California Resources Corporation — Q2 2021 Form 10-Q
Reporting period: Quarter ended June 30, 2021. CRC is a California-only oil and natural gas producer. CRC emerged from Chapter 11 in October 2020 and adopted fresh-start accounting; 2021 “Successor” results therefore may not be directly comparable with 2020 “Predecessor” results.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Total revenue | $304 million | $276 million | $667 million | $849 million |
| Operating loss | $90 million | $115 million | $163 million | $1.764 billion |
| Net loss attributable to common stock | $111 million | $271 million | $205 million | $2.067 billion |
| Operating cash flow | $127 million | $(135) million | $274 million | $93 million |
Q2 oil, natural gas and NGL sales were $478 million, up from $245 million, mainly reflecting higher realized prices; lower production partly offset the increase. Net derivative losses were $265 million in Q2 and $478 million for the first half, including substantial non-cash fair-value losses. Settled hedge payments were $82 million and $121 million, respectively. First-half net loss was far lower than the prior-year loss, which included $1.736 billion of impairment charges.
Average daily production was 101 thousand Boe in Q2, down 10% year over year, and 100 thousand Boe for the first half, down 15%. CRC attributed the declines mainly to limited prior-period drilling and investment, natural decline, and, for the first half, processing-plant downtime and production-sharing contracts. Q2 operating costs rose to $169 million from $127 million; G&A fell to $48 million from $69 million. Lower G&A and DD&A partly reflected workforce reductions and fresh-start fair-value adjustments, respectively.
Cash was $151 million at June 30, 2021, versus $28 million at year-end 2020. Liquidity, including $367 million available under the revolving facility, totaled $518 million. Long-term debt was $589 million net ($600 million principal); CRC had no revolver borrowings at quarter-end and reported covenant compliance. The company generated $274 million of operating cash flow in the first half, used $63 million in investing activities, and used $88 million in financing activities. Capital investments were $77 million for the first half.
Outlook, material developments and risks
- Management expects positive free cash flow at current commodity prices and its planned capital program, and said it had sufficient liquidity for obligations over the next 12 months. It may use cash for drilling, dividends or repurchases, balance-sheet cash, or other purposes; this is conditional on prices and other factors.
- The 2021 capital program was reduced to $170–$190 million from an initial $200–$225 million, with drilling capital reallocated toward downhole maintenance. CRC said a significant commodity-price decline could require further cuts; reduced development could lower production, reserves and cash flow.
- CRC agreed to sell its Ventura Basin operations, classified as held for sale at quarter-end. Expected consideration is $82 million cash at closing, plus up to $20 million tied to abandonment obligations and a commodity-price-linked earn-out. Closing was expected in the second half of 2021, subject to customary conditions.
- In August 2021, CRC acquired MIRA’s working interest in certain San Joaquin Basin assets for $53 million before transaction costs. The Board also increased the share-repurchase authorization to $250 million through March 31, 2022. CRC had repurchased 1.44 million shares for $45 million through June 30.
- Commodity prices and hedges are material risks. The open derivative portfolio had a net fair-value liability of $421 million at June 30. Hedge positions can limit realized prices when markets rise, while lower prices may reduce operating cash flow.
- California directed regulators to pursue a phaseout of new well-stimulation permits by 2024 and evaluate phasing out oil extraction by 2045. CRC expected little impact from the stimulation-permit proposal, citing limited reserve reliance on stimulation and no such treatment in current long-term plans.
- CRC disclosed an unresolved indemnification claim related to offshore platform decommissioning obligations assigned by BSEE to former lessees, including former parent Occidental. CRC was evaluating the claim; the potential loss was not clearly quantified. Litigation reserves were not material, but possible losses beyond reserves could not be accurately determined.
- CRC had a full valuation allowance against deferred tax assets and recorded no income tax provision or benefit. Management said it could begin paying income taxes in early 2022 if Brent prices remain elevated for a sustained period.
Important facts for investors to verify
- Whether higher commodity prices, hedge settlements and hedge fair-value movements support sustainable cash generation and how the hedge book changes.
- Production trends, operating costs and execution of the revised $170–$190 million capital program.
- Completion and final proceeds of the Ventura sale, including earn-out and abandonment-related terms.
- Cash usage and capital allocation, including the MIRA acquisition, planned JV distributions and expanded repurchase authorization.
- Potential exposure from the offshore decommissioning indemnification claim and evolving California regulatory requirements.