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 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 six months endedJune 30, 2021 compared to the same periods in 2020. Benchmark prices for Brent crude oil in the first half of 2021 increased 55% from the same period in 2020 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. Commodity prices have benefited from rising consumption and economic growth due to the lifting of restrictions related to the COVID-19 pandemic. During the first half of 2021, members ofOrganization of Petroleum Exporting Countries (OPEC) continued to restrain crude oil production attempting to reduce oil supplies built during 2020.
The following table presents the average daily Brent, WTI and NYMEX prices for
the three and six months ended
Three months ended Six months ended
June 30, June 30,
2021 2020 2021 2020
Brent oil ($/Bbl) $ 69.02 $ 33.27 $ 65.06 $ 42.12
WTI oil ($/Bbl) $ 66.07 $ 27.85 $ 61.96 $ 37.01
NYMEX gas ($/MMBtu) $ 2.76 $ 1.77 $ 2.74 $ 1.91
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.
21
--------------------------------------------------------------------------------Production
The following table sets forth our average net production volumes of oil,
natural gas liquids (NGLs) and natural gas per day for the three and six months
ended
Successor Predecessor Successor Predecessor
Three months ended Three months ended Six months ended Six months ended
June 30, June 30, June 30, June 30,
2021 2020 2021 2020
Oil (MBbl/d)
San Joaquin Basin 39 41 38 44
Los Angeles Basin 19 27 20 26
Ventura Basin 3 2 2 3
Total 61 70 60 73
NGLs (MBbl/d)
San Joaquin Basin 13 13 12 14
Ventura Basin - - 1 -
Total 13 13 13 14
Natural gas (MMcf/d)
San Joaquin Basin 135 148 135 151
Los Angeles Basin 1 2 1 2
Ventura Basin 5 3 5 4
Sacramento Basin 20 21 20 22
Total 161 174 161 179
Total Net Production (MBoe/d) 101 112 100 117
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 June 30, 2021 , compared to the
same period in 2020, decreased by approximately 11 MBoe/d or 10%. The decrease
in production largely resulted from limited drilling activity and capital
investment during the prior 12 months and natural decline rates. Our
production-sharing contracts (PSCs), as described below, negatively impacted our
oil production in the second quarter of 2021 by approximately five MBoe/d
compared to the same period in 2020. Our total daily production for the three
months ended June 30, 2021 decreased by approximately 5% compared to the same
period in 2020 after excluding the impact of PSC-type contracts.
For the six months ended June 30, 2021 compared to the same period in 2020,
total daily production decreased by approximately 17 MBoe/d or 15%. The decrease
in production largely resulted from limited drilling activity and capital
investment during the prior 12 months and natural decline. Production volumes
were also negatively impacted by downtime at one of our gas processing plants
and our PSC-type contracts. Our total daily production decreased by 12 MBoe/d or
10% compared to the same period in 2020 after excluding the impact of PSC-type
contracts and unscheduled downtime.
22
--------------------------------------------------------------------------------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 endedJune 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. See Statements of Operations Analysis, Results of Oil and Gas Operations below for our operating costs and operating costs, excluding the effects of our PSC-type contracts on a per Boe basis. 23 --------------------------------------------------------------------------------
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 six months ended
Successor Predecessor
Three months ended June 30, Three months ended June 30,
2021 2020
Price Realization Price Realization
Oil ($ per Bbl)
Brent $ 69.02 $ 33.27
Realized price without hedge $ 68.94 100% $ 30.27 91%
Settled hedges (14.84) 0.55
Realized price with hedge $ 54.10 78% $ 30.82 93%
WTI $ 66.07 $ 27.85
Realized price without hedge $ 68.94 104% $ 30.27 109%
Realized price with hedge $ 54.10 82% $ 30.82 111%
NGLs ($ per Bbl)
Realized price (% of Brent) $ 44.90 65% $ 21.05 63%
Realized price (% of WTI) $ 44.90 68% $ 21.05 76%
Natural gas
NYMEX ($/MMBtu) $ 2.76 $ 1.77
Realized price without hedge
($/Mcf) $ 3.04 110% $ 1.65 93%
Settled hedges (0.01) 0.08
Realized price with hedge
($/Mcf) $ 3.03 110% $ 1.73 98%
24
--------------------------------------------------------------------------------
Successor Predecessor
Six months ended June 30, Six months ended June 30,
2021 2020
Price Realization Price Realization
Oil ($ per Bbl)
Brent $ 65.06 $ 42.12
Realized price without hedge $ 64.89 100% $ 41.02 97%
Settled hedges (10.98) 2.74
Realized price with hedge $ 53.91 83% $ 43.76 104%
WTI $ 61.96 $ 37.01
Realized price without hedge $ 64.89 105% $ 41.02 111%
Realized price with hedge $ 53.91 87% $ 43.76 118%
NGLs ($ per Bbl)
Realized price (% of Brent) $ 46.75 72% $ 25.18 60%
Realized price (% of WTI) $ 46.75 75% $ 25.18 68%
Natural gas
NYMEX ($/MMBtu) $ 2.74 $ 1.91
Realized price without hedge
($/Mcf) $ 3.17 116% $ 1.96 103%
Settled hedges (0.03) 0.09
Realized price with hedge
($/Mcf) $ 3.14 115% $ 2.05 107%
Oil - Brent index and realized prices excluding hedge settlements were higher in
the three and six month periods ended June 30, 2021 compared to the same periods
in 2020 as oil demand recovered from its COVID-19 driven lows. Prices collapsed
in March 2020 at the beginning of the pandemic and have since improved as a
result of easing mobility restrictions and the delayed effects of
pandemic-related production curtailments and reduced capital investments by OPEC
members, domestic producers and Russia .
NGLs - Prices for NGLs increased for the three and six month periods ended
June 30, 2021 compared to the same periods in 2020. In 2020, demand declined at
the onset of COVID-19 that caused materially lower NGL prices and resulted in
production curtailments. Production curtailments continued into 2021 causing
tighter supplies and higher benchmark prices in the face of improving demand.
Natural Gas - Natural gas index and realized prices were higher in the three and
six months ended June 30, 2021 compared to the same periods in 2020. The
pandemic caused natural gas demand to decline which prompted producers to, in
response, reduce production and investment. As pandemic-related mobility
restrictions have been lifted, production increases have thus far failed to keep
pace with prompt demand and seasonal storage requirements.
25--------------------------------------------------------------------------------
© Edgar Online, source
