INVESTMENT IN UNCONSOLIDATED SUBSIDIARY AND RELATED PARTY TRANSACTIONS

12 Months Ended

Dec. 31, 2023

Equity Method Investments and Joint Ventures [Abstract]

INVESTMENT IN UNCONSOLIDATED SUBSIDIARY AND RELATED PARTY TRANSACTIONS

In August 2022, our wholly-owned subsidiary Carbon TerraVault I, LLC entered into a joint venture with BGTF Sierra Aggregator LLC (Brookfield) for the further development of a carbon management business in California (Carbon TerraVault JV). We hold a 51% interest in the Carbon TerraVault JV and Brookfield holds a 49% interest. We determined that the Carbon TerraVault JV is a VIE; however, we share decision-making power with Brookfield on all matters that most significantly impact the economic performance of the joint venture. Therefore, we account for our investment in the Carbon TerraVault JV under the equity method of accounting. See Note 1 Nature of Business, Summary of Significant Accounting Policies and Other for more information on the VIE consolidation model.

Brookfield has committed an initial $500 million to invest in CCS projects that are jointly approved through the Carbon TerraVault JV. As part of the formation of the Carbon TerraVault JV, we contributed rights to inject CO2 into the 26R reservoir in our Elk Hills field for permanent CO2 storage (26R reservoir) and Brookfield committed to make an initial investment of $137 million, payable in three installments with the last two installments subject to the achievement of certain milestones. The final installment will be sized based on permitted storage capacity.

Brookfield contributed the first $46 million installment of their initial investment to the Carbon TerraVault JV in 2022. This amount may, at our sole discretion, be distributed to us or used to satisfy our share of future capital contributions, among other items. Because the parties have certain put and call rights (repurchase features) with respect to the 26R reservoir if certain milestones are not met, the initial investment (including accrued interest) by Brookfield is reflected as a contingent liability, included in other long-term liabilities, on our consolidated balance sheet. The contingent liability was $52 million and $48 million at December 31, 2023 and 2022, respectively, inclusive of accrued interest.

The tables below present the summarized financial information related to our equity method investment and related party transactions for the periods presented.



	December 31,		December 31,
	2023		2022
	(in millions)
Investment in unconsolidated subsidiary(a)	$	19	$	13
Receivable from affiliate(b)	$	19	$	33
Property, plant and equipment(c)	$	6	$	—
Contingent liability (related to Carbon TerraVault JV put and call rights)	$	52	$	48

(a)Reflects our investment less losses allocated to us of $9 million and $1 million for the year ended December 31, 2023 and 2022, respectively.

(b)The contribution of the injection rights at the Carbon TerraVault JV formation was accounted for as a financing activity. The amount of Brookfield's initial contribution available to us and amounts due to us under the MSA are reported as receivable from affiliate. At December 31, 2023, the amount of $19 million includes $17 million remaining of Brookfield's initial contribution available to us and $2 million related to the MSA and vendor reimbursements. At December 31, 2022, the amount of $33 million includes $32 million remaining of Brookfield's initial contribution available to us and $1 million related to the MSA and vendor reimbursements.

(c)This amount includes the reimbursement to us for plugging and abandonment activities at the 26R reservoir, which is recorded as a reduction to the net book value of our proved oil and gas properties.


	Year Ended December 31,
	2023		2022
	(in millions)
Loss from investment in unconsolidated subsidiary	$	9	$	1
General and administrative expenses(a)	$	8	$	—

(a)General and administrative expenses on our condensed consolidated statement of operations are net of this amount invoiced by us under the MSA for back-office operational and commercial services.

The underlying net assets of the Carbon TerraVault JV were $310 million and $314 million as of December 31, 2023 and 2022, respectively, which includes cash on hand and PP&E, net of current liabilities. The difference between the carrying value of our investment of $19 million and $13 million at December 31, 2023 and 2022, respectively, and the carrying value of the underlying net assets of the joint venture relates to our accounting for the contribution of the 26R reservoir as a financing arrangement due to the put and call features of the joint venture. The joint venture recognized the contributions by the members at fair value.

The Carbon TerraVault JV has an option to participate in certain projects that involve the capture, transportation and storage of CO2 in California. This option expires upon the earlier of (1) August 2027, (2) when a final investment decision has been approved by the Carbon TerraVault JV for storage projects representing in excess of 5 million metric tons per annum (MMTPA) in the aggregate, or (3) when Brookfield has made contributions to the joint venture in excess of $500 million (unless Brookfield elects to increase its commitment).

We entered into a Management Services Agreement (MSA) with the Carbon TerraVault JV whereby we provide administrative, operational and commercial services under a cost-plus arrangement. Services may be supplemented by using third parties and payments to us under the MSA are limited to the amounts in an approved budget. The MSA may be terminated by mutual agreement of the parties, among other events.