oil and gas that has a project labor agreement. So we partner with the building trades. We've had that partnership for 10 years and we have an apprenticeship program where we were able to retrain the workforce so they can work on this climate innovation. So excited about that. And then we're also investing in students and we have a carbon management institute with the Kern County Community District. We invested millions of dollars to develop this next career around carbon management. So I think my point is we can do it all. We can bring down prices. We can really work on affordability while not giving up any of the climate leadership that we've shown. We have to work together. We have to reframe the problem. It's really not about attacking industries or exporting emissions and jobs. It's about how do we solve, how do we bring businesses back into California. It can be done. We have to move. As a publicly traded company CEO, I get a lot of unsolicited feedback when I go on the road about California. People tell us how we're doing and I'm the biggest proponent, the biggest fan of California and they tell me ABC, anywhere but California. So we have to change that. We cannot be, we're the largest economy. We almost used that as an excuse. We can do better. We can do both climate leadership and affordability and reliability. And it's companies like CRC that are innovating in this space and we want to partner with California.

Thank you, Kelly. Appreciate it. Thank you.