California Resources Corporation — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. CRC is an independent oil and natural gas producer operating exclusively in California. It emerged from Chapter 11 in October 2020 and adopted fresh-start accounting; as a result, post-October 2020 financial statements are not directly comparable with predecessor periods. References below to 2020 combined results are management’s supplemental, non-GAAP presentation of separate predecessor and successor periods.
Financial and operating highlights
| Metric | 2021 | Comparison / context |
|---|---|---|
| Operating revenue | $1.889 billion | Up from $1.559 billion in combined 2020. Includes a $676 million net loss from commodity derivatives. |
| Oil, natural gas and NGL sales | $2.048 billion before settled hedge effects | Up 54% from combined 2020, principally on higher realized prices; production declines partly offset the increase. |
| Operating income | $293 million | Versus an operating loss of $1.885 billion in combined 2020, which included $1.736 billion of asset impairments. Approximate operating margin was 15.5%. |
| Net income | $625 million; $612 million attributable to common stock | Included a $396 million income tax benefit from releasing the deferred-tax valuation allowance and a $124 million gain on asset divestitures. Approximate net margin was 33.1%. |
| Operating cash flow | $660 million | Up $554 million from combined 2020, mainly due to improved realized prices, partly offset by lower production and higher activity costs. |
| Investing and financing cash flow | Investing: $(161) million; financing: $(222) million | Investing outflows included $194 million of capital investments and the $52 million MIRA working-interest acquisition. Financing outflows included $148 million of share repurchases, $50 million of JV distributions and $14 million of dividends. |
| Cash and liquidity | $305 million cash; $672 million total liquidity at year-end | Liquidity comprised cash and $367 million available under the revolving facility. February 2022 lender commitments raised available capacity to $427 million. |
| Debt | $600 million principal; $589 million net carrying value | Senior Notes bear 7.125% interest and mature in 2026. CRC reported compliance with debt covenants and no variable-rate debt at year-end. |
| Production and costs | 100 MBoe/d average production, 60% oil; $19.39/Boe operating cost | Production declined 10% from combined 2020, primarily due to natural declines and asset divestitures. Costs rose from $15.45/Boe in combined 2020, reflecting higher energy prices and maintenance. |
| Reserves | 480 MMBoe proved reserves; $4.549 billion standardized measure and $6.173 billion PV-10 | Reserves increased from 442 MMBoe at year-end 2020, primarily due to price-related revisions. PV-10 is a non-GAAP measure and is not fair value. |
Material changes versus the prior comparable period
- Higher commodity prices drove substantial growth in sales and operating cash flow, but oil and gas production fell 10% year over year on management’s combined-2020 basis.
- Settled commodity-hedge payments were $319 million in 2021, compared with $107 million of proceeds in combined 2020. CRC reported a $676 million net derivative loss, including non-cash fair-value changes.
- CRC released its $549 million deferred-tax valuation allowance in the fourth quarter, recording a $396 million tax benefit; realization of remaining deferred tax assets depends on future taxable income.
- CRC sold most Ventura Basin assets, recording a $120 million gain on that sale, and sold other non-core assets. It acquired MIRA’s working interests for $52 million. The BSP preferred interest was redeemed, and the Royale and Alpine development arrangements were terminated.
- CRC issued $600 million of 7.125% Senior Notes in January 2021 and used proceeds to repay the Second Lien Term Loan and EHP Notes and reduce revolving borrowings.
Outlook, management commentary and risks
- 2022 capital program: Targeted at $330–$375 million, including $300–$335 million for oil and gas development and $30–$40 million for carbon management. Management expects to fund the program with operating cash flow and intends to prioritize lower-risk, high-return oil projects.
- Production and operations: CRC aims to maintain oil production through its 2022 program. A planned six-to-eight-week Elk Hills gas-plant maintenance shutdown in the first quarter of 2022 was expected to reduce production by approximately 6 MBoe/d during that quarter, with a return to prior levels in the second quarter.
- Shareholder returns: The company expected quarterly dividends of $0.17 per share through 2022, subject to Board approval. Its repurchase authorization was increased to $350 million and extended through December 31, 2022; repurchases are discretionary and subject to debt restrictions.
- Energy transition: CRC announced a Full-Scope Net Zero goal for 2045 and is developing Carbon TerraVault projects, evaluating CalCapture at Elk Hills, and pursuing solar projects. CCS efforts remain early-stage; permits, partners, infrastructure, financing, incentives and regulatory approvals are not assured.
- Key risks: Commodity-price volatility and hedge constraints; California permitting and regulatory changes; climate policy and potential limits on drilling; water availability and injection-well approvals; concentrated operations and customers in California; reserve-estimation uncertainty; and environmental, abandonment, wildfire, earthquake and cybersecurity exposures.
- Legal and contingencies: Recorded reserves for lawsuits and claims were not material, but reasonably possible losses above reserves could not be accurately determined. CRC accepted an indemnification claim related to a former parent’s alleged responsibility for offshore-platform decommissioning and is appealing the regulator’s order.
Important facts for investors to verify
- Review the audited statements and notes for the effects of fresh-start accounting and avoid treating combined 2020 figures as GAAP-comparable results.
- Assess how much reported earnings depended on the $396 million tax benefit and $124 million divestiture gain, and whether deferred tax assets remain realizable under lower commodity prices.
- Examine hedge positions and settlement exposure: CRC had net derivative liabilities of $395 million at year-end and hedged approximately 80% of anticipated oil production through 2022 and 50% through 2023.
- Track production, operating costs, the Elk Hills turnaround, and whether the 2022 capital program can offset natural declines while preserving liquidity.
- Confirm proceeds and remaining obligations from asset sales, including the final Ventura disposition and subsequent Lost Hills sale, and monitor debt covenants, borrowing capacity, dividends and repurchases.
- Verify progress, permitting, funding and commercial terms for CCS projects, alongside California regulatory developments and the offshore decommissioning dispute.