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California Resources Corp. Third Quarter 2021 Results

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   |    Thursday,November 11,2021

California Resources Corp. reported third quarter 2021 operational and financial results.

Mac McFarland, President and Chief Executive Officer, said: "Third quarter results continued to reflect strong operational performance and represented our best quarter this year in terms of free cash flow generation. These financial results enabled CRC to further enhance our shareholder return strategy by initiating a quarterly cash dividend. Additionally, we tightened our full year free cash flow guidance toward the high end of the range to $460 to $510 million. Given the strength of our 2021 drilling program and the current commodity environment, we added a fourth rig in Buena Vista Shale in October. Additionally, we expect to have more than $325 million of cash on hand at year end after share repurchases and a cash dividend payment."

Mr. McFarland continued, "As we continue to make progress on our ESG strategy, we are excited to announce a 2045 Full-Scope Net Zero Goal which targets Scope 1, Scope 2 and Scope 3 emissions. As planned, we also submitted our second permit to the EPA for the 26R reservoir, which when combined with our initial permit for the A1/A2 reservoirs, makes up Carbon TerraVault I, an approximately 40 million metric ton storage capacity project. We are also happy to announce that we are progressing our partnership with SunPower on 24 MW of BTM solar projects at the Kern Front and North Shafter fields, and continue to target projects in other fields to reduce our carbon footprint. With these efforts, CRC remains committed to maximize shareholder value while executing on our ESG strategy."

Primary Highlights:

• Announced a 2045 Full-Scope Net Zero Goal for Scope 1, 2 and 3 emissions
• Adopted and declared a quarterly dividend of $0.17 per share of common stock, totaling approximately $14 million payable in the fourth quarter, with subsequent quarterly dividend payments subject to final determination and Board approval
• Repurchased 3.1 million shares for $104 million through November 5, 2021 under the share repurchase program (SRP) for an average share price of $33.99 per share
• Filed a Class VI permit for the 26R reservoir as part of the Carbon TerraVault I project which is targeting up to 40 million metric ton (MMT) CO₂ permanent CCS storage
• After the quarter-end, closings for the sale of our Ventura basin operations occurred with respect to the majority of the basin's assets and subsequent closings are expected to occur in the following quarters.

Third Quarter 2021 Highlights:

Financial

• Reported net income attributable to common stock of $103 million, or $1.25 per diluted share. Adjusted net income¹ was $151 million, or $1.83 per diluted share
• Generated net cash provided by operating activities of $182 million, adjusted EBITDAX¹ of $242 million and free cash flow¹ of $131 million
• Closed the quarter with $189 million of cash on hand, an undrawn credit facility and $548 million of liquidity²

Operations

• Produced an average of 102,000 net barrels of oil equivalent (BOE) per day, including 62,000 barrels per day of oil, with quarterly capital expenditures of $51 million
• Operated two drilling rigs in the San Joaquin Basin and added one drilling rig in the Los Angeles Basin in September; drilled 27 wells (22 online in 3Q21)
• Operated 35 maintenance rigs
• Completed 76 capital workovers

Transactions

• Completed the wind-up of CRC's development joint venture (JV) with Macquarie Infrastructure and Real Assets Inc. (MIRA) and the development joint venture with Benefit Street Partners (BSP)
• Progressing the partnership with SunPower on 24 MW of BTM solar projects at the Kern Front and North Shafter fields

Guidance

• Tightened 2021 free cash flow¹ guidance to $460 to $510 million
• Raised 2021 adjusted EBITDAX¹ guidance to $840 to $900 million
• Added a drilling rig in the fourth quarter of 2021 that was planned for 2022 due to success of the drilling program to date and continued strong commodity prices; raising 2021 capital guidance to $180 to $200 million
• Increased 2021 operating costs guidance to $700 to $720 million due to rising natural gas prices, which is more than offset by gas revenues due to CRC's net long natural gas position

2021 Guidance & Capital Program

CRC tightened its full year 2021 free cash flow¹ guidance to $460 to $510 million from $400 to $500 million, raised its adjusted EBITDAX¹ guidance to $840 to $900 million from $725 to $825 million and raised its production guidance to 99 to 101 MBOE per day from 97 to 100 MBOE per day. Rising natural gas prices are putting upward pressure on operating costs and CRC increased operating guidance to a range of $700 to $720 million for the year, up from $670 to $695 million. Although higher natural gas and electricity prices in 2021 increased CRC's operating costs, higher prices have a net positive effect on its operating results due to higher revenue from sales of these commodities which CRC also produces.

CRC made $128 million of capital investments in the first nine months of 2021. Success of the drilling program to date, along with the rise in commodity prices, resulted in the addition of a drilling rig in the fourth quarter of 2021 that was planned for 2022. As a result, CRC expects its full year capital program to range from $180 to $200 million, up from $170 to $190 million. The Company's capital program will be dynamic in response to oil market volatility while focusing on maintaining its oil production, strong liquidity and maximizing its free cash flow.

Acquisitions and Divestitures

After the quarter-end, closings for the sale of our Ventura basin operations occurred with respect to the majority of the basin's assets and subsequent closings are expected to occur in the following quarters. With the divestitures closed to date, CRC realized $62 million of cash paid at closing (before purchase price adjustments) and its liability for related asset retirement obligations of approximately $100 million which were assumed by the buyer.

During the three months ended September 30, 2021, CRC sold unimproved land for $11 million in proceeds recognizing a $2 million gain.

In August 2021, CRC continued to demonstrate its focus on core areas by acquiring MIRA's 90% working interest share in the joint venture wells for $53 million, before purchase price adjustments and transaction costs. In September 2021, BSP's preferred interest in the BSP JV was automatically redeemed in full under the terms of the joint venture agreement. For the three and nine months ended September 30, 2021, CRC distributed $19 million and $50 million, respectively, to BSP.

CRC's full year guidance accounts for the closing of the sale of CRC's Ventura basin operations in the fourth quarter of 2021.

Sustainability Update

In October 2021, CRC published its 2020 Sustainability Update. The update provides CRC's key environmental, social and governance (ESG) performance metrics. Additionally, CRC has also published metrics following the guidance of the Sustainability Accounting Standards Board (SASB) and the American Petroleum Institute (API) to promote sector transparency.

CRC continues to make progress on its ESG initiatives and has announced a Full-Scope Net Zero Goal by 2045. CRC defines Net Zero as achieving permanent storage of captured or removed carbon emissions in a volume equal to all of its scope 1, 2 and 3 emissions by 2045. CRC intends to achieve this goal by prioritizing 50% of its free cash flow to invest in projects that reduce its direct and indirect emissions or achieve sequestration of carbon in volumes necessary to offset these emissions. The Company remains committed to advancing emissions reducing projects that are aligned with California's climate goals and CRC believes that its Full-Scope Net Zero Goal and its 50% cash flow prioritization are a significant ESG differentiator.

Continuing the Company's low carbon strategy efforts, CRC filed a Class VI permit for the 26R reservoir as part of the up to 40 million metric ton (MMT) CO2 permanent storage CCS project, Carbon TerraVault I, and are progressing the partnership with SunPower on 24 MW of BTM solar projects at the Kern Front and North Shafter fields. This is in addition to the previously announced 12 MW project at Mount Poso and advances projects on a total of 36 MW, of the up to previously announced 45 MW BTM target.

Fresh Start Accounting

CRC qualified for and adopted fresh start accounting upon emergence from bankruptcy on October 27, 2020, at which point CRC became a new entity for financial reporting purposes. CRC adopted an accounting convenience date of October 31, 2020 for the application of fresh start accounting. As a result of the application of fresh start accounting and the effects of the implementation of the joint plan of reorganization, the financial statements after October 31, 2020 may not be comparable to the financial statements prior to that date. Accordingly, "black-line" financial statements are presented to distinguish between the Predecessor and Successor companies. References to "Predecessor" refer to the Company for periods ended on or prior to October 31, 2020 and references to "Successor" refer to the Company for periods subsequent to October 31, 2020.