California Resources Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. CRC is a California-focused oil and natural gas producer with a developing carbon management business. Financial amounts below are in millions of dollars unless otherwise stated.
Key financial and operating metrics
| Metric | Q1 2024 | Comparable period |
|---|---|---|
| Total operating revenues | $454 | $1,024 in Q1 2023 |
| Operating income (loss) | $(4) | $393 in Q1 2023 |
| Net income (loss) | $(10); $(0.14) per diluted share | $301; $4.09 per diluted share in Q1 2023 |
| Operating cash flow | $87 | $310 in Q1 2023 |
| Capital investments | $54 | $47 in Q1 2023 |
| Cash and cash equivalents | $403 at March 31, 2024 | $496 at December 31, 2023 |
| Long-term debt, net | $541 at March 31, 2024 | $540 at December 31, 2023 |
| Net production | 76 MBoe/d | 89 MBoe/d in Q1 2023; 83 MBoe/d in Q4 2023 |
Operating and net margins, calculated from reported figures, were approximately -0.9% and -2.2%, respectively; Q1 2023 margins were approximately 38.4% and 29.4%. Oil, natural gas and NGL sales fell to $429 from $715 year over year, including natural gas sales of $32 versus $263. CRC reported a $71 commodity-derivative loss versus a $42 gain in Q1 2023. Lower California natural gas prices and lower production were key factors in the decline.
Liquidity totaled $880: $403 cash plus $477 available under the $630 revolving facility after $153 of letters of credit. Current assets were $839 versus current liabilities of $594. Operating cash flow less capital investments was $33; financing cash outflows included $58 of share repurchases and $21 of dividends. Cash declined by $93 during the quarter.
Material changes and business developments
- Operating cash flow decreased $223 year over year, primarily reflecting sharply lower natural gas prices and lower gas and total production. Q1 2024 realized natural gas price was $3.90/Mcf, compared with $21.56/Mcf in Q1 2023.
- Net production declined 13 MBoe/d year over year, primarily due to scheduled plant downtime, natural decline and a prior divestiture. Compared with Q4 2023, production decreased 7 MBoe/d, also reflecting scheduled downtime.
- CRC recorded $13 of Aera merger transaction and integration costs in operating expenses and $8 of financing and credit-amendment fees. The $8 was recorded in other current assets.
- CRC repurchased 1.07 million shares for $58 during Q1 and paid a $0.31-per-share dividend. The board declared another $0.31-per-share dividend on May 7, payable June 14, 2024.
- CRC sold a Huntington Beach property for $10 and recorded a $6 gain. Remaining Ventura Basin assets held for sale await State Lands Commission approval, which the company expects could occur in 2024.
Outlook, risks and contingencies
- Aera merger: The all-stock transaction provides for 21,170,357 CRC shares, subject to adjustments. CRC expected closing around mid-2024, subject to stockholder and regulatory approvals; the HSR waiting period expired March 25. Existing CRC holders were expected to own about 77% of the combined company and Aera owners about 23%. Aera’s $950 of debt becomes due on a change of control. CRC planned to use cash and revolver borrowings, pursue capital-markets refinancing, and use a committed $500 unsecured 364-day bridge facility only as needed. Post-close dividend increases were expected subject to board approval.
- Capital program: 2024 capital spending guidance is $200–$240, including $165–$185 for oil and gas development, $20–$25 for carbon management, and $15–$30 for corporate and other. CRC expects a one-rig program under current permitting conditions and stated that it expects operating cash flow at current commodity prices to support the program and preserve financial flexibility.
- Permitting and carbon management: California well-permit delays persist, with few new-drill permits issued statewide. A court ruling requires further revisions to Kern County’s environmental review, constraining CRC’s drilling plans. The CTV I CCS project’s environmental review was delayed; county consideration was recommended for August 2024, with a subsequent Board of Supervisors meeting expected around September or October. Proposed LCFS changes may affect CCS project credit eligibility.
- Debt and commodity exposure: CRC had $545 principal amount of 7.125% senior notes due February 2026 and no variable-rate debt outstanding. Revolver availability was $477, and CRC reported covenant compliance. CRC had a $49 net liability on commodity derivatives at quarter-end. Its oil hedging positions include sold calls, purchased puts and swaps, which may limit upside or create settlement payments depending on prices.
- Contingencies: In a dispute involving decommissioning obligations for two offshore platforms, CRC estimated its share of ongoing maintenance costs at approximately $5–$8 annually; abandonment costs had not been determined. Recorded reserves for lawsuits and claims were not material, but reasonably possible losses beyond reserves could not be accurately determined.
- Other principal risks include commodity-price volatility, production declines, regulatory and environmental requirements, merger financing and integration, and the execution and financing of CCS projects. Management said it believes available liquidity is sufficient for obligations over the next 12 months.
Important facts for investors to verify
- Merger closing conditions, final financing mix, treatment and refinancing of Aera’s $950 debt, and resulting leverage and share dilution.
- Whether the stated 2024 capital program and one-rig plan remain achievable amid California permitting delays and scheduled plant maintenance.
- Production, realized prices and operating cash flow trends, particularly the effect of California natural gas prices and commodity derivatives.
- Availability and terms of the amended revolver and bridge financing, and refinancing plans for CRC’s 2026 senior notes.
- Progress, permitting, funding and potential LCFS-credit eligibility for Carbon TerraVault projects, as well as the Signal Hill platform dispute and eventual abandonment exposure.