California Resources Corporation Announces Second 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 $12 million, or $0.24 per diluted share, for the second quarter of 2019. Adjusted net loss1 was $14 million, or $0.29 per diluted share. Operational and financial highlights for the second quarter of 2019 were as follows:

Highlights

  • Reported adjusted EBITDAX1 of $255 million; adjusted EBITDAX margin1 of 39%; net cash provided by operating activities of $114 million
  • Second quarter 2019 average daily production of 129,000 barrels of oil equivalent (BOE) per day, and oil production of 79,000 barrels per day
  • CRC invested $124 million of internally funded capital and $140 million including JV capital
  • Drilled 33 wells in the San Joaquin basin and 6 wells in the Los Angeles basin including JV wells
  • Entered into a joint venture with subsidiaries of Colony Capital, Inc. to invest up to $500 million to further develop our flagship Elk Hills field, with an initial commitment of $320 million

Todd Stevens, CRC’s President and Chief Executive Officer, said, “Our portfolio of quality assets continues to attract outside capital seeking reliable returns. Our three largest development joint ventures potentially provide for over $1 billion from our partners to drill our broad project inventory. We remain disciplined in utilizing our internal VCI metric to dynamically allocate our capital to maximize value in our portfolio. Strengthening our balance sheet remains a top focus and we’re continuing to target 10 to 15 percent of our discretionary cash flow towards balance sheet strengthening. We continue to pursue other transactions that will enhance these efforts. Our capital plan calls for CRC’s investments to be modestly lower in the second half of the year, while JV capital will increase with our new partner’s investment. This will result in a slight increase in production through the end of the year.”

Second Quarter 2019 Results

For the second quarter of 2019, CRC reported net income attributable to common stock of $12 million, or $0.24 per diluted share, compared to a loss of $82 million, or $1.70 per diluted share, for the same period of 2018. Adjusted net loss1 for both the second quarter of 2019 and 2018 was $14 million, or $0.29 per diluted share. Second quarter 2019 adjusted net loss1 excluded a net gain of $20 million on debt repurchases, $4 million of non-cash derivative gains on commodity derivatives and income of $2 million, net, for unusual and infrequent items.

Adjusted EBITDAX1 for the second quarter of 2019 was $255 million and cash provided by operating activities was $114 million.

Total daily production volumes decreased 4% year-over-year, from 134,000 BOE per day for the second quarter of 2018 to 129,000 BOE per day for the second quarter of 2019. Total daily production for the second quarter of 2019 was lower partially due to a strategic divestiture which was completed in the second quarter of 2019. The divestiture, together with PSC effects, reduced our second quarter 2019 production by over 2,000 BOE per day. Non-recurring events including power and plant outages lowered quarterly production by 1,000 BOE per day. Oil volumes averaged 79,000 barrels per day, NGL volumes averaged 16,000 barrels per day and gas volumes averaged 203,000 thousand cubic feet (Mcf) per day.

Despite lower Brent index prices, our realized crude oil prices, including the effect of settled hedges, increased by $6.55 per barrel from $64.11 in the second quarter of 2018 to $70.66 per barrel in the second quarter of 2019. In the second quarter of 2019, hedge settlements increased our realized crude oil prices by $1.89 per barrel compared to a reduction of $9.08 per barrel in the prior year period. Realized NGL prices were $27.82 per barrel, down $14.31 over the prior year period as local and national markets experienced excess supply resulting from Canadian imports coupled with weaker demand. Realized natural gas prices were $2.33 per Mcf for the second quarter of 2019, $0.08 higher than the same prior year period due to stronger California demand.

Production costs for the second quarter of 2019 were $230 million compared to $231 million for the second quarter of 2018.

General and administrative (G&A) expenses were $79 million for the second quarter of 2019 compared to $90 million for the same prior-year period. CRC’s obligation for cash-settled stock-based compensation awards is adjusted for changes in our stock price at the end of each quarter and the related expense decreased approximately $16 million due to a lower stock price in the second quarter of 2019. This decrease was partially offset by higher overhead expenses in 2019.

CRC reported taxes other than on income of $36 million for the second quarter of 2019 compared to $37 million for the same prior-year period. Exploration expense was $10 million for the second quarter of 2019, $4 million higher than the same prior-year period.

CRC’s internally funded capital investment for the second quarter of 2019 totaled $124 million, of which $89 million was directed to drilling and capital workovers. CRC’s JV partner Benefit Street Partners (BSP) also invested $16 million, which is included in CRC’s consolidated results.

Six-Month Results

For the first six months of 2019, CRC net loss attributable to common stock was $55 million, or $1.13 per diluted share, compared to a loss of $84 million, or $1.81 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 six months of 2019 was $17 million, or $0.35 per diluted share, compared with an adjusted net loss1 of $6 million, or $0.13 per diluted share, for the same period of 2018. The 2019 adjusted net income1 excluded $93 million of non-cash derivative losses, a net gain of $26 million from debt repurchases and a net $5 million charge related to other unusual and infrequent items.

Total daily production volumes averaged 131,000 BOE per day for the first six months of 2019, compared with 129,000 BOE per day for the same period in 2018, an increase of 2 percent. The 2018 volumes reflected only one quarter of production from the Elk Hills acquisition. The 2019 volumes reflected the effect of a strategic divestiture and non-recurring events in the second quarter.

In the first six months of 2019, realized crude oil prices, including the effect of settled hedges, increased $4.43 per barrel to $67.90 per barrel from $63.47 per barrel for the same period in 2018. Settled hedges increased 2019 realized crude oil prices by $1.93 per barrel, compared with a reduction of $6.88 per barrel for the same period in 2018. Realized NGL prices decreased 18 percent, or $7.66 per barrel to $34.97 per barrel in the first six months of 2019 from $42.63 per barrel for the same period of 2018. Realized natural gas prices increased to $2.87 per Mcf, compared with $2.51 per Mcf for the same period in 2018.

Production costs for the first six months of 2019 were $463 million, or $19.54 per BOE, compared to $443 million, or $19.01 per BOE, for the same period in 2018. The increase is primarily attributable to the Elk Hills transaction, higher surface operations and maintenance 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 PSCs, were $17.99 and $17.44 per BOE for the first six months of 2019 and 2018, respectively.

G&A expenses for the first six months of 2019 were $162 million and for the first six months of 2018 were $153 million, with the increase largely due to higher expenses across a number of functions, partially offset by lower equity compensation expense in the first half of 2019.

Taxes other than on income of $77 million for the first six months of 2019 were comparable to the same period of 2018, when taxes were $75 million. Exploration expense of $20 million for the first six months of 2019 was $6 million higher than the same period of 2018.

Capital investment in the first six months of 2019 totaled $228 million excluding JV capital, of which $158 million was directed to drilling and capital workovers. BSP also invested $43 million, which is included in CRC’s consolidated results.

Cash provided by operating activities for the first six months of 2019 was $272 million and free cash flow was $44 million after taking into account capital investment that was funded by BSP.

Operational Update

In the second quarter of 2019, CRC operated an average of seven drilling rigs, with two rigs focused on conventional primary production, two on waterfloods, one on steamfloods and two on unconventional production. With total invested capital, we drilled 39 development wells and no exploration wells (5 steamflood, 20 waterflood, 4 primary and 10 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 94,000 BOE per day and operated six rigs. The Los Angeles basin contributed 24,000 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 of both vertical and lateral wells 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 $350 million to $385 million. CRC entered into a JV with subsidiaries of Colony Capital, Inc. (collectively, “Colony”) in July 2019. As a result, CRC will increase its JV investment contributions to a range of $175 to $225 million for 2019. CRC anticipates a total capital program of approximately $525 to $610 million for the year.

Strategic Asset Divestiture

As previously disclosed, CRC sold 50% of its working interest and transferred operatorship in certain zones in our Lost Hills field in the San Joaquin Basin on May 1, 2019. The total consideration was in excess of $200 million, including approximately $168 million in cash before transaction costs and a carried 200-well development program to be drilled through 2023 with an estimated value of $35 million. The cash proceeds of $165 million, net of transaction costs and purchase price adjustments, were used to pay down the revolver. CRC also benefits from accelerated development from the drilling carry.

Recent Joint Venture

In July 2019, CRC entered into a JV with Colony, under which Colony has committed to invest $320 million for the development of portions of our flagship Elk Hills field, located in the San Joaquin basin. Colony’s total investment may be increased to $500 million, subject to the mutual agreement of the parties. The initial commitment will cover multiple development opportunities in portions of the Elk Hills field and is intended to be invested over approximately three years in accordance with a development plan that has been agreed to by the parties consisting of 275 wells. Colony will fund 100% of the development wells and will earn a 90% working interest in those wells. If Colony receives an agreed upon return, CRC’s working interest will increase from 10% to 82.5%.

Colony also received a warrant to purchase up to 1.25 million shares of our common stock, at an exercise price of $40 per share.

Repurchases and Balance Sheet Update

During the second quarter of 2019, CRC repurchased $58 million in face value of CRC’s Second Lien Notes for $45 million, bringing the aggregate face value of Second Lien Notes repurchased since issuance to approximately $260 million. Total net debt outstanding at the end of the second quarter was $5.1 billion.

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 third and fourth quarters of 2019, CRC has protected the downside price risk on 40,000 and 35,000 barrels per day at approximately $73 Brent and $76 Brent, respectively. These put spreads provide full upside to oil price movements and downside protection until Brent prices drop below approximately $58 and $60 per barrel in the third and fourth quarters, respectively, at which point we receive Brent plus approximately $15 per barrel. For the first and second quarters of 2020, CRC has protected the downside risk of 25,000 and 10,000 barrels per day at approximately $72 Brent and $70 Brent, respectively. These put spreads provide downside price protection until Brent prices drop below $57 and $55 per barrel in the first and second quarters, respectively, at which point we receive Brent plus $15 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 is subject to another 5,000 barrel per day at the same price at the option of the counterparties. See Attachment 8 for more details.

1 See Attachment 3 for non-GAAP financial measures of adjusted EBITDAX, adjusted EBITDAX margin, 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/10132315. 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 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 “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

 

 

 

 

 

 

 

 

 

 

 

Second Quarter

 

Six Months

 

($ and shares in millions, except per share amounts)

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

Statements of Operations:

 

 

 

 

 

 

 

 

 

Revenues and Other

 

 

 

 

 

 

 

 

 

Oil and gas sales

 

$

578

 

 

$

657

 

 

$

1,179

 

 

$

1,232

 

 

Net derivative gain (loss) from commodity contracts

 

21

 

 

(167

)

 

(68

)

 

(205

)

 

Other revenue

 

54

 

 

59

 

 

232

 

 

131

 

 

Total revenues and other

 

653

 

 

549

 

 

1,343

 

 

1,158

 

 

 

 

 

 

 

 

 

 

 

 

Costs and Other

 

 

 

 

 

 

 

 

 

Production costs

 

230

 

 

231

 

 

463

 

 

443

 

 

General and administrative expenses

 

79

 

 

90

 

 

162

 

 

153

 

 

Depreciation, depletion and amortization

 

121

 

 

125

 

 

239

 

 

244

 

 

Taxes other than on income

 

36

 

 

37

 

 

77

 

 

75

 

 

Exploration expense

 

10

 

 

6

 

 

20

 

 

14

 

 

Other expenses, net

 

55

 

 

49

 

 

203

 

 

110

 

 

Total costs and other

 

531

 

 

538

 

 

1,164

 

 

1,039

 

 

 

 

 

 

 

 

 

 

 

 

Operating Income

 

122

 

 

11

 

 

179

 

 

119

 

 

 

 

 

 

 

 

 

 

 

 

Non-Operating (Loss) Income

 

 

 

 

 

 

 

 

 

Interest and debt expense, net

 

(98

)

 

(94

)

 

(198

)

 

(186

)

 

Net gain on early extinguishment of debt

 

20

 

 

24

 

 

26

 

 

24

 

 

Gain on asset divestitures

 

 

 

1

 

 

 

 

1

 

 

Other non-operating expenses

 

(3

)

 

(5

)

 

(10

)

 

(12

)

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) Before Income Taxes

 

41

 

 

(63

)

 

(3

)

 

(54

)

 

Income tax

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

41

 

 

(63

)

 

(3

)

 

(54

)

 

Net income attributable to noncontrolling interests

 

(29

)

 

(19

)

 

(52

)

 

(30

)

 

Net Income (Loss) Attributable to Common Stock

 

$

12

 

 

$

(82

)

 

$

(55

)

 

$

(84

)

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to common stock per share – basic

 

$

0.25

 

 

$

(1.70

)

 

$

(1.13

)

 

$

(1.81

)

 

Net income (loss) attributable to common stock per share – diluted

 

$

0.24

 

 

$

(1.70

)

 

$

(1.13

)

 

$

(1.81

)

 

 

 

 

 

 

 

 

 

 

 

Adjusted net (loss) income

 

$

(14

)

 

$

(14

)

 

$

17

 

 

$

(6

)

 

Adjusted net (loss) income per share – basic

 

$

(0.29

)

 

$

(0.29

)

 

$

0.35

 

 

$

(0.13

)

 

Adjusted net (loss) income per share – diluted

 

$

(0.29

)

 

$

(0.29

)

 

$

0.35

 

 

$

(0.13

)

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding – basic

 

48.9

 

 

48.2

 

 

$

48.8

 

 

$

46.3

 

 

Weighted-average common shares outstanding – diluted

 

49.2

 

 

48.2

 

 

$

48.8

 

 

$

46.3

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDAX

 

$

255

 

 

$

245

 

 

$

556

 

 

$

495

 

 

Effective tax rate

 

0%

 

0%

 

0%

 

0%

 

 

Cash Flow Data:

 

 

 

 

 

 

 

 

Net cash provided by operating activities

$

114

 

 

$

34

 

 

$

272

 

 

$

234

 

 

Net cash provided (used) in investing activities

$

12

 

 

$

(669

)

 

$

(170

)

 

$

(807

)

 

Net cash (used) provided by financing activities

$

(142

)

 

$

183

 

 

$

(92

)

 

$

595

 

 

 

 

June 30,

 

December 31,

($ and shares in millions)

 

2019

 

2018

 

 

 

 

 

Selected Balance Sheet Data:

 

 

 

 

Total current assets

 

$

522

 

 

$

640

 

Total property, plant and equipment, net

 

$

6,409

 

 

$

6,455

 

Total current liabilities

 

$

610

 

 

$

607

 

Long-term debt

 

$

5,060

 

 

$

5,251

 

Other long-term liabilities

 

$

679

 

 

$

575

 

Mezzanine equity

 

$

777

 

 

$

756

 

Equity

 

$

(279

)

 

$

(247

)

Outstanding shares as of

 

49.0

 

 

48.7

 

STOCK-BASED COMPENSATION

 

Our consolidated results of operations for the three months and six months ended June 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 units that either vest at the grant date or 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 approximately 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:

 

 

Second Quarter

 

Six Months

 

($ in millions, except per BOE amounts)

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

 

 

 

 

 

 

 

Cash-settled awards

 

$

3

 

 

$

19

 

 

$

13

 

 

$

22

 

 

Equity-settled awards

 

4

 

 

4

 

 

7

 

 

7

 

 

Total stock-based compensation in G&A

 

$

7

 

 

$

23

 

 

$

20

 

 

$

29

 

 

Total stock-based compensation in G&A per Boe

 

$

0.60

 

 

$

1.89

 

 

$

0.84

 

 

$

1.24

 

 

 

 

 

 

 

 

 

 

 

 

Production costs

 

 

 

 

 

 

 

 

 

Cash-settled awards

 

$

1

 

 

$

5

 

 

$

4

 

 

$

6

 

 

Equity-settled awards

 

1

 

 

1

 

 

2

 

 

2

 

 

Total stock-based compensation in production costs

 

$

2

 

 

$

6

 

 

$

6

 

 

$

8

 

 

Total stock-based compensation in production costs per Boe

 

$

0.17

 

 

$

0.49

 

 

$

0.25

 

 

$

0.34

 

 

 

 

 

 

 

 

 

 

 

 

Total company stock-based compensation

 

$

9

 

 

$

29

 

 

$

26

 

 

$

37

 

 

Total company stock-based compensation per Boe

 

$

0.77

 

 

$

2.38

 

 

$

1.09

 

 

$

1.58

 

 

 

 

 

 

 

 

 

 

 

 

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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