California Resources Corporation — Q3 2021 Form 10-Q
Business context and reporting period. CRC is an independent oil and natural gas producer operating exclusively in California. This unaudited filing covers the quarter and nine months ended September 30, 2021. CRC emerged from Chapter 11 in October 2020 and adopted fresh-start accounting; accordingly, 2021 Successor results and 2020 Predecessor results may not be directly comparable.
Financial and operating performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total operating revenue | $588 million | $409 million | $1,255 million | $1,258 million |
| Operating income (loss) | $122 million | $(13) million | $(39) million | $(1,777) million |
| Net income (loss) | $107 million | $(7) million | $(89) million | $(1,999) million |
| Net income (loss) attributable to common stock | $103 million | $(29) million | $(102) million | $(2,096) million |
| Cash provided by operating activities | $182 million | $48 million | $456 million | $141 million |
| Capital investments | $51 million | $4 million | $128 million | $37 million |
- Q3 diluted EPS was $1.25; nine-month diluted loss per share was $1.23. The prior-year Q3 EPS comparison is affected by a $138 million modification of a noncontrolling interest, and fresh-start accounting further limits comparability.
- Nine-month revenue included a $603 million net loss on commodity derivatives, versus a $75 million gain a year earlier. The 2021 loss included $220 million of net settlement payments and $383 million of non-cash fair-value losses.
- Average net production was 102 thousand Boe per day in Q3, down 4% year over year; the nine-month average was 101 thousand Boe per day, down 11%. CRC attributed lower volumes mainly to limited 2020 drilling and natural declines, partly offset by 2021 drilling and the MIRA interest acquisition.
- Cash and cash equivalents were $189 million at September 30, 2021, compared with $28 million at year-end 2020. Revolver availability was $359 million after $133 million of letters of credit, for reported total liquidity of $548 million.
- Debt was $600 million principal, or $589 million net of issuance costs, consisting of 7.125% senior notes due 2026. The revolver had no borrowings at quarter-end; CRC reported covenant compliance. The borrowing base was reaffirmed at $1.2 billion in November 2021.
- Derivative liabilities had a net fair value of $418 million at quarter-end. Q3 oil derivative settlements reduced realized oil prices by $17.47 per barrel; nine-month settlements reduced them by $13.19 per barrel.
- No income tax provision or benefit was recorded. CRC maintained a full valuation allowance on net deferred tax assets.
Changes, outlook, and notable items
- Higher commodity prices drove higher oil, gas, and NGL sales, but derivative losses and lower production weighed on nine-month reported revenue. Brent averaged $73.23 per barrel in Q3 2021 versus $43.37 a year earlier.
- CRC increased its 2021 capital program outlook to $180–$200 million, from a prior $170–$190 million estimate, citing drilling results and stronger commodity prices; it added a rig in Q4. Management said the program would remain responsive to market conditions and focused on production and liquidity.
- Management expected positive free cash flow at then-current commodity prices and said available sources of cash were sufficient for obligations over the next 12 months. It expected to begin paying income taxes in 2022 if Brent prices remained at current levels for a sustained period.
- After quarter-end, the majority of the Ventura Basin sale closings were completed. CRC received $62 million in cash before purchase-price adjustments, and the buyer assumed approximately $100 million of related asset-retirement obligations. The broader agreement provides for up to $102 million of cash consideration before adjustments, plus potential commodity-linked earn-outs; further closings were expected.
- CRC acquired MIRA’s remaining working interest in certain San Joaquin Basin assets for $53 million in August. BSP’s preferred interest was redeemed in September after $50 million of distributions during 2021.
- The board declared a $0.17-per-share quarterly dividend after quarter-end, with a stated annual policy target of $0.68 per share, subject to quarterly board approval. CRC had repurchased 2.6 million shares for $84 million through September 30; the $250 million authorization was extended through June 30, 2022.
- Notable items included a $25 million impairment of a Bakersfield office building, a $82 million reduction in the postretirement medical obligation from a plan change (recognized in other comprehensive income), and $15 million of severance costs during the first nine months.
- California’s proposed well-stimulation permit restrictions and draft setback rules are regulatory risks; CRC said it expected little impact on development plans. The state has also directed evaluation of a phaseout of oil extraction by 2045. CRC is developing carbon capture and sequestration and solar initiatives, which remain early-stage.
- CRC accepted an indemnification claim from former parent Occidental related to a BSEE decommissioning order for two offshore platforms and said it would challenge the order. Litigation reserves were not material; the filing says possible losses beyond reserves could not be accurately determined.
Investor verification priorities
- Assess the scale and cash consequences of derivative positions, including how hedges affect realized prices and liquidity if commodity prices move.
- Check production, operating-cost, and drilling trends against the capital program and management’s positive-free-cash-flow outlook.
- Confirm final Ventura sale proceeds, remaining closings, earn-out terms, and the buyer’s performance of abandonment obligations.
- Monitor California regulatory developments and the BSEE decommissioning dispute, including any change in exposure or estimated loss.
- Evaluate planned dividends and buybacks against available liquidity, debt terms, and commodity-price volatility.