Part I - Financial Information Item 1. Financial Statements (unaudited) The company achieved a significant turnaround with a Q2 2022 net income of $190 million, driven by higher sales, and is returning capital to shareholders while investing in carbon management Condensed Consolidated Balance Sheets Total assets grew to $4.02 billion, while stockholders' equity decreased to $1.52 billion due to share repurchases and increased derivative liabilities Condensed Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $4,018 | $3,846 | | Total current assets | $851 | $753 | | Total property, plant and equipment, net | $2,675 | $2,599 | | Total Liabilities | $2,501 | $2,158 | | Total current liabilities | $1,208 | $854 | | Fair value of derivative contracts (Current & Noncurrent) | $647 | $402 | | Long-term debt, net | $591 | $589 | | Total Stockholders' Equity | $1,517 | $1,688 | | Treasury stock | ($315) | ($148) | Condensed Consolidated Statements of Operations Higher commodity sales drove a Q2 2022 net income of $190 million, a significant reversal from a $111 million loss in Q2 2021, despite large derivative losses Statement of Operations Summary (in millions, except per share data) | Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | Oil, natural gas and NGL sales | $718 | $478 | $1,346 | $910 | | Net loss from commodity derivatives | ($100) | ($265) | ($662) | ($478) | | Total operating revenues | $747 | $304 | $900 | $667 | | Operating Income (Loss) | $278 | ($90) | $89 | ($163) | | Net Income (Loss) Attributable to Common Stock | $190 | ($111) | $15 | ($205) | | Diluted EPS | $2.41 | ($1.34) | $0.19 | ($2.46) | Condensed Consolidated Statements of Cash Flows Operating cash flow increased to $341 million in H1 2022, funding higher capital investments and significant shareholder returns through stock repurchases Cash Flow Summary for the Six Months Ended June 30 (in millions) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $341 | $274 | | Net cash used in investing activities | ($129) | ($63) | | Capital investments | ($197) | ($77) | | Proceeds from asset divestitures | $76 | $2 | | Net cash used in financing activities | ($193) | ($88) | | Repurchases of common stock | ($167) | ($45) | | Common stock dividends | ($26) | $0 | | Increase in cash | $19 | $123 | Notes to the Condensed Consolidated Financial Statements Notes detail the new CCS focus, credit facility amendments, asset divestitures, and the formation of a major carbon management joint venture - The company is in the early stages of developing several carbon capture and storage (CCS) projects through its subsidiary, Carbon TerraVault32 - In February 2022, the Revolving Credit Facility was amended to replace LIBOR with the Secured Overnight Financing Rate (SOFR) as the benchmark rate37 - In H1 2022, the company sold its 50% non-operated working interest in the Lost Hills field for a gain of $49 million and continued divesting Ventura basin assets, recognizing a total gain of $58 million on asset divestitures60163 - In August 2022, subsequent to the quarter end, CRC formed a joint venture (Carbon TerraVault JV) with Brookfield for carbon management, with Brookfield committing an initial $500 million to invest in jointly approved CCS projects96104 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong commodity prices, inflationary pressures, declining production, and a strategic pivot towards carbon management with a new JV Business Environment and Industry Outlook High commodity prices boosted revenues in H1 2022, but this environment also created significant inflationary pressure on operating and capital costs - Global oil prices increased in H1 2022 due to Russia's invasion of Ukraine and demand outpacing supply as COVID-19 restrictions eased111 - The company is experiencing significant cost inflation in 2022 due to supply chain issues, rising commodity prices, and tight labor markets, and anticipates further increases in the cost of goods and services114 Production Average net production decreased by 10% year-over-year to 90 MBoe/d, primarily due to asset divestitures and natural decline Average Net Production (MBoe/d) | Period | H1 2022 | H1 2021 | | :--- | :--- | :--- | | Total Net Production | 90 | 100 | | Oil (MBbl/d) | 55 | 60 | | NGLs (MBbl/d) | 11 | 13 | | Natural gas (MMcf/d) | 146 | 161 | - The 10 MBoe/d decrease in H1 2022 production compared to H1 2021 was driven by the divestiture of Lost Hills and Ventura assets (~5 MBoe/d), planned maintenance, and natural decline120 Prices and Realizations Realized oil prices rose significantly, but derivative settlements capped the realized price at $61.71/Bbl, substantially below the benchmark Average Realized Prices (H1 2022 vs H1 2021) | Product | H1 2022 Realized Price | H1 2021 Realized Price | | :--- | :--- | :--- | | Oil (w/o derivatives, $/Bbl) | $104.07 | $64.89 | | Oil (with derivatives, $/Bbl) | $61.71 | $53.91 | | NGLs ($/Bbl) | $72.57 | $46.75 | | Natural gas (w/o derivatives, $/Mcf) | $6.58 | $3.17 | - Derivative settlements reduced the realized oil price by $42.36/Bbl in H1 2022, causing the final realized price to be only 59% of the Brent benchmark price129 Statements of Operations Analysis A sharp reduction in derivative losses from Q1 to Q2 2022 drove a surge in operating revenues, while higher energy costs increased operating expenses year-over-year - Sequentially, the net loss from commodity derivatives decreased from $562 million in Q1 2022 to $100 million in Q2 2022, driving a significant increase in total operating revenues138140 - Operating costs per Boe increased from $18.40 in H1 2021 to $22.90 in H1 2022, primarily due to higher natural gas and electricity prices and lower production volumes135 - For H1 2022, a net gain on asset divestitures of $58 million was recognized, mainly from the Lost Hills sale163 Liquidity and Capital Resources The company maintains strong liquidity of $740 million and has increased its 2022 capital budget to fund its workover program and carbon management initiatives Liquidity Summary as of June 30, 2022 (in millions) | Component | Amount | | :--- | :--- | | Cash | $324 | | Revolving Credit Facility Availability | $416 | | Total Liquidity | $740 | - The 2022 capital program was increased to $380 - $410 million to address inflation, add to the workover program, and increase spending on carbon management activities172 2022 Capital Program Estimate (in millions) | Category | 2022 Full Year Estimate | | :--- | :--- | | Oil and natural gas operations, corporate and other | $360 - $380 | | Carbon management business | $20 - $30 | | Total Capital | $380 - $410 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are commodity prices, managed via derivatives, and counterparty credit, with minimal interest-rate risk - The company's financial results are sensitive to fluctuations in oil, NGL, and natural gas prices; as of June 30, 2022, the company had net liabilities of $596 million for its derivative commodity positions195 - The majority of credit exposure is with investment-grade counterparties, and credit-related losses have been insignificant197 - Interest-rate risk is limited as there was no variable-rate debt outstanding as of June 30, 2022; the Senior Notes bear a fixed rate of 7.125%198 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2022199 - No changes in internal controls over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, these controls200 Part II - Other Information Item 1. Legal Proceedings The company is involved in various legal proceedings arising in the normal course of business, with further details referenced in other filings - For details on legal proceedings, the report directs readers to Note 8 in Part I, Item 1 and the company's 2021 Annual Report203 Item 1A. Risk Factors No material changes to the company's risk factors were reported for the first half of 2022 - No material changes to risk factors were reported for the first six months of 2022; a full discussion is available in the 2021 Annual Report204 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased over 2.2 million shares for approximately $96 million in Q2 2022 as part of its authorized $650 million program Share Repurchase Activity for Q2 2022 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2022 | 452,035 | $44.17 | | May 2022 | 820,660 | $41.52 | | June 2022 | 982,750 | $42.70 | | Total Q2 | 2,255,445 | $42.57 | - The Board of Directors authorized a Share Repurchase Program to acquire up to $650 million of common stock through June 30, 2023205 Item 6. Exhibits This section lists exhibits filed with the report, including key agreements and required Sarbanes-Oxley certifications - Filed exhibits include CEO and CFO certifications (31.1, 31.2, 32.1), the new Employee Stock Purchase Plan (10.2), and an amendment to the Credit Agreement (10.1)209
California Resources (CRC) - 2022 Q2 - Quarterly Report