California Resources Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. CRC is an independent oil and natural gas producer operating exclusively in California, with early-stage carbon capture and storage (CCS) and other carbon-management initiatives.
Financial and operating results
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Operating revenues | $153 million | $363 million |
| Oil, natural gas and NGL sales, before derivative effects | $628 million | $432 million |
| Net loss attributable to common stock | $175 million | $94 million |
| Basic and diluted loss per share | $2.23 | $1.13 |
| Operating cash flow | $160 million | $147 million |
| Capital investments | $99 million | $27 million |
| Net cash used in investing activities | $53 million | $20 million |
| Cash at period end | $328 million | $130 million |
- The reported revenue decline primarily reflects a $562 million net loss on commodity derivatives, versus a $213 million loss in Q1 2021. Of the Q1 2022 derivative loss, $381 million was non-cash fair-value loss and $181 million was net cash paid on settled contracts. These derivative effects materially offset higher commodity sales.
- Oil, natural gas and NGL sales before derivative effects rose $196 million year over year, mainly from higher realized prices, partly offset by lower production. Including cash derivative settlements, sales increased 14% year over year.
- Operating loss was $189 million, compared with $73 million in Q1 2021. CRC recorded a $54 million gain on asset divestitures; the net loss also included a $26 million income tax benefit.
- Average net production was 88 MBoe/d, down 11% year over year. Management cited planned gas-processing maintenance, natural decline and asset sales, partly offset by drilling results. Oil was 56 MBbl/d, NGLs 9 MBbl/d and natural gas 141 MMcf/d.
- Operating costs were $182 million, or $22.87/Boe, versus $164 million, or $18.33/Boe, a year earlier. Higher purchased natural gas and electricity prices and lower production contributed to higher unit costs.
Balance sheet, liquidity and capital returns
- At March 31, 2022, total assets were $4.032 billion, current assets $834 million, current liabilities $1.205 billion and stockholders’ equity $1.433 billion.
- Long-term debt, net, was $590 million, consisting of $600 million principal amount of 7.125% Senior Notes due 2026, net of issuance costs. No revolving-facility borrowings were outstanding. Revolver availability was $416 million after $136 million of letters of credit; reported total liquidity was $744 million.
- Operating cash flow of $160 million less capital investments of $99 million implies approximately $61 million of operating cash flow after capital investments, before other investing and financing items. Cash increased $23 million during the quarter.
- CRC repurchased 1.67 million shares for $71 million at an average $42.52 per share and paid a $0.17-per-share dividend. The board subsequently declared another $0.17 quarterly dividend and increased the repurchase authorization to $650 million, extending it through June 30, 2023.
Material changes, outlook and risks
- Brent averaged $97.38/Bbl in Q1 2022, versus $61.10/Bbl a year earlier. CRC’s realized oil price after derivative settlements was $60.30/Bbl, reflecting hedge-related cash settlements that reduced the benefit of higher market prices.
- Management revised its 2022 capital program to $340–$385 million, including $320–$350 million for oil and gas operations, $15–$25 million for carbon management, and $5–$10 million for corporate and other. The oil-and-gas plan added a drilling rig; the carbon-management estimate removed approximately $15 million of property, easement and lease purchases that are reported separately.
- Management expected operating cash flow at then-current commodity prices to support the capital program and stated that liquidity was sufficient for obligations over the next 12 months. Spending, production and shareholder returns remain subject to commodity prices, operating conditions, and financing constraints.
- The April 29, 2022 revolver amendment changed minimum hedging and restricted-payment/investment covenants. Minimum hedges depend on leverage; when the leverage ratio is at or below 1.0 to 1.0, the stated minimum hedge requirement does not apply. The amendment permits otherwise restricted payments and investments subject to specified no-default, availability and leverage tests.
- Commodity derivatives had a $716 million net fair-value liability at quarter end. CRC’s hedging strategy can limit participation in rising prices; commodity-price movements also affect cash flow and production-sharing-contract volumes.
- CRC reported $17 million of acquisitions for carbon-management properties and easements. It was developing CCS projects and targeting additional storage-permit applications; permits, project financing, execution and anticipated benefits remain uncertain.
- CRC expects to divest remaining Ventura Basin assets in the second half of 2022, subject to State Lands Commission approval. A proposed sale of its Bakersfield office building was terminated in April after conversion costs proved uneconomic.
- Routine litigation and claims reserves were not material, but reasonably possible losses beyond reserves could not be accurately determined. CRC also described a dispute involving BSEE decommissioning obligations for offshore platforms and an indemnification claim involving former parent Occidental Petroleum; CRC is challenging the BSEE order.
- Principal disclosed risks include oil and gas price volatility, regulatory and permitting requirements, production and reserve declines, hedging effects, capital and liquidity needs, and the ability to execute CCS and other energy-transition projects. Management reported no material risk-factor changes during the quarter.
Important facts for investors to verify
- How much of reported results and future cash flow is affected by derivative fair-value changes versus actual hedge settlements, and how the amended hedge requirements affect upside and downside exposure.
- Whether production recovers after planned maintenance and how production declines, asset divestitures and drilling activity affect unit costs and cash generation.
- Whether the revised capital program, dividends and expanded share-repurchase authorization remain supportable under changing commodity prices and revolver covenant limits.
- Progress, permitting, financing and expected economics of CCS projects, and the timing and approval status of the remaining Ventura Basin divestiture.
- Potential exposure from the offshore decommissioning dispute and other claims, for which the filing does not provide a clear estimate of reasonably possible losses beyond recorded reserves.