California Resources Corporation — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. CRC is a California-only oil and natural gas exploration and production company. It became independent of Occidental Petroleum on November 30, 2014. Consequently, Q1 2015 reflects standalone results, while Q1 2014 reflects the California business as part of Occidental; the periods are not fully comparable.
Financial and operating results
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Total revenue | $577 million | $1.121 billion |
| Net income (loss) | ($100) million | $223 million |
| Diluted earnings (loss) per share | ($0.26) | $0.57 |
| Operating cash flow | $115 million | $740 million |
| Capital investments | $133 million | $475 million |
| Adjusted EBITDAX | $198 million | $705 million |
- Revenue fell 49%. Management attributed the decline primarily to lower commodity prices, partly offset by higher oil volumes. Realized oil prices fell 55% to $46.44/barrel; NGL prices fell 64% to $21.55/barrel; and gas prices fell 41% to $2.84/Mcf.
- Average production increased 8% to 166,000 BOE/day, including oil production up 14% to 108,000 barrels/day. Natural gas production was flat at 242 MMcf/day; NGL production declined by 1,000 barrels/day.
- Production costs declined 5% to $242 million, or $16.20/BOE versus $18.43/BOE. DD&A declined 12% to $253 million, partly reflecting fourth-quarter 2014 asset impairments and a lower DD&A rate. Interest and debt expense was $79 million, versus none in Q1 2014, following CRC’s separation financing.
- Net loss was approximately 17% of revenue, compared with net income of approximately 20% of revenue in Q1 2014; these calculated ratios should be considered in light of the differing reporting bases.
- Cash and equivalents were $28 million at March 31, 2015, versus $14 million at year-end 2014. Current assets were $654 million and current liabilities $735 million. Net cash used in investing was $313 million; net financing cash provided was $212 million, including net revolving-credit borrowings.
- Total debt was $6.57 billion ($6.479 billion long-term debt, net, plus $25 million current maturities as presented in the balance sheet). The revolver had $570 million outstanding, with approximately $708 million of additional borrowing capacity after taking account of cash. Equity was $2.516 billion.
Changes, outlook, and risks
- Management cited lower realized prices and higher interest expense as key pressures, partly offset by increased oil production and lower production, exploration, and depreciation costs. Operating cash flow decreased $625 million year over year.
- CRC reduced its 2015 capital investment budget to $440 million from $2.1 billion in 2014, prioritizing mature steamfloods, waterfloods, workovers, and other higher-return, lower-decline oil projects. Management said it intended to align investment with expected operating cash flow and limit production growth in the prevailing price environment.
- Management expected capital needs, dividends, and potential acquisitions for at least the next 12 months to be funded by operating cash flow and borrowings as needed. It was exploring deleveraging options, including asset monetizations and joint ventures; no completed transaction or specific outcome was provided.
- Hedges included $50/Barrel Brent puts covering almost all expected oil production in the first half of 2015, additional third-quarter collars and puts, and April 2015 fourth-quarter puts with a $60 floor and calls with a weighted-average $73 ceiling. Hedges limit downside exposure but also cap prices on covered volumes.
- The amended credit agreement includes a temporary covenant period, leverage and interest-coverage tests, and a minimum asset-coverage ratio. A covenant breach could permit acceleration of facility debt and trigger a default under the notes. The filing gives covenant thresholds but does not clearly state covenant headroom in this text.
- CRC cited commodity-price volatility, high leverage, dependence on operating cash flow to fund capital spending, California operating concentration, permitting and regulatory constraints, water-related restrictions, operational and market-access risks, and potential environmental, climate, and air-quality issues. Ordinary-course litigation and claims were described as not material; CRC also gave certain spin-off-related indemnities, including to Occidental.
Important facts for investors to verify
- Whether production, realized prices, and operating cash flow support the $440 million 2015 capital plan under prevailing commodity conditions.
- Revolver availability, covenant compliance and headroom, and any developments in the company’s stated deleveraging alternatives.
- Actual hedge volumes, settlement effects, and the extent to which hedges protect cash flow while limiting upside.
- The comparability of Q1 2014 results, which include Occidental-era related-party sales and allocated costs, with CRC’s standalone Q1 2015 results.
- The balance-sheet presentation reports $25 million of current debt maturities, while the debt note describes term-loan amortization beginning March 31, 2016; verify the classification and timing in the underlying filing.