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OFFON

CALIFORNIA RESOURCES CORPORATION

(CRC)
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CALIFORNIA RESOURCES CORP Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

11/12/2021 | 04:35pm EST

General


We are an independent oil and natural gas exploration and production company
operating properties exclusively within California. We provide ample, affordable
and reliable energy in a safe and responsible manner, to support and enhance the
quality of life of Californians and the local communities in which we operate.
We do this through the development of our broad portfolio of assets while
adhering to our commitment to making value-based capital investments. Except
when the context otherwise requires or where otherwise indicated, all references
to ''CRC,'' the ''Company,'' ''we,'' ''us'' and ''our'' refer to California
Resources Corporation and its subsidiaries.

We are committed to energy transition in the energy sector and have some of the
lowest carbon intensity production in the United States. Through our subsidiary,
Carbon TerraVault, we are in the early stages of developing several carbon
capture and sequestration projects in the San Joaquin Valley. Separately, we are
evaluating the feasibility of a carbon capture system to be located at our Elk
Hills power plant. We are also pursuing multiple front-of-the-meter and
behind-the-meter solar projects.

We qualified for and adopted fresh start accounting upon emergence from
bankruptcy on October 27, 2020, at which point we became a new entity for
financial reporting purposes. We 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 our joint plan of reorganization (the Plan), 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.

See Part II, Item 8 - Financial Statements and Supplementary Data, Note 2
Chapter 11 Proceedings and Note 3 Fresh Start Accounting in our Annual Report on
Form 10-K for the year ended December 31, 2020 (2020 Annual Report) for
additional information on the terms of the Plan, our emergence from bankruptcy
and application of fresh start accounting.

Business Environment and Industry Outlook

Commodity Prices


Our operating results and those of the oil and gas industry as a whole are
heavily influenced by commodity prices. Oil and natural gas prices and
differentials may fluctuate significantly as a result of numerous market-related
variables. These and other factors make it impossible to predict realized prices
reliably. We respond to economic conditions by adjusting the amount and
allocation of our capital program while continuing to identify efficiencies and
cost savings. Volatility in oil prices may materially affect the quantities of
oil and natural gas reserves we can economically produce over the longer term.

Global oil prices were higher in the three and nine months ended September 30,
2021 compared to the same periods in 2020. Benchmark prices for Brent crude oil
in the first nine months of 2021 increased 59% from the same period in 2020 as a
result of steady draws on global inventories demonstrating a strong recovery
from the same prior year period when oil prices were negatively influenced by
the Coronavirus Disease 2019 (COVID-19) pandemic and by the actions of foreign
producers.

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The following table presents the average daily Brent, WTI and NYMEX prices for the three and nine months ended September 30, 2021 and 2020:

                           Three months ended              Nine months ended
                              September 30,                  September 30,
                            2021            2020           2021          2020
Brent oil ($/Bbl)     $    73.23          $ 43.37      $    67.78      $ 42.53
WTI oil ($/Bbl)       $    70.56          $ 40.93      $    64.82      $ 38.32
NYMEX gas ($/MMBtu)   $     3.71          $  1.93      $     3.06      $  1.92


Note:   Bbl refers to a barrel; MMBtu refers to one million British Thermal
Units.

See Part II, Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations, Production and Prices and Part II, Item 1A
- Risk Factors in our 2020 Annual Report for further discussion regarding the
impact of the pandemic and declines in commodity prices.

Production


The following table sets forth our average net production of oil, natural gas
liquids (NGLs) and natural gas per day in each of the four California oil and
natural gas basins in which we operate for the periods presented. See Part I,
Item 1 - Financial Statements, Note 6 Assets Held for Sale and Note 16
Subsequent Events for information regarding the divestiture of our Ventura basin
operations.
                                             Successor                          Predecessor                    Successor                          Predecessor
                                        Three months ended                  Three months ended             Nine months ended                   Nine months ended
                                           September 30,                       September 30,                 September 30,                       September 30,
                                               2021                                2020                          2021                                2020
Oil (MBbl/d)
   San Joaquin Basin                               40                                  40                            39                                  42
   Los Angeles Basin                               19                                  22                            19                                  25
   Ventura Basin                                    3                                   2                             3                                   3

     Total                                         62                                  64                            61                                  70
NGLs (MBbl/d)
   San Joaquin Basin                               13                                  14                            13                                  14

     Total                                         13                                  14                            13                                  14
Natural gas (MMcf/d)
   San Joaquin Basin                              135                                 142                           135                                 148
   Los Angeles Basin                                1                                   2                             1                                   2
   Ventura Basin                                    5                                   4                             5                                   4
   Sacramento Basin                                19                                  20                            19                                  21
     Total                                        160                                 168                           160                                 175

Total Net Production (MBoe/d)                     102                                 106                           101                                 113


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.

Total daily production for the three months ended September 30, 2021, compared
to the same period in 2020, decreased by approximately 4 MBoe/d or 4%. For the
nine months ended September 30, 2021 compared to the same period in 2020, total
daily production decreased by approximately 12 MBoe/d or 11%. The decrease in
production largely resulted from limited drilling activity and capital
investment during 2020 and natural decline rates. This decrease was partially
offset by improved operational results from our 2021 drilling program and our
acquisition of the working interests in certain joint venture wells held by
Macquarie Infrastructure and Real Assets Inc. (MIRA) in the third quarter of
2021. Our production-sharing contracts (PSCs), which are described below,
negatively impacted our oil production in the three and nine months ended
September 30, 2021 by approximately 1 MBoe/d and approximately 3 MBoe/d,
respectively, compared to the same periods in 2020.
                                       25
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Production-Sharing Contracts (PSCs)


Our share of production and reserves from operations in the Wilmington field in
the Los Angeles basin is subject to contractual arrangements similar to
production-sharing contracts (PSCs) that are in effect through the economic life
of the assets. Under such contracts we are obligated to fund all capital and
operating costs. We record a share of production and reserves to recover a
portion of such capital and operating costs and an additional share for profit.
Our portion of the production represents volumes: (i) to recover our partners'
share of capital and operating costs that we incur on their behalf, (ii) for our
share of contractually defined base production and (iii) for our share of
remaining production thereafter. We generate returns through our defined share
of production from (ii) and (iii) above. These contracts do not transfer any
right of ownership to us and reserves reported from these arrangements are based
on our economic interest as defined in the contracts. Our share of production
and reserves from these contracts decreases when product prices rise and
increases when prices decline, assuming comparable capital investment and
operating costs. However, our net economic benefit is greater when product
prices are higher. These contracts represented approximately 15% of our net
production for the three months ended September 30, 2021.

In line with industry practice for reporting PSC-type contracts, we report 100%
of operating costs under such contracts in our condensed consolidated statements
of operations as opposed to reporting only our share of those costs. We report
the proceeds from production designed to recover our partners' share of such
costs (cost recovery) in our revenues. Our reported production volumes reflect
only our share of the total volumes produced, including cost recovery, which is
less than the total volumes produced under the PSC-type contracts. This
difference in reporting full operating and general and administrative costs but
only our net share of production equally inflates our oil, natural gas and NGL
sales revenue, general and administrative expenses and operating costs but has
no effect on our net results.

The reporting of our PSC-type contracts creates a difference between reported
operating costs, which are for the full field, and reported volumes, which are
only our net share, inflating the per barrel operating costs. The following
table presents operating costs after adjusting for excess costs attributable to
PSC-type contracts for the three and nine months ended September 30, 2021:

                                             Three months ended September 30, 2021            Nine months ended September 30, 2021
                                              (in millions)             ($ per Boe)           (in millions)            ($ per Boe)
Operating costs                            $             190          $      20.28          $           523          $      19.04
Excess costs attributable to PSC-type
contracts                                                (17)         $      (1.84)                     (47)         $      (1.72)
Operating costs, excluding effects of
PSC-type contracts(a)                      $             173          $      18.44          $           476          $      17.32


(a)Operating costs, excluding effects of PSC-type contracts is a non-GAAP
measure. As described above, the reporting of our PSC-type contracts creates a
difference between reported operating costs, which are for the full field, and
reported volumes, which are only our net share, inflating the per barrel
operating costs. These amounts represent our operating costs after adjusting for
this difference.
                                       26
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Prices and Realizations

The following tables set forth the average realized prices and price realizations as a percentage of average Brent, WTI and NYMEX for our products for the three and nine months ended September 30, 2021 and 2020:

                                                      Successor                                                Predecessor
                                          Three months ended September 30,                          Three months ended September 30,
                                                        2021                                                      2020
                                           Price                  Realization                        Price                  Realization
Oil ($ per Bbl)
Brent                               $          73.23                                          $          43.37

Realized price without derivative
settlements                         $          72.89                 100%                     $          41.83                  96%
Effects of derivative settlements             (17.47)                                                     0.32
Realized price with derivative
settlements                         $          55.42                  76%                     $          42.15                  97%

WTI                                 $          70.56                                          $          40.93

Realized price without derivative
settlements                         $          72.89                 103%                     $          41.83                 102%
Realized price with derivative
settlements                         $          55.42                  79%                     $          42.15                 103%

NGLs ($ per Bbl)
Realized price (% of Brent)         $          53.74                  73%                     $          25.16                  58%
Realized price (% of WTI)           $          53.74                  76%                     $          25.16                  61%

Natural gas
NYMEX ($/MMBtu)                     $           3.71                                          $           1.93

Realized price without derivative
settlements ($/Mcf)                 $           4.66                 126%                     $           2.22                 115%
Effects of derivative settlements              (0.02)                                                     0.02
Realized price with derivative
settlements ($/Mcf)                 $           4.64                 125%                     $           2.24                 116%



                                       27
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                                                      Successor                                                Predecessor
                                           Nine months ended September 30,                           Nine months ended September 30,
                                                        2021                                                      2020
                                           Price                  Realization                        Price                  Realization
Oil ($ per Bbl)
Brent                               $          67.78                                          $          42.53

Realized price without derivative
settlements                         $          67.62                 100%                     $          41.27                  97%
Effects of derivative settlements             (13.19)                                                     2.00
Realized price with derivative
settlements                         $          54.43                  80%                     $          43.27                 102%

WTI                                 $          64.82                                          $          38.32

Realized price without derivative
settlements                         $          67.62                 104%                     $          41.27                 108%
Realized price with derivative
settlements                         $          54.43                  84%                     $          43.27                 113%

NGLs ($ per Bbl)
Realized price (% of Brent)         $          49.20                  73%                     $          25.17                  59%
Realized price (% of WTI)           $          49.20                  76%                     $          25.17                  66%

Natural gas
NYMEX ($/MMBtu)                     $           3.06                                          $           1.92

Realized price without derivative
settlements ($/Mcf)                 $           3.67                 120%                     $           2.05                 107%
Effects of derivative settlements              (0.03)                                                     0.06
Realized price with derivative
settlements ($/Mcf)                 $           3.64                 119%                     $           2.11                 110%



Oil - Brent index and realized prices excluding hedge settlements were higher in
the three and nine month periods ended September 30, 2021 compared to the same
periods in 2020 as oil demand has been bolstered by the re-opening of economies
and easing of mobility restrictions related to the COVID-19 pandemic. Prices
have also increased due to a rise in domestic demand and lower supply caused by
reduced investment in the U.S. upstream oil and gas sector during 2020 as well
as supply management by OPEC members.

NGLs - Prices for NGLs increased for the three and nine month periods ended September 30, 2021 compared to the same periods in 2020. Higher prices are the result of increased demand in the U.S. and abroad.


Natural Gas - For the three and nine months ended September 30, 2021, natural
gas prices have increased compared to the same prior year periods. Increases in
pricing - both across the United States and within California - have been driven
by strong industrial and export demand.
                                       28
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Statements of Operations Analysis

Results of Oil and Gas Operations


The following table includes key operating data for our oil and gas operations,
excluding certain corporate expenses, on a per Boe basis for the three and nine
months ended September 30, 2021 and 2020. Energy operating costs consist of
purchases of natural gas used to generate electricity, purchased electricity and
internal costs to generate electricity used in our operations. Non-energy
operating costs equal total operating costs less energy costs and gas processing
costs. However, non-energy operating costs include the costs of purchasing
natural gas used to generate steam for our steamfloods.

© Edgar Online, source Glimpses

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