California Resources Corporation — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. CRC is an independent oil and natural gas producer operating exclusively in California. It averaged 111 MBoe/d of production, 62% oil, and reported 442 MMBoe of proved reserves at year-end.
Comparability: CRC emerged from Chapter 11 on October 27, 2020 and applied fresh start accounting effective October 31. The Successor and Predecessor periods are not directly comparable; selected 2020 combined figures below are management-presented for comparison, not GAAP measures.
Financial and operating performance
| Metric | 2020 | 2019 |
|---|---|---|
| Total revenue | $1.559 billion | $2.634 billion |
| Oil and natural gas sales, before settled hedge proceeds | $1.329 billion | $2.270 billion |
| Net cash from operating activities | $106 million | $676 million |
| Capital investments | $47 million | $455 million |
| Average production | 111 MBoe/d | 128 MBoe/d |
| Oil realized price, including hedges | $43.53/Bbl | $68.65/Bbl |
| Operating costs per Boe | $15.45 | $19.16 |
| Proved reserves | 442 MMBoe | 644 MMBoe |
| Standardized measure of discounted future net cash flows | $1.932 billion | $5.231 billion |
Reported combined 2020 net income was $1.871 billion, including a $4.057 billion net reorganization gain, principally from cancelling pre-emergence debt. CRC reported a $1.736 billion asset impairment and $217 million of interest and debt expense. Adjusted net loss, a non-GAAP measure, was $257 million, compared with adjusted net income of $70 million in 2019. The filing does not provide a single directly comparable GAAP full-year 2020 result because of the fresh-start reporting break.
Operating cash flow fell 84% year over year, reflecting lower prices and production and $113 million of bankruptcy-related professional fees, partly offset by cost reductions. Oil and gas sales declined 41%, driven by lower realized prices and lower volumes. Per-Boe operating costs fell, while lower activity and reduced maintenance contributed to negative reserve performance revisions.
Financial position, debt and liquidity
- At December 31, 2020, cash was $28 million; current assets were $329 million and current liabilities were $473 million.
- Year-end debt was $599 million principal ($597 million net of issuance costs): $99 million revolving borrowings, $200 million second-lien term loan and $300 million EHP Notes. Revolver availability was $307 million after $134 million of letters of credit; reported liquidity was $335 million.
- In January 2021, CRC issued $600 million of 7.125% senior notes due 2026. Proceeds repaid the second-lien loan and EHP Notes and reduced revolver borrowings. Pro forma year-end debt was approximately $609 million and liquidity approximately $425 million; the company reported $9 million of revolver borrowings pro forma.
- CRC said it was in compliance with debt covenants at year-end and expected to have sufficient cash sources for the next 12 months. The revolver borrowing base was $1.2 billion, but lender commitments were expected to decline from $540 million to $492 million in April 2021.
Material changes, outlook and risks
- CRC filed for Chapter 11 in July 2020 amid the pandemic-driven demand collapse and oil-price decline, and emerged in October with new ownership, a new board and substantially restructured debt. Fresh-start valuation set enterprise value at $2.5 billion.
- Management initiated a strategic review, is repositioning CRC as a low-cost operator and intends to pursue asset divestitures to concentrate on core fields. The former CEO departed at year-end; the board was searching for a permanent CEO.
- The 2021 capital program was projected at $200–$225 million, including about $40 million of deferred mechanical-integrity and midstream work. At then-current commodity prices, CRC planned to reinvest about 50% of anticipated operating cash flow. Management expected total production to decline moderately through 2021, with oil production mostly flat from beginning to end of year.
- Management cited cost actions and lower activity: second-half 2020 operating expense run rate was about $50 million per month versus $65 million in first-quarter 2020. Workforce and management changes were expected to reduce annual compensation expense by about $15 million and G&A by about $50 million from 2020 levels.
- Reserve estimates fell by 202 MMBoe in 2020. Negative price revisions were 72 MMBoe, negative performance revisions 61 MMBoe, and 52 MMBoe of proved undeveloped reserves were removed for not meeting investment thresholds under lower SEC prices. Reduced investment, injection curtailments and maintenance constraints contributed to underperformance.
- Commodity prices, pandemic-related demand uncertainty, California permitting and climate policy are major risks. Potential setbacks, restrictions on well stimulation or injection, and new state or local rules could delay or constrain operations. Litigation challenges California and Ventura County measures; outcomes are uncertain. CRC also identified water availability, wildfire and other physical risks, hedging exposure, borrowing-base changes and asset-sale execution as material concerns.
- CRC disclosed an unresolved indemnification claim from Occidental related to offshore platform decommissioning obligations; the company was evaluating the claim, and potential losses beyond recorded reserves could not be accurately determined. Recorded reserves for lawsuits and claims were not material.
Most important facts for investors to verify
- Whether the post-emergence cost structure and 2021 capital plan generate the forecast positive free cash flow, and whether production follows management’s outlook.
- Actual revolver commitments and availability after the April 2021 reduction, borrowing-base redeterminations, covenant headroom and the effect of commodity prices.
- Progress, pricing and proceeds from planned asset divestitures and the board’s strategic review.
- Reserve replacement and operating performance after the sharp 2020 reserve decline; assess the price assumptions underlying reserve values.
- Developments in California and local permitting, Ventura County litigation, and the Occidental decommissioning claim.
- Potential dilution from warrants and the 9.3 million-share 2021 incentive-plan reserve, as well as concentrated ownership; four shareholders collectively held approximately 72% of common stock based on the filing’s cited public information.