California Resources Corporation Announces First Quarter 2019 Results

LOS ANGELES–(BUSINESS WIRE)–California Resources Corporation (NYSE: CRC), an independent
California-based oil and gas exploration and production company, today
reported a net loss attributable to common stock (CRC net loss) of $67
million, or $1.38 per diluted share, for the first quarter of 2019.
Adjusted net income1 for the first quarter of 2019 was $31
million, or $0.63 per diluted share. Operational and financial
highlights for the first quarter of 2019 are as follows:

Highlights

  • Reported adjusted EBITDAX1 of $301 million; an adjusted
    EBITDAX margin1 of 38%; an adjusted EBITDAX per BOE1
    of $25.13, which was the highest since 2015; net cash provided by
    operating activities of $158 million
  • First quarter 2019 average daily production of 133,000 barrels of oil
    equivalent (BOE) per day, an 8% increase over the prior year period;
    oil production increased 9% over the prior year period
  • Invested $138 million of total capital, including internally funded
    capital of $104 million
  • Drilled 42 wells with internally funded capital and 18 wells with JV
    capital
  • Sold a 50% working interest and transferred operatorship in portions
    of a field for consideration in excess of $200 million, consisting of
    approximately $168 million in cash and a carried 200-well development
    program, for a valuation of $88,000 per flowing barrel including the
    carry

Todd Stevens, CRC’s President and Chief Executive Officer, said, “CRC
began 2019 with a solid first quarter that highlighted our value-driven,
dynamic capital allocation. We generated strong cash flow, benefiting
from the high quality, low risk and long life of CRC’s resource base, as
well as our ability to quickly adapt operating and capital plans to
capture value across various price environments. To further accelerate
value, we recently sold an interest in our shallow production in the
Lost Hills field, which garnered more than $200 million consisting of
$168 million in cash, in addition to a 100% carry on a 200-well
development program worth at least $35 million. The sale represents a
‘win-win’ that provides cash to fund our ongoing balance sheet
strengthening efforts, while retaining a significant upside in the
future development by the new operator. We will continue to seek
strategic opportunities through the drill bit and through accretive
transactions using our diverse portfolio that unlock shareholder value
and strengthen our balance sheet.”

First Quarter 2019 Results

For the first quarter of 2019, CRC reported a net loss attributable to
common stock of $67 million, or $1.38 per diluted share, compared to a
loss of $2 million, or $0.05 per diluted share for the same period of
2018. Adjusted net income1 for the first quarter of 2019 was
$31 million, or $0.63 per diluted share, compared with adjusted net
income1 of $8 million, or $0.18 per diluted share for the
same prior year period. First quarter of 2019 adjusted net income1
excluded $97 million of non-cash derivative losses on commodity
contracts, a $3 million non-cash derivative loss from interest-rate
contracts as well as a net gain of $6 million on debt repurchases and $4
million of unusual and infrequent items.

EBITDAX for the first quarter of 2019 was $301 million and cash provided
by operating activities was $158 million, which included interest
payments of $72 million.

Total daily production volumes increased 8% year-over-year, from 123,000
BOE per day for the first quarter of 2018 to 133,000 BOE per day for the
first quarter of 2019. Total daily production for 2019 included volumes
from the Elk Hills transaction, which was completed in the second
quarter of 2018. Oil volumes averaged 84,000 barrels per day, NGL
volumes averaged 15,000 barrels per day and gas volumes averaged 202,000
thousand cubic feet (MCF) per day.

Realized crude oil prices, including the effect of settled hedges,
increased by $2.51 per barrel from the first quarter of 2018 to $65.28
per barrel in the first quarter of 2019 primarily due to settled hedges
that increased our realized crude oil prices by $1.98 per barrel.
Realized NGL prices were $42.52 per barrel. Realized natural gas prices
were $3.43 per MCF for the first quarter of 2019, $0.62 higher than the
same prior-year period primarily due to higher winter demand.

Production costs for the first quarter of 2019 were $233 million
compared to $212 million for the first quarter of 2018. The increase is
attributable to the Elk Hills transaction, cash-settled stock-based
compensation, energy costs and other items.

General and administrative (G&A) expenses were $83 million for the first
quarter of 2019 compared to $63 million for the same prior-year period.
CRC’s cash-settled stock-based compensation expense increased
approximately $7 million due to the increase in the Company’s stock
price in the first quarter of 2019. Additionally, 2019 G&A expenses
increased by approximately $3 million as certain costs are no longer
collected from CRC’s former working interest partner following the Elk
Hills transaction.

CRC reported taxes other than on income of $41 million for the first
quarter of 2019 compared to $38 million for the same prior year period.
Exploration expense was $10 million for the first quarter of 2019, $2
million higher in the first quarter of 2019 than the same prior-year
period due to an increased exploration budget.

CRC’s internally funded capital investment for the first quarter of 2019
totaled $104 million, of which $93 million was directed to drilling and
capital workovers. CRC’s JV partner Benefit Street Partners (BSP) also
invested $27 million, which is included in CRC’s consolidated results.
CRC’s JV partner Macquarie Infrastructure and Real Assets Inc. (MIRA)
invested an additional $7 million, which is excluded from CRC’s
consolidated results.

Operational Update

In the first quarter of 2019, CRC operated an average of 7 drilling rigs
with 2 rigs focused on conventional primary production, 2 on
waterfloods, 1 on steamfloods and 2 on unconventional production. With
total invested capital, we drilled 52 development wells and 8
exploration wells (40 steamflood, 9 waterflood, 5 primary and 6
unconventional). Steamfloods and waterfloods have different production
profiles and longer response times than typical conventional wells and,
as a result, the full production contribution may not be experienced in
the same period that the well is drilled. The San Joaquin basin produced
approximately 97,000 BOE per day and operated six rigs. The Los Angeles
basin contributed 25,000 BOE per day of production and operated one rig
directed toward waterflood projects. The Ventura and Sacramento basins,
where we had no active drilling program, produced 6,000 BOE per day and
5,000 BOE per day, respectively.

2019 Capital Budget

CRC’s internally funded investments will be largely directed to short
payout projects, such as primary drilling and capital workovers, and
low-risk projects including waterflood and steamflood investments that
maintain base production. CRC estimates its 2019 internally funded
capital program will range from $300 million to $385 million, which may
be adjusted during the course of the year depending on commodity prices.
CRC obtained an additional $50 million investment from BSP during the
first quarter of 2019 and continues discussions to obtain additional
investments from new and existing JVs to achieve a total capital budget
of approximately $500 million.

Strategic Asset Divestiture

On May 1, 2019 CRC sold 50% of our working interest and transferred
operatorship in certain zones in our Lost Hills field in the San Joaquin
Basin for total consideration in excess of $200 million, consisting of
approximately $168 million in cash and a carried 200 well development
program to be drilled through 2023 with an estimated minimum value of
$35 million. The cash proceeds were used to pay down the revolver and
CRC benefits from accelerated development from the drilling carry.

Balance Sheet and Credit Facility Update

Effective May 1, 2019, CRC’s borrowing base under its 2014 Credit
Agreement was reaffirmed at $2.3 billion. Following the closing of the
Lost Hills transaction, pro forma total debt outstanding was $5.1
billion, down $168 million from March 31, 2019, bringing total
availability on the Company’s revolver to over $420 million before the
minimum liquidity requirement.

During the first quarter of 2019, CRC repurchased $18 million in
aggregate principal amount of CRC’s Second Lien Notes for $14 million.

Hedging Update

CRC continues to implement an opportunistic hedging program to protect
its cash flow, operating margins and capital program, while maintaining
adequate liquidity. For the second quarter of 2019, CRC has protected
its downside price risk on approximately 40,000 barrels per day at
approximately $70 Brent. For the third and fourth quarters of 2019, CRC
has protected the downside price risk on approximately 40,000 and 35,000
barrels per day at approximately $73 Brent and $76 Brent, respectively.
The underlying instruments in our 2019 hedge program are puts and put
spreads that provide full upside to oil price movements. For the first
and second quarters of 2020, CRC has protected the downside risk of
approximately 25,000 and 15,000 barrels per day at approximately $72
Brent and $70 Brent, respectively. CRC’s 2019 and 2020 put spreads
provide downside price protection until Brent prices drop to between $55
and $60 per barrel, at which point we receive Brent plus approximately
$15 per barrel. See Attachment 7 for more details.

1 See Attachment 3 for non-GAAP financial measures of
adjusted EBITDAX, adjusted EBITDAX margin, adjusted EBITDAX per BOE,
production costs (excluding the effects of PSC-type contracts) and
adjusted net income (loss), including reconciliations to their most
directly comparable GAAP measure, where applicable.

Conference Call Details

To participate in today’s conference call scheduled for 5:00 P.M.
Eastern Daylight Time, either dial (877) 328-5505 (International calls
please dial +1 (412) 317-5421) or access via webcast at www.crc.com,
fifteen minutes prior to the scheduled start time to register.
Participants may also pre-register for the conference call at http://dpregister.com/10129738.
A digital replay of the conference call will be archived for
approximately 30 days and supplemental slides for the conference call
will be available online in the Investor Relations section of www.crc.com.

About California Resources Corporation

California Resources Corporation is the largest oil and natural gas
exploration and production company in California on a gross-operated
basis. CRC operates its world-class resource base exclusively within the
State of California, applying complementary and integrated
infrastructure to gather, process and market its production. Using
advanced technology, California Resources Corporation focuses on safely
and responsibly supplying affordable energy for California by
Californians.

Forward-Looking Statements

This presentation contains forward-looking statements that involve risks
and uncertainties that could materially affect CRC’s expected results of
operations, liquidity, cash flows and business prospects. Such
statements include those regarding CRC’s expectations as to its future:

  • financial position, liquidity, cash flows and results of operations
  • business prospects
  • transactions and projects
  • operating costs
  • Value Creation Index (VCI) metrics, which are based on certain
    estimates including future production rates, costs and commodity prices
  • operations and operational results including production, hedging and
    capital investment
  • budgets and maintenance capital requirements
  • reserves
  • type curves
  • expected synergies from acquisitions and joint ventures

Actual results may differ from anticipated results, sometimes
materially, and reported results should not be considered an indication
of future performance. While CRC believes assumptions or bases
underlying its expectations are reasonable and make them in good faith,
they almost always vary from actual results, sometimes materially. CRC
also believes third-party statements it cites are accurate, but has not
independently verified them and does not warrant their accuracy or
completeness. Factors (but not necessarily all the factors) that could
cause results to differ include:

  • commodity price changes
  • debt limitations on CRC’s financial flexibility
  • insufficient cash flow to fund planned investments, debt repurchases,
    distributions to JV partners or changes to CRC’s capital plan
  • inability to enter into desirable transactions, including
    acquisitions, asset sales and joint ventures
  • legislative or regulatory changes, including those related to
    drilling, completion, well stimulation, operation, maintenance or
    abandonment of wells or facilities, managing energy, water, land,
    greenhouse gases or other emissions, protection of health, safety and
    the environment, or transportation, marketing and sale of CRC’s
    products
  • joint ventures and acquisitions and CRC’s ability to achieve expected
    synergies
  • the recoverability of resources and unexpected geologic conditions
  • incorrect estimates of reserves and related future cash flows and the
    inability to replace reserves
  • changes in business strategy
  • PSC effects on production and unit production costs
  • effect of stock price on costs associated with incentive compensation
  • insufficient capital, including as a result of lender restrictions,
    unavailability of capital markets or inability to attract potential
    investors
  • effects of hedging transactions
  • equipment, service or labor price inflation or unavailability
  • availability or timing of, or conditions imposed on, permits and
    approvals
  • lower-than-expected production, reserves or resources from development
    projects, joint ventures or acquisitions, or higher-than-expected
    decline rates
  • disruptions due to accidents, mechanical failures, transportation or
    storage constraints, natural disasters, labor difficulties, cyber
    attacks or other catastrophic events
  • factors discussed in “Risk Factors” in CRC’s Annual Report on Form
    10-K available on its website at crc.com.

Words such as “anticipate,” “believe,” “continue,” “could,” “estimate,”
“expect,” “goal,” “intend,” “likely,” “may,” “might,” “plan,”
“potential,” “project,” “seek,” “should,” “target, “will” or “would” and
similar words that reflect the prospective nature of events or outcomes
typically identify forward-looking statements. Any forward-looking
statement speaks only as of the date on which such statement is made and
CRC undertakes no obligation to correct or update any forward-looking
statement, whether as a result of new information, future events or
otherwise, except as required by applicable law.

Attachment 1
SUMMARY OF RESULTS    
First Quarter
($ and shares in millions, except per share amounts) 2019 2018
 
Statements of Operations:
Revenues and Other
Oil and gas sales $ 601 $ 575
Net derivative loss from commodity contracts (89 ) (38 )
Other revenue 178   72  
Total revenues and other 690   609  
 
Costs and Other
Production costs 233 212
General and administrative expenses 83 63
Depreciation, depletion and amortization 118 119
Taxes other than on income 41 38
Exploration expense 10 8
Other expenses, net 148   61  
Total costs and other 633   501  
 
Operating Income 57 108
 
Non-Operating (Loss) Income
Interest and debt expense, net (100 ) (92 )
Net gain on early extinguishment of debt 6
Gain on asset divestitures
Other non-operating expenses (7 )   (7 )  
 
(Loss) Income Before Income Taxes (44 ) 9
Income tax    
Net (Loss) Income (44 ) 9
Net income attributable to noncontrolling interests (23 )   (11 )  
Net Loss Attributable to Common Stock $ (67 )   $ (2 )  
 
Net loss attributable to common stock per share – basic $ (1.38 ) $ (0.05 )
Net loss attributable to common stock per share – diluted $ (1.38 ) $ (0.05 )
 
Adjusted net income $ 31 $ 8
Adjusted net income per share – basic $ 0.64 $ 0.18
Adjusted net income per share – diluted $ 0.63 $ 0.18
 
Weighted-average common shares outstanding – basic 48.7 44.2
Weighted-average common shares outstanding – diluted 48.7 44.2
 
Adjusted EBITDAX $ 301 $ 250
Effective tax rate 0 % 0 %
 
 
First Quarter
($ and shares in millions) 2019 2018
 
Cash Flow Data:
Net cash provided by operating activities $ 158 $ 200
Net cash used in investing activities $ (182 ) $ (138 )
Net cash provided by financing activities $ 50 $ 412
 
 
March 31, December 31,
($ in millions) 2019 2018
 
Selected Balance Sheet Data:
Total current assets $ 577 $ 640
Total property, plant and equipment, net $ 6,548 $ 6,455
Total current liabilities $ 689 $ 607
Long-term debt $ 5,169 $ 5,251
Other long-term liabilities $ 692 $ 575
Mezzanine equity $ 766 $ 756
Equity $ (289 ) $ (247 )
 
Outstanding shares as of 48.8 48.7
 
 
   
STOCK-BASED COMPENSATION
 

Our consolidated results of operations for the three months ended
March 31, 2019 and 2018 include the effects of long-term
stock-based compensation plans under which we annually grant
awards to executives, non-executive employees and non-employee
directors that are either settled with shares of our common stock
or cash. Our equity-settled awards granted to executives include
stock options, restricted stock and performance stock units that
either cliff vest at the end of a three-year period or vest
ratably over a three-year period, some of which are partially
settled in cash. Our equity-settled awards granted to non-employee
directors are restricted stock units that cliff vest after one
year. Our cash-settled awards granted to non-executive employees
vest ratably over a three-year period.

 

Changes in our stock price introduce volatility in our results of
operations because we pay partially or fully cash-settled awards
based on our stock price as of the vesting date and accounting
rules require that we adjust our obligation for unvested awards to
the amount that would be paid using our stock price as of the end
of each reporting period. Cash-settled awards, including executive
awards partially settled in cash, account for approximately 50% of
our total outstanding awards. Our stock price increased $8.67 or
51% from $17.04 as of December 31, 2018 to $25.71 as of March 31,
2019. The increase in our stock price resulted in higher
cash-settled stock-based compensation expense. Equity-settled
awards are not similarly adjusted for changes in our stock price.

 

Stock-based compensation is included in both general and
administrative expenses and production costs as shown in the table
below:

 
    First Quarter
($ in millions, except per BOE amounts) 2019     2018
 
General and administrative expenses
Cash-settled awards $ 10 $ 3
Equity-settled awards 3   3
Total stock-based compensation in G&A $ 13   $ 6
Total stock-based compensation in G&A per Boe $ 1.09 $ 0.54
 
Production costs
Cash-settled awards $ 3 $ 1
Equity-settled awards 1   1
Total stock-based compensation in production costs $ 4   $ 2
Total stock-based compensation in production costs per Boe $ 0.33 $ 0.18
   
Total company stock-based compensation $ 17   $ 8
Total company stock-based compensation per Boe $ 1.42 $ 0.72

 

 
DERIVATIVE GAINS AND LOSSES
 
The following table presents the components of our net derivative
loss from commodity contracts and our non-cash derivative loss from
interest-rate contracts. Our non-cash derivative loss from
interest-rate contracts is reported in other non-operating expenses.
    First Quarter
($ millions) 2019     2018
Commodity Contracts:
Non-cash derivative loss excluding noncontrolling interest $ (97 ) $ (7 )
Non-cash derivative loss – noncontrolling interest (6 )
Net proceeds (payments) on settled commodity derivatives 14   (31 )
Net derivative loss from commodity contracts $ (89 ) $ (38 )
 
Interest-Rate Contracts:    
Non-cash derivative loss $ (3 ) $  
 
Attachment 2
PRODUCTION STATISTICS        
 
First Quarter
Net Oil, NGLs and Natural Gas Production Per Day 2019 2018
 
Oil (MBbl/d)
San Joaquin Basin 55 49
Los Angeles Basin 25 24
Ventura Basin 4   4
Total 84 77
 
NGLs (MBbl/d)
San Joaquin Basin 14 15
Ventura Basin 1   1
Total 15 16
 
Natural Gas (MMcf/d)
San Joaquin Basin 165 143
Los Angeles Basin 2 1
Ventura Basin 7 7
Sacramento Basin 28   31
Total 202 182
   
Total Production (MBoe/d) 133   123
 
Note: MBbl/d refers to thousands of barrels per day; MMcf/d refers
to millions of cubic feet per day; MBoe/d refers to thousands of
barrels of oil equivalent (Boe) per day. Natural gas volumes have
been converted to Boe based on the equivalence of energy content of
six thousand cubic feet of natural gas to one barrel of oil. Barrels
of oil equivalence does not necessarily result in price equivalence.
Attachment 3
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS
 

Our results of operations, which are presented in accordance with
generally accepted accounting principles (GAAP), can include the
effects of unusual, out-of-period and infrequent transactions and
events affecting earnings that vary widely and unpredictably (in
particular certain non-cash items such as derivative gains and
losses) in nature, timing, amount and frequency. Therefore,
management uses certain non-GAAP measures to assess our financial
condition, results of operations and cash flows. These measures
are widely used by the industry, the investment community and our
lenders. Although these are non-GAAP measures, the amounts
included in the calculations were computed in accordance with
GAAP. Certain items excluded from these non-GAAP measures are
significant components in understanding and assessing our
financial performance, such as our cost of capital and tax
structure, as well as the historic cost of depreciable and
depletable assets. These measures should be read in conjunction
with the information contained in our financial statements
prepared in accordance with GAAP.

 

Below are additional disclosures regarding each of the non-GAAP
measures reported in this press release, including reconciliations
to their most directly comparable GAAP measure where applicable.

 
ADJUSTED NET INCOME (LOSS)
 
Management uses a measure called adjusted net income (loss) to
provide useful information to investors interested in comparing our
core operations between periods and our performance to our peers.
This measure is not meant to disassociate the effects of unusual,
out-of-period and infrequent items affecting earnings from
management’s performance but rather to provide useful information to
investors in comparing our financial performance with the financial
performance of other companies. Adjusted net income (loss) is not
considered to be an alternative to net income (loss) reported in
accordance with GAAP. The following table presents a reconciliation
of the GAAP financial measure of net (loss) income attributable to
common stock to the non-GAAP financial measure of adjusted net
income (loss) and presents the GAAP financial measure of net (loss)
attributable to common stock per diluted share and the non-GAAP
financial measure of adjusted net income per diluted share.
  First Quarter
($ millions, except per share amounts) 2019   2018
Net (loss) income $ (44 ) $ 9
Net income attributable to noncontrolling interests (23 ) (11 )
Net loss attributable to common stock (67 ) (2 )
Unusual, infrequent and other items:
Non-cash derivative loss from commodities excluding noncontrolling
interest
97 7
Non-cash derivative loss from interest-rate contracts 3
Early retirement costs 2
Net gain on early extinguishment of debt (6 )
Other, net 4   1  
Total unusual, infrequent and other items 98 10
   
Adjusted net income $ 31   $ 8  
 
Net loss attributable to common stock per share – diluted $ (1.38 ) $ (0.05 )
Adjusted net income per share – diluted $ 0.63 $ 0.18
 

Contacts

Scott Espenshade (Investor Relations)
818-661-6010
Scott.Espenshade@crc.com

Margita Thompson (Media)
818-661-6005
Margita.Thompson@crc.com

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