CRC 10-Q
California Resources Corp (CRC)
10-Q
2023-11-02
For: 2023-09-30
View Original
Added on
April 08, 2026
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
OR
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 001-36478
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(Address of principal executive offices) (Zip Code)
(888 ) 848-4754
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act:
| ☑ | Accelerated Filer | ☐ | Non-Accelerated Filer | ☐ | |||||||||||||
| Smaller Reporting Company | Emerging Growth Company | ||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ☑ Yes ☐ No
Indicate the number of shares outstanding for each of the issuer's classes of common stock, as of the latest practicable date.
The number of shares of common stock outstanding as of September 30, 2023 was 68,619,851 .
California Resources Corporation and Subsidiaries
Table of Contents
| Page | ||||||||
| Part I | ||||||||
| Item 1 | Financial Statements (unaudited) | |||||||
Condensed Consolidated Balance Sheets | ||||||||
Condensed Consolidated Statements of Operations | ||||||||
Condensed Consolidated Statements of Comprehensive (Loss) Income | ||||||||
Condensed Consolidated Statements of Stockholders' Equity | ||||||||
Condensed Consolidated Statements of Cash Flows | ||||||||
Notes to the Condensed Consolidated Financial Statements | ||||||||
| Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||||
General | ||||||||
Reorganization | ||||||||
Business Environment and Industry Outlook | ||||||||
Regulatory Updates | ||||||||
Supply Chain Constraints and Inflation | ||||||||
Production | ||||||||
Prices and Realizations | ||||||||
Statements of Operations Analysis | ||||||||
Liquidity and Capital Resources | ||||||||
Divestitures and Acquisitions | ||||||||
Lawsuits, Claims, Commitments and Contingencies | ||||||||
Critical Accounting Estimates and Significant Accounting and Disclosure Changes | ||||||||
Forward-Looking Statements | ||||||||
| Item 3 | Quantitative and Qualitative Disclosures About Market Risk | |||||||
| Item 4 | Controls and Procedures | |||||||
| Part II | ||||||||
| Item 1 | Legal Proceedings | |||||||
| Item 1A | Risk Factors | |||||||
| Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds | |||||||
| Item 5 | Other Disclosures | |||||||
| Item 6 | Exhibits | |||||||
1
GLOSSARY AND SELECTED ABBREVIATIONS
The following are abbreviations and definitions of certain terms used within this Form 10-Q:
•ABR - Alternate base rate.
•ASC - Accounting Standards Codification.
•ARO - Asset retirement obligation.
•Bbl - Barrel.
•Bbl/d - Barrels per day.
•Bcf - Billion cubic feet.
•Bcfe - Billion cubic feet of natural gas equivalent using the ratio of one barrel of oil, condensate, or NGLs converted to six thousand cubic feet of natural gas.
•Boe - We convert natural gas volumes to crude oil equivalents using a ratio of six thousand cubic feet (Mcf) to one barrel of crude oil equivalent based on energy content. This is a widely used conversion method in the oil and natural gas industry.
•Boe/d - Barrel of oil equivalent per day.
•Btu - British thermal unit.
•CalGEM - California Geologic Energy Management Division.
•CCS - Carbon capture and storage.
•CDMA - Carbon Dioxide Management Agreement.
•CEQA - California Environmental Quality Act.
•CO2 - Carbon dioxide.
•DAC - Direct air capture.
•DD&A - Depletion, depreciation, and amortization.
•EOR - Enhanced oil recovery.
•EPA - United States Environmental Protection Agency.
•ESG - Environmental, social and governance.
•E&P - Exploration and production.
•Full-Scope Net Zero - Achieving permanent storage of captured or removed carbon emissions in a volume equal to all of our scope 1, 2 and 3 emissions by 2045.
•GAAP - United States Generally Accepted Accounting Principles.
•G&A - General and administrative expenses.
•GHG - Greenhouse gases.
•JV - Joint venture.
•LCFS - Low Carbon Fuel Standard.
•LIBOR - London Interbank Offered Rate.
•MBbl - One thousand barrels of crude oil, condensate or NGLs.
•MBbl/d - One thousand barrels per day.
•MBoe/d - One thousand barrels of oil equivalent per day.
•MBw/d - One thousand barrels of water per day
•Mcf - One thousand cubic feet of natural gas equivalent, with liquids converted to an equivalent volume of natural gas using the ratio of one barrel of oil to six thousand cubic feet of natural gas.
•MHp - One thousand horsepower.
•MMBbl - One million barrels of crude oil, condensate or NGLs.
•MMBoe - One million barrels of oil equivalent.
•MMBtu - One million British thermal units.
•MMcf/d - One million cubic feet of natural gas per day.
•MMT - Million metric tons.
•MMTPA - Million metric tons per annum.
•MW - Megawatts of power.
•NGLs - Natural gas liquids. Hydrocarbons found in natural gas that may be extracted as purity products such as ethane, propane, isobutane and normal butane, and natural gasoline.
•NYMEX - The New York Mercantile Exchange.
•OCTG - Oil country tubular goods.
•Oil spill prevention rate - Calculated as total Boe less net barrels lost divided by total Boe.
•OPEC - Organization of the Petroleum Exporting Countries.
•OPEC+ - OPEC together with Russia and certain other producing countries.
•PHMSA - Pipeline and Hazardous Materials Safety Administration.
2
•Proved developed reserves - Reserves that can be expected to be recovered through existing wells with existing equipment and operating methods.
•Proved reserves - The estimated quantities of natural gas, NGLs, and oil that geological and engineering data demonstrate with reasonable certainty to be commercially recoverable in future years from known reservoirs under existing economic conditions, operating methods and government regulations.
•Proved undeveloped reserves - Proved reserves that are expected to be recovered from new wells on undrilled acreage that are reasonably certain of production when drilled or from existing wells where a relatively major expenditure is required for recompletion.
•PSCs - Production-sharing contracts.
•PV-10 - Non-GAAP financial measure and represents the year-end present value of estimated future cash flows from proved oil and natural gas reserves, less future development and operating costs, discounted at 10% per annum and using SEC Prices. PV-10 facilitates the comparisons to other companies as it is not dependent on the tax-paying status of the entity.
•Scope 1 emissions - Our direct emissions.
•Scope 2 emissions - Indirect emissions from energy that we use (e.g., electricity, heat, steam, cooling) that is produced by others.
•Scope 3 emissions - Indirect emissions from upstream and downstream processing and use of our products.
•SDWA - Safe Drinking Water Act.
•SEC - United States Securities and Exchange Commission.
•SEC Prices - The unweighted arithmetic average of the first day-of-the-month price for each month within the year used to determine estimated volumes and cash flows for our proved reserves.
•SOFR - Secured overnight financing rate as administered by the Federal Reserve Bank of New York.
•Standardized measure - The year-end present value of after-tax estimated future cash flows from proved oil and natural gas reserves, less future development and operating costs, discounted at 10% per annum and using SEC Prices. Standardized measure is prescribed by the SEC as an industry standard asset value measure to compare reserves with consistent pricing, costs and discount assumptions.
•TRIR - Total Recordable Incident Rate calculated as recordable incidents per 200,000 hours for all workers (employees and contractors).
•Working interest - The right granted to a lessee of a property to explore for and to produce and own oil, natural gas or other minerals in-place. A working interest owner bears the cost of development and operations of the property.
•WTI - West Texas Intermediate.
3
PART I FINANCIAL INFORMATION
Item 1Financial Statements (unaudited)
CALIFORNIA RESOURCES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
As of September 30, 2023 and December 31, 2022
(in millions, except share data)
| September 30, | December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| CURRENT ASSETS | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Trade receivables | |||||||||||
| Inventories | |||||||||||
| Assets held for sale | |||||||||||
| Receivable from affiliate | |||||||||||
| Other current assets, net | |||||||||||
| Total current assets | |||||||||||
PROPERTY, PLANT AND EQUIPMENT | |||||||||||
Accumulated depreciation, depletion and amortization | ( | ( | |||||||||
| Total property, plant and equipment, net | |||||||||||
| INVESTMENT IN UNCONSOLIDATED SUBSIDIARY | |||||||||||
DEFERRED INCOME TAXES | |||||||||||
| OTHER NONCURRENT ASSETS | |||||||||||
| TOTAL ASSETS | $ | $ | |||||||||
| CURRENT LIABILITIES | |||||||||||
| Accounts payable | |||||||||||
| Liabilities associated with assets held for sale | |||||||||||
| Fair value of commodity derivative contracts | |||||||||||
| Accrued liabilities | |||||||||||
| Total current liabilities | |||||||||||
| NONCURRENT LIABILITIES | |||||||||||
| Long-term debt, net | |||||||||||
| Asset retirement obligations | |||||||||||
| Other long-term liabilities | |||||||||||
| STOCKHOLDERS' EQUITY | |||||||||||
Preferred stock ( | |||||||||||
Common stock ( | |||||||||||
Treasury stock ( | ( | ( | |||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive income | |||||||||||
| Total stockholders' equity | |||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
CALIFORNIA RESOURCES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the three and nine months ended September 30, 2023 and 2022
(dollars in millions, except share and per share data; shares in millions)
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| REVENUES | |||||||||||||||||||||||
| Oil, natural gas and NGL sales | $ | $ | $ | $ | |||||||||||||||||||
Net (loss) gain from commodity derivatives | ( | ( | ( | ||||||||||||||||||||
Marketing of purchased natural gas | |||||||||||||||||||||||
| Electricity sales | |||||||||||||||||||||||
| Other revenue | |||||||||||||||||||||||
| Total operating revenues | |||||||||||||||||||||||
| OPERATING EXPENSES | |||||||||||||||||||||||
| Operating costs | |||||||||||||||||||||||
| General and administrative expenses | |||||||||||||||||||||||
| Depreciation, depletion and amortization | |||||||||||||||||||||||
| Asset impairment | |||||||||||||||||||||||
| Taxes other than on income | |||||||||||||||||||||||
| Exploration expense | |||||||||||||||||||||||
Purchased natural gas marketing expense | |||||||||||||||||||||||
| Electricity generation expenses | |||||||||||||||||||||||
| Transportation costs | |||||||||||||||||||||||
| Accretion expense | |||||||||||||||||||||||
| Other operating expenses, net | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Net gain on asset divestitures | |||||||||||||||||||||||
OPERATING (LOSS) INCOME | ( | ||||||||||||||||||||||
| NON-OPERATING (EXPENSES) INCOME | |||||||||||||||||||||||
| Interest and debt expense | ( | ( | ( | ( | |||||||||||||||||||
| Loss from investment in unconsolidated subsidiary | ( | ( | |||||||||||||||||||||
| Other non-operating income | |||||||||||||||||||||||
(LOSS) INCOME BEFORE INCOME TAXES | ( | ||||||||||||||||||||||
Income tax benefit (provision) | ( | ( | ( | ||||||||||||||||||||
NET (LOSS) INCOME | $ | ( | $ | $ | $ | ||||||||||||||||||
Net (loss) income per share | |||||||||||||||||||||||
| Basic | $ | ( | $ | $ | $ | ||||||||||||||||||
| Diluted | $ | ( | $ | $ | $ | ||||||||||||||||||
| Weighted-average common shares outstanding | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
CALIFORNIA RESOURCES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive (Loss) Income
For the three and nine months ended September 30, 2023 and 2022
(in millions)
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
Net (loss) income | $ | ( | $ | $ | $ | ||||||||||||||||||
Other comprehensive income: | |||||||||||||||||||||||
Amortization of prior service cost credit included in net periodic benefit cost, net of tax(a) | ( | ( | |||||||||||||||||||||
Comprehensive (loss) income attributable to common stock | $ | ( | $ | $ | $ | ||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
CALIFORNIA RESOURCES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity
For the three and nine months ended September 30, 2023
(in millions)
Three months ended September 30, 2023 | |||||||||||||||||||||||||||||||||||
| Common Stock | Treasury Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income | Total Equity | ||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||
Net loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Repurchases of common stock | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||
Cash dividend ($ | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Shares cancelled for taxes | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
Other comprehensive income, net of tax | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||
Nine months ended September 30, 2023 | |||||||||||||||||||||||||||||||||||
| Common Stock | Treasury Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income | Total Equity | ||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Repurchases of common stock | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||
Cash dividend ($ | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Shares cancelled for taxes | ( | — | — | ( | |||||||||||||||||||||||||||||||
Other comprehensive income, net of tax | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
CALIFORNIA RESOURCES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity
For the three and nine months ended September 30, 2022
(in millions)
Three months ended September 30, 2022 | |||||||||||||||||||||||||||||||||||
| Common Stock | Treasury Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income | Total Equity | ||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Repurchases of common stock | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||
Cash dividend ($ | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Other | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||
Nine months ended September 30, 2022 | ||||||||||||||||||||||||||||||||
| Common Stock | Treasury Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income | Total Equity | |||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | ||||||||||||||||||||||||||||
| Repurchases of common stock | — | ( | — | — | — | ( | ||||||||||||||||||||||||||
Cash dividend ($ | — | — | — | ( | — | ( | ||||||||||||||||||||||||||
| Other | — | — | ( | — | — | ( | ||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
CALIFORNIA RESOURCES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the three and nine months ended September 30, 2023 and 2022
(in millions)
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| CASH FLOW FROM OPERATING ACTIVITIES | |||||||||||||||||||||||
Net (loss) income | $ | ( | $ | $ | $ | ||||||||||||||||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |||||||||||||||||||||||
| Depreciation, depletion and amortization | |||||||||||||||||||||||
Deferred income tax (benefit) provision | ( | ||||||||||||||||||||||
| Asset impairment | |||||||||||||||||||||||
Net loss (gain) from commodity derivatives | ( | ||||||||||||||||||||||
| Net payments on settled commodity derivatives | ( | ( | ( | ( | |||||||||||||||||||
| Net gain on asset divestitures | ( | ( | ( | ||||||||||||||||||||
| Other non-cash charges to income, net | |||||||||||||||||||||||
| Changes in operating assets and liabilities, net | ( | ( | |||||||||||||||||||||
| Net cash provided by operating activities | |||||||||||||||||||||||
| CASH FLOW FROM INVESTING ACTIVITIES | |||||||||||||||||||||||
| Capital investments | ( | ( | ( | ( | |||||||||||||||||||
| Changes in accrued capital investments | ( | ( | |||||||||||||||||||||
| Proceeds from asset divestitures, net | |||||||||||||||||||||||
| Acquisitions | ( | ( | |||||||||||||||||||||
| Distribution related to the Carbon TerraVault JV | |||||||||||||||||||||||
| Capitalized joint venture transaction costs | ( | ( | |||||||||||||||||||||
| Other, net | ( | ( | ( | ||||||||||||||||||||
| Net cash used in investing activities | ( | ( | ( | ( | |||||||||||||||||||
| CASH FLOW FROM FINANCING ACTIVITIES | |||||||||||||||||||||||
| Repurchases of common stock | ( | ( | ( | ( | |||||||||||||||||||
| Common stock dividends | ( | ( | ( | ( | |||||||||||||||||||
| Issuance of common stock | |||||||||||||||||||||||
| Debt amendment costs | ( | ||||||||||||||||||||||
| Shares cancelled for taxes | ( | ( | |||||||||||||||||||||
| Debt repurchases | ( | ( | |||||||||||||||||||||
| Net cash used in financing activities | ( | ( | ( | ( | |||||||||||||||||||
Increase in cash and cash equivalents | |||||||||||||||||||||||
| Cash and cash equivalents—beginning of period | |||||||||||||||||||||||
| Cash and cash equivalents—end of period | $ | $ | $ | $ | |||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
9
CALIFORNIA RESOURCES CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
September 30, 2023
NOTE 1 BASIS OF PRESENTATION
We are an independent energy and carbon management company committed to energy transition. We produce some of the lowest carbon intensity oil in the United States according to a joint report by Ceres and the Clean Air Task Force. We are focused on maximizing the value of our land, minerals and technical resources for oil and gas extraction and decarbonization efforts. We are in the early stages of developing several carbon capture and storage (CCS) projects and other emissions reducing projects in California. Our subsidiary Carbon TerraVault is expected to build, install, operate and maintain CO2 capture equipment, transportation assets and storage facilities in California. In 2022, Carbon TerraVault entered into a joint venture with BGTF Sierra Aggregator LLC (Brookfield) to pursue certain of these opportunities (Carbon TerraVault JV). See Note 2 Investment in Unconsolidated Subsidiary and Related Party Transactions for more information on the Carbon TerraVault JV. Separately, we are evaluating the feasibility of a carbon capture system to be located at our Elk Hills power plant.
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.
In the opinion of our management, the accompanying unaudited financial statements contain all adjustments necessary to fairly present our financial position, results of operations, comprehensive income, equity and cash flows for all periods presented. We have eliminated all significant intercompany transactions and accounts. We account for our share of oil and natural gas producing activities, in which we have a direct working interest, by reporting our proportionate share of assets, liabilities, revenues, costs and cash flows within the relevant lines on our condensed consolidated financial statements. In applying the equity method of accounting, our investment in an unconsolidated subsidiary (Carbon TerraVault JV HoldCo, LLC) was initially recognized at cost and then adjusted for our proportionate share of income or loss in addition to contributions and distributions.
We have prepared this report in accordance with generally accepted accounting principles (GAAP) in the United States and the rules and regulations of the U.S. Securities and Exchange Commission applicable to interim financial information which permit the omission of certain disclosures to the extent they have not changed materially since the latest annual financial statements. We believe our disclosures are adequate to make the information presented not misleading.
The preparation of financial statements in conformity with GAAP requires management to select appropriate accounting policies and make informed estimates and judgments regarding certain types of financial statement balances and disclosures. Actual results could differ. Management believes that these estimates and judgments provide a reasonable basis for the fair presentation of our condensed consolidated financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2022 (2022 Annual Report).
10
NOTE 2 INVESTMENT IN UNCONSOLIDATED SUBSIDIARY AND RELATED PARTY TRANSACTIONS
In August 2022, our wholly-owned subsidiary Carbon TerraVault I, LLC entered into a joint venture with Brookfield for the further development of a carbon management business in California. We hold a 51 % interest in the Carbon TerraVault JV and Brookfield holds a 49 % interest. We determined that the Carbon TerraVault JV is a variable interest entity (VIE); however, we share decision-making power with Brookfield on all matters that most significantly impact the economic performance of the joint venture. Therefore, we account for our investment in the Carbon TerraVault JV under the equity method of accounting. Transactions between us and the Carbon TerraVault JV are related party transactions.
Brookfield has committed an initial $500 million to invest in CCS projects that are jointly approved through the Carbon TerraVault JV. As part of the formation of the Carbon TerraVault JV, we contributed rights to inject CO2 into the 26R reservoir in our Elk Hills field for permanent CO2 storage (26R reservoir) and Brookfield committed to make an initial investment of $137 million, payable in three equal installments with the last two installments subject to the achievement of certain milestones. Brookfield contributed the first $46 million installment of their initial investment to the Carbon TerraVault JV in 2022. This amount may, at our sole discretion, be distributed to us or used to satisfy future capital contributions, among other items. During 2022, $12 million was distributed to us (and used to pay transaction costs related to the formation of the joint venture) and $2 million was used to satisfy a capital call. During 2023, we used approximately $7 million to satisfy a capital call. The remaining amount of the initial contribution by Brookfield which is available to us was reported as a receivable from affiliate on our condensed consolidated balance sheet. Because the parties have certain put and call rights (repurchase features) with respect to the 26R reservoir if certain milestones are not met, the initial investment by Brookfield is reflected as a contingent liability included in other long-term liabilities on our condensed consolidated balance sheets.
We entered into a Management Services Agreement (MSA) with the Carbon TerraVault JV whereby we provide administrative, operational and commercial services under a cost-plus arrangement. Services may be supplemented by using third parties and payments to us under the MSA are limited to the amount in an approved budget. The MSA may be terminated by mutual agreement of the parties, among other events.
The tables below present the summarized financial information related to our equity method investment and related party transactions for the periods presented.
| September 30, | December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| (in millions) | |||||||||||
Investment in unconsolidated subsidiary(a) | $ | $ | |||||||||
Receivable from affiliate(b) | $ | $ | |||||||||
Property, plant and equipment(c) | $ | $ | |||||||||
Other long-term liabilities - Contingent liability (related to Carbon TerraVault JV put and call rights)(d) | $ | $ | |||||||||
(a)Reflects our investment less losses allocated to us of $6 million and $1 million for the nine months ended September 30, 2023 and the year ended December 31, 2022, respectively.
(b)At September 30, 2023, the amount of $26 million includes $25 million remaining of Brookfield's initial contribution available to us and $1 million related to the MSA and vendor reimbursements. At December 31, 2022, the amount of $33 million includes $32 million remaining of Brookfield's initial contribution available to us and $1 million related to the MSA and vendor reimbursements.
(c)This amount includes the reimbursement to us for plugging and abandonment activities at the 26R reservoir.
(d)These amounts were included in other long-term liabilities on our condensed consolidated balance sheet. Our obligation due to repurchase features related to the 26R reservoir includes $5 million and $2 million of accrued interest at September 30, 2023 and December 31, 2022, respectively.
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (in millions) | (in millions) | ||||||||||||||||||||||
Loss from investment in unconsolidated subsidiary | $ | $ | $ | $ | |||||||||||||||||||
General and administrative expenses(a) | $ | $ | $ | $ | |||||||||||||||||||
11
NOTE 3 DEBT
As of September 30, 2023 and December 31, 2022, our long-term debt consisted of the following:
| September 30, | December 31, | ||||||||||||||||||||||
| 2023 | 2022 | Interest Rate | Maturity | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Revolving Credit Facility | $ | $ | SOFR plus ABR plus | July 31, 2027(b) | |||||||||||||||||||
| Senior Notes | February 1, 2026 | ||||||||||||||||||||||
| Principal amount | $ | $ | |||||||||||||||||||||
| Unamortized debt issuance costs | ( | ( | |||||||||||||||||||||
| Long-term debt, net | $ | $ | |||||||||||||||||||||
(a)At our election, borrowings under the amended Revolving Credit Facility may be alternate base rate (ABR) loans or term SOFR loans, plus an applicable margin. ABR loans bear interest at a rate equal to the highest of (i) the federal funds effective rate plus 0.50 %, (ii) the administrative agent prime rate and (iii) the one-month SOFR rate plus 1 %. Term SOFR loans bear interest at term SOFR, plus an additional 10 basis points per annum credit spread adjustment. The applicable margin is adjusted based on the commitment utilization percentage and will vary from (i) in the case of ABR loans, 1.50 % to 2.50 % and (ii) in the case of term SOFR loans, 2.50 % to 3.50 %.
On April 26, 2023, we entered into an Amended and Restated Credit Agreement (Revolving Credit Facility) with Citibank, N.A., as administrative agent, and certain other lenders, which amended and restated in its entirety the prior credit agreement dated October 27, 2020. As of September 30, 2023, our Revolving Credit Facility consisted of a senior revolving loan facility with an aggregate commitment of $627 million. Our Revolving Credit Facility also included a sub-limit of $250 million for the issuance of letters of credit. As of September 30, 2023, $148 million letters of credit were issued to support ordinary course marketing, insurance, regulatory and other matters.
The amendments to our Revolving Credit Facility included, among other things:
•extended the maturity date to July 31, 2027;
•increased our ability to make certain restricted payments (such as dividends and share repurchases) and certain investments (including in our carbon management business);
•released liens on certain assets securing the loans made under the Revolving Credit Facility, including our Elk Hills power plant;
•permitted us to designate the entities that hold certain of our assets, including our Elk Hills power plant, as unrestricted subsidiaries subject to meeting certain conditions;
•extended the period for which we can enter into hedges on our production from 48 months to 60 months; and
•increased our capacity to issue letters of credit from $200 million to $250 million.
We also amended the interest rates and fees we pay under our Revolving Credit Facility. Interest is payable quarterly for ABR loans and at the end of the applicable interest period for term SOFR loans, but not less than quarterly. We also pay a commitment fee on unused capacity ranging from 37.5 to 50 basis points per annum, depending on the percentage of the commitment utilized.
On October 30, 2023, we further amended our Revolving Credit Facility. See Note 13 Subsequent Events for additional information regarding this amendment.
The borrowing base is redetermined semi-annually and was reaffirmed at $1.2 billion on October 30, 2023. The borrowing base takes into account the estimated value of our proved reserves, total indebtedness and other relevant factors consistent with customary reserves-based lending criteria. The amount we are able to borrow under our Revolving Credit Facility is limited to the amount of the commitment described above.
12
At September 30, 2023, we were in compliance with all financial and other debt covenants under our Revolving Credit Facility and Senior Notes. For more information on our Senior Notes, see Part II, Item 8 – Financial Statements and Supplementary Data, Note 4 Debt in our 2022 Annual Report.
Repurchases
In the three and nine months ended September 30, 2023, we repurchased $5
Fair Value
NOTE 4 LAWSUITS, CLAIMS, COMMITMENTS AND CONTINGENCIES
We are involved, in the normal course of business, in lawsuits, environmental and other claims and other contingencies that seek, among other things, compensation for alleged personal injury, breach of contract, property damage or other losses, punitive damages, civil penalties, or injunctive or declaratory relief.
We accrue reserves for currently outstanding lawsuits, claims and proceedings when it is probable that a liability has been incurred and the liability can be reasonably estimated. Reserve balances for these items at September 30, 2023 and December 31, 2022 were not material to our condensed consolidated balance sheets as of such dates. We also evaluate the amount of reasonably possible losses that we could incur as a result of these matters. We believe that reasonably possible losses that we could incur in excess of reserves cannot be accurately determined.
NOTE 5 DERIVATIVES
13
Summary of open derivative contracts on oil — We held the following Brent-based contracts as of September 30, 2023:
| Q4 2023 | Q1 2024 | Q2 2024 | Q3 2024 | Q4 2024 | 2025 | |||||||||||||||||||||||||||||||||
| Sold Calls | ||||||||||||||||||||||||||||||||||||||
| Barrels per day | ||||||||||||||||||||||||||||||||||||||
| Weighted-average price per barrel | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Swaps | ||||||||||||||||||||||||||||||||||||||
| Barrels per day | ||||||||||||||||||||||||||||||||||||||
| Weighted-average price per barrel | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
Net Purchased Puts(a) | ||||||||||||||||||||||||||||||||||||||
| Barrels per day | ||||||||||||||||||||||||||||||||||||||
| Weighted-average price per barrel | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
The outcomes of the derivative positions are as follows:
•Sold calls – we make settlement payments for prices above the indicated weighted-average price per barrel.
•Swaps – we make settlement payments for prices above the indicated weighted-average price per barrel and receive settlement payments for prices below the indicated weighted-average price per barrel.
•Net purchased puts – we receive settlement payments for prices below the indicated weighted-average price per barrel.
Fair value of derivatives — The following tables present the fair values on a recurring basis of our outstanding commodity derivatives as of September 30, 2023 and December 31, 2022:
| September 30, 2023 | ||||||||||||||||||||
| Classification | Gross Amounts at Fair Value | Netting | Net Fair Value | |||||||||||||||||
| (in millions) | ||||||||||||||||||||
Other current assets, net | $ | $ | ( | $ | ||||||||||||||||
| Other noncurrent assets | ( | |||||||||||||||||||
Current liabilities | ( | ( | ||||||||||||||||||
| Noncurrent liabilities | ( | ( | ||||||||||||||||||
| $ | ( | $ | $ | ( | ||||||||||||||||
December 31, 2022 | ||||||||||||||||||||
| Classification | Gross Amounts at Fair Value | Netting | Net Fair Value | |||||||||||||||||
| (in millions) | ||||||||||||||||||||
Other current assets, net(a) | $ | $ | ( | $ | ||||||||||||||||
| Other noncurrent assets | ||||||||||||||||||||
| ( | ( | |||||||||||||||||||
| $ | ( | $ | $ | ( | ||||||||||||||||
14
NOTE 6 INCOME TAXES
The following table presents the components of our total income tax provision:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (in millions) | (in millions) | ||||||||||||||||||||||
(Loss) income before income taxes | $ | ( | $ | $ | $ | ||||||||||||||||||
| Current income tax provision | |||||||||||||||||||||||
Deferred income tax (benefit) provision | ( | ||||||||||||||||||||||
Total income tax (benefit) provision | $ | ( | $ | $ | $ | ||||||||||||||||||
During the nine months ended September 30, 2022, we recognized a valuation allowance of $35 million for a portion of the tax loss on the sale of our Lost Hills assets, the deductibility of which was limited. During the nine months ended September 30, 2023, we recognized the benefit of this tax loss by releasing the valuation allowance after we jointly agreed to amend the original tax treatment with the buyer. See Note 7 Divestitures and Acquisitions for more information on our Lost Hills transaction.
NOTE 7 DIVESTITURES AND ACQUISITIONS
Divestitures
Ventura Basin Transactions
In the three and nine months ended September 30, 2022, we recorded a gain of $2 million and $12 million, respectively, related to the sale of certain Ventura basin assets. The closing of the sale of our remaining assets in the Ventura basin is subject to final approval from the State Lands Commission, which we expect could occur in the fourth quarter of 2023. These remaining assets, consisting of property, plant and equipment, and associated asset retirement obligations are classified as held for sale on our condensed consolidated balance sheets at September 30, 2023 and December 31, 2022. See Part II, Item 8 – Financial Statements and Supplementary Data, Note 3 Divestitures and Acquisitions in our 2022 Annual Report for additional information on the Ventura basin transactions.
Lost Hills Transaction
During the first quarter of 2022, we sold our 50 % non-operated working interest in certain horizons within our Lost Hills field, located in the San Joaquin basin, recognizing a gain of $49 million. We retained an option to capture, transport and store 100 % of the CO2 from steam generators across the Lost Hills field for future carbon management projects until January 1, 2026. We also retained 100 % of the deep rights and related seismic data.
Other
During the nine months ended September 30, 2023, we sold a non-producing asset in exchange for the assumption of liabilities recognizing a $7 million gain. During the nine months ended September 30, 2022, we sold non-core assets recognizing an insignificant loss.
15
NOTE 8 STOCKHOLDERS' EQUITY
Share Repurchase Program
Our Board of Directors has authorized a Share Repurchase Program to acquire up to $1.1 billion of our common stock through June 30, 2024. The repurchases may be effected from time-to-time through open market purchases, privately negotiated transactions, Rule 10b5-1 plans, accelerated stock repurchases, derivative contracts or otherwise in compliance with Rule 10b-18, subject to market conditions. The Share Repurchase Program does not obligate us to repurchase any dollar amount or number of shares and our Board of Directors may modify, suspend, or discontinue authorization of the program at any time. The following is a summary of our share repurchases, held as treasury stock for the periods presented:
| Total Number of Shares Purchased | Total Value of Shares Purchased | Average Price Paid per Share | |||||||||||||||
| (number of shares) | (in millions) | ($ per share) | |||||||||||||||
| Three months ended September 30, 2022 | $ | $ | |||||||||||||||
| Three months ended September 30, 2023 | $ | $ | |||||||||||||||
| Nine months ended September 30, 2022 | $ | $ | |||||||||||||||
| Nine months ended September 30, 2023 | $ | $ | |||||||||||||||
| Inception of Program (May 2021) through September 30, 2023 | $ | $ | |||||||||||||||
Dividends
Our Board of Directors declared the following cash dividends for each of the periods presented.
Total Dividend | Rate Per Share | ||||||||||
(in millions) | ($ per share) | ||||||||||
| 2023 | |||||||||||
Three months ended March 31, 2023 | $ | $ | |||||||||
Three months ended June 30, 2023 | $ | ||||||||||
Three months ended September 30, 2023 | $ | ||||||||||
Nine months ended September 30, 2023 | $ | ||||||||||
| 2022 | |||||||||||
Three months ended March 31, 2022 | $ | $ | |||||||||
Three months ended June 30, 2022 | $ | ||||||||||
Three months ended September 30, 2022 | $ | ||||||||||
Nine months ended September 30, 2022 | $ | ||||||||||
16
Future cash dividends, and the establishment of record and payment dates, are subject to final determination by our Board of Directors each quarter after reviewing our financial performance and position. See Note 13 Subsequent Events for information on future cash dividends.
Warrants
In October 2020, we reserved an aggregate 4,384,182 shares of our common stock for warrants which are exercisable at $36 per share through October 26, 2024.
As of September 30, 2023, we had outstanding warrants exercisable into 4,289,825 shares of our common stock (subject to adjustments pursuant to the terms of the warrants). During the three and nine months ended September 30, 2023, we issued 1,958 and 2,179 shares of our common stock, respectively, in exchange for warrants. During the three and nine months ended September 30, 2022, we issued an insignificant number of shares of our common stock in exchange for warrants.
See Part II, Item 8 – Financial Statements and Supplementary Data, Note 11 Stockholders' Equity in our 2022 Annual Report for additional information on the terms of our warrants.
NOTE 9 EARNINGS PER SHARE
Basic and diluted earnings per share (EPS) were calculated using the treasury stock method for the three and nine months ended September 30, 2023 and 2022. Our restricted stock unit (RSU) and performance stock unit (PSU) awards are not considered participating securities since the dividend rights on unvested shares are forfeitable.
For basic EPS, the weighted-average number of common shares outstanding excludes shares underlying our equity-settled awards and warrants. For diluted EPS, the basic shares outstanding are adjusted by adding potential common shares, if dilutive.
The following table presents the calculation of basic and diluted EPS, for the three and nine months ended September 30, 2023 and 2022:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (in millions, except per-share amounts) | |||||||||||||||||||||||
| Numerator for Basic and Diluted EPS | |||||||||||||||||||||||
Net (loss) income | $ | ( | $ | $ | $ | ||||||||||||||||||
| Denominator for Basic EPS | |||||||||||||||||||||||
| Weighted-average shares | |||||||||||||||||||||||
| Potential Common Shares, if dilutive: | |||||||||||||||||||||||
| Warrants | |||||||||||||||||||||||
| Restricted Stock Units | |||||||||||||||||||||||
| Performance Stock Units | |||||||||||||||||||||||
| Denominator for Diluted EPS | |||||||||||||||||||||||
| Weighted-average shares | |||||||||||||||||||||||
| EPS | |||||||||||||||||||||||
| Basic | $ | ( | $ | $ | $ | ||||||||||||||||||
| Diluted | $ | ( | $ | $ | $ | ||||||||||||||||||
17
The following table presents potentially dilutive weighted-average common shares which were excluded from the denominator for diluted EPS in periods of losses:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
Shares issuable upon exercise of warrants | |||||||||||||||||||||||
| Shares issuable upon settlement of RSUs | |||||||||||||||||||||||
| Shares issuable upon settlement of PSUs | |||||||||||||||||||||||
| Total antidilutive shares | |||||||||||||||||||||||
NOTE 10 SUPPLEMENTAL ACCOUNT BALANCES
Revenues — We derive most of our revenue from sales of oil, natural gas and natural gas liquids (NGLs), with the remaining revenue primarily generated from sales of electricity and marketing activities related to storage and managing excess pipeline capacity.
The following table provides disaggregated revenue for sales of produced oil, natural gas and NGLs to customers:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Oil | $ | $ | $ | $ | |||||||||||||||||||
| Natural gas | |||||||||||||||||||||||
| NGLs | |||||||||||||||||||||||
| Oil, natural gas and NGL sales | $ | $ | $ | $ | |||||||||||||||||||
Inventories — Materials and supplies, which primarily consist of well equipment and tubular goods used in our oil and natural gas operations, are valued at weighted-average cost and are reviewed periodically for obsolescence. Finished goods include produced oil and NGLs in storage, which are valued at the lower of cost or net realizable value. Inventories, by category, are as follows:
| September 30, | December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| (in millions) | |||||||||||
| Materials and supplies | $ | $ | |||||||||
| Finished goods | |||||||||||
| Inventories | $ | $ | |||||||||
Other current assets, net — Other current assets, net include the following:
| September 30, | December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| (in millions) | |||||||||||
Net amounts due from joint interest partners(a) | $ | $ | |||||||||
| Fair value of commodity derivative contracts | |||||||||||
| Prepaid expenses | |||||||||||
| Greenhouse gas allowances | |||||||||||
| Natural gas margin deposits | |||||||||||
| Income tax receivable | |||||||||||
| Other | |||||||||||
| Other current assets, net | $ | $ | |||||||||
(a)Included in the September 30, 2023 and December 31, 2022 net amounts due from joint interest partners are allowances of $1
18
Other noncurrent assets — Other noncurrent assets include the following:
| September 30, | December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| (in millions) | |||||||||||
| Operating lease right-of-use assets | $ | $ | |||||||||
| Deferred financing costs - Revolving Credit Facility | |||||||||||
| Emission reduction credits | |||||||||||
| Prepaid power plant maintenance | |||||||||||
| Fair value of commodity derivative contracts | |||||||||||
| Deposits and other | |||||||||||
| Other noncurrent assets | $ | $ | |||||||||
Accrued liabilities — Accrued liabilities include the following:
| September 30, | December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| (in millions) | |||||||||||
| Employee-related costs | $ | $ | |||||||||
| Taxes other than on income | |||||||||||
| Asset retirement obligations | |||||||||||
| Interest | |||||||||||
| Operating lease liability | |||||||||||
| Premiums due on commodity derivative contracts | |||||||||||
| Liability for settlement payments on commodity derivative contracts | |||||||||||
| Amounts due under production-sharing contracts | |||||||||||
| Signal Hill maintenance | |||||||||||
| Other | |||||||||||
| Accrued liabilities | $ | $ | |||||||||
Other long-term liabilities — Other long-term liabilities includes the following:
| September 30, | December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| (in millions) | |||||||||||
| Compensation-related liabilities | $ | $ | |||||||||
| Postretirement benefit plan | |||||||||||
| Operating lease liability | |||||||||||
Fair value of commodity derivative contracts | |||||||||||
| Premiums due on commodity derivative contracts | |||||||||||
| Contingent liability (related to Carbon TerraVault JV put and call rights) | |||||||||||
| Other | |||||||||||
| Other long-term liabilities | $ | $ | |||||||||
19
General and administrative expenses — The table below shows G&A expenses for our exploration and production business (including unallocated corporate overhead and other) separately from our carbon management business. The amounts shown for our carbon management business are net of amounts invoiced by us under the MSA to the Carbon TerraVault JV. See Note 2 Investment in Unconsolidated Subsidiary and Related Party Transactions for more information on the Carbon TerraVault JV.
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (in millions) | (in millions) | ||||||||||||||||||||||
Exploration and production, corporate and other | $ | $ | $ | $ | |||||||||||||||||||
Carbon management business | |||||||||||||||||||||||
| Total general and administrative expenses | $ | $ | $ | $ | |||||||||||||||||||
Other operating expenses, net — The table below shows other operating expenses, net for our exploration and production business (including unallocated corporate overhead and other) separately from our carbon management business. Carbon management expenses include lease cost for carbon sequestration easements, advocacy, and other startup related costs.
In August 2023, we implemented organizational changes that resulted in a headcount reduction of 75 employees. As a result, we recognized a charge of $7 million in other operating expenses, net on the condensed consolidated statement of operations for the three months ended September 30, 2023, primarily related to severance benefits. For the nine months ended September 30, 2023, we recognized a severance charge of $10 million.
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (in millions) | (in millions) | ||||||||||||||||||||||
Exploration and production, corporate and other | $ | $ | $ | $ | |||||||||||||||||||
Carbon management business | |||||||||||||||||||||||
| Total other operating expenses, net | $ | $ | $ | $ | |||||||||||||||||||
NOTE 11 SUPPLEMENTAL CASH FLOW INFORMATION
We paid $29 million and $80 million of U.S. federal and state income tax payments during the three and nine months ended September 30, 2023, respectively. We paid $20
Interest paid, net of capitalized amounts, was $22 million for the three months ended September 30, 2023 and $44 million for the nine months ended September 30, 2023. Interest paid, net of capitalized amounts, was $21 million for the three months ended September 30, 2022 and $43 million for the nine months ended September 30, 2022. Interest income was $5 million and $14 million for the three and nine months ended September 30, 2023, respectively.
Non-cash investing activities in the three and nine months ended September 30, 2023 included $4 million and $7 million, respectively, related to our share of capital calls by the Carbon TerraVault JV. For the three and nine months ended September 30, 2022, we made a non-cash contribution of $2
20
NOTE 12 CONDENSED CONSOLIDATING FINANCIAL INFORMATION
We have designated certain of our subsidiaries as Unrestricted Subsidiaries under the indenture governing our Senior Notes (Senior Notes Indenture). Unrestricted Subsidiaries (as defined in the Senior Notes Indenture) are subject to fewer restrictions under the Senior Notes Indenture. We are required under the Senior Notes indenture to present the financial condition and results of operations of CRC and its Restricted Subsidiaries (as defined in the Senior Notes Indenture) separate from the financial condition and results of operations of its Unrestricted Subsidiaries. The following condensed consolidating balance sheets as of September 30, 2023 and December 31, 2022 and the condensed consolidating statements of operations for the three and nine months ended September 30, 2023 and 2022, as applicable, reflect the condensed consolidating financial information of our parent company, CRC (Parent), our combined Unrestricted Subsidiaries, our combined Restricted Subsidiaries and the elimination entries necessary to arrive at the information for the Company on a consolidated basis. The financial information may not necessarily be indicative of the financial condition and results of operations had the Unrestricted Subsidiaries operated as independent entities.
Condensed Consolidating Balance Sheets
As of September 30, 2023 and December 31, 2022
| As of September 30, 2023 | |||||||||||||||||||||||||||||
| Parent | Combined Unrestricted Subsidiaries | Combined Restricted Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
Total current assets | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Total property, plant and equipment, net | |||||||||||||||||||||||||||||
| Investments in consolidated subsidiaries | ( | ( | |||||||||||||||||||||||||||
| Deferred tax asset | |||||||||||||||||||||||||||||
| Investment in unconsolidated subsidiary | |||||||||||||||||||||||||||||
| Other assets | |||||||||||||||||||||||||||||
| TOTAL ASSETS | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||
| Total current liabilities | $ | ||||||||||||||||||||||||||||
| Long-term debt | |||||||||||||||||||||||||||||
| Asset retirement obligations | |||||||||||||||||||||||||||||
| Other long-term liabilities | |||||||||||||||||||||||||||||
| Amounts due to (from) affiliates | ( | ||||||||||||||||||||||||||||
| Total equity | ( | ( | |||||||||||||||||||||||||||
| TOTAL LIABILITIES AND EQUITY | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||
21
| As of December 31, 2022 | |||||||||||||||||||||||||||||
| Parent | Combined Unrestricted Subsidiaries | Combined Restricted Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
Total current assets | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Total property, plant and equipment, net | |||||||||||||||||||||||||||||
| Investments in consolidated subsidiaries | ( | ||||||||||||||||||||||||||||
| Deferred tax asset | |||||||||||||||||||||||||||||
| Investment in unconsolidated subsidiary | |||||||||||||||||||||||||||||
| Other assets | |||||||||||||||||||||||||||||
| TOTAL ASSETS | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||
| Total current liabilities | $ | ||||||||||||||||||||||||||||
| Long-term debt | |||||||||||||||||||||||||||||
| Asset retirement obligations | |||||||||||||||||||||||||||||
| Other long-term liabilities | |||||||||||||||||||||||||||||
| Total equity | ( | ||||||||||||||||||||||||||||
| TOTAL LIABILITIES AND EQUITY | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||
Condensed Consolidating Statement of Operations
For the three and nine months ended September 30, 2023 and 2022
| Three months ended September 30, 2023 | |||||||||||||||||||||||||||||
| Parent | Combined Unrestricted Subsidiaries | Combined Restricted Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
Total revenues | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Total costs and other | |||||||||||||||||||||||||||||
| Non-operating (loss) income | ( | ( | ( | ||||||||||||||||||||||||||
| (LOSS) INCOME BEFORE INCOME TAXES | ( | ( | ( | ||||||||||||||||||||||||||
Income tax benefit | |||||||||||||||||||||||||||||
NET (LOSS) INCOME | $ | ( | $ | ( | $ | $ | $ | ( | |||||||||||||||||||||
22
| Three months ended September 30, 2022 | |||||||||||||||||||||||||||||
| Parent | Combined Unrestricted Subsidiaries | Combined Restricted Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
Total revenues | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Total costs and other | |||||||||||||||||||||||||||||
| Gain on asset divestitures | |||||||||||||||||||||||||||||
| Non-operating (loss) income | ( | ( | |||||||||||||||||||||||||||
| (LOSS) INCOME BEFORE INCOME TAXES | ( | ( | |||||||||||||||||||||||||||
| Income tax provision | ( | ( | |||||||||||||||||||||||||||
| NET (LOSS) INCOME | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||
| Nine months ended September 30, 2023 | |||||||||||||||||||||||||||||
| Parent | Combined Unrestricted Subsidiaries | Combined Restricted Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
Total revenues | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Total costs and other | |||||||||||||||||||||||||||||
| Gain on asset divestitures | |||||||||||||||||||||||||||||
| Non-operating (loss) income | ( | ( | ( | ||||||||||||||||||||||||||
| (LOSS) INCOME BEFORE INCOME TAXES | ( | ( | |||||||||||||||||||||||||||
| Income tax provision | ( | ( | |||||||||||||||||||||||||||
| NET (LOSS) INCOME | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||
| Nine months ended September 30, 2022 | |||||||||||||||||||||||||||||
| Parent | Combined Unrestricted Subsidiaries | Combined Restricted Subsidiaries | Eliminations | Consolidated | |||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
Total revenues | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Total costs and other | |||||||||||||||||||||||||||||
| Gain on asset divestitures | |||||||||||||||||||||||||||||
| Non-operating (loss) income | ( | ( | |||||||||||||||||||||||||||
| (LOSS) INCOME BEFORE INCOME TAXES | ( | ( | |||||||||||||||||||||||||||
| Income tax provision | ( | ( | |||||||||||||||||||||||||||
| NET (LOSS) INCOME | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||
NOTE 13 SUBSEQUENT EVENTS
Revolving Credit Facility Amendment
On October 30, 2023 we amended our Revolving Credit Facility to increase our flexibility to incur new indebtedness in the form of term loans. In addition, the aggregate commitment amount of the Revolving Credit Facility was increased by $3 million to $630 million.
23
Dividend
On November 1, 2023, our Board of Directors increased the cash dividend policy to anticipate a total annual dividend of $1.24 , payable to shareholders in quarterly increments of $0.31 per share of common stock. The actual declaration of future cash dividends, and the establishment of record and payment dates, is subject to final determination by our Board of Directors each quarter after reviewing our financial performance and position. Also on November 1, 2023, our Board of Directors declared a quarterly cash dividend of $0.31 per share of common stock. The dividend is payable to shareholders of record at the close of business on December 1, 2023 and is expected to be paid on December 15, 2023.
Debt Repurchases
24
Item 2Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
We are an independent energy and carbon management company committed to energy transition. We produce some of the lowest carbon intensity oil in the United States according to a joint report by Ceres and the Clean Air Task Force. We are focused on maximizing the value of our land, minerals and technical resources for oil and gas extraction and decarbonization efforts. We are in the early stages of developing several carbon capture and storage (CCS) projects and other emissions reducing projects in California. We intend to pursue some or all of these projects through our Carbon TerraVault JV that we formed with BGTF Sierra Aggregator LLC (Brookfield). While all of these projects are in early stages, we expect that the size and scope of our projects providing these and similar services and capital spent on such projects will continue to grow given our strategy of expansion into carbon management. For more information about the risks involved in our carbon capture projects, see Part I, Item 1A – Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022 (2022 Annual Report) and for more information on the Carbon TerraVault JV, see Part I, Item 1 – Financial Statements, Note 2 Investment in Unconsolidated Subsidiary and Related Party Transactions.
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 consolidated subsidiaries.
Reorganization
In August 2023, we implemented organizational changes that resulted in a headcount reduction of 75 employees. These actions were taken to better align our resources to our strategic priorities and improve our operational efficiency. As a result, we recognized a charge of $7 million in other operating expenses, net for the three months ended September 30, 2023, primarily related to severance benefits. For the nine months ended September 30, 2023, we recognized a severance charge of $10 million. We expect these actions, along with other initiatives taken to streamline our operations, to result in at least $55 million of savings in operating and overhead costs on an annualized basis.
Business Environment and Industry Outlook
Commodity Prices
Our operating results and those of the oil and natural gas industry as a whole are heavily influenced by commodity prices. Oil and natural gas prices and differentials may fluctuate significantly as a result of numerous market-related variables. These and other factors make it impossible to predict realized prices reliably. We may respond to economic conditions by adjusting the amount and allocation of our capital program while continuing to identify efficiencies and cost savings. Volatility in oil prices may materially affect the quantities of oil and natural gas reserves we can economically produce over the longer term. Refer to Prices and Realizations below for information on our realized prices.
The following table presents the average daily benchmark prices for oil and natural gas during the periods presented:
| Three months ended | Nine months ended | ||||||||||||||||||||||
| September 30, 2023 | June 30, 2023 | September 30, 2023 | September 30, 2022 | ||||||||||||||||||||
| Brent oil ($/Bbl) | $ | 85.95 | $ | 78.01 | $ | 82.06 | $ | 102.33 | |||||||||||||||
| WTI oil ($/Bbl) | $ | 82.26 | $ | 73.78 | $ | 77.39 | $ | 98.09 | |||||||||||||||
| NYMEX Henry Hub ($/MMBtu) Average Monthly Settled Price | $ | 2.55 | $ | 2.10 | $ | 2.69 | $ | 6.77 | |||||||||||||||
25
Regulatory Updates
Water Injection
Our operations in the Wilmington Oil Field utilize injection wells to reinject produced water pursuant to waterflooding plans. These operations are subject to regulation by the City of Long Beach and CalGEM. We are currently in discussions with the City of Long Beach and CalGEM with respect to what injection well pressure gradient complies with CalGEM’s regulatory requirements for the protection of underground sources of drinking water, while at the same time mitigating subsidence risk. CalGEM's local office has preliminarily indicated that the injection well pressure gradient should be reduced from the gradient that has been used for several decades, although a final determination has not yet been made and remains subject to our ongoing discussions. If CalGEM were to ultimately determine to reduce the injection well pressure gradient, and we were unable to reverse that decision on appeal or other legal challenge, we expect any material reduction in injection well pressure gradient for our operations in the Wilmington Oil Field would result in a decrease in production and reserves from the field. For additional information, see Part I, Item 1 & 2 – Business and Properties, Regulation of the Industries in Which We Operate, Regulation of Exploration and Production Activities and the Risk factor entitled "Our business is highly regulated and government authorities can delay or deny permits and approvals or change requirements governing our operations, including hydraulic fracturing and other well stimulation methods, enhanced production techniques and fluid injection or disposal, that could increase costs, restrict operations and change or delay the implementation of our business plans" in our 2022 Annual Report.
Bonding Requirements and AB 1167
See Part II, Item 1A – Risk Factors for recent California legislative activity on bonding requirements associated with certain transfers of interests in oil and gas wells.
California Climate Disclosures
In October 2023, the Governor of California signed two bills that will require climate-related disclosures, both of which apply to us. Senate Bill 253 (SB-253) requires the annual disclosure of Scope 1, Scope 2 and Scope 3 GHG emissions, with certain GHG emissions data subject to third-party assurance. The bill requires disclosure beginning in 2026 (for the 2025 reporting year). Senate Bill 261 (SB-261) requires biennial disclosures posted on a company's website related to climate-related financial risks and the measures a company has adopted to reduce and adapt to such risks.
Supply Chain Constraints and Inflation
We continued to experience relatively flat pricing from our suppliers in the nine months ended September 30, 2023 compared to the same period in 2022. We have long term vendor relationships and have taken measures to limit the effects of inflation by entering into contracts for a significant majority of our materials and services with terms of one to three years. We have not experienced any meaningful inflation in connection with recent contract renewals and continue to expect minimal inflation in our supply chain.
26
Production
The following table sets forth our average net production of oil, NGLs and natural gas per day in each of the California oil and natural gas basins in which we operated for the periods presented.
| Three months ended | Nine months ended | ||||||||||||||||||||||
| September 30, 2023 | June 30, 2023 | September 30, 2023 | September 30, 2022 | ||||||||||||||||||||
| Oil (MBbl/d) | |||||||||||||||||||||||
| San Joaquin Basin | 33 | 34 | 34 | 37 | |||||||||||||||||||
| Los Angeles Basin | 18 | 19 | 19 | 18 | |||||||||||||||||||
| Total | 51 | 53 | 53 | 55 | |||||||||||||||||||
| NGLs (MBbl/d) | |||||||||||||||||||||||
| San Joaquin Basin | 11 | 11 | 11 | 11 | |||||||||||||||||||
| Total | 11 | 11 | 11 | 11 | |||||||||||||||||||
| Natural gas (MMcf/d) | |||||||||||||||||||||||
| San Joaquin Basin | 122 | 119 | 120 | 128 | |||||||||||||||||||
| Los Angeles Basin | 1 | 1 | 1 | 1 | |||||||||||||||||||
| Sacramento Basin | 15 | 15 | 15 | 18 | |||||||||||||||||||
| Total | 138 | 135 | 136 | 147 | |||||||||||||||||||
| Total Net Production (MBoe/d) | 85 | 86 | 87 | 91 | |||||||||||||||||||
Total daily net production for the three months ended September 30, 2023, compared to the three months ended June 30, 2023 decreased by 1 MBoe/d largely due to natural decline for oil. Our production-sharing contracts (PSCs), which are described below, did not have a significant impact on our net oil production in the three months ended September 30, 2023 compared to the three months ended June 30, 2023.
Total daily net production for the nine months ended September 30, 2023, compared to the same prior year period decreased by 4 MBoe/d largely due to natural decline and the divestiture of our remaining 50% working interest in certain zones in the Lost Hills field in February 2022. This decrease was partially offset by increased production from drilling and workover activity in Long Beach and our PSCs positively impacted our net production by 2 MBoe/d in the nine months ended September 30, 2023 compared to the same prior year period.
The following table reconciles our average net production to our average gross production (which includes production from the fields we operate and our share of production from fields operated by others) for the periods presented:
| Three months ended | Nine months ended | ||||||||||||||||||||||
| September 30, 2023 | June 30, 2023 | September 30, 2023 | September 30, 2022 | ||||||||||||||||||||
| (MBoe/d) | |||||||||||||||||||||||
| Total Net Production | 85 | 86 | 87 | 91 | |||||||||||||||||||
| Partners' share under PSC-type contracts | 7 | 7 | 6 | 8 | |||||||||||||||||||
| Working interest and royalty holders' share | 7 | 8 | 8 | 7 | |||||||||||||||||||
| Changes in NGL inventory and other | 2 | 2 | 1 | 1 | |||||||||||||||||||
| Total Gross Production | 101 | 103 | 102 | 107 | |||||||||||||||||||
27
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. 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. Operating costs, excluding effects of PSC-type contracts is a non-GAAP measure which adjusts for excess costs attributable to PSC-type contracts for the periods presented in the tables below:
| Three months ended | |||||||||||||||||||||||
| September 30, 2023 | June 30, 2023 | ||||||||||||||||||||||
| (in millions) | ($ per Boe) | (in millions) | ($ per Boe) | ||||||||||||||||||||
| Operating costs | $ | 196 | $ | 24.96 | $ | 186 | $ | 23.71 | |||||||||||||||
| Excess costs attributable to PSC-type contracts | (19) | $ | (2.39) | (17) | $ | (2.15) | |||||||||||||||||
| Operating costs, excluding effects of PSC-type contracts | $ | 177 | $ | 22.57 | $ | 169 | $ | 21.56 | |||||||||||||||
| Nine months ended | |||||||||||||||||||||||
| September 30, 2023 | September 30, 2022 | ||||||||||||||||||||||
| (in millions) | ($ per Boe) | (in millions) | ($ per Boe) | ||||||||||||||||||||
| Operating costs | $ | 636 | $ | 26.80 | $ | 586 | $ | 23.71 | |||||||||||||||
| Excess costs attributable to PSC-type contracts | (54) | $ | (2.26) | (58) | $ | (2.35) | |||||||||||||||||
| Operating costs, excluding effects of PSC-type contracts | $ | 582 | $ | 24.54 | $ | 528 | $ | 21.36 | |||||||||||||||
For further information on our production-sharing contracts, see Part I, Item 1 & 2 Business and Properties, Oil and Natural Gas Operations, Production, Price and Cost History in our 2022 Annual Report.
28
Prices and Realizations
The following tables set forth the average realized prices and price realizations as a percentage of average Brent, WTI and NYMEX indexes for our products for the periods presented:
| Three months ended | |||||||||||||||||||||||
| September 30, 2023 | June 30, 2023 | ||||||||||||||||||||||
| Price | Realization | Price | Realization | ||||||||||||||||||||
| Oil ($ per Bbl) | |||||||||||||||||||||||
| Brent | $ | 85.95 | $ | 78.01 | |||||||||||||||||||
| Realized price without derivative settlements | $ | 85.36 | 99% | $ | 75.77 | 97% | |||||||||||||||||
| Derivative settlements | (19.24) | (12.11) | |||||||||||||||||||||
| Realized price with derivative settlements | $ | 66.12 | 77% | $ | 63.66 | 82% | |||||||||||||||||
| WTI | $ | 82.26 | $ | 73.78 | |||||||||||||||||||
| Realized price without derivative settlements | $ | 85.36 | 104% | $ | 75.77 | 103% | |||||||||||||||||
| Realized price with derivative settlements | $ | 66.12 | 80% | $ | 63.66 | 86% | |||||||||||||||||
| NGLs ($ per Bbl) | |||||||||||||||||||||||
| Realized price (% of Brent) | $ | 44.95 | 52% | $ | 42.48 | 54% | |||||||||||||||||
| Realized price (% of WTI) | $ | 44.95 | 55% | $ | 42.48 | 58% | |||||||||||||||||
| Natural gas | |||||||||||||||||||||||
| NYMEX Henry Hub ($/MMBtu) - Average Monthly Settled Price | $ | 2.55 | $ | 2.10 | |||||||||||||||||||
Realized price ($/Mcf) | $ | 4.83 | 189% | $ | 3.46 | 165% | |||||||||||||||||
29
| Nine months ended | |||||||||||||||||||||||
| September 30, 2023 | September 30, 2022 | ||||||||||||||||||||||
| Price | Realization | Price | Realization | ||||||||||||||||||||
| Oil ($ per Bbl) | |||||||||||||||||||||||
| Brent | $ | 82.06 | $ | 102.33 | |||||||||||||||||||
| Realized price without derivative settlements | $ | 79.90 | 97% | $ | 102.01 | 100% | |||||||||||||||||
| Derivative settlements | (15.65) | (40.05) | |||||||||||||||||||||
| Realized price with derivative settlements | $ | 64.25 | 78% | $ | 61.96 | 61% | |||||||||||||||||
| WTI | $ | 77.39 | $ | 98.09 | |||||||||||||||||||
| Realized price without derivative settlements | $ | 79.90 | 103% | $ | 102.01 | 104% | |||||||||||||||||
| Realized price with derivative settlements | $ | 64.25 | 83% | $ | 61.96 | 63% | |||||||||||||||||
| NGLs ($ per Bbl) | |||||||||||||||||||||||
| Realized price (% of Brent) | $ | 48.89 | 60% | $ | 66.98 | 65% | |||||||||||||||||
| Realized price (% of WTI) | $ | 48.89 | 63% | $ | 66.98 | 68% | |||||||||||||||||
| Natural gas | |||||||||||||||||||||||
| NYMEX Henry Hub ($/MMBtu) - Average Monthly Settled Price | $ | 2.69 | $ | 6.77 | |||||||||||||||||||
| Realized price without derivative settlements ($/Mcf) | $ | 9.85 | 366% | $ | 7.33 | 108% | |||||||||||||||||
| Derivative settlements | — | (0.12) | |||||||||||||||||||||
| Realized price with derivative settlements ($/Mcf) | $ | 9.85 | 366% | $ | 7.21 | 106% | |||||||||||||||||
Oil — Brent prices increased for the three months ended September 30, 2023 compared to the three months ended June 30, 2023 as OPEC and Saudi Arabia announced extended production cuts in September 2023. Oil prices in the nine months ended September 30, 2023 were lower than the same prior year period in 2022 as global energy inventories (including crude, refined products and natural gas) stabilized and as Russian crude and refined products continued to reach markets.
NGLs — NGL prices for the three months ended September 30, 2023 increased compared to the three months ended June 30, 2023 in concert with crude pricing. NGL prices for the nine months ended September 30, 2023 decreased compared to the same prior year period as prices for competing and complementary products (natural gas, crude oil) have declined and as NGL production and inventories grew to near-record levels. For both periods, California remained a premium market compared to other North American locations.
Natural Gas — Our realized price for natural gas increased for the three months ended September 30, 2023 compared to the three months ended June 30, 2023 driven by incremental gas-fired electrical generation and replenishment of natural gas storage inventories. Natural gas prices in the nine months ended September 30, 2023 were higher than the same period in 2022 largely reflecting the unusually high pricing experienced in California natural gas markets during the first quarter of 2023.
30
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 months ended September 30, 2023 and June 30, 2023 and the nine months ended September 30, 2023 and 2022. Energy operating costs consist of purchased natural gas used to generate electricity for our operations and steam for our steamfloods, purchased electricity and internal costs to generate electricity used in our operations. Gas processing costs include costs associated with compression, maintenance and other activities needed to run our gas processing facilities at Elk Hills. Non-energy operating costs equal total operating costs less energy operating costs and gas processing costs.
| Three months ended | Nine months ended | ||||||||||||||||||||||
| September 30, 2023 | June 30, 2023 | September 30, 2023 | September 30, 2022 | ||||||||||||||||||||
| ($ per Boe) | |||||||||||||||||||||||
| Energy operating costs | $ | 9.42 | $ | 7.39 | $ | 10.87 | $ | 9.83 | |||||||||||||||
| Gas processing costs | $ | 0.64 | $ | 0.64 | $ | 0.59 | $ | 0.53 | |||||||||||||||
| Non-energy operating costs | $ | 14.90 | $ | 15.68 | $ | 15.34 | $ | 13.35 | |||||||||||||||
| Operating costs | $ | 24.96 | $ | 23.71 | $ | 26.80 | $ | 23.71 | |||||||||||||||
Field general and administrative expenses(a) | $ | 1.27 | $ | 1.40 | $ | 1.39 | $ | 1.01 | |||||||||||||||
Field depreciation, depletion and amortization(b) | $ | 6.62 | $ | 6.50 | $ | 6.62 | $ | 5.30 | |||||||||||||||
| Field taxes other than on income | $ | 4.33 | $ | 3.70 | $ | 3.92 | $ | 3.36 | |||||||||||||||
(a)Excludes unallocated general and administrative expenses.
(b)Excludes depreciation, depletion and amortization related to our corporate assets and our Elk Hills power plant.
Operating costs increased during the three months ended September 30, 2023 compared to the three months ended June 30, 2023 primarily due to higher energy operating costs as electricity and natural gas prices in California markets increased between quarters. Operating costs were higher in the nine months ended September 30, 2023 compared to the same prior year period primarily due to increased energy operating costs as well as increased downhole maintenance activity in 2023. Lower production volumes also contributed to the increase on a per Boe basis.
Field depreciation, depletion and amortization increased during the nine months ended September 30, 2023 compared to the same prior year period primarily due to a change in our depreciation, depletion and amortization rates which are periodically adjusted to reflect current reserve estimates. Lower production volumes also contributed to the increase on a per Boe basis.
Field taxes other than on income increased during the three months ended September 30, 2023 compared to the three months ended June 30, 2023, and the nine months ended September 30, 2023 compared to the same prior year period primarily due to higher ad valorem taxes in the second half of 2023, which in California are heavily influenced by commodity prices.
Consolidated Results of Operations
For financial information related to our subsidiaries designated as Unrestricted Subsidiaries under the Senior Notes Indenture, see Part I, Item 1 – Financial Statements, Note 12 Condensed Consolidated Financial Information.
31
Three months ended September 30, 2023 compared to June 30, 2023
The following table presents our operating revenues for the three months ended September 30, 2023 and June 30, 2023:
| Three months ended | |||||||||||
| September 30, 2023 | June 30, 2023 | ||||||||||
| (in millions) | |||||||||||
| Oil, natural gas and NGL sales | $ | 510 | $ | 447 | |||||||
Net (loss) gain from commodity derivatives | (204) | 31 | |||||||||
Marketing of purchased natural gas | 78 | 72 | |||||||||
| Electricity sales | 67 | 34 | |||||||||
| Other revenue | 9 | 7 | |||||||||
| Total operating revenues | $ | 460 | $ | 591 | |||||||
Oil, natural gas and NGL sales — Oil, natural gas and NGL sales, excluding the effects of cash settlements on our commodity derivative contracts, were $510 million for the three months ended September 30, 2023, which is an increase of $63 million compared to $447 million for the three months ended June 30, 2023. This increase was primarily due to higher realized prices for the third quarter of 2023, partially offset by lower oil production volumes as shown in the table below. The effect of cash settlements on our commodity derivative contracts is not included in the table below.
| Oil | NGLs | Natural Gas | Total | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Three months ended June 30, 2023 | $ | 362 | $ | 42 | $ | 43 | $ | 447 | |||||||||||||||
| Changes in realized prices | 49 | 3 | 17 | 69 | |||||||||||||||||||
| Changes in production | (9) | 2 | 1 | (6) | |||||||||||||||||||
| Three months ended September 30, 2023 | $ | 402 | $ | 47 | $ | 61 | $ | 510 | |||||||||||||||
Note: See Production for volumes by commodity type and Prices and Realizations for index and realized prices for comparative periods.
Net (loss) gain from commodity derivatives — Net loss from commodity derivatives was $204 million for the three months ended September 30, 2023 compared to net gain of $31 million for the three months ended June 30, 2023. The net loss from commodity derivatives primarily resulted from changes in the fair value of our outstanding commodity derivatives from the positions held as well as the relationship between contract prices and the associated forward curves at the end of each measurement period.
Payments on commodity derivatives were $95 million for the three months ended September 30, 2023 compared to $63 million for the three months ended June 30, 2023. Including the effect of settlement payments for commodity derivatives, the price received for our oil, natural gas and NGL sales decreased by $31 million compared to the three months ended June 30, 2023.
| Three months ended | |||||||||||
| September 30, 2023 | June 30, 2023 | ||||||||||
| (in millions) | |||||||||||
Non-cash commodity derivative (loss) gain | $ | (109) | $ | 94 | |||||||
| Net cash payments on settled commodity derivatives | (95) | (63) | |||||||||
Net (loss) gain from commodity derivatives | $ | (204) | $ | 31 | |||||||
Electricity sales — Electricity sales increased by $33 million to $67 million for the three months ended September 30, 2023 compared to $34 million for the three months ended June 30, 2023 predominately due to higher power prices during the third quarter of 2023.
32
The following table presents our operating and non-operating expenses and income for the three months ended September 30, 2023 and June 30, 2023:
| Three months ended | |||||||||||
| September 30, 2023 | June 30, 2023 | ||||||||||
| (in millions) | |||||||||||
| Operating expenses | |||||||||||
| Energy operating costs | $ | 74 | $ | 58 | |||||||
| Gas processing costs | 5 | 5 | |||||||||
| Non-energy operating costs | 117 | 123 | |||||||||
| General and administrative expenses | 65 | 71 | |||||||||
| Depreciation, depletion and amortization | 56 | 56 | |||||||||
| Taxes other than on income | 48 | 42 | |||||||||
| Exploration expense | — | 1 | |||||||||
Purchased natural gas marketing expense | 31 | 27 | |||||||||
| Electricity generation expenses | 23 | 13 | |||||||||
| Transportation costs | 16 | 16 | |||||||||
| Accretion expense | 12 | 11 | |||||||||
| Other operating expenses, net | 28 | 21 | |||||||||
| Total operating expenses | 475 | 444 | |||||||||
| Gain on asset divestitures | — | — | |||||||||
Operating (loss) income | (15) | 147 | |||||||||
| Non-operating (expenses) income | |||||||||||
| Interest and debt expense | (15) | (14) | |||||||||
| Loss from investment in unconsolidated subsidiary | (3) | (1) | |||||||||
Other non-operating income | 3 | 3 | |||||||||
(Loss) income before income taxes | (30) | 135 | |||||||||
Income tax benefit (provision) | 8 | (38) | |||||||||
Net (loss) income | $ | (22) | $ | 97 | |||||||
Energy operating costs — Energy operating costs for the three months ended September 30, 2023 were $74 million, which was an increase of $16 million from $58 million for the three months ended June 30, 2023. This increase was a result of higher natural gas prices in the third quarter of 2023. For more information on our natural gas market prices, see Prices and Realizations above.
Non-energy operating costs — Non-energy operating costs for the three months ended September 30, 2023 were $117 million compared to $123 million for the three months ended June 30, 2023, which is a decrease of $6 million primarily due to a reduction in downhole maintenance activity. Non-energy operating costs include $2 million and $3 million of stock-based compensation expense related to our cash-settled awards for the three months ended September 30, 2023 and June 30, 2023, respectively. See General and administrative expenses below for additional information on our stock-based compensation awards.
33
General and administrative expenses — General and administrative (G&A) expenses were $65 million for the three months ended September 30, 2023, which was a decrease of $6 million from $71 million for the three months ended June 30, 2023. The decrease in G&A expenses was primarily attributable to a reduction in compensation-related expenses following a headcount reduction in August 2023.
The table below shows G&A expenses for our exploration and production business (including unallocated corporate overhead and other) separately from our carbon management business. The amounts shown for our carbon management business do not include expenses borne by the Carbon TerraVault JV.
| Three months ended | |||||||||||
| September 30, 2023 | June 30, 2023 | ||||||||||
| (in millions) | |||||||||||
Exploration and production, corporate and other | $ | 61 | $ | 68 | |||||||
Carbon management business | 4 | 3 | |||||||||
| Total general and administrative expenses | $ | 65 | $ | 71 | |||||||
Stock-based compensation awards are granted under our stock-based compensation plans 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 performance stock units and restricted stock units that either cliff vest at the end of a two- or three-year period or vest ratably over a two- or three-year period. Our equity-settled awards granted to non-employee directors are restricted stock units that vest ratably over a three-year period. Our cash-settled awards granted to non-executive employees vest ratably over a three-year period. Grants of equity-settled awards in 2021 contemplated that no corresponding grants would be made in 2022. Additional grants were made in 2023.
Changes in our stock price introduce volatility in our results of operations because we pay half of our cash-settled awards based on our stock price performance and we adjust our obligation for unvested cash-settled awards at the end of each reporting period. Equity-settled awards are not similarly adjusted for changes in our stock price.
Stock-based compensation included in G&A expense is shown in the table below:
| Three months ended | |||||||||||
| September 30, 2023 | June 30, 2023 | ||||||||||
| (in millions) | |||||||||||
Cash-settled awards | $ | 3 | $ | 5 | |||||||
Stock-settled awards | 7 | 8 | |||||||||
| Total included in general and administrative expenses | $ | 10 | $ | 13 | |||||||
Electricity generation expenses — Electricity generation expenses for the three months ended September 30, 2023 were $23 million, which was an increase of $10 million from $13 million for the three months ended June 30, 2023. This increase was primarily due to higher prices for natural gas.
Income taxes – The income tax benefit for the three months ended September 30, 2023 was $8 million (representing an effective tax rate of 27%), compared to a provision of $38 million (representing an effective tax rate of 28%) for the three months ended June 30, 2023.
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Nine months ended September 30, 2023 compared to September 30, 2022
The following table presents our operating revenues for the nine months ended September 30, 2023 and 2022:
| Nine months ended | |||||||||||
| September 30, 2023 | September 30, 2022 | ||||||||||
| (in millions) | |||||||||||
| Oil, natural gas and NGL sales | $ | 1,672 | $ | 2,026 | |||||||
Net loss from commodity derivatives | (131) | (419) | |||||||||
Marketing of purchased natural gas | 334 | 220 | |||||||||
| Electricity sales | 169 | 171 | |||||||||
| Other revenue | 31 | 27 | |||||||||
| Total operating revenues | $ | 2,075 | $ | 2,025 | |||||||
Oil, natural gas and NGL sales — Oil, natural gas and NGL sales, excluding the effects of cash settlements on our commodity derivative contracts, were $1,672 million for the nine months ended September 30, 2023, which is a decrease of $354 million compared to $2,026 million for the nine months ended September 30, 2022. This decrease was primarily due to changes in realized prices as shown in the table below, including lower realized prices for oil and NGLs, partially offset by higher realized prices for natural gas. The effect of cash settlements on our commodity derivative contracts is not included in the table below.
| Oil | NGLs | Natural Gas | Total | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Nine months ended September 30, 2022 | $ | 1,527 | $ | 205 | $ | 294 | $ | 2,026 | |||||||||||||||
| Changes in realized prices | (331) | (55) | 101 | (285) | |||||||||||||||||||
| Changes in production | (42) | 1 | (28) | (69) | |||||||||||||||||||
| Nine months ended September 30, 2023 | $ | 1,154 | $ | 151 | $ | 367 | $ | 1,672 | |||||||||||||||
Note: See Production for volumes by commodity type and Prices and Realizations for index and realized prices for comparative periods.
Net loss from commodity derivatives — Net loss from commodity derivatives was $131 million for the nine months ended September 30, 2023 compared to a net loss of $419 million for the nine months ended September 30, 2022. The net loss from commodity derivatives primarily resulted from changes in the fair value of our outstanding commodity derivatives from the positions held as well as the relationship between contract prices and the associated forward curves at the end of each measurement period.
Payments on commodity derivatives were $223 million for the nine months ended September 30, 2023 compared to payments of $604 million for the nine months ended September 30, 2022. Including the effect of settlement payments for commodity derivatives, our oil, natural gas and NGL sales increased by $27 million compared to the nine months ended September 30, 2022.
| Nine months ended | |||||||||||
| September 30, 2023 | September 30, 2022 | ||||||||||
| (in millions) | |||||||||||
Non-cash commodity derivative gain | $ | 92 | $ | 185 | |||||||
| Net cash payments on settled commodity derivatives | (223) | (604) | |||||||||
Net loss from commodity derivatives | $ | (131) | $ | (419) | |||||||
Marketing of purchased natural gas — Marketing of purchased natural gas relates to natural gas acquired from third parties which is subsequently sold in connection with certain of our marketing activities. Marketing of purchased natural gas were $334 million for the nine months ended September 30, 2023, an increase of $114 million from $220 million during the nine months ended September 30, 2022. The increase was primarily the result of higher prices during 2023, which peaked in January 2023. Revenues from marketing of purchased natural gas net of related purchased natural gas marketing expense were $152 million for the nine months ended September 30, 2023 compared to $34 million for the nine months ended September 30, 2022.
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The following table presents our operating and non-operating expenses and income for the nine months ended September 30, 2023 and 2022:
| Nine months ended | |||||||||||
| September 30, 2023 | September 30, 2022 | ||||||||||
| (in millions) | |||||||||||
| Operating expenses | |||||||||||
| Energy operating costs | $ | 258 | $ | 243 | |||||||
| Gas processing costs | 14 | 13 | |||||||||
| Non-energy operating costs | 364 | 330 | |||||||||
| General and administrative expenses | 201 | 163 | |||||||||
| Depreciation, depletion and amortization | 170 | 149 | |||||||||
| Asset impairment | 3 | 2 | |||||||||
| Taxes other than on income | 132 | 120 | |||||||||
| Exploration expense | 2 | 3 | |||||||||
Purchased natural gas marketing expense | 182 | 186 | |||||||||
| Electricity generation expenses | 85 | 99 | |||||||||
| Transportation costs | 49 | 37 | |||||||||
| Accretion expense | 35 | 32 | |||||||||
| Other operating expenses, net | 62 | 28 | |||||||||
| Total operating expenses | 1,557 | 1,405 | |||||||||
Gain on asset divestitures | 7 | 60 | |||||||||
| Operating income | 525 | 680 | |||||||||
| Non-operating (expenses) income | |||||||||||
| Interest and debt expense | (43) | (39) | |||||||||
| Loss from investment in unconsolidated subsidiary | (6) | — | |||||||||
Other non-operating income | 5 | 3 | |||||||||
| Income before income taxes | 481 | 644 | |||||||||
| Income tax provision | (105) | (203) | |||||||||
| Net income | $ | 376 | $ | 441 | |||||||
Energy operating costs — Energy operating costs for the nine months ended September 30, 2023 were $258 million, which was an increase of $15 million from $243 million for the nine months ended September 30, 2022. This increase was a result of higher prices in the nine months of 2023 compared to the same prior year period. For more information on our natural gas market prices, see Prices and Realizations above.
Non-energy operating costs — Non-energy operating costs were $364 million for the nine months ended September 30, 2023, which was an increase of $34 million from $330 million for the nine months ended September 30, 2022. The increase was predominately a result of higher downhole maintenance activity. Non-energy operating costs also includes $6 million and $3 million of stock-based compensation expense related to our cash-settled awards for the nine months ended September 30, 2023 and 2022, respectively. See General and administrative expenses below for additional information on our stock-based compensation awards.
General and administrative expenses — General and administrative (G&A) expenses were $201 million for the nine months ended September 30, 2023, which was an increase of $38 million from $163 million for the nine months ended September 30, 2022. The increase in G&A expenses was primarily attributable to compensation-related expenses, related to stock-based compensation awards granted in 2023 that had not been granted in 2022. Grants of equity-settled awards in 2021 following our emergence from bankruptcy contemplated that no corresponding grants would be made in 2022. G&A expenses also increased to a lesser extent due to increased headcount in our carbon management business, and higher spending to streamline our information technology infrastructure. Stock-based compensation awards are discussed further below.
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The table below shows G&A expenses for our exploration and production business (in addition to unallocated corporate overhead and other) separately from our carbon management business. The amounts shown for our carbon management business do not include expenses borne by the Carbon TerraVault JV.
| Nine months ended | |||||||||||
| September 30, 2023 | September 30, 2022 | ||||||||||
| (in millions) | |||||||||||
Exploration and production, corporate and other | $ | 191 | $ | 153 | |||||||
Carbon management business | 10 | 10 | |||||||||
| Total general and administrative expenses | $ | 201 | $ | 163 | |||||||
Awards are granted under our stock-based compensation plans 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 performance stock units and restricted stock units that either cliff vest at the end of a two- or three-year period or vest ratably over a two- or three-year period. Our equity-settled awards granted to non-employee directors are restricted stock units that vest ratably over a three-year period. 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 half of our cash-settled awards based on our stock price performance and we adjust our obligation for unvested cash-settled awards at the end of each reporting period. Equity-settled awards are not similarly adjusted for changes in our stock price.
Stock-based compensation included in G&A expense is shown in the table below:
| Nine months ended | |||||||||||
| September 30, 2023 | September 30, 2022 | ||||||||||
| (in millions) | |||||||||||
Cash-settled awards | $ | 11 | $ | 6 | |||||||
Stock-settled awards | 21 | 13 | |||||||||
| Total included in general and administrative expenses | $ | 32 | $ | 19 | |||||||
Depreciation, depletion and amortization — Depreciation, depletion and amortization (DD&A) increased $21 million to $170 million for the nine months ended September 30, 2023 from $149 million for the nine months ended September 30, 2022. The increase was primarily due to a change in our DD&A rates which are periodically adjusted to reflect current reserve estimates.
Taxes other than on income — Taxes other than on income were $132 million for the nine months ended September 30, 2023, which was an increase of $12 million from $120 million for the nine months ended September 30, 2022. The increase was primarily related to higher ad valorem taxes in 2023.
Electricity generation expense — Electricity generation expenses for the nine months ended September 30, 2023 were $85 million, which was a decrease of $14 million from $99 million for the same prior year period. This decrease was primarily due to lower prices for natural gas.
Transportation costs — Transportation costs increased by $12 million to $49 million for the nine months ended September 30, 2023 from $37 million for the nine months ended September 30, 2022. The increase in transportation costs was a result of higher natural gas marketing activities.
Other operating expenses, net — Other operating expenses, net were $62 million for the nine months ended September 30, 2023, which was an increase of $34 million from $28 million during the same prior year period. The increase was primarily related to costs to implement operational efficiencies in 2023, including severance, and higher expenses related to our carbon management.
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The table below shows other operating expenses, net for our exploration and production business (including unallocated corporate overhead and other) separately from our carbon management business. Carbon management expenses include lease cost for carbon sequestration easements, advocacy, technical evaluation of carbon storage and other startup related costs. The amounts shown for our carbon management business do not include expenses borne by the Carbon TerraVault JV.
| Nine months ended September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| (in millions) | |||||||||||
Exploration and production, corporate and other | $ | 41 | $ | 25 | |||||||
Carbon management business | 21 | 3 | |||||||||
| Total other operating expenses, net | $ | 62 | $ | 28 | |||||||
Income taxes – The income tax provision for the nine months ended September 30, 2023 was $105 million (representing an effective tax rate of 22%), compared to $203 million (representing an effective tax rate of 32%) for the nine months ended September 30, 2022. The income tax provision for the nine months ended September 30, 2022 included a valuation allowance related to our Lost Hills divestiture that was released in the nine months ended September 30, 2023. See Part I, Item 1 – Financial Statements, Note 6 Income Taxes for more information on a valuation allowance related to our Lost Hills divestiture.
Liquidity and Capital Resources
Liquidity
Our primary sources of liquidity and capital resources are cash flows from operations, cash and cash equivalents and available borrowing capacity under our Revolving Credit Facility. We consider our low leverage and ability to control costs to be a core strength and strategic advantage, which we are focused on maintaining. Our primary uses of operating cash flow for the nine months ended September 30, 2023 were for capital investments, repurchases of our common stock and dividends. Refer to Part I, Item 1 – Financial Statements, Note 3 Debt for information on repurchases of our Senior Notes. In October 2023, we repurchased an additional $30 million of our Senior Notes at an average price of 100.50% of par. Following these repurchases, the remaining principal amount of our outstanding Senior Notes is $565 million.
The following table summarizes our liquidity:
| September 30, 2023 | |||||
| (in millions) | |||||
| Cash and cash equivalents | $ | 479 | |||
| Revolving Credit Facility: | |||||
Borrowing capacity(a) | 627 | ||||
| Outstanding letters of credit | (148) | ||||
| Availability | $ | 479 | |||
| Liquidity | $ | 958 | |||
(a)As part of the October 30, 2023 amendment to our Revolving Credit Facility, our borrowing capacity increased by $3 million to $630 million.
We recently amended our Revolving Credit Facility as described in Part I, Item 1 – Financial Statements, Note 3 Debt and Note 13 Subsequent Events, and continue to evaluate refinancing options for our Senior Notes. We also intend to pursue financing options for our carbon management business that are separate from the rest of our business.
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At current commodity prices and based upon our planned 2023 capital program described below, we expect to generate operating cash flow to support and invest in our core assets and preserve financial flexibility. We regularly review our financial position and evaluate whether to (i) adjust our drilling program, (ii) return available cash to shareholders through dividends or stock buybacks to the extent permitted under our Revolving Credit Facility and Senior Notes indenture, (iii) repurchase outstanding indebtedness, (iv) advance carbon management activities, or (v) maintain cash and cash equivalents on our balance sheet. We believe we have sufficient sources of liquidity to meet our obligations for the next twelve months.
Cash Flow Analysis
Cash flows from operating activities — For the nine months ended September 30, 2023, our operating cash flow decreased $54 million to $522 million from $576 million in the same period in 2022. The decreases in operating cash flow for the nine months ended September 30, 2023 primarily relates to lower average realized oil prices as well as production volumes in 2023 compared to the same prior-year period.
Cash flows used in investing activities — The following table provides a comparative summary of net cash used in investing activities:
| Nine months ended September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| (in millions) | |||||||||||
| Capital investments | $ | (119) | $ | (304) | |||||||
| Changes in accrued capital investments | (10) | 5 | |||||||||
| Proceeds from divestitures, net | — | 79 | |||||||||
| Acquisitions | (1) | (17) | |||||||||
| Distribution related to the Carbon TerraVault JV | — | 12 | |||||||||
| Capitalized joint venture transaction costs | — | (12) | |||||||||
| Other, net | (3) | (1) | |||||||||
| Net cash used in investing activities | $ | (133) | $ | (238) | |||||||
Cash flows used in financing activities — The following table provides a comparative summary of net cash used in financing activities:
| Nine months ended September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| (in millions) | |||||||||||
| Repurchases of common stock | $ | (143) | $ | (247) | |||||||
| Common stock dividends | (59) | (39) | |||||||||
| Issuance of common stock | 1 | $ | 1 | ||||||||
| Debt amendment costs | (8) | $ | — | ||||||||
Debt repurchases | (5) | $ | — | ||||||||
| Shares cancelled for taxes | (3) | $ | — | ||||||||
| Net cash used in financing activities | $ | (217) | $ | (285) | |||||||
2023 Capital Program
Our capital program is dynamic in response to commodity price volatility while focusing on oil production and maximizing our free cash flow. We expect our 2023 capital program to range between $185 and $210 million under current conditions with continuing focus on high return workover activity and facilities projects. For the remainder of 2023, we will execute a one rig program in the Los Angeles basin. Our level of spending in the fourth quarter of 2023 includes procuring critical components for planned maintenance at our power plant and a gas processing facility at Elk Hills in 2024 as well as incremental spending to advance our carbon management business.
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The amounts in the table below reflect components of our capital investment for the periods indicated, excluding changes in capital investment accruals:
| 2023 Full Year Estimate | Nine months ended September 30, 2023 | ||||||||||
| (in millions) | |||||||||||
| Oil and natural gas operations | $ 155 - 170 | $ | 106 | ||||||||
| Carbon management business | 5 - 10 | 1 | |||||||||
| Corporate and other | 25 - 30 | 12 | |||||||||
| Total Capital | $ 185 - 210 | $ | 119 | ||||||||
Derivatives
Significant changes in oil and natural gas prices may have a material impact on our liquidity. Declining commodity prices negatively affect our operating cash flow, and the inverse applies during periods of rising commodity prices. Our hedging strategy seeks to mitigate our exposure to commodity price volatility and ensure our financial strength and liquidity by protecting our cash flows. We will continue to evaluate our hedging strategy based on prevailing market prices and conditions.
Unless otherwise indicated, we use the term “hedge” to describe derivative instruments that are designed to achieve our hedging requirements and program goals, even though they are not accounted for as cash-flow or fair-value hedges. We did not have any commodity derivatives designated as accounting hedges as of and during the three months ended September 30, 2023. See Part I, Item 1 – Financial Statements, Note 5 Derivatives for further information on our derivatives and a summary of our open derivative contracts as of September 30, 2023 and Part II, Item 8 – Financial Statements and Supplementary Data, Note 4 Debt in our 2022 Annual Report for information on the hedging requirements included in our Revolving Credit Facility.
Dividends
Our Board of Directors declared the following cash dividends in each of the periods presented.
Total Dividend | Rate Per Share | ||||||||||
(in millions) | ($ per share) | ||||||||||
| 2023 | |||||||||||
Three months ended March 31, 2023 | $ | 20 | $ | 0.2825 | |||||||
Three months ended June 30, 2023 | 20 | $ | 0.2825 | ||||||||
Three months ended September 30, 2023 | 19 | $ | 0.2825 | ||||||||
Nine months ended September 30, 2023 | $ | 59 | |||||||||
| 2022 | |||||||||||
Three months ended March 31, 2022 | $ | 13 | $ | 0.1700 | |||||||
Three months ended June 30, 2022 | 13 | $ | 0.1700 | ||||||||
Three months ended September 30, 2022 | 13 | $ | 0.1700 | ||||||||
Nine months ended September 30, 2022 | $ | 39 | |||||||||
The declaration of future cash dividends, and the establishment of record and payment dates, is subject to final determination by our Board of Directors each quarter after reviewing our financial performance and position. For information regarding past dividends paid, see Cash Flow Analysis, Cash Flow Used in Financing Activities above. See Note 13 Subsequent Events for information regarding a recent increase to our dividend policy.
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Share Repurchase Program
Our Board of Directors has authorized a Share Repurchase Program to acquire up to $1.1 billion of our common stock through June 30, 2024. The repurchases may be effected from time-to-time through open market purchases, privately negotiated transactions, Rule 10b5-1 plans, accelerated stock repurchases, derivative contracts or otherwise in compliance with Rule 10b-18, subject to market conditions and contractual limitations in our debt agreements. The Share Repurchase Program does not obligate us to repurchase any dollar amount or number of shares and our Board of Directors may modify, suspend, or discontinue authorization of the program at any time. The aggregate value of shares that may yet be purchased under the Share Repurchase Program totaled $497 million, excluding commissions and excise taxes on repurchases, as of September 30, 2023. The following is a summary of our share repurchases, held as treasury stock for the periods presented:
| Total Number of Shares Purchased | Total Value of Shares Purchased | Average Price Paid per Share | |||||||||||||||
| (number of shares) | (in millions) | ($ per share) | |||||||||||||||
| Three months ended September 30, 2022 | 1,921,181 | $ | 80 | $ | 41.78 | ||||||||||||
| Three months ended September 30, 2023 | 365,145 | $ | 20 | $ | 54.75 | ||||||||||||
| Nine months ended September 30, 2022 | 5,845,082 | $ | 247 | $ | 42.29 | ||||||||||||
| Nine months ended September 30, 2023 | 3,407,655 | $ | 143 | $ | 41.69 | ||||||||||||
| Inception of Program (May 2021) through September 30, 2023 | 14,863,915 | $ | 604 | $ | 40.53 | ||||||||||||
Note: The total value of shares purchased includes approximately $1 million in the nine months ended September 30, 2023 related to excise taxes on share repurchases, which was effective beginning in 2023. Commissions paid were not significant in all periods presented.
Divestitures and Acquisitions
See Part I, Item 1 – Financial Statements, Note 7 Divestitures and Acquisitions for information on our transactions during the three and nine months ended September 30, 2023 and 2022.
Lawsuits, Claims, Commitments and Contingencies
We are involved, in the normal course of business, in lawsuits, environmental and other claims and other contingencies that seek, among other things, compensation for alleged personal injury, breach of contract, property damage or other losses, punitive damages, civil penalties, or injunctive or declaratory relief.
We accrue reserves for currently outstanding lawsuits, claims and proceedings when it is probable that a liability has been incurred and the liability can be reasonably estimated. Reserve balances at September 30, 2023 and December 31, 2022 were not material to our condensed consolidated balance sheets as of such dates. We also evaluate the amount of reasonably possible losses that we could incur as a result of these matters. We believe that reasonably possible losses that we could incur in excess of reserves cannot be accurately determined.
See Part I, Item 1 – Financial Statements, Note 4 Lawsuits, Claims, Commitments and Contingencies for further information.
Critical Accounting Estimates and Significant Accounting and Disclosure Changes
There have been no changes to our critical accounting estimates, which are summarized in Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations, Critical Accounting Estimates of our 2022 Annual Report.
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Forward-Looking Statements
This document contains statements that we believe to be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than historical facts are forward-looking statements, and include statements regarding our future financial position, business strategy, projected revenues, earnings, costs, capital expenditures and plans and objectives of management for the future. Words such as "expect," “could,” “may,” "anticipate," "intend," "plan," “ability,” "believe," "seek," "see," "will," "would," “estimate,” “forecast,” "target," “guidance,” “outlook,” “opportunity” or “strategy” or similar expressions are generally intended to identify forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, such statements.
Although we believe the expectations and forecasts reflected in our forward-looking statements are reasonable, they are inherently subject to numerous risks and uncertainties, most of which are difficult to predict and many of which are beyond our control. No assurance can be given that such forward-looking statements will be correct or achieved or that the assumptions are accurate or will not change over time. Particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include:
•fluctuations in commodity prices, including supply and demand considerations for our products and services;
•decisions as to production levels and/or pricing by OPEC or U.S. producers in future periods;
•government policy, war and political conditions and events, including the wars in Ukraine and Israel and oil sanctions on Russia, Iran and others;
•regulatory actions and changes that affect the oil and gas industry generally and us in particular, including (1) the availability or timing of, or conditions imposed on, permits and approvals necessary for drilling or development activities or our carbon management business; (2) the management of energy, water, land, greenhouse gases (GHGs) or other emissions, (3) the protection of health, safety and the environment, or (4) the transportation, marketing and sale of our products;
•the impact of inflation on future expenses and changes generally in the prices of goods and services;
•changes in business strategy and our capital plan;
•lower-than-expected production or higher-than-expected production decline rates;
•changes to our estimates of reserves and related future cash flows, including changes arising from our inability to develop such reserves in a timely manner, and any inability to replace such reserves;
•the recoverability of resources and unexpected geologic conditions;
•general economic conditions and trends, including conditions in the worldwide financial, trade and credit markets;
•production-sharing contracts' effects on production and operating costs;
•the lack of available equipment, service or labor price inflation;
•limitations on transportation or storage capacity and the need to shut-in wells;
•any failure of risk management;
•results from operations and competition in the industries in which we operate;
•our ability to realize the anticipated benefits from prior or future efforts to reduce costs;
•environmental risks and liability under federal, regional, state, provincial, tribal, local and international environmental laws and regulations (including remedial actions);
• the creditworthiness and performance of our counterparties, including financial institutions, operating partners, CCS project participants and other parties;
•reorganization or restructuring of our operations;
•our ability to claim and utilize tax credits or other incentives in connection with our CCS projects;
•our ability to realize the benefits contemplated by our energy transition strategies and initiatives, including CCS projects and other renewable energy efforts;
•our ability to successfully identify, develop and finance carbon capture and storage projects and other renewable energy efforts, including those in connection with the Carbon TerraVault JV, and our ability to convert our CDMAs to definitive agreements and enter into other offtake agreements;
•our ability to maximize the value of our carbon management business and operate it on a stand alone basis;
•our ability to successfully develop infrastructure projects and enter into third party contracts on contemplated terms;
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•uncertainty around the accounting of emissions and our ability to successfully gather and verify emissions data and other environmental impacts;
•changes to our dividend policy and share repurchase program, and our ability to declare future dividends or repurchase shares under our debt agreements;
•limitations on our financial flexibility due to existing and future debt;
•insufficient cash flow to fund our capital plan and other planned investments and return capital to shareholders;
•changes in interest rates;
•our access to and the terms of credit in commercial banking and capital markets, including our ability to refinance our debt or obtain separate financing for our carbon management business;
•changes in state, federal or international tax rates, including our ability to utilize our net operating loss carryforwards to reduce our income tax obligations;
•effects of hedging transactions;
•the effect of our stock price on costs associated with incentive compensation;
•inability to enter into desirable transactions, including joint ventures, divestitures of oil and natural gas properties and real estate, and acquisitions, and our ability to achieve any expected synergies;
•disruptions due to earthquakes, forest fires, floods, extreme weather events or other natural occurrences, accidents, mechanical failures, power outages, transportation or storage constraints, labor difficulties, cybersecurity breaches or attacks or other catastrophic events;
•pandemics, epidemics, outbreaks, or other public health events, such as the COVID-19 pandemic; and
•other factors discussed in Part I, Item 1A – Risk Factors in our 2022 Annual Report.
We caution you not to place undue reliance on forward-looking statements contained in this document, which speak only as of the filing date, and we undertake no obligation to update this information. This document may also contain information from third party sources. This data may involve a number of assumptions and limitations, and we have not independently verified them and do not warrant the accuracy or completeness of such third-party information.
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Item 3Quantitative and Qualitative Disclosures About Market Risk
For the three and nine months ended September 30, 2023, there were no material changes to market risks from the information provided under Item 305 of Regulation S-K included under the caption Part II, Item 7A – Quantitative and Qualitative Disclosures About Market Risk in the 2022 Annual Report.
Commodity Price Risk
Our financial results are sensitive to fluctuations in oil, NGL and natural gas prices. These commodity price changes also impact the volume changes under our PSC-type contracts. We maintain a commodity hedging program primarily focused on hedging crude oil sales to help protect our cash flows, margins and capital program from the volatility of crude oil prices. As of September 30, 2023, we had a net liability of $138 million for our commodity derivative positions which are carried at fair value. For more information on our derivative positions as of September 30, 2023, refer to Part I, Item 1 – Financial Statements, Note 5 Derivatives. We have price exposure for natural gas we purchase and use in our business. We used natural gas to generate electricity for our operations and higher natural gas prices will also result in an increase to our electricity costs.
Counterparty Credit Risk
Our credit risk relates primarily to trade receivables and derivative financial instruments. Credit exposure for each customer is monitored for outstanding balances and current activity. Counterparty credit limits have been established based upon the financial health of our counterparties, and these limits are actively monitored. In the event counterparty credit risk is heightened, we may request collateral and accelerate payment dates. Concentration of credit risk is regularly reviewed to ensure that counterparty credit risk is adequately diversified.
As of September 30, 2023, the majority of our credit exposure was with investment-grade counterparties. We believe exposure to counterparty credit-related losses related to our business at September 30, 2023 was not material and losses associated with counterparty credit risk have been insignificant for all periods presented.
Interest-Rate Risk
Changes in interest rate may affect the amount of interest we pay on our long-term debt. We had no variable-rate debt outstanding as of September 30, 2023. Our Senior Notes bear interest at a fixed rate of 7.125% per annum.
Item 4 Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer supervised and participated in management's evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2023.
There were no changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the three months ended September 30, 2023 that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
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PART II OTHER INFORMATION
Item 1Legal Proceedings
For additional information regarding legal proceedings, see Item 1 – Financial Statements, Note 4 Lawsuits, Claims, Commitments and Contingencies in the Notes to the Condensed Consolidated Financial Statements included in Part I of this Form 10-Q, Part I, Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations, Lawsuits, Claims, Commitments and Contingencies in this Form 10-Q, and Part I, Item 3, Legal Proceedings in our 2022 Annual Report.
On September 14, 2023, the Center for Biological Diversity filed a writ petition against the City of Long Beach and the State of California, naming us and our subsidiary, the THUMS Long Beach Company, as Real Parties in Interest. The Petition generally alleges that the City of Long Beach, the Long Beach City Council, and the California State Lands Commission violated the California Environmental Quality Act by failing to evaluate the environmental impacts of certain activities (drilling and injection) authorized under Long Beach’s 2023 Annual Plan and 2023-2028 Program Plan for the Long Beach Unit, both of which received final approval in May 2023. The Petition seeks the setting aside of the approvals of the Plans and the enjoinment of any activities described thereunder until the requirements of CEQA are met; namely that an environmental review is completed. We believe the City and the State have strong defenses and we intend to vigorously defend against the Petition as a Real Party in Interest. However, we cannot predict the ultimate outcome of this action with certainty.
Item 1A Risk Factors
We are subject to various risks and uncertainties in the course of our business. A discussion of such risks and uncertainties may be found under the heading Risk Factors in our 2022 Annual Report and our Quarterly Report on Form 10-Q for the three months ended March 31, 2023 and June 30, 2023. Except as set forth below, there were no material changes to those risk factors during the three months ended September 30, 2023.
Recent action by the State of California imposing additional financial assurance requirements related to plugging and abandonment costs, decommissioning, and site restoration on those who acquire the right to operate wells and production facilities could impact our ability to sell or acquire assets in the state of California or increase our costs in connection with the same.
On October 7, 2023, the California Governor signed into law Assembly Bill 1167 (AB 1167), which imposes more stringent financial assurance requirements on persons who acquire the right to operate a well or production facility in the state of California, requiring them to file either an individual indemnity bond for single-well or production facility acquisitions, or a blanket indemnity bond for multiple wells or production facilities. The bond imposed on the acquirer will be in an amount determined by the state to sufficiently cover plugging and abandonment costs, decommissioning, and site restoration, and AB 1167 prohibits the closing of any acquisition of a well or production facility until a determination on the appropriate bond amount has been completed by the state and the bond has been filed. We are still assessing the impact of AB 1167. In addition, although AB 1167 has been signed into law, Governor Newsom has called for further legislative changes to these new requirements to mitigate against the potential risk of the implementation of AB 1167 ultimately increasing the number of orphaned idle or low-producing wells in California. However, we cannot predict what form these changes may ultimately take or if the legislature will act on the Governor’s request. Implementation of this law may lead to the delay or additional costs with respect to acquisitions or dispositions, which could impact our ability to grow or explore new strategic areas – or exit others – within the state of California.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
Our Board of Directors has authorized a Share Repurchase Program to acquire up to $1.1 billion of our common stock through June 30, 2024. The repurchases may be affected from time-to-time through open market purchases, privately negotiated transactions, Rule 10b5-1 plans, accelerated stock repurchases, derivative contracts or otherwise in compliance with Rule 10b-18, subject to market and contractual limitations in our debt agreements. The Share Repurchase Program does not obligate us to repurchase any dollar amount or number of shares and our Board of Directors may modify, suspend, or discontinue authorization of the program at any time. Shares repurchased are held as treasury stock.
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Our share repurchase activity for the three months ended September 30, 2023 was as follows:
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs(a) | |||||||||||||||||||
| July 1, 2023 - July 31, 2023 | — | $ | — | — | $ | — | |||||||||||||||||
| August 1, 2023 - August 31, 2023 | 365,145 | $ | 54.75 | 365,145 | — | ||||||||||||||||||
| September 1, 2023 - September 30, 2023 | — | $ | — | — | — | ||||||||||||||||||
| Total | 365,145 | $ | 54.75 | 365,145 | $ | — | |||||||||||||||||
(a)The total value of shares that may yet be purchased under the Share Repurchase Program totaled $497 million as of September 30, 2023.
Item 5 Other Disclosures
Rule 10b5-1 Trading Arrangements
During the three months ended September 30, 2023, none of our directors or officers adopted terminated
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Item 6 Exhibits
| 3.1 | |||||
| 3.2 | |||||
| 3.3 | |||||
| 3.4 | |||||
10.1*,** | |||||
| 31.1* | |||||
| 31.2* | |||||
| 32.1* | |||||
| 101.INS* | Inline XBRL Instance Document. | ||||
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document. | ||||
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | ||||
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document. | ||||
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | ||||
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document. | ||||
| 104 | Cover Page Interactive Data File (formatted in inline XBRL and contained in Exhibits 101). | ||||
* - Filed or furnished herewith
**Certain portions of this exhibit (indicated by "[*****]") have been omitted pursuant to Item 601(b)(10) of Regulation S-K
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| CALIFORNIA RESOURCES CORPORATION | ||||||||
| DATE: | November 2, 2023 | /s/ Noelle M. Repetti | |||||||||
| Noelle M. Repetti | |||||||||||
| Senior Vice President and Controller | |||||||||||
| (Principal Accounting Officer) | |||||||||||
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