CALIFORNIA RESOURCES CORPORATION General
We are an independent oil and natural gas exploration and production company operating properties exclusively withinCalifornia . 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 toCalifornia Resources Corporation and its subsidiaries. We are committed to energy transition in the energy sector and have some of the lowest carbon intensity production inthe United States . Through our subsidiary, Carbon TerraVault, we are in the early stages of developing several carbon capture and sequestration projects in theSan Joaquin Valley . Separately, we are evaluating the feasibility of a carbon capture system to be located at ourElk 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 onOctober 27, 2020 , at which point we became a new entity for financial reporting purposes. We adopted an accounting convenience date ofOctober 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 afterOctober 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 toOctober 31, 2020 and references to "Successor" refer to the Company for periods subsequent toOctober 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 endedDecember 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 endedSeptember 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. 24 --------------------------------------------------------------------------------
The following table presents the average daily Brent, WTI and NYMEX prices for
the three and nine months ended
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 fourCalifornia 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 ourVentura 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 endedSeptember 30, 2021 , compared to the same period in 2020, decreased by approximately 4 MBoe/d or 4%. For the nine months endedSeptember 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 andReal 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 endedSeptember 30, 2021 by approximately 1 MBoe/d and approximately 3 MBoe/d, respectively, compared to the same periods in 2020. 25 --------------------------------------------------------------------------------
Production-Sharing Contracts (PSCs)
Our share of production and reserves from operations in theWilmington field in theLos 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 endedSeptember 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 endedSeptember 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 --------------------------------------------------------------------------------
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
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%
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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
Natural Gas - For the three and nine months endedSeptember 30, 2021 , natural gas prices have increased compared to the same prior year periods. Increases in pricing - both acrossthe United States and withinCalifornia - have been driven by strong industrial and export demand. 28 --------------------------------------------------------------------------------
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 endedSeptember 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.
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