California Resources Corporation — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; filed February 26, 2020. CRC is a California-only oil and natural gas producer. The filing also reports fourth-quarter 2019 results.
Business context and key metrics
CRC reported average net production of 128 MBoe/d, down from 132 MBoe/d in 2018. Its portfolio included approximately 2.164 million net mineral acres and 644 MMBoe of proved reserves at year-end. About 75% of proved reserves were oil; approximately 73% were in conventional reservoirs.
Financial performance and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Total revenue | $2.634 billion | $3.064 billion |
| Oil and gas sales, before settled hedge effects | $2.270 billion | $2.590 billion |
| Operating income | $429 million | $769 million |
| Net income | $99 million | $429 million |
| Net income (loss) attributable to common stock | $(28) million | $328 million |
| Operating cash flow | $676 million | $461 million |
| Capital investments | $455 million | $690 million |
| Adjusted EBITDAX (non-GAAP) | $1.142 billion | $1.117 billion |
Revenue declined about 14% and operating income about 44%. Lower realized prices and production reduced unhedged oil and gas sales; settled hedge proceeds improved by $339 million year over year, to $111 million received in 2019 from $228 million paid in 2018. Production costs were $895 million, or $19.16/Boe, versus $912 million and $18.88/Boe in 2018. Interest and debt expense was $383 million. The common-stock loss reflects $127 million of income attributable to noncontrolling interests. A $126 million gain on early debt extinguishment and $41 million of organizational-restructuring costs were notable items.
At year-end, cash was $17 million, including $3 million restricted; the company reported $14 million unrestricted cash and $317 million of available revolver capacity before its $150 million minimum-liquidity requirement. Face-value debt was $4.977 billion. Long-term debt on the balance sheet was $4.877 billion, with $100 million classified as current. The company reported compliance with debt covenants at December 31, 2019.
Fourth-quarter 2019 revenue was $610 million, operating income $102 million, and net loss attributable to common stock $67 million, or $(1.36) per share. In Q4 2018, the corresponding figures were $1.078 billion, $465 million, and $346 million of common-stock income, or $7.00 per share.
Material changes versus the prior comparable period
- Average production fell about 3%; annual oil production was 80 MBbl/d versus 82 MBbl/d. 2019 oil realized price including hedges was $68.65/Bbl, compared with $62.60/Bbl in 2018; NGL realization fell to $31.71/Bbl from $43.67/Bbl.
- Proved reserves declined 68 MMBoe, from 712 MMBoe to 644 MMBoe. Negative price revisions were 20 MMBoe, removal of PUDs 43 MMBoe, and production 47 MMBoe; extensions and discoveries added 33 MMBoe and performance revisions added 16 MMBoe. Organic reserve replacement was 111%.
- Standardized measure of discounted future net cash flows fell to $5.231 billion from $7.275 billion; PV-10 was $6.849 billion at year-end. These are reserve valuation measures, not estimates of fair value.
- Operating cash flow rose 47%, while capital investments declined from $690 million to $455 million. CRC received $164 million net cash proceeds from the Lost Hills divestiture and used them to repay its revolver.
- Long-term debt declined from $5.251 billion to $4.877 billion on the balance sheet, including repurchases of $252 million face value of Second Lien Notes for $156 million cash.
Outlook, risks and unusual items
- Management set a 2020 internally funded capital range of $100 million–$300 million; existing joint ventures were expected to add approximately $160 million–$200 million, for a total program of $260 million–$500 million. Spending was to be adjusted for commodity prices, with emphasis on short-payback workovers and maintaining production.
- Management stated that operating cash flow and revolver availability should be sufficient for obligations and working capital over the next 12 months. However, substantial debt maturities—particularly in 2021 and 2022—make refinancing and deleveraging central risks. Approximately $2 billion was due in 2021, with additional material 2022 obligations.
- On February 20, 2020, CRC launched debt exchange offers involving a proposed royalty-interest entity and/or new first-lien financing and warrants. If fully subscribed, management said the transaction could reduce net debt by almost $1 billion; it was expected to close March 20, 2020 and was not completed as of the filing date.
- Commodity prices, high leverage, covenant and borrowing-base changes, California permitting and environmental rules, water and injection restrictions, climate policy, and concentration of operations in California are significant risks. A February 2020 court ruling invalidated part of Kern County’s environmental impact report and could delay permits; CRC said it did not then expect a material impact on plans or operations.
- CRC expected to cash settle approximately $20 million in April 2020 under an NGL delivery commitment. Hedging protected only part of production and included sold puts that can require payments if prices fall below specified levels.
- The company recorded $41 million of restructuring charges in 2019 and increased asset retirement obligations by $84 million, primarily reflecting revised estimates associated with idle-well regulations. It reported no proved-property impairment charges in 2019.
- CRC paid no common dividends and did not anticipate paying them in the foreseeable future. The independent auditor gave an unqualified opinion on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Important facts for investors to verify
- Whether the announced exchange offers closed, their final participation and terms, and the resulting debt, collateral, dilution and royalty economics.
- Available liquidity after the $150 million minimum-liquidity covenant, borrowing-base redeterminations, and progress toward refinancing 2021–2022 maturities.
- Actual 2020 production, commodity realizations, hedge settlements and capital spending versus management’s ranges.
- Reserve revisions, PUD development and reserve economics under actual prices; distinguish SEC reserve values and PV-10 from asset fair value.
- Whether California regulatory actions, permitting delays, idle-well obligations or NGL delivery shortfalls materially affect costs, operations or cash flow.