Quarterly / Earnings Reports | Fourth Quarter (4Q) Update | Financial Results | Capital Markets | Capital Expenditure | Capital Expenditure - 2021

California Resources Sets 2021 Budget

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   |    Thursday,March 11,2021

California Resources Corp. reported fourth quarter and full year 2020 results.

2021 Capital Budget

CRC's 2021 capital program is anticipated to be between $200 and $225 million, including approximately $40 million of mechanical integrity and midstream turnaround activities deferred from 2020 to 2021.

The current plan anticipates CRC to gradually raise quarterly investment throughout the year if the commodity environment continues to strengthen. CRC will maintain the flexibility to adjust its capital program in response to declining market conditions.

2020 Q4 and Full Year Highlights

• For the full year of 2020, CRC reported net income of $1,871 million and an adjusted net loss attributable to common stock¹ of $257 million, excluding unusual and infrequent items primarily related to CRC's bankruptcy proceedings and asset impairments
• For the full year of 2020, reported net cash provided by operating activities of $106 million while generating free cash flow¹ of $172 million, excluding $113 million of one time bankruptcy related fees
• For the full year of 2020, reported adjusted EBITDAX¹ of $489 million with an adjusted EBITDAX margin¹ of 28%
• For the fourth quarter of 2020, produced an average of 103,000 net barrels of oil equivalent (BOE) per day, including 63,000 barrels per day of oil and an average of 111,000 net BOE per day, including 69,000 barrels per day of oil for the full year 2020
• Exited 2020 with an average daily net production of 102,000 BOE per day, including 63,000 barrels per day of oil
• Decreased operating costs, on a per BOE basis, by 19% to $15.45 in 2020 from $19.16 in 2019
• Published third annual Sustainability Report showcasing positive progress on CRC's 2030 Sustainability Goals and secured a top score at CDP's Leadership Level
• Completed a financial restructuring and emerged from Chapter 11 bankruptcy with a simplified balance sheet and ample liquidity

Other Highlights

• In January 2021, CRC further simplified its balance sheet by completing an offering of $600 million of 7.125% senior unsecured notes due 2026. The net proceeds of $590 million were used to repay in full CRC's Second Lien Term Loan and senior secured notes issued by its subsidiary Elk Hills Power, LLC. The remaining proceeds were used to pay down a portion of CRC's Revolving Credit Facility
• Consistent with the Company's new strategic direction and low-cost operator focus, CRC has implemented a number of personnel-related cost reduction initiatives to further optimize its organizational structure. Excluding one-time severance charges, these personnel related changes are expected to reduce the compensation expense component of CRC's 2021 operating expenses by approximately $15 million per year and general and administrative expenses by approximately $50 million per year from its 2020 levels

Mac McFarland, CRC's Chairman and Interim Chief Executive Officer, commented, "We continued our strategic repositioning efforts, making progress on sustainable cost reductions and resuming prudent capital and maintenance spending. CRC will host a Strategy Day on March 18, 2021, and we look forward to providing further details of our full-scale business review and our strategic re-alignment at that time."

Bankruptcy Emergence

Upon emergence from Chapter 11 bankruptcy proceedings on October 27, 2020, CRC adopted and applied the relevant guidance with respect to the accounting and financial reporting for entities that have emerged from bankruptcy proceedings. Under fresh start accounting, the reorganized entity is considered a new reporting entity. CRC applied fresh start accounting as of October 31, 2020, an accounting convenience date, and the reorganization value of the emerging entity was assigned to individual assets and liabilities based on their estimated relative fair values. As such, fresh start accounting was reflected on the Company's consolidated balance sheet as of October 31, 2020. As a result of the application of fresh start accounting and the effects of the implementation of the Plan of Reorganization, the financial statements after October 31, 2020 may not be comparable to the financial statements prior to that date. 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.

Review of Financials & Operating Results

Total daily net production volumes decreased 16% from 123,000 BOE per day for the fourth quarter of 2019 to 103,000 BOE per day for the fourth quarter of 2020. The decrease from the same prior-year period over CRC's low to mid-teens natural decline rate was primarily due to 2,000 BOE per day of shut-in production driven by the collapse in commodity prices and power outages, lower capital investment, and reduction of well repair work. On an annual basis, total daily net production volumes decreased 13% year-over-year, from 128,000 BOE per day in 2019 to 111,000 BOE per day in 2020. The decrease from the same prior-year period was primarily due a reduced capital program, approximately 3,000 BOE per day of shut-in production, the full year impact of the Lost Hills divestiture and reduction of well repair work. Production sharing contracts in our Long Beach assets increased CRC's share of oil production by approximately 2,100 and 2,700 barrels per day in the fourth quarter and full year of 2020 compared to the same prior-year periods, respectively. CRC exited 2020 with average daily net production of 102,000 BOE per day, including 63,000 barrels per day of oil. See Attachment 2 for further information on production information.

Realized crude oil prices, including the effect of settled hedges, decreased by $25.82 per barrel from $70.21 in the fourth quarter of 2019 to $44.39 per barrel in the fourth quarter of 2020. On an annual basis, realized crude oil prices, including the effect of settled hedges, decreased by $25.12 per barrel from $68.65 in 2019 to $43.53 per barrel. Brent realized prices were lower in 2020 compared to the same prior-year period due to the combination of the supply increase caused by the Saudi-Russia price war that began earlier in the year and the continuation of severe demand decline caused by shelter-in-place orders related to the COVID-19 pandemic. Nevertheless, in 2020, CRC's oil realizations continued to favorably benefit from Brent linked pricing as compared to other U.S. benchmarks. See Attachment 5 for further information on realizations.

Adjusted EBITDAX¹ for the fourth quarter of 2020 was $116 million and cash used in operating activities was $35 million. On an annual basis, adjusted EBITDAX¹ was $489 million and cash provided by operating activities was $106 million. For the fourth quarter of 2020, free cash flow¹ was ($6) million, excluding $39 million of one-time costs incurred relating to CRC's bankruptcy, after taking into account CRC's internally funded capital of $10 million. For the full year, free cash flow¹ was $172 million, excluding $113 million of one-time bankruptcy related fees, after taking into account CRC's internally funded capital of $47 million.

Operating costs for the fourth quarter of 2020 were $165 million, compared to $211 million for the fourth quarter of 2019. For the full year 2020, operating costs were $625 million, compared to $895 million in 2019. The decrease was primarily due to efficiencies and streamlining of operations, reduced operating costs from shut-in wells as well as lower activity levels, such as downhole maintenance. &A expenses were $59 million for the fourth quarter of 2020, compared to $62 million in the same prior-year period. For the full year of 2020, G&A expenses were $252 million, compared to $290 million in 2019. The decrease in G&A expenses resulted from workforce reductions, cost saving efforts and a decline in spending across a number of cost categories. These savings were partially offset by the cost of obtaining additional directors and officers insurance related to the Chapter 11 cases, lower capitalized salary costs as a result of suspending the capital program beginning in March 2020 as well a slight increase in employee incentive awards due to changes to the variable portion of the incentive compensation program in May 2020, which had the effect of increasing CRC's cash-settled awards to target and achieving a higher target payout on performance metrics.

CRC reported taxes other than on income of $23 million for the fourth quarter of 2020, compared to $38 million for the same prior-year period. For the full year of 2020, CRC reported taxes other than on income of $144 million, compared to $157 million in 2019. The decrease primarily resulted from reduced emissions in 2020 as compared to 2019 due to lower activity levels, including shut-in wells, and better than expected market pricing on the purchase of greenhouse gas emissions credits. Exploration expense was $2 million and $11 million for the fourth quarter of 2020 and for the whole year, respectively, mostly due to limited exploration activity in 2020 as a result of the lower commodity price environment.

Total internally funded capital invested during the fourth quarter of 2020 was $10 million. For the full year of 2020, total capital invested was $140 million, of which $47 million was internally funded by CRC. CRC's JV partners Macquarie Infrastructure and Real Assets Inc. (MIRA) and Alpine Energy Capital, LLC (Alpine) invested an additional $1 million and $92 million, respectively, which are excluded from CRC's consolidated results.

Balance Sheet and Liquidity Update

In January 2021, CRC completed an offering of $600 million of 7.125% senior unsecured notes due 2026. The net proceeds of $590 million were used to repay in full the second lien term loan and all outstanding senior secured notes due 2027 issued by CRC's subsidiary Elk Hills Power, LLC, with the remaining $90 million used to pay down a portion of the Revolving Credit Facility. As of December 31, 2020, CRC had liquidity of $335 million, which consisted of $28 million in unrestricted cash and $307 million of available borrowing capacity under its Revolving Credit Facility. After giving effect to the January 2021 debt issuance discussed above, CRC would have had, on a pro forma basis, liquidity of $425 million as of December 31, 2020, which consisted of $28 million in unrestricted cash and $397 million of available borrowing capacity under its Revolving Credit Facility. As of March 01, 2021, CRC had an undrawn revolving credit facility, $125 million in letters of credit outstanding and liquidity of approximately $475 million.

Organization Changes

During the second half of 2020, CRC implemented organizational changes that resulted in a 12% reduction of overall headcount to approximately 1,100 employees. Subsequent to the quarter-end, CRC took steps to further align the cost structure with the objective to focus around core assets and cost performance. This included decisions to reduce the size of its management team and to realign several functions which resulted in further headcount and cost reductions. During the first quarter of 2021, CRC further reduced its headcount by an additional 9% to approximately 1,000 employees.

Excluding one-time severance charges, these personnel related changes are expected to reduce the compensation expense component of CRC's 2021 operating expenses by approximately $15 million per year and general and administrative expenses by approximately $50 million per year from its 2020 levels.

Operational Update

In the fourth quarter of 2020, CRC operated no drilling rigs. The San Joaquin basin produced 74,000 net BOE per day. The Los Angeles basin produced 23,000 net BOE per day, the Ventura basin produced 3,000 net BOE per day and the Sacramento basin produced 3,000 net BOE per day.

Reserves

As of December 31, 2020, CRC had estimated proved reserves totaling 442 million BOE, of which 382 million BOE was proved developed and 60 million BOE was proved undeveloped. The estimated future net cash flows of our proved reserve volumes had a PV-10 value of $2.43 billion. These estimates were based on SEC pricing and the average realized prices for estimating CRC's proved reserves were $42.35 per barrel for oil, $26.42 per barrel for NGLs and $2.28 per Mcf for natural gas.