California Resources Corporation (NYSE:CRC) Q1 2023 Earnings Conference Call May 2, 2023 1:00 PM ET Company Participants Francisco Leon - President, Chief Executive Officer Jay Bys - Executive Vice President, Chief Commercial Officer Joanna Park - Vice President of Investor Relations, Treasurer Conference Call Participants Scott Hanold - RBC Capital Markets Kalei Akamine - Bank of America Leo Mariani - ROTH MKM Nate Pendleton - Stifel Noel Park - Tuohy Brothers Investment Research Eric Seeve - GoldenTree Op ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission file number 001-36478 California Resources Corporation (Exact name of registrant as specified in its charter) (State or other juris ...

"A Different Kind of Energy Company" • our ability to claim and utilize tax credits or other incentives in connection with our CCS projects, • general economic conditions and trends, including conditions in the worldwide financial, trade and credit markets; Fourth Quarter & Year End 2022 Results Strategic Realignment to Maximize Cash Flow Per Share February 24, 2023 Forward Looking / Cautionary Statements – Certain Terms • reorganization or restructuring of our operations; • government policy, war and polit ...

Part I [Business and Properties](index=8&type=section&id=Items%201%20%26%202%20Business%20and%20Properties) CRC is a California-focused independent oil and gas E&P company, also developing a carbon management business, holding 1.9 million net acres and 417 MMBoe proved reserves - CRC is an independent oil and natural gas E&P company focused exclusively on California, with a significant mineral acreage position of approximately **1.9 million net acres**[6](index=6&type=chunk)[217](index=217&type=chunk) - The company is actively developing a carbon management business named Carbon TerraVault, which includes a joint venture with Brookfield to pursue carbon capture and storage (CCS) projects[6](index=6&type=chunk)[77](index=77&type=chunk) - Following its emergence from Chapter 11 bankruptcy on October 27, 2020, the company adopted fresh start accounting, which may affect the comparability of financial statements before and after this date[7](index=7&type=chunk)[237](index=237&type=chunk) Key Operational and Financial Metrics (as of Dec 31, 2022) | Metric | Value | | :--- | :--- | | Net Mineral Acres | 1.9 million | | Operated Wells | ~10,000 | | Average Net Production (2022) | 91 MBoe/d | | Proved Reserves | 417 MMBoe | [Business Strategy](index=8&type=section&id=Business%20Strategy) The company's strategy focuses on advancing carbon management, optimizing E&P, improving financial flexibility, and increasing shareholder returns - Advance the carbon management business through Carbon TerraVault, focusing on signing up emitter projects and submitting Class VI permit applications for permanent carbon sequestration[266](index=266&type=chunk) - Execute a core E&P development plan by reducing the average rig count to **1.5 in 2023**, focusing on permitted projects, and increasing workover activity to minimize production decline[9](index=9&type=chunk) - Improve financial flexibility by pursuing options to amend, extend, or replace its Revolving Credit Facility and refinance its Senior Notes, while also seeking separate financing for the carbon management business[219](index=219&type=chunk) - Focus on increasing shareholder returns through capital allocation optimization, cost reductions, and a share repurchase program, which was increased to a total of **$1.1 billion**[239](index=239&type=chunk) - Maintain a commitment to safety and sustainability, with a Full-Scope Net Zero goal by **2045**. For **2023**, **30%** of management's annual incentive is tied to safety and ESG-related metrics[10](index=10&type=chunk) [Oil and Natural Gas Operations](index=9&type=section&id=Oil%20and%20Natural%20Gas%20Operations) CRC's oil and gas operations are concentrated in California's San Joaquin, Los Angeles, Sacramento, and Ventura basins, with San Joaquin as the largest Operations Summary by Basin (Year Ended Dec 31, 2022) | Basin | Net Mineral Acreage (thousands) | Proved Reserves (MMBoe) | Avg. Daily Net Production (MBoe/d) | | :--- | :--- | :--- | :--- | | San Joaquin | 1,248 | 295 | 70 | | Los Angeles | 29 | 113 | 18 | | Sacramento | 466 | 9 | 3 | | Ventura | 6 | — | — | | **Total** | **1,867** | **417** | **91** | - The San Joaquin Basin is the company's largest operational area, featuring the Elk Hills field, benefiting from extensive 3D seismic data and integrated infrastructure[13](index=13&type=chunk)[242](index=242&type=chunk)[270](index=270&type=chunk) - The Los Angeles Basin contains high-concentration oil fields like Wilmington and Huntington Beach, with a significant portion of Wilmington production subject to production-sharing contracts (PSCs)[244](index=244&type=chunk) - The company has divested the vast majority of its assets in the Ventura basin, with the remaining non-operated asset expected to be sold in the first half of 2023[273](index=273&type=chunk) [Production, Price and Cost History](index=14&type=section&id=Production%2C%20Price%20and%20Cost%20History) This section details the company's historical production volumes, realized commodity prices, and operating costs from 2020 to 2022 Production and Price Summary (2020-2022) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | **Avg. Daily Net Production (MBoe/d)** | 91 | 100 | 112 | | Oil (MBbl/d) | 55 | 60 | 70 | | NGLs (MBbl/d) | 11 | 13 | 13 | | Natural Gas (MMcf/d) | 147 | 159 | 174 | | **Avg. Realized Oil Price (w/o hedge, $/Bbl)** | $98.26 | $70.43 | $41.21 (Predecessor) | | **Avg. Realized Oil Price (with hedge, $/Bbl)** | $61.80 | $56.05 | $43.19 (Predecessor) | | **Operating Costs per Boe** | $23.75 | $19.39 | $14.95 (Predecessor) | - Production-sharing contracts (PSCs) in the Wilmington field represented **16%** of total production in **2022**, inflating reported revenue and operating costs per barrel without affecting net results[21](index=21&type=chunk)[279](index=279&type=chunk) [Estimated Proved Reserves and Future Net Cash Flows](index=16&type=section&id=Estimated%20Proved%20Reserves%20and%20Future%20Net%20Cash%20Flows) This section details the company's proved oil and gas reserves and associated future net cash flows as of December 31, 2022 Proved Reserves as of Dec 31, 2022 | Reserve Type | Oil (MMBbl) | NGLs (MMBbl) | Natural Gas (Bcf) | Total (MMBoe) | | :--- | :--- | :--- | :--- | :--- | | Proved Developed | 251 | 36 | 458 | 363 | | Proved Undeveloped | 43 | 2 | 53 | 54 | | **Total Proved** | **294** | **38** | **511** | **417** | - Total proved reserves decreased from **480 MMBoe** at year-end **2021** to **417 MMBoe** at year-end **2022**, primarily due to **33 MMBoe** production, **34 MMBoe** negative revisions from California regulatory changes, and **16 MMBoe** negative performance revisions[34](index=34&type=chunk)[35](index=35&type=chunk)[282](index=282&type=chunk) - California regulatory changes and court challenges led to a **34 MMBoe** negative revision to proved reserves, including **20 MMBoe** from Senate Bill No. 1137 uncertainty and **14 MMBoe** from Kern County permitting challenges[35](index=35&type=chunk) - Proved undeveloped (PUD) reserves decreased from **75 MMBoe** to **54 MMBoe** during **2022**, primarily due to a **23 MMBoe** negative revision related to regulatory changes affecting development plans beyond **5 years**[27](index=27&type=chunk)[28](index=28&type=chunk) PV-10 and Standardized Measure (as of Dec 31, 2022) | Metric | Value (in millions) | | :--- | :--- | | PV-10 of cash flows (Non-GAAP) | $9,219 | | Standardized measure of discounted future net cash flows (GAAP) | $6,726 | - The company's internal reserve estimates are audited by independent firms, with Ryder Scott and NSAI collectively auditing **85%** of total proved reserves in **2022**[31](index=31&type=chunk) [Carbon Management Business](index=25&type=section&id=Carbon%20Management%20Business) The company is developing Carbon TerraVault, a carbon management business, through a joint venture with Brookfield for Carbon Capture and Storage (CCS) projects - The company has formed a carbon management business, Carbon TerraVault, to pursue Carbon Capture and Storage (CCS) projects, intending to manage it as a stand-alone business over time[74](index=74&type=chunk) - In August **2022**, CRC entered into a joint venture (Carbon TerraVault JV) with Brookfield, where CRC holds a **51%** interest, and Brookfield committed an initial **$500 million** for jointly approved CCS projects[77](index=77&type=chunk)[98](index=98&type=chunk) - The company has submitted Class VI permit applications to the EPA for four permanent sequestration projects: two at the Elk Hills field and two in the Sacramento Basin[74](index=74&type=chunk) - In **2022**, CRC executed two carbon dioxide management agreements (CDMAs) with emitters to provide permanent carbon storage, framing the material economics and terms for future projects[75](index=75&type=chunk) [Human Capital Management](index=26&type=section&id=Human%20Capital%20Management) This section outlines the company's workforce demographics, diversity initiatives, and commitment to health and safety as of December 31, 2022 - As of December 31, **2022**, the company had approximately **1,060 employees**, with **45** full-time equivalents focused on the carbon management business[100](index=100&type=chunk) Workforce Diversity as of Dec 31, 2022 | Group | Gender Diverse | Ethnically and Racially Diverse | | :--- | :--- | :--- | | All Employees | 20% | 40% | | Managers | 21% | 23% | | Executives | 22% | 26% | | Board of Directors | 33% | 33% | - The company has established a **2030** diversity, equity, and inclusion (DE&I) goal to maintain >**20%** ethnic/racial diversity and increase gender diversity to **30%** in leadership positions[82](index=82&type=chunk)[83](index=83&type=chunk) - The company achieved a workforce Total Recordable Incident Rate (TRIR) of **0.62** in **2022**, demonstrating a strong focus on health and safety[10](index=10&type=chunk) [Regulation of the Industries in Which We Operate](index=27&type=section&id=Regulation%20of%20the%20Industries%20in%20Which%20We%20Operate) The company faces significant regulatory uncertainty in California, impacting well permitting, new well setbacks, and the developing framework for carbon capture and storage - The company faces significant regulatory uncertainty in California, particularly regarding well permitting, with CalGEM not issuing new production well permits since December **2022**, and ongoing litigation suspending local permitting[87](index=87&type=chunk)[88](index=88&type=chunk)[140](index=140&type=chunk) - Senate Bill No. 1137, establishing a **3,200-foot** setback for new wells, is stayed pending a November **2024** voter referendum, and its uncertainty led to a **4%** reduction in total proved reserves at year-end **2022**[110](index=110&type=chunk)[91](index=91&type=chunk) - The company's carbon capture and storage (CCS) business is subject to developing regulations, with Senate Bill No. 905 establishing a new regulatory framework in California that could affect project timing and feasibility[151](index=151&type=chunk)[152](index=152&type=chunk) - California has stringent laws to reduce GHG emissions, including a 'cap-and-trade' program and a Low Carbon Fuel Standard (LCFS), which impact operating costs and create opportunities for CCS-related credits[124](index=124&type=chunk)[154](index=154&type=chunk) [Risk Factors](index=36&type=section&id=Item%201A%20Risk%20Factors) The company faces diverse risks including commodity price volatility, California-specific regulatory challenges, indebtedness, stock price volatility, and general ESG and cybersecurity concerns [Risks Related to Our Business](index=37&type=section&id=Risks%20Related%20to%20Our%20Business) The company's business faces risks from volatile commodity prices, exclusive California operations, early-stage carbon management ventures, joint venture uncertainties, and inflationary cost pressures - Financial performance is highly dependent on volatile oil, natural gas, and NGL prices, which are influenced by global supply/demand, geopolitical events, and OPEC actions[164](index=164&type=chunk)[136](index=136&type=chunk) - Operations are exclusively in California, making the company vulnerable to regional risks such as state-specific regulations, local price fluctuations, natural disasters, and permitting delays[167](index=167&type=chunk)[194](index=194&type=chunk) - The Carbon TerraVault (CCS) business faces significant operational, technological, and regulatory risks as an early-stage venture, with success depending on securing long-term agreements, sufficient capital, and favorable financial/tax incentives like 45Q credits and LCFS[172](index=172&type=chunk)[175](index=175&type=chunk)[201](index=201&type=chunk) - The joint venture with Brookfield is subject to uncertainties, as future project funding requires joint approval, and a failure to agree could delay or cancel CCS projects, forcing the company to seek alternative capital[176](index=176&type=chunk)[178](index=178&type=chunk) - The company has been negatively impacted by inflation, experiencing high single-digit cost increases for materials and services in **2022**, which could continue to adversely affect financial results[214](index=214&type=chunk)[210](index=210&type=chunk) [Risks Related to Regulation and Government Action](index=45&type=section&id=Risks%20Related%20to%20Regulation%20and%20Government%20Action) The company faces significant regulatory risks from drilling permit delays, Senate Bill No. 1137's setback requirements, evolving CCS regulations, and broader climate change policies - The company faces material delays in obtaining drilling permits due to state-level actions by CalGEM and local litigation in Kern County, which has suspended permitting and could adversely affect future development plans and reserves[459](index=459&type=chunk)[461](index=461&type=chunk) - Senate Bill No. 1137, establishing a **3,200-foot** setback for new wells, creates significant uncertainty, and if implemented after the **2024** referendum, it could materially impact the ability to develop proved undeveloped reserves[433](index=433&type=chunk)[463](index=463&type=chunk) - The CCS business is subject to extensive and developing regulations, including obtaining EPA Class VI permits, and new California laws like Senate Bill No. 905 could create delays or render projects uneconomical[467](index=467&type=chunk)[469](index=469&type=chunk) - Concerns about climate change may lead to governmental actions that increase operating costs, reduce demand for products, and restrict access to capital, potentially lowering the value of reserves and assets[471](index=471&type=chunk)[502](index=502&type=chunk) [Risks Related to our Indebtedness](index=51&type=section&id=Risks%20Related%20to%20our%20Indebtedness) The company's indebtedness may limit financial flexibility, with risks including potential reductions in its Revolving Credit Facility borrowing base and restrictive debt covenants - Existing and future debt may limit financial flexibility, requiring a portion of cash flow for debt service and restricting the ability to make investments, pay dividends, or repurchase shares[479](index=479&type=chunk)[510](index=510&type=chunk) - The Revolving Credit Facility has a borrowing base that is redetermined semi-annually, and a reduction could negatively affect liquidity and require repayment of outstanding borrowings[513](index=513&type=chunk)[514](index=514&type=chunk) - Restrictive covenants in the Revolving Credit Facility and Senior Notes indenture limit operational and financial flexibility, where a breach could result in a default and acceleration of debt[515](index=515&type=chunk)[485](index=485&type=chunk) [Risks Related to Our Common Stock](index=53&type=section&id=Risks%20Related%20to%20Our%20Common%20Stock) Risks related to common stock include board discretion over dividends and repurchases, potential price volatility, and significant influence from a concentrated shareholder base - The ability to pay dividends and repurchase shares is subject to board discretion, financial condition, and restrictions in debt agreements[547](index=547&type=chunk)[519](index=519&type=chunk) - The trading price of the common stock may be volatile and could decline due to factors like changes in commodity prices, financial results, or future issuances of stock which could dilute ownership[488](index=488&type=chunk)[489](index=489&type=chunk) - As of December 31, **2022**, five shareholders collectively owned approximately **40%** of the common stock, giving them significant influence over corporate matters[522](index=522&type=chunk) [Unresolved Staff Comments](index=56&type=section&id=Item%201B%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[561](index=561&type=chunk)[531](index=531&type=chunk) [Legal Proceedings](index=56&type=section&id=Item%203%20Legal%20Proceedings) Information regarding legal proceedings is referenced in Management's Discussion and Analysis and the Notes to Financial Statements - For information regarding legal proceedings, refer to Part II, Item 7 – Management's Discussion and Analysis and Part II, Item 8 – Financial Statements, Note 6[532](index=532&type=chunk) [Mine Safety Disclosures](index=57&type=section&id=Item%204%20Mine%20Safety%20Disclosures) This section is not applicable to the company - Not applicable[563](index=563&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=58&type=section&id=Item%205%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on the NYSE under 'CRC', with a targeted annual dividend of $1.13 per share and an authorized share repurchase program of up to $1.1 billion through June 2024 - The Board of Directors has approved a cash dividend policy targeting a total annual dividend of **$1.13 per share**, payable in quarterly increments of **$0.2825 per share**, subject to quarterly board approval[566](index=566&type=chunk) - The Board authorized a Share Repurchase Program of up to **$1.1 billion** through June 30, **2024**, including a **$250 million** increase and an extension approved on February 23, **2023**[567](index=567&type=chunk)[618](index=618&type=chunk) Share Repurchase Activity for 2022 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | **Total 2022** | **7,366,272** | **$42.47** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=62&type=section&id=Item%207%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion highlights 2022 financial performance driven by higher commodity prices, offset by lower production and inflation, resulting in increased total operating revenues to $2.7 billion but decreased net income to $524 million due to tax provisions - The company experienced high single-digit inflation in **2022** for materials and services such as OCTG, fluid hauling, and labor, and has entered into multi-year contracts to mitigate these effects[607](index=607&type=chunk)[608](index=608&type=chunk) - Average daily net production decreased by **9%** from **100 MBoe/d** in **2021** to **91 MBoe/d** in **2022**, primarily due to divestitures and natural decline[610](index=610&type=chunk) - The **2023** capital program is projected to be between **$200 million** and **$245 million**, with a focus on executing projects with existing permits and advancing carbon management activities[744](index=744&type=chunk) - As of December 31, **2022**, the company had total liquidity of **$765 million**, consisting of **$307 million** in cash and **$458 million** available under its Revolving Credit Facility[743](index=743&type=chunk) [Statement of Operations Analysis](index=69&type=section&id=Statement%20of%20Operations%20Analysis) This section analyzes the company's consolidated revenues and expenses, highlighting the impact of commodity prices, production volumes, and tax provisions on financial results Consolidated Revenue Comparison (2021 vs. 2022) | Revenue Item (in millions) | 2022 | 2021 | | :--- | :--- | :--- | | Oil, natural gas and NGL sales | $2,643 | $2,048 | | Net loss from commodity derivatives | ($551) | ($676) | | Electricity sales | $261 | $172 | | **Total operating revenues** | **$2,707** | **$1,889** | Consolidated Expense Comparison (2021 vs. 2022) | Expense Item (in millions) | 2022 | 2021 | | :--- | :--- | :--- | | Operating costs | $785 | $705 | | General and administrative expenses | $222 | $200 | | Depreciation, depletion and amortization | $198 | $213 | | **Total operating expenses** | **$1,954** | **$1,720** | - Oil, natural gas, and NGL sales increased by **$595 million** year-over-year due to an **$865 million** positive impact from higher realized prices, partially offset by a **$270 million** negative impact from lower production volumes[596](index=596&type=chunk) - Energy operating costs increased by **27%** to **$323 million** in **2022**, primarily due to higher prices for purchased natural gas and electricity used in operations[659](index=659&type=chunk) - The company recorded an income tax provision of **$237 million** in **2022**, compared to an income tax benefit of **$396 million** in **2021**, which included the release of a valuation allowance[635](index=635&type=chunk) [Liquidity and Capital Resources](index=74&type=section&id=Liquidity%20and%20Capital%20Resources) This section details the company's liquidity position, cash flow activities, and capital expenditure plans, highlighting strong liquidity and strategic investments Liquidity Summary (as of Dec 31, 2022) | Component (in millions) | Amount | | :--- | :--- | | Cash and cash equivalents | $307 | | Revolving Credit Facility Availability | $458 | | **Total Liquidity** | **$765** | - Net cash provided by operating activities increased by **5%** to **$690 million** in **2022**, up from **$660 million** in **2021**, driven by higher realized prices partially offset by lower production and higher costs[704](index=704&type=chunk) - Net cash used in investing activities increased to **$317 million** in **2022** from **$161 million** in **2021**, primarily due to a larger capital program[646](index=646&type=chunk) - Net cash used in financing activities was **$371 million** in **2022**, mainly for common stock repurchases (**$313 million**) and dividends (**$59 million**)[677](index=677&type=chunk)[745](index=745&type=chunk) [Financial Statements and Supplementary Data](index=82&type=section&id=Item%208%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for 2022, including the independent auditor's unqualified opinion and key notes on accounting policies and critical audit matters - The independent auditor, KPMG LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, **2022**[692](index=692&type=chunk)[719](index=719&type=chunk) - Critical audit matters identified by the auditor include the assessment of estimated proved oil and gas reserves used for calculating depletion expense and the evaluation of control over the Carbon TerraVault JV under the variable interest entity model[698](index=698&type=chunk)[700](index=700&type=chunk) Consolidated Balance Sheet Summary (in millions) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Assets | $3,967 | $3,846 | | Total Liabilities | $2,103 | $2,158 | | Total Stockholders' Equity | $1,864 | $1,688 | Consolidated Statement of Operations Summary (in millions) | Account | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | | :--- | :--- | :--- | | Total Operating Revenues | $2,707 | $1,889 | | Operating Income | $812 | $293 | | Net Income | $524 | $625 |

January 2023 Investor Presentation "A Different Kind of Energy Company" • fluctuations in commodity prices and the potential for sustained low oil, natural gas and natural gas liquids prices; • availability or timing of, or conditions imposed on, permits and approvals necessary for drilling or development activities and carbon management projects; • incorrect estimates of reserves and related future cashflows and the inability to replace reserves; • our ability to successfully execute on the construction an ...

[PART I FINANCIAL INFORMATION](index=6&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations [Item 1 Financial Statements (unaudited)](index=6&type=section&id=Item%201%20Financial%20Statements%20(unaudited)) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income, stockholders' equity, and cash flows, along with detailed notes explaining accounting policies, debt, derivatives, and other financial activities for the periods ended September 30, 2022 [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific reporting dates Condensed Consolidated Balance Sheet Highlights | Metric | Sep 30, 2022 (millions) | Dec 31, 2021 (millions) | Change (millions) | | :--------------------------------- | :---------------------- | :---------------------- | :---------------- | | Total Current Assets | $884 | $753 | +$131 | | Total Property, Plant and Equipment, net | $2,734 | $2,599 | +$135 | | Total Assets | $3,986 | $3,846 | +$140 | | Total Current Liabilities | $932 | $854 | +$78 | | Total Stockholders' Equity | $1,855 | $1,688 | +$167 | [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section outlines the company's financial performance over specific periods, presenting revenues, expenses, and net income or loss Condensed Consolidated Statements of Operations Highlights | Metric | 3 Months Ended Sep 30, 2022 (millions) | 3 Months Ended Sep 30, 2021 (millions) | 9 Months Ended Sep 30, 2022 (millions) | 9 Months Ended Sep 30, 2021 (millions) | | :--------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Total Operating Revenues | $1,125 | $588 | $2,025 | $1,255 | | Operating Income (Loss) | $591 | $122 | $680 | $(39) | | Net Income (Loss) | $426 | $107 | $441 | $(89) | | Basic EPS | $5.75 | $1.26 | $5.77 | $(1.23) | | Diluted EPS | $5.58 | $1.25 | $5.62 | $(1.23) | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) This section details the components of comprehensive income or loss, including net income and other comprehensive income items Condensed Consolidated Statements of Comprehensive Income (Loss) Highlights | Metric | 3 Months Ended Sep 30, 2022 (millions) | 3 Months Ended Sep 30, 2021 (millions) | 9 Months Ended Sep 30, 2022 (millions) | 9 Months Ended Sep 30, 2021 (millions) | | :--------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Net Income (Loss) | $426 | $107 | $441 | $(89) | | Comprehensive Income (Loss) attributable to common stock | $426 | $185 | $441 | $(20) | [Condensed Consolidated Statements of Stockholders' Equity](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This section tracks changes in the company's equity, reflecting net income, share repurchases, and dividend distributions Changes in Stockholders' Equity (9 Months Ended Sep 30, 2022) | Metric | Dec 31, 2021 (millions) | Sep 30, 2022 (millions) | Change (millions) | | :--------------------------------- | :---------------------- | :---------------------- | :---------------- | | Total Equity | $1,688 | $1,855 | +$167 | | Net Income (9M 2022) | N/A | $441 | N/A | | Repurchases of common stock (9M 2022) | N/A | $(247) | N/A | | Cash dividends (9M 2022) | N/A | $(40) | N/A | [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section reports the cash inflows and outflows from operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows Highlights | Metric | 3 Months Ended Sep 30, 2022 (millions) | 3 Months Ended Sep 30, 2021 (millions) | 9 Months Ended Sep 30, 2022 (millions) | 9 Months Ended Sep 30, 2021 (millions) | | :--------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Net cash provided by operating activities | $235 | $182 | $576 | $456 | | Net cash used in investing activities | $(109) | $(88) | $(238) | $(151) | | Net cash used in financing activities | $(92) | $(56) | $(285) | $(144) | | Increase in cash and cash equivalents | $34 | $38 | $53 | $161 | [Notes to the Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and additional information supporting the condensed consolidated financial statements [NOTE 1 BASIS OF PRESENTATION](index=12&type=section&id=NOTE%201%20BASIS%20OF%20PRESENTATION) This note describes the company's business operations and the basis for preparing the condensed consolidated financial statements - The company is an independent oil and natural gas exploration and production company operating exclusively within California[36](index=36&type=chunk) - Committed to energy transition and in early stages of permitting several carbon capture and storage projects in California, including the Carbon TerraVault JV[36](index=36&type=chunk) [NOTE 2 ACCOUNTING POLICY AND DISCLOSURE CHANGES](index=13&type=section&id=NOTE%202%20ACCOUNTING%20POLICY%20AND%20DISCLOSURE%20CHANGES) This note details updates to accounting policies and disclosures, including those related to joint ventures and reference rate reform - Updated accounting policy for joint ventures and investments in unconsolidated subsidiaries, especially for Variable Interest Entities (VIEs), requiring complex management judgment[40](index=40&type=chunk) - Adopted ASC Topic 848, Reference Rate Reform, accounting for the Revolving Credit Facility amendment as a modification with no material impact[42](index=42&type=chunk) [NOTE 3 SUPPLEMENTAL BALANCE SHEET INFORMATION](index=13&type=section&id=NOTE%203%20SUPPLEMENTAL%20BALANCE%20SHEET%20INFORMATION) This note provides additional detail on specific balance sheet accounts, including other current assets, noncurrent assets, and accrued liabilities Other Current Assets | Metric | Sep 30, 2022 (millions) | Dec 31, 2021 (millions) | | :--------------------------------- | :---------------------- | :---------------------- | | Amounts due from joint interest partners | $39 | $47 | | Fair value of derivative contracts | $64 | $6 | | Prepaid expenses | $14 | $16 | | Greenhouse gas allowances | $14 | $31 | | Natural gas margin deposits | $5 | $12 | | Other | $7 | $9 | | **Total Other current assets** | **$143** | **$121** | Other Noncurrent Assets | Metric | Sep 30, 2022 (millions) | Dec 31, 2021 (millions) | | :--------------------------------- | :---------------------- | :---------------------- | | Operating lease right-of-use assets | $40 | $43 | | Deferred financing costs - Revolving Credit Facility | $7 | $11 | | Emission reduction credits | $11 | $11 | | Prepaid power plant maintenance | $26 | $21 | | Fair value of derivative contracts | $25 | $1 | | Deposits and other | $15 | $11 | | **Total Other noncurrent assets** | **$124** | **$98** | Accrued Liabilities | Metric | Sep 30, 2022 (millions) | Dec 31, 2021 (millions) | | :--------------------------------- | :---------------------- | :---------------------- | | Accrued employee-related costs | $64 | $61 | | Accrued taxes other than on income | $43 | $30 | | Asset retirement obligations | $78 | $51 | | Accrued interest | $9 | $19 | | Lease liability | $12 | $11 | | Premiums due on derivative contracts | $64 | $57 | | Liability for settlement payments on derivative contracts | $48 | $25 | | Amounts due under production-sharing contracts | $9 | $14 | | Income taxes payable | $17 | $0 | | Marketing prepayments | $4 | $5 | | Other | $23 | $24 | | **Total Accrued liabilities** | **$371** | **$297** | Other Long-Term Liabilities | Metric | Sep 30, 2022 (millions) | Dec 31, 2021 (millions) | | :--------------------------------- | :---------------------- | :---------------------- | | Compensation-related liabilities | $34 | $38 | | Postretirement and pension benefit plans | $54 | $59 | | Lease liability | $32 | $37 | | Premiums due on derivative contracts | $13 | $5 | | Contingent liability related to Carbon TerraVault JV put and call rights | $46 | $0 | | Other | $6 | $6 | | **Total Other long-term liabilities** | **$185** | **$145** | [NOTE 4 SUPPLEMENTAL CASH FLOW INFORMATION](index=14&type=section&id=NOTE%204%20SUPPLEMENTAL%20CASH%20FLOW%20INFORMATION) This note offers additional information on cash flow activities, including non-cash transactions and interest paid - Non-cash financing activities in the nine months ended September 30, 2022, included **$1 million of dividends accrued** for stock-based compensation awards[49](index=49&type=chunk) - A non-cash contribution of **$2 million** was made to the Carbon TerraVault JV in the nine months ended September 30, 2022, to satisfy a capital call[49](index=49&type=chunk) Interest Paid, Net of Capitalized Amounts | Period | 2022 (millions) | 2021 (millions) | | :--------------------------------- | :---------------------- | :---------------------- | | Three months ended September 30 | $21 | $23 | | Nine months ended September 30 | $43 | $27 | [NOTE 5 INVENTORIES](index=15&type=section&id=NOTE%205%20INVENTORIES) This note breaks down the company's inventory by category, including materials, supplies, and finished goods Inventories by Category | Inventory Category | Sep 30, 2022 (millions) | Dec 31, 2021 (millions) | | :----------------- | :---------------------- | :---------------------- | | Materials and supplies | $53 | $54 | | Finished goods | $6 | $6 | | **Total Inventories** | **$59** | **$60** | [NOTE 6 DEBT](index=15&type=section&id=NOTE%206%20DEBT) This note details the company's long-term debt, including the Revolving Credit Facility and Senior Notes, and related covenants Long-Term Debt, Net | Debt Type | Sep 30, 2022 (millions) | Dec 31, 2021 (millions) | Interest Rate | Maturity | | :--------------------------------- | :---------------------- | :---------------------- | :------------ | :--------------- | | Revolving Credit Facility | $0 | $0 | SOFR plus 3%-4% ABR plus 2%-3% | April 29, 2024 | | Senior Notes | $600 | $600 | 7.125% | February 1, 2026 | | Unamortized debt issuance costs | $(9) | $(11) | N/A | N/A | | **Long-term debt, net** | **$591** | **$589** | N/A | N/A | - The Revolving Credit Facility's aggregate commitment increased to **$602 million** (from $492 million at December 31, 2021) and its benchmark rate was amended from LIBOR to SOFR in February 2022[52](index=52&type=chunk)[55](index=55&type=chunk) - The borrowing base was reaffirmed at **$1.2 billion** on October 25, 2022, and the company was in compliance with all financial and other debt covenants as of September 30, 2022[53](index=53&type=chunk)[58](index=58&type=chunk) [NOTE 7 DIVESTITURES AND ACQUISITIONS](index=16&type=section&id=NOTE%207%20DIVESTITURES%20AND%20ACQUISITIONS) This note outlines significant asset sales and acquisitions, including gains recognized from these transactions - Recorded a **$12 million gain** from Ventura basin asset sales and a **$49 million gain** from selling a 50% non-operated working interest in Lost Hills field during the nine months ended September 30, 2022[62](index=62&type=chunk)[64](index=64&type=chunk) - Sold its commercial office building in Bakersfield, California, for net proceeds of **$13 million** in June 2022, recognizing no gain or loss on sale[64](index=64&type=chunk) - Acquired properties and land easements for carbon management activities for approximately **$17 million** during the nine months ended September 30, 2022[67](index=67&type=chunk) [NOTE 8 INVESTMENTS AND RELATED PARTY TRANSACTIONS](index=18&type=section&id=NOTE%208%20INVESTMENTS%20AND%20RELATED%20PARTY%20TRANSACTIONS) This note describes investments, particularly the Carbon TerraVault JV, and transactions with related parties - Formed the Carbon TerraVault JV with Brookfield in August 2022, holding a **51% interest** and accounting for it under the equity method due to shared decision-making power[70](index=70&type=chunk) - Brookfield contributed the first **$46 million installment** of its initial investment to the Carbon TerraVault JV, with **$12 million distributed** to the company and **$32 million reported as a receivable** from affiliate[71](index=71&type=chunk) - A **$46 million contingent liability** is recognized for Brookfield's initial investment due to certain put and call rights if milestones are not met[71](index=71&type=chunk) [NOTE 9 LAWSUITS, CLAIMS, COMMITMENTS AND CONTINGENCIES](index=18&type=section&id=NOTE%209%20LAWSUITS%2C%20CLAIMS%2C%20COMMITMENTS%20AND%20CONTINGENCIES) This note discusses the company's legal and contingent liabilities, including reserves for outstanding claims - Accrues reserves for currently outstanding lawsuits, claims, and proceedings when it is probable that a liability has been incurred and can be reasonably estimated; reserve balances were not material as of September 30, 2022[73](index=73&type=chunk) - Accepted an indemnification claim from Occidental Petroleum Corporation (Oxy) in September 2021 for decommissioning obligations associated with two offshore platforms[74](index=74&type=chunk) [NOTE 10 DERIVATIVES](index=19&type=section&id=NOTE%2010%20DERIVATIVES) This note explains the company's commodity hedging program and the financial impact of derivative contracts - Maintains a commodity hedging program primarily focused on crude oil to protect cash flows from price volatility, with no derivative instruments designated as accounting hedges[76](index=76&type=chunk) Brent-based Crude Oil Contracts (as of Sep 30, 2022) | Contract Type | Q4 2022 (Barrels per day) | Q4 2022 (Weighted-average price per barrel) | | :--------------------------------- | :-------------------------- | :------------------------------------------ | | Sold Calls | 25,167 | $57.82 | | Swaps | 17,263 | $58.79 | | Net Purchased Puts | 25,167 | $64.47 | | Sold Puts | 1,348 | $32.00 | - Held natural gas swaps for **25,000 MMBTU per day** at a weighted-average price of **$7.74 per MMBTU** for the fourth quarter of 2022[79](index=79&type=chunk) - Net liabilities from outstanding commodity derivatives were **$191 million** as of September 30, 2022[83](index=83&type=chunk) [NOTE 11 EARNINGS PER SHARE](index=20&type=section&id=NOTE%2011%20EARNINGS%20PER%20SHARE) This note details the calculation of basic and diluted earnings per share for the reported periods Basic and Diluted EPS Calculation | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income (loss) attributable to common stock (millions) | $426 | $103 | $441 | $(102) | | Basic EPS | $5.75 | $1.26 | $5.77 | $(1.23) | | Diluted EPS | $5.58 | $1.25 | $5.62 | $(1.23) | [NOTE 12 PENSION AND POSTRETIREMENT BENEFIT PLANS](index=22&type=section&id=NOTE%2012%20PENSION%20AND%20POSTRETIREMENT%20BENEFIT%20PLANS) This note provides information on the company's pension and postretirement benefit plans and associated costs Net Periodic Benefit Costs | Metric | 3 Months Ended Sep 30, 2022 (millions) | 9 Months Ended Sep 30, 2022 (millions) | | :--------------------------------- | :------------------------------------- | :------------------------------------- | | Pension Benefit | $0 | $1 | | Postretirement Benefit | $(1) | $(2) | - A postretirement benefit design change in Q3 2021 resulted in an **$82 million decrease** to the benefit obligation, with a **$2 million benefit recognized** in Q3 2022 and **$5 million for 9M 2022**[91](index=91&type=chunk) [NOTE 13 INCOME TAXES](index=23&type=section&id=NOTE%2013%20INCOME%20TAXES) This note explains the company's effective income tax rates and the factors influencing them - The effective tax rate was **26%** for the three months ended September 30, 2022, and **32%** for the nine months ended September 30, 2022, primarily due to California state taxes and an increase in valuation allowance related to the Lost Hills divestiture[93](index=93&type=chunk) - No income tax benefit was recorded for the three and nine months ended September 30, 2021, due to a full valuation allowance against net deferred tax assets[93](index=93&type=chunk) [NOTE 14 STOCKHOLDERS' EQUITY](index=23&type=section&id=NOTE%2014%20STOCKHOLDERS'%20EQUITY) This note details changes in stockholders' equity, including share repurchases, dividends, and stock-based compensation - Repurchased **1,921,181 shares for $80 million** in Q3 2022 and **5,845,082 shares for $247 million** in 9M 2022 under the Share Repurchase Program[96](index=96&type=chunk) - Declared and paid quarterly cash dividends of **$0.17 per share**, totaling **$13 million** each quarter[98](index=98&type=chunk) - As of September 30, 2022, **4,295,434 warrants** exercisable at **$36 per share** were outstanding[100](index=100&type=chunk) - A new Employee Stock Purchase Plan (ESPP) was approved in May 2022, with **16,480 shares issued** as of September 30, 2022[104](index=104&type=chunk)[105](index=105&type=chunk) [NOTE 15 REVENUE RECOGNITION](index=24&type=section&id=NOTE%2015%20REVENUE%20RECOGNITION) This note disaggregates revenue from oil, natural gas, and NGL sales across different reporting periods Disaggregated Revenue from Oil, Natural Gas, and NGL Sales | Revenue Source | 3 Months Ended Sep 30, 2022 (millions) | 3 Months Ended Sep 30, 2021 (millions) | 9 Months Ended Sep 30, 2022 (millions) | 9 Months Ended Sep 30, 2021 (millions) | | :------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------- | | Oil sales | $494 | $413 | $1,527 | $1,124 | | Natural gas sales | $120 | $69 | $294 | $161 | | NGLs sales | $66 | $67 | $205 | $174 | | **Total Oil, natural gas and NGL sales** | **$680** | **$549** | **$2,026** | **$1,459** | [NOTE 16 SUBSEQUENT EVENTS](index=25&type=section&id=NOTE%2016%20SUBSEQUENT%20EVENTS) This note reports significant events occurring after the balance sheet date, such as dividend and share repurchase program updates - On November 2, 2022, the Board of Directors increased the anticipated total annual dividend to **$1.13 per share**, payable quarterly at **$0.2825 per share**[110](index=110&type=chunk) - On November 2, 2022, the Board increased the Share Repurchase Program by **$200 million to $850 million** and extended it through December 31, 2023[111](index=111&type=chunk) - As of October 31, 2022, the company had repurchased an aggregate of **10,617,862 shares for $424 million** since the program's inception[111](index=111&type=chunk) [Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, condition, and operational results, discussing key drivers such as commodity prices, production, regulatory changes, and strategic initiatives, including its growing carbon management business [General](index=26&type=section&id=General) This section provides an overview of the company's core business as an oil and natural gas producer and its commitment to energy transition - The company is an independent oil and natural gas exploration and production company operating exclusively within California, committed to providing ample, affordable, and reliable energy[113](index=113&type=chunk) - Committed to energy transition, developing several carbon capture and storage (CCS) projects through its Carbon TerraVault subsidiary, with permits filed for **120 MMT total potential storage** and targeting **140 MMT by end of 2022**[114](index=114&type=chunk) [Carbon TerraVault Joint Venture](index=26&type=section&id=Carbon%20TerraVault%20Joint%20Venture) This section details the formation and initial investment of the Carbon TerraVault Joint Venture for carbon management - Formed the Carbon TerraVault JV with Brookfield in August 2022 for the development of a carbon management business in California, with the company holding a **51% interest**[116](index=116&type=chunk)[117](index=117&type=chunk) - Brookfield committed an initial investment of **$137 million**, with the first **$46 million installment** contributed during the three months ended September 30, 2022[117](index=117&type=chunk) [Dividends Share Repurchase Program](index=27&type=section&id=Dividends%20Share%20Repurchase%20Program) This section outlines the company's capital allocation strategy, including dividend policy and share repurchase program updates - On November 2, 2022, the Board of Directors increased the cash dividend policy to anticipate a total annual dividend of **$1.13 per share**, payable in quarterly increments of **$0.2825 per share**[119](index=119&type=chunk) - On November 2, 2022, the Board increased the Share Repurchase Program by **$200 million to $850 million** and extended the program through December 31, 2023[120](index=120&type=chunk) - As of October 31, 2022, the company had repurchased an aggregate of **10,617,862 shares for $424 million** since the program's inception, with approximately **$426 million of capacity remaining**[111](index=111&type=chunk)[120](index=120&type=chunk) [Divestitures and Acquisitions](index=27&type=section&id=Divestitures%20and%20Acquisitions) This section refers to detailed information on asset divestitures and acquisitions provided in the financial statements notes - Refer to Part I, Item 1 – Financial Statements, Note 7 Divestitures and Acquisitions for information on transactions during the three and nine months ended September 30, 2022 and 2021[122](index=122&type=chunk) [Business Environment and Industry Outlook](index=27&type=section&id=Business%20Environment%20and%20Industry%20Outlook) This section discusses the market conditions, commodity price trends, and cost inflation impacting the company's operations - Global oil prices increased in the first nine months of 2022 due to Russia's invasion of Ukraine and demand outpacing supply, but declined in Q3 2022 due to slowing global economic activity[125](index=125&type=chunk)[149](index=149&type=chunk) - Natural gas prices were influenced by increased domestic demand, global demand for LNG exports, and concerns over low inventories, leading to higher prices in 9M 2022[125](index=125&type=chunk)[151](index=151&type=chunk) - The company has experienced significant cost inflation in operating and capital costs during 2022 due to worldwide supply chain issues, rising commodity prices, and tight labor markets[127](index=127&type=chunk) Average Commodity Prices | Commodity Price | Sep 30, 2022 (3 Months Avg) | Jun 30, 2022 (3 Months Avg) | Sep 30, 2022 (9 Months Avg) | Sep 30, 2021 (9 Months Avg) | | :---------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Brent oil ($/Bbl) | $97.81 | $111.79 | $102.33 | $67.78 | | WTI oil ($/Bbl) | $91.56 | $108.41 | $98.09 | $64.82 | | NYMEX Henry Hub ($/MMBtu) - Contract Month Average | $7.85 | $6.62 | $6.22 | $3.06 | [Regulatory Updates](index=29&type=section&id=Regulatory%20Updates) This section provides an overview of recent regulatory changes affecting the oil and gas industry and carbon capture projects in California - Kern County's local permitting system for oil and gas was temporarily suspended but lifted on November 2, 2022, after addressing four discrete issues to comply with CEQA requirements[129](index=129&type=chunk) - California Senate Bill No. 905 (signed Sep 16, 2022) facilitates CCS project development but prohibits CO2 sequestration in EOR projects, leading the company to transition its CalCapture project to target CCS[130](index=130&type=chunk) - California Senate Bill No. 1137 (signed Sep 16, 2022) establishes a **3,200-foot minimum distance** between new oil and gas production wells and sensitive receptors, effective January 1, 2023, which will change development plans but is not expected to materially affect overall pace or existing proved reserves[132](index=132&type=chunk)[133](index=133&type=chunk) - The Inflation Reduction Act (signed Aug 16, 2022) introduces a methane emissions charge starting in 2024 and enhances 45Q tax credits for CCS projects, making them more attractive, and includes a **1% stock buyback excise tax** applicable after December 31, 2022[134](index=134&type=chunk)[135](index=135&type=chunk)[136](index=136&type=chunk) [Production](index=31&type=section&id=Production) This section analyzes the company's net production volumes for oil, natural gas, and NGLs, highlighting key drivers of change Average Net Production (MBoe/d) | Metric | 3 Months Ended Sep 30, 2022 (MBoe/d) | 3 Months Ended Jun 30, 2022 (MBoe/d) | 9 Months Ended Sep 30, 2022 (MBoe/d) | 9 Months Ended Sep 30, 2021 (MBoe/d) | | :--------------------------------- | :----------------------------------- | :----------------------------------- | :----------------------------------- | :----------------------------------- | | Total Net Production | 92 | 91 | 91 | 101 | | Oil (MBbl/d) | 55 | 54 | 55 | 61 | | NGLs (MBbl/d) | 12 | 12 | 11 | 13 | | Natural gas (MMcf/d) | 149 | 151 | 147 | 160 | - Total daily net production for the nine months ended September 30, 2022, decreased by approximately **10 MBoe/d (10%)** compared to the same period in 2021, primarily due to divestitures and natural decline[140](index=140&type=chunk) - Production-sharing contracts (PSCs) represented approximately **16% of net production** for both the three and nine months ended September 30, 2022, impacting reported operating costs and volumes[142](index=142&type=chunk)[143](index=143&type=chunk) [Prices and Realizations](index=33&type=section&id=Prices%20and%20Realizations) This section details the average realized prices for oil, NGLs, and natural gas, including the impact of derivative settlements Average Realized Prices with Derivative Settlements | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Jun 30, 2022 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :---------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Realized oil price ($/Bbl) | $62.45 | $63.17 | $61.96 | $54.43 | | Realized NGL price ($/Bbl) | $57.68 | $68.29 | $66.98 | $49.20 | | Realized natural gas price ($/Mcf) | $8.58 | $6.72 | $7.21 | $3.64 | - Brent oil prices decreased for the three months ended September 30, 2022, compared to the prior quarter due to slowing global economic activity, but increased for the nine months ended September 30, 2022, compared to the prior year due to demand and supply constraints[149](index=149&type=chunk) - NGL prices decreased QoQ in Q3 2022 but increased YoY in 9M 2022, benefiting from higher energy and fuel prices[150](index=150&type=chunk) - Natural gas realized prices increased QoQ in Q3 2022 and YoY in 9M 2022, primarily due to strong domestic demand for power generation and the need to refill storage[151](index=151&type=chunk) [Statements of Operations Analysis](index=35&type=section&id=Statements%20of%20Operations%20Analysis) This section provides a detailed analysis of the company's revenues, expenses, and profitability for the reported periods Consolidated Results of Operations (QoQ: 3 Months Ended Sep 30, 2022 vs Jun 30, 2022) | Metric | Sep 30, 2022 (millions) | Jun 30, 2022 (millions) | Change (millions) | | :--------------------------------- | :---------------------- | :---------------------- | :---------------- | | Total Operating Revenues | $1,125 | $747 | +$378 | | Oil, natural gas and NGL sales | $680 | $718 | $(38) | | Net gain (loss) from commodity derivatives | $243 | $(100) | +$343 | | Electricity sales | $88 | $49 | +$39 | | Total Operating Expenses | $536 | $473 | +$63 | | Operating Income | $591 | $278 | +$313 | | Net Income | $426 | $190 | +$236 | - Energy operating costs increased by **$16 million (21%)** QoQ due to higher prices for purchased natural gas and electricity[162](index=162&type=chunk) - Non-energy operating costs increased by **$8 million (7%)** QoQ primarily due to increased downhole maintenance activity[163](index=163&type=chunk) Consolidated Results of Operations (YoY: 9 Months Ended Sep 30, 2022 vs Sep 30, 2021) | Metric | Sep 30, 2022 (millions) | Sep 30, 2021 (millions) | Change (millions) | | :--------------------------------- | :---------------------- | :---------------------- | :---------------- | | Total Operating Revenues | $2,025 | $1,255 | +$770 | | Oil, natural gas and NGL sales | $2,026 | $1,459 | +$567 | | Net loss from commodity derivatives | $(419) | $(603) | +$184 | | Electricity sales | $171 | $131 | +$40 | | Total Operating Expenses | $1,405 | $1,298 | +$107 | | Operating Income (Loss) | $680 | $(39) | +$719 | | Net Income (Loss) | $441 | $(89) | +$530 | - Energy operating costs increased by **$59 million (32%)** YoY due to higher prices for purchased natural gas and electricity[172](index=172&type=chunk) - General and administrative expenses increased **$16 million** YoY due to increased compensation-related expenses and additional headcount for carbon management business development[175](index=175&type=chunk) - Net gain on asset divestitures for 9M 2022 was **$60 million**, primarily from the sale of a 50% non-operated working interest in Lost Hills field and certain Ventura basin assets[180](index=180&type=chunk) [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's financial flexibility, cash position, and available credit, along with its hedging strategy Liquidity Summary (as of Sep 30, 2022) | Metric | Amount (millions) | | :--------------------------------- | :---------------- | | Cash and cash equivalents | $358 | | Revolving Credit Facility Availability | $461 | | **Total Liquidity** | **$819** | - Operating cash flow increased **26% ($120 million)** to **$576 million** for the nine months ended September 30, 2022, primarily due to higher average realized prices[194](index=194&type=chunk) - The company's hedging strategy aims to mitigate exposure to commodity price volatility and ensure financial strength, with hedging requirements adjusted based on the consolidated total net leverage ratio[186](index=186&type=chunk) [2022 Capital Program](index=42&type=section&id=2022%20Capital%20Program) This section outlines the company's planned capital expenditures for oil and natural gas operations and carbon management initiatives 2022 Capital Investment Program | Capital Investment | 2022 Full Year Estimate (millions) | 9 Months Ended Sep 30, 2022 (millions) | | :---------------------------------------- | :--------------------------------- | :------------------------------------- | | Oil and natural gas operations, corporate and other | $360 - $370 | $287 | | Carbon management business | $20 - $30 | $17 | | **Total Capital** | **$380 - $400** | **$304** | - The capital program is dynamic, focusing on oil production, strong liquidity, and maximizing free cash flow, with plans to average three drilling rigs in Q4 2022[189](index=189&type=chunk) - Brookfield's funding in the Carbon TerraVault JV is anticipated to free up operating cash flow for other corporate purposes, such as shareholder returns and strategic opportunities[192](index=192&type=chunk) [Lawsuits, Claims, Commitments and Contingencies](index=43&type=section&id=Lawsuits%2C%20Claims%2C%20Commitments%20and%20Contingencies) This section refers to the financial statements for detailed information on legal and contingent liabilities - Refer to Part I, Item 1 – Financial Statements, Note 9 Lawsuits, Claims, Commitments and Contingencies for further information[202](index=202&type=chunk) [Critical Accounting Estimates and Significant Accounting and Disclosure Changes](index=44&type=section&id=Critical%20Accounting%20Estimates%20and%20Significant%20Accounting%20and%20Disclosure%20Changes) This section confirms no changes to critical accounting estimates and refers to notes for new accounting standards - There have been no changes to critical accounting estimates as summarized in the 2021 Annual Report[204](index=204&type=chunk) - Refer to Part I, Item 1 – Financial Statements, Note 2 Accounting Policy and Disclosure Changes for a discussion of new accounting standards[204](index=204&type=chunk) [Forward-Looking Statements](index=45&type=section&id=Forward-Looking%20Statements) This section highlights the inherent risks and uncertainties associated with forward-looking statements in the report - The document contains forward-looking statements subject to risks and uncertainties, including fluctuations in commodity prices, equipment/service inflation, and legislative or regulatory changes[206](index=206&type=chunk)[207](index=207&type=chunk) - Other uncertainties include lower-than-expected production, inability to realize benefits from energy transition initiatives, and limitations on financial flexibility due to debt[207](index=207&type=chunk) [Item 3 Quantitative and Qualitative Disclosures About Market Risk](index=47&type=section&id=Item%203%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that there were no material changes to market risks from the prior annual report. The company is exposed to commodity price risk, counterparty credit risk, and interest-rate risk, with strategies like hedging programs and credit monitoring in place to manage these exposures - No material changes to market risks were reported for the three and nine months ended September 30, 2022, from the information provided in the 2021 Annual Report[212](index=212&type=chunk) - The company is exposed to commodity price risk (oil, NGL, and natural gas), which is primarily managed through a commodity hedging program[213](index=213&type=chunk) - Credit risk relates primarily to trade receivables and derivative financial instruments, with the majority of credit exposure with investment-grade counterparties[214](index=214&type=chunk)[215](index=215&type=chunk) - The company had no variable-rate debt outstanding as of September 30, 2022; its Senior Notes bear interest at a fixed rate of **7.125% per annum**[216](index=216&type=chunk) [Item 4 Controls and Procedures](index=47&type=section&id=Item%204%20Controls%20and%20Procedures) The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2022, and there were no material changes to internal controls over financial reporting during the period - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[217](index=217&type=chunk) - There were no changes in internal controls over financial reporting during the three months ended September 30, 2022, that materially affected, or are reasonably likely to materially affect, internal controls over financial reporting[218](index=218&type=chunk) [PART II OTHER INFORMATION](index=48&type=section&id=PART%20II%20OTHER%20INFORMATION) This section provides additional disclosures not included in the financial statements, covering legal, risk, equity, and other matters [Item 1 Legal Proceedings](index=48&type=section&id=Item%201%20Legal%20Proceedings) This section refers to previous disclosures for information regarding legal proceedings, including Note 9 in the financial statements and the Management's Discussion and Analysis section - Refer to Part I, Item 1 – Financial Statements, Note 9 Lawsuits, Claims, Commitments and Contingencies and Part I, Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations, Lawsuits, Claims, Commitments and Contingencies for additional information regarding legal proceedings[221](index=221&type=chunk) [Item 1A Risk Factors](index=48&type=section&id=Item%201A%20Risk%20Factors) This section highlights a new risk factor related to California's Senate Bill No. 1137, which establishes 3,200-foot setbacks for new oil and gas wells. While this will alter development plans, it is not expected to materially impact existing proved developed producing reserves or current production rates - New California Senate Bill No. 1137 establishes **3,200 feet** as the minimum distance between new oil and gas production wells and certain sensitive receptors, effective January 1, 2023[223](index=223&type=chunk) - This law will change development plans but is not expected to result in any material change in existing proved developed producing reserves or current production rates[223](index=223&type=chunk) [Item 2 Unregistered Sales of Equity Securities and Use of Proceeds](index=48&type=section&id=Item%202%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Board of Directors increased the Share Repurchase Program to $850 million and extended it through December 31, 2023. During Q3 2022, the company repurchased 1,921,181 shares for $80 million - The Board of Directors increased the Share Repurchase Program to **$850 million** and extended the program through December 31, 2023[224](index=224&type=chunk) Share Repurchase Activity (Q3 2022) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--------------------------------- | :------------------------------- | :--------------------------- | | July 1, 2022 - July 31, 2022 | 1,122,947 | $40.00 | | August 1, 2022 - August 31, 2022 | 527,187 | $45.07 | | September 1, 2022 - September 30, 2022 | 271,047 | $42.73 | | **Total** | **1,921,181** | **$41.78** | [Item 5 Other Disclosures](index=48&type=section&id=Item%205%20Other%20Disclosures) This section indicates that there are no other disclosures to report - No other disclosures[227](index=227&type=chunk) [Item 6 Exhibits](index=49&type=section&id=Item%206%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, CEO and CFO certifications, and Inline XBRL instance and taxonomy documents - Includes certifications of CEO and CFO (31.1, 31.2, 32.1) and Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.LAB, 101.PRE, 101.DEF, 104)[229](index=229&type=chunk)

Financial Data and Key Metrics Changes - In Q3 2022, the company produced 92,000 barrels of oil equivalent per day and generated $128 million of after-tax free cash flow, demonstrating strong performance despite external challenges [7][22]. - The average realized price for oil was $62.45 per barrel, while natural gas prices remained strong at $8.58 per mcf, reflecting a 109% realization of NYMEX prices after hedges [18][19]. - The company generated $234 million of adjusted EBITDAX and $235 million in quarterly operating cash flow, indicating significant cash generation capability [20]. Business Line Data and Key Metrics Changes - The company maintained oil production flat year-over-year, projecting approximately $235 million in D&C capital expenditures for 2022 [8][22]. - Non-energy operating costs rose by $0.77 per BOE quarter-over-quarter, primarily due to increased downhole maintenance activity [19]. - The company returned 105% of free cash flow through share repurchases and dividends, increasing the dividend by 66% to $0.2825 per share [11][23]. Market Data and Key Metrics Changes - California natural gas prices have seen five consecutive quarters of increases, benefiting the company as the largest natural gas producer in the state [19]. - The company anticipates a cash income tax rate of 15% to 20% of taxable income in 2023, reflecting its strong financial results [29]. Company Strategy and Development Direction - The company focuses on delivering consistent free cash flow, disciplined capital allocation, and advancing its carbon management business through the Carbon TerraVault JV with Brookfield [6][10]. - The carbon management business is expected to be self-funding through the JV, allowing the company to concentrate on shareholder returns [10]. - The company is exploring new opportunities in the energy economy, including hydrogen and ammonia, which align with its carbon management strategy [12][13]. Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the favorable court ruling lifting the stay on the current County EIR litigation, which is expected to expedite the permitting process [17][35]. - The company remains cautious but optimistic about returning to normalized drilling activity in 2023 [35][45]. - The management highlighted the importance of maintaining high standards in permit applications to ensure credibility and success in carbon management initiatives [53]. Other Important Information - The company has a significant backlog of permit applications and is focused on refining and defining best-in-class permit applications [15][25]. - The company is evaluating potential real estate developments near its Huntington Beach field, indicating a strategic approach to asset optimization [26][62]. Q&A Session Summary Question: Can you discuss the backlog of permits and the timeline for resuming optimized drilling in 2023? - Management indicated that there is a backlog of permits that needs to be processed, and they are optimistic about returning to normalized activity in 2023 [31][35]. Question: What is the status of the emitter contract (CDMA) and its relation to the permitting process? - Management confirmed they are targeting to sign an emitter contract by the end of the year, which aligns with their permitting timeline [36][38]. Question: How are the permitting constraints affecting production in the L.A. Basin? - Management acknowledged that while there are potential impacts from the step-back rule, they are still evaluating the inventory depth and production capabilities in the L.A. Basin [46][49]. Question: Can you provide updates on the Brookfield deal and new projects? - Management shared that they submitted several new projects to Brookfield and are awaiting their response within a defined timeframe [51]. Question: What are the logistics for moving captured CO2 to sequestration sites? - Management explained that proximity to CO2 sources is crucial for economic feasibility, and they are focusing on opportunities within a 30-mile radius [57]. Question: What is the company's approach to maintaining high standards in permit applications? - Management emphasized their commitment to high-quality permits and the importance of meeting EPA standards as they navigate the permitting process [53].

"Low Carbon Intensity Fuel for Today and Net Zero Fuel for The Future" Barclays 2022 CEO Energy Power Conference September 6-7, 2022 Forward Looking / Cautionary Statements – Certain Terms 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 ...

California Resources Corporation (NYSE:CRC) Q2 2022 Earnings Conference Call August 4, 2022 12:00 PM ET Company Participants Joanna Park - Vice President, Investor Relations and Treasurer Mac McFarland - President and Chief Executive Officer Francisco Leon - Executive Vice President and Chief Financial Officer Conference Call Participants Scott Hanold - RBC Capital Markets Kalei Akamine - Bank of America Eric Seeve - GoldenTree Karl Blunden - Goldman Sachs Operator Good afternoon. Good day, everyone and wel ...

"Low Carbon Intensity Fuel for Today and Net Zero Fuel for The Future" Second Quarter 2022 Results August 3, 2022 Presenters Mac McFarland President & Chief Executive Officer Francisco Leon EVP & Chief Financial Officer Forward Looking / Cautionary Statements – Certain Terms 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 histo ...