California Resources Corporation — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. CRC is an independent oil and natural gas exploration and production company operating exclusively in California.
Financial and operating results
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Total revenue | $322 million | $577 million |
| Net loss | $50 million | $100 million |
| Loss per diluted share | $0.13 | $0.26 |
| Adjusted net loss (non-GAAP) | $100 million | $97 million |
| Adjusted EBITDAX (non-GAAP) | $124 million | $198 million |
| Operating cash flow | $115 million | $115 million |
| Investing cash flow | $(29) million | $(313) million |
| Financing cash flow | $(88) million | $212 million |
- Oil and gas net sales fell 45% to $304 million. Average production was 148,000 Boe/day, down from 166,000; oil production declined 9% to 98,000 barrels/day.
- Realized oil price including hedges fell 22% to $36.39/barrel; realized NGL and gas prices fell 24% and 28%, respectively.
- Production costs declined to $184 million, or $13.69/Boe from $16.20/Boe. DD&A fell to $147 million from $253 million, partly reflecting prior-year asset impairments.
- Cash was $10 million at quarter-end. Current assets were $431 million versus current liabilities of $638 million.
- Total debt principal was $5.972 billion, down from $6.143 billion at year-end; debt fair value was estimated at approximately $3.0 billion. Interest and debt expense was $74 million.
Changes, unusual items, and management commentary
- Lower commodity prices and reduced volumes drove the revenue decline. Brent averaged $35.08/barrel versus $55.17; NYMEX gas averaged $2.07/Mcf versus $3.06.
- Reported net loss included an $89 million gain on debt repurchases, an $81 million noncash loss on outstanding derivatives, and a $63 million deferred-tax valuation allowance adjustment, among other items. CRC’s adjusted net loss was $100 million, compared with $97 million a year earlier.
- Cash received from hedging was $56 million in the quarter. Management reported hedges covering an average 37,500 barrels/day for the remainder of 2016, with a weighted-average floor of $50.13/barrel; hedges may not fully offset further price declines.
- CRC set a 2016 capital program of $50 million, versus $401 million invested in 2015. Q1 capital investments were $21 million. Management expects reduced investment to weigh on near-term production and potentially on longer-term reserves and cash flow.
- Cost reductions included workforce reductions, executive and director compensation cuts, and reduced retirement contributions. Management expected 2016 production costs and G&A to be meaningfully below 2015 levels.
Liquidity, debt, and risks
- The revolving facility had $695 million outstanding; CRC reported approximately $578 million of available borrowing capacity. The borrowing base was reaffirmed at $2.3 billion in May 2016. A substantial majority of assets secure the credit facilities.
- CRC was compliant with credit-facility covenants at March 31, 2016, but management said significantly higher oil prices would be needed to meet the first-quarter 2017 leverage covenant. CRC intended to seek further covenant amendments if prices did not improve; lender approval was not assured. A breach could trigger acceleration of debt and foreclosure on collateral.
- The facilities restrict dividends and limit 2016 capital investment, and require application of certain asset-sale proceeds to debt repayment. CRC was pursuing asset sales, joint ventures, and other deleveraging alternatives, with no assurance these efforts would succeed.
- A purported class action filed April 21, 2016 challenges the December 2015 debt exchange and related liens. CRC said it would vigorously defend the case; accrued reserves for litigation and claims were not material.
- Stockholders approved a one-for-ten reverse stock split, scheduled to take effect May 31, 2016. The filing’s reported share and per-share figures do not reflect the split.
Important facts for investors to verify
- Progress on covenant compliance and any amendments, particularly ahead of the first-quarter 2017 leverage test.
- Available revolver capacity after borrowing-base redeterminations, and the timing and proceeds of any asset monetizations or other deleveraging transactions.
- Oil and gas prices, production trends, hedge coverage and settlements, and the effect of the reduced capital program on reserves and operating cash flow.
- Developments in the noteholder class action and any implications for the debt exchange or secured notes.
- Reconciliation of reported results to adjusted net loss and adjusted EBITDAX; these are non-GAAP measures and exclude material items.