California Resources Corporation — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Filed June 25, 2020. CRC is an independent oil and natural gas exploration and production company operating exclusively in California. The filing was delayed amid COVID-19 disruptions to office and finance operations.
Financial results and position
| Metric | Q1 2020 | Q1 2019 / prior year-end |
|---|---|---|
| Total revenue | $573 million | $690 million |
| Oil and natural gas sales | $430 million | $601 million |
| Operating loss | $1.649 billion | Operating income of $57 million |
| Net loss attributable to common stock | $1.796 billion; $36.43 per share | $67 million; $1.38 per share |
| Adjusted net loss (non-GAAP) | $8 million | Adjusted net income of $31 million |
| Adjusted EBITDAX (non-GAAP) | $251 million | $301 million |
| Cash from operations | $228 million | $158 million |
| Capital investment | $30 million | $131 million |
| Cash / total debt | $77 million / $4.860 billion | $17 million / $4.977 billion at December 31, 2019 |
| Total equity | Deficit of $2.095 billion | Deficit of $296 million at December 31, 2019 |
Cash at March 31 included $10 million of restricted cash; reported unrestricted cash was $67 million. Q1 operating cash flow included $63 million from monetizing crude oil hedges and benefited from a $113 million working-capital change. Cash used in investing activities was $12 million; cash used in financing activities was $156 million. The filing reports an asset impairment charge of $1.736 billion, primarily related to proved oil and gas properties, and a $5 million gain on early debt extinguishment. Income tax expense or benefit was zero.
Changes versus the comparable period
- Revenue declined 17%; oil and natural gas sales fell 28%, reflecting lower realized prices and production. Net production decreased 9% to 121 MBoe/d from 133 MBoe/d.
- Average realized oil price including settled hedges was $55.50/Bbl versus $65.26/Bbl; realized NGL price was $29.28/Bbl versus $42.52/Bbl. Realized natural gas price including settled hedges was $2.35/Mcf versus $3.38/Mcf.
- Production costs declined 18% to $192 million, and G&A decreased to $60 million from $83 million. Other revenue fell to $64 million from $178 million, mainly due to lower gas trading activity and lower electricity sales during planned power-plant maintenance.
- Operating cash flow increased to $228 million from $158 million, but adjusted EBITDAX decreased to $251 million from $301 million. Capital investment fell to $30 million from $131 million.
- Net property, plant and equipment declined to $4.538 billion from $6.352 billion, largely due to impairments and depreciation. The company’s common equity deficit widened to $2.183 billion from $389 million.
Liquidity, debt, outlook and risks
- Going concern: Management concluded substantial doubt exists about CRC’s ability to continue as a going concern. At March 31, reported available liquidity was $395 million, comprising $67 million unrestricted cash and $328 million of revolver capacity before a $150 million minimum-liquidity requirement. Management stated expected operating cash flow and available credit would not meet commitments over the next 12 months.
- Subsequent liquidity and defaults: By May 31, reported liquidity had fallen to $165 million—$148 million unrestricted cash and $17 million available borrowing capacity, before the minimum-liquidity requirement. Forbearance agreements barred further revolver draws during the forbearance period. CRC missed approximately $51 million of interest due May 29 on its 2016 and 2017 credit agreements, triggering defaults and a cross-default under the revolver. Forbearance was extended through June 30, 2020, subject to conditions, including a minimum cash-balance covenant. CRC also missed a $72.3 million Second Lien Notes interest payment due June 15; the 30-day grace period was scheduled to expire July 15. A missed $4.3 million 2024 Notes payment was made June 12.
- Restructuring: CRC was in discussions with creditors and other stakeholders. It warned that restructuring might not be agreed or completed and that common stockholders and certain other securityholders could receive no recovery. An exchange offer that could have reduced net debt by about $1 billion if fully subscribed was terminated March 16.
- Debt: Total debt was approximately $4.9 billion, with a substantial portion maturing in 2021. At March 31, debt fair value was estimated at $1.0 billion versus $4.9 billion carrying value. The revolver commitment was reduced from $1.0 billion to $900 million effective April 30; its borrowing base was reduced from $2.3 billion to $1.2 billion effective May 18.
- Operating plan: CRC reduced its 2020 capital program to facility-integrity and safety needs. After $30 million invested in Q1, it expected to invest up to an additional $20 million through year-end, suspending internally funded drilling and capital workovers for Q2. Management anticipated moderate production decline through the rest of the year at the reduced investment level. Alpine suspended its JV funding obligation after Brent forward prices triggered a contractual threshold.
- Cost and production measures: CRC monetized most crude oil hedges for April 2020 forward for approximately $63 million, leaving it with no material company-held commodity hedges to benefit from after Q1 (apart from insignificant JV positions). It shut in marginal wells; May net production was curtailed by approximately 6 MBoe/d. Management reported an operating-cost run rate below $45 million per month versus a Q1 average of $64 million.
- Market and other risks: COVID-19, the oil-demand collapse, OPEC+/Russia supply actions, volatile commodity prices, lower production and limited liquidity could further impair cash flows, reserves and asset values. A $20 million payment under an expired NGL pipeline delivery contract was made in April. Legal and other claims were described as ordinary-course matters with reserves and reasonably possible excess losses considered immaterial.
Most important facts for investors to verify
- Current status and outcome of restructuring negotiations, forbearance, missed interest payments, grace periods and any cross-defaults or creditor remedies.
- Actual unrestricted cash, usable borrowing capacity, minimum-liquidity restrictions and ability to fund commitments after the May 31 liquidity update.
- Debt maturities, collateral priorities, covenant compliance and potential recovery or dilution for common stockholders under any restructuring.
- Realized commodity prices, production trends, shut-in volumes, hedge exposure and progress against the sharply reduced capital and cost plans.
- Assumptions underlying the $1.736 billion impairment and the resulting carrying values and reserves; the filing states that impairment valuation used significant Level 3 estimates.