California Resources Corporation Announces Third 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 net income attributable to common stock of $94 million, or $1.89 per diluted share, for the third quarter of 2019. Adjusted net income¹ was $17 million, or $0.35 per diluted share. Operational and financial highlights for the third quarter of 2019 were as follows:

Third Quarter Highlights

• Reported adjusted EBITDAX¹ of $278 million; adjusted EBITDAX margin¹ of 41%; net cash provided by operating activities of $268 million; free cash flow¹ of $151 million after taking into account CRC’s internally funded capital.
• Implemented a more efficient organizational design, resulting in anticipated ongoing annual cost savings of approximately $50 million starting in the fourth quarter of 2019
• Delivered average production of 128,000 barrels of oil equivalent (BOE) per day including 79,000 barrels per day of oil
• Invested $188 million of total capital, including $117 million of internally funded capital
• Drilled 82 wells in the San Joaquin basin, 8 wells in the Los Angeles basin and 1 exploratory well in the Ventura basin, including JV wells
• Repurchased $153 million face value of Second Lien Notes for $90 million
• Secured a credit agreement amendment to provide future flexibility in connection with potential royalty transactions

Todd Stevens, CRC’s President and Chief Executive Officer, said, “CRC’s start to the second half of the year highlights our continued focus on controlling what we can control by maintaining capital discipline, opportunistically repurchasing debt to strengthen our balance sheet, improving our credit position, reducing costs and enhancing margins. Our previously announced JV partnership with Alpine ramped up quickly, having drilled 52 wells through the end of the third quarter, with the majority of the wells being accretive to production beginning in the fourth quarter. We were also excited to receive a grant from the Department of Energy for a FEED study to advance CO₂ capture and sequestration at Elk Hills, which could potentially add well over 150 MMBOE of EOR reserves, reduce our greenhouse gas emissions and in turn lower costs.”

Mr. Stevens continued, “Additionally, we are pleased we were able to repurchase over $150 million face value of our Second Lien Notes at a significant discount as well as secure our ninth credit amendment during the quarter. We remain committed to pursuing additional transactions to progress towards our balance sheet goals while driving value through a balanced approach of debt repurchases with investments in our large project inventory.”

Third Quarter 2019 Results

For the third quarter of 2019, CRC reported net income attributable to common stock (CRC net income) of $94 million, or $1.89 per diluted share, compared to $66 million, or $1.32 per diluted share, for the same period of 2018. Adjusted net income¹ for the third quarter of 2019 was $17 million, or $0.35 per diluted share, compared to $41 million, or $0.81 per diluted share, for the same period in 2018. Adjusted net income¹ excluded a net gain of $82 million on debt repurchases, non-cash losses on commodity derivatives of $6 million and income of $1 million, net, for other unusual and infrequent items.

Adjusted EBITDAX¹ for the third quarter of 2019 was $278 million and cash provided by operating activities was $268 million.

Total daily production volumes decreased 6% year-over-year, from 136,000 BOE per day for the third quarter of 2018 to 128,000 BOE per day for the third quarter of 2019. Oil volumes in the third quarter of 2019 averaged 79,000 barrels per day, NGL volumes averaged 16,000 barrels per day and gas volumes averaged 196,000 thousand cubic feet (Mcf) per day. The decrease was due to the Lost Hills divestiture, lower capital investment including fewer workovers, power outages and other factors. The divestiture reduced our third quarter 2019 production by over 2,000 BOE per day compared to the same quarter of 2018.

Despite lower Brent index prices, our realized crude oil prices, including the effect of settled hedges, increased by $4.78 per barrel from $63.63 in the third quarter of 2018 to $68.41 per barrel in the third quarter of 2019. In the third quarter of 2019, hedge settlements increased our realized crude oil prices by $5.56 per barrel compared to a reduction of $10.10 per barrel in the same prior-year period. Realized NGL prices were $23.55 per barrel, down $22.17 per barrel over the prior-year period as local and national markets continued to experience excess domestic supply coupled with weaker demand due to Los Angeles and Bay area refinery downtimes. Realized natural gas prices were $2.73 per Mcf for the third quarter of 2019, $0.43 per Mcf lower than the same prior-year period due to milder temperatures and more pipeline availability within local California markets in 2019 compared to 2018.

Production costs for the third quarter of 2019 were $221 million, compared to $236 million for the third quarter of 2018. On a per barrel basis, for the same comparative periods, production costs were $18.82 and $18.92, respectively. The decrease is primarily due to cost savings from the Lost Hills divestiture, lower surface operations costs, lower field employee-related costs and lower downhole maintenance spending, partially offset by higher energy prices. Excluding the effect of PSC-type contracts, production costs on a per barrel basis for the same comparative periods would have been $17.44 and $17.55, respectively.

General and administrative (G&A) expenses were $66 million for the third quarter of 2019, compared to $81 million for the same prior-year period. The decrease was primarily attributable to a lower stock price resulting in a $13 million decrease in cash-settled stock-based compensation expense.

CRC reported taxes other than on income of $42 million for the third quarter of 2019, compared to $45 million for the same prior-year period. Exploration expense was $5 million for the third quarter of 2019, $1 million higher than the same prior-year period.

Total capital invested during the quarter of 2019 was $188 million, within our guidance. CRC internally funded $117 million, of which $101 million was directed to drilling and capital workovers. CRC’s JV partner Benefit Street Partners (BSP) also invested $5 million, which is included in CRC’s consolidated results. CRC’s JV partners Macquarie Infrastructure and Real Assets Inc. (MIRA) and Alpine Energy Capital, LLC (Alpine) invested an additional $3 million and $63 million, respectively, which are excluded from CRC’s consolidated results.

Cash provided by operating activities for the third quarter of 2019 was $268 million and free cash flow¹ was $151 million after taking into account CRC’s internally funded capital.

Nine-Month Results

For the first nine months of 2019, CRC net income was $39 million, or $0.77 per diluted share, compared to a net loss attributable to common stock of $18 million, or $0.38 per diluted share, for the same period of 2018. Including hedge settlements, the 2019 results reflected higher year-over-year revenue despite a lower oil price environment. Adjusted net income¹ for the first nine months of 2019 was $34 million, or $0.69 per diluted share, compared with an adjusted net income¹ of $35 million, or $0.71 per diluted share, for the same period of 2018. The 2019 adjusted net income¹ excluded $99 million of non-cash derivative losses, a net gain of $108 million from debt repurchases and a net $4 million charge related to other unusual and infrequent items.

Total daily production volumes averaged 130,000 BOE per day for the first nine months of 2019, compared with 131,000 BOE per day for the same period in 2018, a decrease of 1 percent. The 2018 volumes reflect two quarters of production from the Elk Hills acquisition. The 2019 volumes reflect the effect of the strategic Lost Hills divestiture that occurred in the second quarter of 2019.

In the first nine months of 2019, realized crude oil prices, including the effect of settled hedges, increased $4.63 per barrel to $68.16 per barrel from $63.53 per barrel for the same period in 2018. Settled hedges increased 2019 realized crude oil prices by $3.13 per barrel, compared with a reduction of $8.00 per barrel for the same period in 2018. Realized NGL prices decreased 29 percent, or $12.67 per barrel to $31.04 per barrel in the first nine months of 2019 from $43.71 per barrel for the same period of 2018. Realized natural gas prices increased $0.09 per Mcf to $2.82 per Mcf, compared with $2.73 per Mcf for the same period in 2018, largely due to stronger California demand.

Production costs for the first nine months of 2019 were $684 million, or $19.32 per BOE, compared to $679 million, or $18.98 per BOE, for the same period in 2018. The increase in production costs was primarily attributable to the Elk Hills transaction, higher surface operations and maintenance costs, energy costs and other items, partially offset by lower downhole maintenance activity and lower costs resulting from the Lost Hills divestiture. Per unit production costs, excluding the effect of PSCs¹, were $17.82 and $17.48 per BOE for the first nine months of 2019 and 2018, respectively.

G&A expenses for the first nine months of 2019 were $228 million, compared to $234 million in the prior-year period, with the decrease largely due to lower equity compensation expense in the first nine months of 2019. This decrease was partially offset by higher expenses across a number of functions.

Taxes other than on income of $119 million for the first nine months of 2019 were comparable to the same period of 2018, when taxes were $120 million. Exploration expense of $25 million for the first nine months of 2019 was $7 million higher than the same period of 2018.

CRC’s internally funded capital investment in the first nine months of 2019 totaled $345 million, of which $259 million was directed to drilling and capital workovers. CRC’s JV partners invested $121 million in the first nine months of 2019, all of which was directed to drilling. Of our JV partners’ investment, BSP invested $48 million which is included in CRC’s consolidated results.

Cash provided by operating activities for the first nine months of 2019 was $540 million and free cash flow¹ was $195 million after taking into account CRC’s internally funded capital.

Operational Update

In the third quarter of 2019, CRC operated an average of ten drilling rigs, with 3 on primary, 3 on waterfloods and 4 on unconventional production. With total invested capital, we drilled 90 development wells (47 primary, 27 waterflood, and 16 unconventional) and one exploration well. 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 94,000 BOE per day and operated seven rigs. The Los Angeles basin contributed 24,000 BOE per day of production and operated two rigs directed toward waterflood projects. The Ventura basin produced 5,000 BOE per day and operated one rig focused on exploration and the Sacramento basin, where we had no active CRC drilling program, produced 5,000 BOE per day.

2019 Capital Budget

CRC expects its 2019 internally funded capital program will range from $385 million to $400 million, of which $345 million has been invested through the third quarter of 2019. We have front loaded our internally funded capital investments for 2019. With additional investment from new and existing JV partners, CRC anticipates JV investment of $200 to $225 million for 2019, of which $121 million has been invested through the third quarter of 2019. CRC anticipates a total capital program of approximately $585 to $625 million for the year. Our 2019 capital is focused on oil and largely directed to short payout projects, such as primary drilling of both vertical and lateral wells, capital workovers and low-risk projects including waterflood and steamflood investments that maintain base production.

Recent Joint Venture

In July 2019, we entered into a development agreement with Alpine to develop portions of CRC’s Elk Hills field. Alpine is a joint venture between subsidiaries of Colony Capital, Inc. (Colony) and Equity Group Investments. Alpine committed to invest $320 million, which may be increased to a total investment of $500 million, subject to the mutual agreement of the parties. The initial commitment will cover multiple development opportunities and is intended to be invested over approximately three years in accordance with a 275-well development plan. Alpine will fund 100% of the development wells and will earn a 90% working interest in those wells. If Alpine receives an agreed upon return, CRC’s working interest in those wells will increase from 10% to 82.5%.

In connection with this joint venture, Colony received a warrant to purchase up to 1.25 million shares of CRC’s common stock, at an exercise price of $40 per share.

Repurchases and Balance Sheet Update

During the third quarter of 2019, CRC repurchased $153 million in face value of Second Lien Notes for $90 million, bringing the aggregate face value repurchased since issuance to $412 million, including $229 million during the first nine months of 2019. Net debt outstanding at the end of the third quarter was under $5.0 billion. CRC also secured a ninth amendment to our credit agreement which provides future flexibility in connection with potential royalty transactions.

The semi-annual borrowing base review under the Company’s 2014 Revolving Credit Facility is finalized in early May and early November of each year. The process is currently underway and is well advanced.

Hedging Update

CRC continues to execute an opportunistic hedging program to protect its cash flow, operating margins and capital program, while maintaining adequate liquidity. For the fourth quarter of 2019, CRC has protected the downside price risk on 35,000 barrels per day at approximately $76 Brent with put spreads. These put spreads provide full upside to oil price movements and downside protection when Brent drops below $60 per barrel, at which point we receive Brent plus approximately $16 per barrel. For the first and second quarters of 2020, CRC has protected the downside risk of 30,000 and 15,000 barrels per day at approximately $71 Brent and $68 Brent, respectively. These put spreads provide downside price protection when Brent prices drop below $57 and $55 per barrel in the first and second quarters, respectively, at which point CRC receives Brent plus approximately $14 per barrel. CRC also entered into a swap for 5,000 barrels per day in the second quarter of 2020 at approximately $70 Brent, which may be increased by another 5,000 barrels per day at the same price at the option of the counterparties. For the third and fourth quarters of 2020, CRC has protected the downside risk of 10,000 and 5,000 barrels per day, respectively, at $65 per barrel. These put spreads provide downside protection when Brent prices drop below $55, at which point CRC receives Brent plus approximately $10 per barrel. See Attachment 8 for more details.

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

Conference Call Details

To participate in Monday’s conference call scheduled for November 4th, 2019 at 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/10134619. 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 makes 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 CRC’s capital plan, planned investments, debt repurchases and distributions to JV partners
• 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 “Item 1A – 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
				Third Quarter														Nine Months
($ and shares in millions, except per share amounts)				2019							2018							2019							2018
Statements of Operations:
Revenues and Other
Oil and gas sales				$		541					$		700					$		1,720					$		1,932
Net derivative gain (loss) from commodity contracts				37							(54				)			(31				)			(259				)
Other revenue				103							182							335							313
Total revenues and other				681							828							2,024							1,986
Costs and Other
Production costs				221							236							684							679
General and administrative expenses				66							81							228							234
Depreciation, depletion and amortization				118							128							357							372
Taxes other than on income				42							45							119							120
Exploration expense				5							4							25							18
Other expenses, net				81							149							284							259
Total costs and other				533							643							1,697							1,682
Operating Income				148							185							327							304
Non-Operating (Loss) Income
Interest and debt expense, net				(95				)			(95				)			(293				)			(281				)
Net gain on early extinguishment of debt				82							2							108							26
Gain on asset divestitures				—							3							—							4
Other non-operating expenses				(8				)			(4				)			(18				)			(16				)
Income Before Income Taxes				127							91							124							37
Income tax				—							—							—							—
Net Income				127							91							124							37
Net income attributable to noncontrolling interests				(33				)			(25				)			(85				)			(55				)
Net Income (Loss) Attributable to Common Stock				$		94					$		66					$		39					$		(18		)
Net income (loss) attributable to common stock per share – basic				$		1.89					$		1.34					$		0.78					$		(0.38		)
Net income (loss) attributable to common stock per share – diluted				$		1.89					$		1.32					$		0.77					$		(0.38		)
Adjusted net income				$		17					$		41					$		34					$		35
Adjusted net income per share – basic				$		0.35					$		0.82					$		0.70					$		0.72
Adjusted net income per share – diluted				$		0.35					$		0.81					$		0.69					$		0.71
Weighted-average common shares outstanding – basic				49.1							48.5							48.9							47.0
Weighted-average common shares outstanding – diluted				49.2							49.1							49.2							47.0
Adjusted EBITDAX				$		278					$		308					$		834					$		803
Effective tax rate						0		%					0		%					0		%					0		%
Cash Flow Data:
Net cash provided by operating activities				$		268					$		159					$		540					$		393
Net cash used in investing activities				$		(121		)			$		(158		)			$		(291		)			$		(965		)
Net cash (used) provided by financing activities				$		(152		)			$		(12		)			$		(244		)			$		583

		September 30,				December 31,
($ and shares in millions)		2019				2018
Selected Balance Sheet Data:
Total current assets		$	510			$	640
Total property, plant and equipment, net		$	6,403			$	6,455
Total current liabilities		$	721			$	607
Long-term debt		$	4,896			$	5,251
Other long-term liabilities		$	679			$	575
Mezzanine equity		$	789			$	756
Equity		$	(208	)		$	(247	)
Outstanding shares		49.1				48.7

STOCK-BASED COMPENSATION
Our consolidated results of operations for the three months and nine months ended September 30, 2019 and 2018 include the effects of long-term stock-based compensation plans under which awards are granted annually 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 units 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 grants that either vest immediately or 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 cash-settled awards based on our stock price on 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 at the end of each reporting period. Cash-settled awards, including executive awards partially settled in cash, account for over 50% of our total outstanding awards. 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:
		Third Quarter								Nine Months
($ in millions, except per BOE amounts)		2019				2018				2019				2018
General and administrative expenses
Cash-settled awards		$	(2	)		$	11			$	11			$	33
Equity-settled awards		3				2				10				10
Total in G&A		$	1			$	13			$	21			$	43
Total in G&A per Boe		$	0.09			$	1.04			$	0.59			$	1.20
Production costs
Cash-settled awards		$	—			$	2			$	4			$	8
Equity-settled awards		1				1				3				3
Total in production costs		$	1			$	3			$	7			$	11
Total in production costs per Boe		$	0.09			$	0.24			$	0.20			$	0.31
Total company		$	2			$	16			$	28			$	54
Total company per Boe		$	0.18			$	1.28			$	0.79			$	1.51

Contacts

Scott Espenshade (Investor Relations)

818-661-6010

[email protected]

Margita Thompson (Media)

818-661-6005

[email protected]

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