California Population Surge And Carbon Capture Will Unlock New Horizons

Key Takeaways

• Expansion into carbon capture and storage, supported by major partnerships and regulatory tailwinds, positions CRC for strong revenue growth insulated from oil market cycles.
  
• Integrated power generation with CCS and merger-driven cost savings enable high-margin revenue streams, margin expansion, and stable cash flow for shareholder returns.
  
• Heavy reliance on oil and gas in a volatile, regulated California market exposes the company to revenue instability, higher costs, and constrained growth prospects amidst energy transition.

Catalysts

Operates as an independent energy and carbon management company in the United States.

• The rapid expansion of California Resources' Carbon TerraVault business, substantiated by the nation’s first EPA Class VI permit and partnerships with major industrial emitters like National Cement and NET Power, positions CRC to capture emerging, profitable revenue streams from carbon capture and storage as California and the federal government enforce stricter emissions reduction mandates. As CCS projects move from permitting to ground-breaking and first injection—supported by nearly 9 million metric tons per year under consideration and more than $500 million in federal funding—CRC’s earnings and top-line revenue will see significant, multi-year upside.
  
• California’s structural energy demand is set to rise with population and economic growth, and CRC’s dominant, in-state production base means it will benefit from a continued, reliable outlet for oil and gas products. This local orientation shields the company from transportation bottlenecks and import competition, strengthening the pricing power and stability of its realized revenues, while underpinning consistent cash flow generation.
  
• The company’s unique integration of dispatchable power generation with CCS allows it to tap into surging demand from AI data centers and other power-intensive businesses in California by offering both reliable electricity and a low-carbon footprint solution. As long-term power purchase agreements with these clients are secured, particularly for its available 150 to 200 megawatts of capacity and associated land, CRC is set to unlock incremental, high-margin revenues and improve overall returns on its power assets.
  
• Operational synergies and cost reductions realized from the transformative Era merger—already at 70 percent of targeted $235 million synergies, with further infrastructure consolidation underway—enable CRC to lower its controllable cost structure by nearly 16 percent versus the previous baseline. These sustainable cost savings, along with advanced digital oilfield technologies and optimization efforts, will drive margin expansion and enhance free cash flow available for dividends and buybacks.
  
• The accelerating trend toward carbon pricing and stricter emissions regulation, especially in California, means companies with advanced CCS capabilities and a significant inventory of permitted storage, like CRC, become ever more valuable. As additional Class VI permits are awarded (with a queue totaling 287 million metric tons in potential storage) and MOUs convert to formal, long-term commercial agreements, CRC’s high-margin CCS segment is positioned to materially increase the company’s consolidated EBITDA, improve net margins, and offer compounded growth well beyond the cyclical volatility of oil and gas markets.

California Resources Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on California Resources compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming California Resources's revenue will grow by 2.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 15.1% today to 10.6% in 3 years time.
• The bullish analysts expect earnings to reach $378.2 million (and earnings per share of $5.03) by about July 2028, down from $501.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 22.4x on those 2028 earnings, up from 8.7x today. This future PE is greater than the current PE for the US Oil and Gas industry at 12.3x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.63%, as per the Simply Wall St company report.

California Resources Future Earnings Per Share Growth

Risks

• California Resources’ long-term reliance on oil and gas production in an environment of accelerating energy transition and the rise of renewables exposes the company to secular declines in fossil fuel demand, which directly threatens future revenue growth and could ultimately compress asset values.
  
• Concentration of operational assets in the heavily regulated and politically unpredictable California market means the business faces elevated risk of production curtailments, delayed or denied permit approvals, and potential moratoria on oil and gas activity, increasing the likelihood of revenue instability and unpredictable earnings in the years ahead.
  
• The company’s legacy asset base consisting of mature oil fields is subject to natural production declines; ongoing requirements for significant capital expenditures to maintain production—especially as high-grade opportunities are exhausted—may pressure free cash flow and reduce net margins, particularly if oil prices weaken or stagnate.
  
• California’s increasing regulatory scrutiny on greenhouse gas emissions, coupled with pending reclamation liabilities and strict environmental obligations, creates the risk of escalating compliance costs and unexpected future cash outflows, negatively impacting future net earnings and potentially straining the balance sheet.
  
• Intensifying investor preference for ESG-compliant assets and the growing stigma against hydrocarbon producers may limit California Resources’ access to affordable capital and result in persistently lower equity valuations, which could raise its cost of capital, hinder expansion, and constrain overall shareholder returns.

Valuation

• The assumed bullish price target for California Resources is $64.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of California Resources's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $64.0, and the most bearish reporting a price target of just $47.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $3.6 billion, earnings will come to $378.2 million, and it would be trading on a PE ratio of 22.4x, assuming you use a discount rate of 6.6%.
• Given the current share price of $48.98, the bullish analyst price target of $64.0 is 23.5% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.