California Resources Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. CRC is an independent oil and natural gas producer operating exclusively in California. CRC emerged from Chapter 11 in October 2020 and applied fresh-start accounting; accordingly, Q1 2021 “Successor” results are not directly comparable with Q1 2020 “Predecessor” results.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $363 million | $573 million |
| Operating loss | $73 million | $1.649 billion |
| Net loss attributable to common stock | $94 million; $1.13 per share | $1.796 billion; $36.43 per share |
| Cash from operating activities | $147 million | $228 million |
| Cash used in investing activities | $20 million | $12 million |
| Cash used in financing activities | $25 million | $156 million |
Revenue less costs produced an operating margin of approximately negative 20% in Q1 2021, compared with approximately negative 288% in Q1 2020; the comparison is heavily affected by the prior-year impairment and fresh-start accounting. The 2021 net derivative loss was $213 million, including $174 million of noncash fair-value changes and $39 million of net settlement payments. Before settled hedge effects, oil, natural gas and NGL sales were $432 million, versus $430 million a year earlier.
Cash was $130 million at March 31, versus $28 million at year-end. Long-term debt, net, was $588 million, consisting of $600 million principal amount of 7.125% senior unsecured notes due 2026. The company reported $415 million of revolver availability and total liquidity of $545 million at March 31; at April 30, liquidity was $490 million after the lender commitment fell to $492 million. CRC said it was in compliance with debt covenants at March 31.
Operating costs were $164 million, down 15%; G&A was $48 million, down $12 million. Operating costs were $18.33 per Boe, or $16.72 per Boe excluding the effect of production-sharing contracts. Average net production fell 18% to 99 MBoe/d. Average oil realization after settled hedges was $53.73 per barrel, compared with $55.50; NGL and gas realizations improved year over year.
Material changes and notable items
- CRC issued $600 million of senior notes in January and used proceeds to repay its second-lien term loan and EHP Notes, then reduce revolver borrowings. Interest and debt expense declined to $13 million from $87 million.
- The Q1 2020 comparison included $1.736 billion of asset impairments, versus $3 million in Q1 2021. The 2021 charge related to abandoned projects.
- Revenue declined despite higher commodity prices: production reductions and hedge settlements offset improved unhedged prices. Lower drilling and capital investment over the prior 12 months were principal causes of reduced production.
- Operating cash flow fell 36%, primarily due to hedge settlement payments versus prior-year proceeds and increased trade receivables, partly offset by lower operating costs and interest payments.
- CRC recorded a $14 million restructuring charge and had a $16 million remaining workforce-reduction liability at quarter-end.
Outlook, risks and contingencies
- CRC revised its internally funded 2021 capital program to $185–$210 million, reallocating drilling spending to downhole maintenance. Q1 capital investment was $27 million. Management expects to increase quarterly investment gradually and, at current commodity prices and planned spending, expects positive free cash flow.
- Management expects $80 million of sustainable 2021 savings in G&A and operating costs versus 2020, while the shift to maintenance work is expected to increase estimated 2021 operating costs. CRC believes it has sufficient cash sources to meet obligations for the next 12 months.
- In May 2021, the revolver borrowing base increased to $1.2 billion, while lender commitments were reduced to $492 million. The amendment also changed certain hedging requirements and increased capacity for certain restricted payments.
- In May, the board authorized a discretionary share repurchase program of up to $150 million through March 31, 2022; it does not require CRC to repurchase shares.
- Key exposures include volatile oil and gas prices, production and reserve declines, hedging settlements, financing restrictions, regulatory changes and California policy. An April 2021 California executive order directed rulemaking to end new well-stimulation permits by 2024 and evaluation of a phaseout of oil extraction by 2045. CRC said less than 1% of proved reserves require well stimulation and its long-term plans do not include it.
- CRC is evaluating an indemnification claim from former parent Occidental Petroleum concerning decommissioning obligations for two offshore platforms. Recorded reserves for lawsuits and claims were not material; potential losses beyond reserves could not be accurately determined.
Important facts for investors to verify
- Whether production and operating performance recover under the reduced 2021 capital plan, and whether the projected $80 million of cost savings are realized.
- How commodity prices, hedge positions and settlements affect realized prices, cash flow and liquidity; the derivative loss significantly affected reported revenue and results.
- Availability under the revolver after the commitment reduction, compliance with covenants, and the company’s ability to fund capital needs and debt obligations.
- Potential effects of California and federal policy changes, and the outcome and possible exposure related to the offshore decommissioning claim.
- Whether the discretionary repurchase program proceeds and how any repurchases affect cash available for investment and balance-sheet needs.