Alex Gates of Clayton Partners presented his investment thesis on California Resources Corporation (US: CRC) at Best Ideas 2023.

Thesis summary:

California Resources is a value investor’s way to participate in the rapid energy transition to zero carbon. CRC is the largest oil producer in California but will become one of the most important enablers of the state’s decarbonization plan through large-scale carbon capture and storage (CCS) and solar deployment.

California Resources will benefit from a 70% increase in the tax credit for CCS included in the IRA and the recent $500 million commitment by Brookfield to fund initial CCS projects. This commitment values CRC’s acreage at $1 billion and requires zero capital from the company.

CRC has a double-digit FCF yield, little debt, and has zero of the new green business priced into the stock. Alex sees immediate ~40% upside to $60 per share. A substantial hidden asset — 92 acres of undeveloped beachfront property in Huntington Beach — adds an estimated $4-$12 per share to the upside. The long-term opportunity to capture 20 million tons of CO2 for permanent storage could make the stock worth multiples of the recent market quotation.

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About the instructor:

Alex Gates is the Director of Research and Chief Compliance Officer at Clayton Partners LLC. Founded in 2003, Clayton Partners is an opportunistic value investment firm.

Clayton manages a private investment partnership and individual separate accounts. The firm takes a private equity approach to investing in the public markets and looks to align itself with shareholder friendly management teams that focus on long-term value creation.

Alex leads the firm’s effort to find compelling public and private investment opportunities in sustainable businesses that have a positive impact on climate change. The current focus is on investments in renewable energy, bio-fuels, recycling and water infrastructure.

Alex holds a Masters Degree in Business Economics from the University of California at Santa Barbara. Prior to his graduate education, he completed a dual major BS in Economics and Statistics from Cal Poly State University. At both institutions, Alex concentrated in finance and economic modeling. He earned the Chartered Financial Analyst designation in 2015.

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