California Resources Corporation — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing; it does not provide a standalone Q4 income statement. Unless noted, financial comparisons are FY2022 versus FY2021. CRC cautions that periods before and after its October 2020 bankruptcy emergence are not directly comparable because of fresh start accounting.
Business context
CRC is an independent oil and gas producer operating exclusively in California. It reported average net production of 91 MBoe/d, approximately 60% oil, and 417 MMBoe of proved reserves at year-end. The company is also developing Carbon TerraVault, an early-stage carbon capture and storage business.
Financial and operating performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Total operating revenues | $2.707 billion | $1.889 billion |
| Oil, natural gas and NGL sales, before settled hedge effects | $2.643 billion | $2.048 billion |
| Operating income | $812 million | $293 million |
| Net income | $524 million | $625 million |
| Cash provided by operating activities | $690 million | $660 million |
| Capital investments | $379 million | $194 million |
- Oil, gas and NGL sales excluding settled hedges increased 29%, primarily from higher realized prices; lower production partly offset the increase. Average daily net production declined to 91 MBoe/d from 100 MBoe/d, reflecting divestitures, natural decline and other factors.
- Average realized oil price before derivative settlements rose to $98.26/Bbl from $70.43/Bbl; natural gas rose to $7.68/Mcf from $4.22/Mcf; and NGLs rose to $64.33/Bbl from $53.62/Bbl.
- Commodity derivatives produced a $551 million net loss, including $738 million of net settlement payments and a $187 million non-cash gain. Settlements reduced realized oil price to $61.80/Bbl from $98.26/Bbl before derivatives.
- Operating costs rose to $785 million from $705 million, or $23.75/Boe from $19.39/Boe. Higher energy costs, inflation and maintenance contributed. Operating income also benefited from a $59 million divestiture gain; the comparable 2021 gain was $124 million.
- Net income fell despite higher operating income, primarily reflecting the swing from a $396 million income tax benefit in 2021 to a $237 million tax provision in 2022. FY2022’s effective tax rate was 31%; the filing says a $35 million valuation allowance related to Lost Hills was expected to be released in Q1 2023 after an amended tax treatment.
Liquidity, debt and capital returns
- Year-end cash was $307 million. Revolver availability was $458 million after $144 million of letters of credit; reported liquidity was $765 million. CRC had no revolver borrowings and reported compliance with debt covenants.
- Long-term debt principal was $600 million: 7.125% Senior Notes due February 2026. The $602 million Revolving Credit Facility matures in April 2024. CRC said it was evaluating amendment, replacement or refinancing options for both facilities.
- Operating cash flow exceeded investing and financing cash outflows: $317 million was used in investing and $371 million in financing. CRC spent $313 million on share repurchases and paid $59 million in dividends during 2022.
- The dividend policy was increased in November 2022 to an expected $1.13 per share annually, subject to quarterly board approval. After year-end, the board increased the repurchase authorization to $1.1 billion and extended it through June 30, 2024; approximately $640 million remained under authorization after that increase.
Outlook, commentary and material risks
- CRC guided to 2023 capital spending of $200–$245 million: $165–$195 million for oil and gas development, $5–$15 million for carbon management and $30–$35 million for corporate and other activities. It planned an average of 1.5 rigs in 2023, versus approximately four in 2022, concentrating drilling on projects with permits in hand and increasing workovers.
- Permitting is a key constraint. A January 2023 appellate order reinstated a suspension on Kern County’s reliance on its environmental review pending further proceedings. CRC said it did not plan additional Kern County drilling until permitting resumed, potentially later in 2024, with no assurance of timing or approval. Approximately 71% of proved undeveloped reserves, or 9% of total proved reserves, relate to Kern County wells requiring permits beginning in 2024.
- California regulatory changes and court challenges reduced proved reserves by 34 MMBoe in 2022. CRC also reported 16 MMBoe of net negative performance-related revisions. Year-end proved reserves were 417 MMBoe, down from 480 MMBoe in 2021; the filing attributes the change to production, regulatory and performance revisions, partly offset by extensions and discoveries.
- Senate Bill 1137’s well setbacks were stayed after a referendum qualified for the November 2024 ballot, but CRC described continuing legal and permitting uncertainty. A separate dispute over injection-well pressure gradients in Wilmington could reduce production and reserves if regulators require a material reduction.
- Carbon TerraVault’s CCS projects remain at an early stage and depend on permits, project approvals, financing, counterparties and tax incentives. The Brookfield JV is 51% owned by CRC, with shared decision-making; Brookfield’s initial $500 million commitment applies to jointly approved projects, and later installments are milestone-dependent. CRC’s two executed carbon management service agreements remain subject to definitive documents and final investment decisions.
- Other material exposures include commodity-price volatility, hedging that limits upside, inflation and California concentration. CRC reported 60% of 2022 production was oil and three refineries collectively accounted for 52% of sales before hedging. The company also disclosed an unresolved BSEE decommissioning order involving former parent Occidental; reasonably possible losses beyond recorded reserves could not be accurately determined.
- After year-end, CRC announced that CFO Francisco Leon was expected to become CEO at the 2023 annual meeting; the company was searching for a successor CFO. Auditors issued unqualified opinions on the financial statements and internal controls; management also concluded internal controls were effective.
Important facts for investors to verify
- Track Kern County permitting and the SB 1137 referendum and assess their effect on drilling plans, reserve development and production decline.
- Review 2023 production, realized prices, hedge settlements and operating-cost trends against the company’s capital and rig plans.
- Check revolver availability, borrowing-base redeterminations, covenant headroom and progress refinancing the 2024 revolver and 2026 notes.
- Verify whether Carbon TerraVault obtains permits, reaches final investment decisions, meets Brookfield funding milestones and secures binding emitter agreements.
- Assess the sustainability of dividends and repurchases against cash generation, debt restrictions and capital requirements.
- Monitor the Wilmington injection-pressure discussions and BSEE decommissioning appeal, including any change in exposure or production implications.