California Resources (CRC) - 2022 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION 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) 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 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 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) 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 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 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 This section provides detailed explanations and additional information supporting the condensed consolidated financial statements NOTE 1 BASIS OF PRESENTATION 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] - Committed to energy transition and in early stages of permitting several carbon capture and storage projects in California, including the Carbon TerraVault JV[36] NOTE 2 ACCOUNTING POLICY AND DISCLOSURE CHANGES 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] - Adopted ASC Topic 848, Reference Rate Reform, accounting for the Revolving Credit Facility amendment as a modification with no material impact[42] NOTE 3 SUPPLEMENTAL BALANCE SHEET INFORMATION 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 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] - 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] 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 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 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][55] - 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][58] NOTE 7 DIVESTITURES AND ACQUISITIONS 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][64] - 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] - Acquired properties and land easements for carbon management activities for approximately $17 million during the nine months ended September 30, 2022[67] NOTE 8 INVESTMENTS AND RELATED PARTY TRANSACTIONS 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] - 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] - 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] NOTE 9 LAWSUITS, CLAIMS, COMMITMENTS AND CONTINGENCIES 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] - Accepted an indemnification claim from Occidental Petroleum Corporation (Oxy) in September 2021 for decommissioning obligations associated with two offshore platforms[74] NOTE 10 DERIVATIVES 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] 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] - Net liabilities from outstanding commodity derivatives were $191 million as of September 30, 2022[83] NOTE 11 EARNINGS PER SHARE 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 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] NOTE 13 INCOME TAXES 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] - 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] NOTE 14 STOCKHOLDERS' EQUITY 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] - Declared and paid quarterly cash dividends of $0.17 per share, totaling $13 million each quarter[98] - As of September 30, 2022, 4,295,434 warrants exercisable at $36 per share were outstanding[100] - A new Employee Stock Purchase Plan (ESPP) was approved in May 2022, with 16,480 shares issued as of September 30, 2022[104][105] NOTE 15 REVENUE RECOGNITION 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 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] - 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] - 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] Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - 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] Carbon TerraVault Joint Venture 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][117] - Brookfield committed an initial investment of $137 million, with the first $46 million installment contributed during the three months ended September 30, 2022[117] Dividends Share Repurchase Program 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] - 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] - 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 $426 million of capacity remaining[111][120] Divestitures and Acquisitions This section refers to detailed information on asset divestitures and acquisitions provided in the financial statements notes - Refer to Part I, Item 1 – Financial Statements, Note 7 Divestitures and Acquisitions for information on transactions during the three and nine months ended September 30, 2022 and 2021[122] Business Environment and Industry Outlook This section discusses the market conditions, commodity price trends, and cost inflation impacting the company's operations - Global oil prices increased in the first nine months of 2022 due to Russia's invasion of Ukraine and demand outpacing supply, but declined in Q3 2022 due to slowing global economic activity[125][149] - Natural gas prices were influenced by increased domestic demand, global demand for LNG exports, and concerns over low inventories, leading to higher prices in 9M 2022[125][151] - The company has experienced significant cost inflation in operating and capital costs during 2022 due to worldwide supply chain issues, rising commodity prices, and tight labor markets[127] Average Commodity Prices | Commodity Price | Sep 30, 2022 (3 Months Avg) | Jun 30, 2022 (3 Months Avg) | Sep 30, 2022 (9 Months Avg) | Sep 30, 2021 (9 Months Avg) | | :---------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Brent oil ($/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 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] - 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] - 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][133] - 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][135][136] 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] - 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][143] Prices and Realizations 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] - NGL prices decreased QoQ in Q3 2022 but increased YoY in 9M 2022, benefiting from higher energy and fuel prices[150] - 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] Statements of Operations Analysis 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] - Non-energy operating costs increased by $8 million (7%) QoQ primarily due to increased downhole maintenance activity[163] 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] - General and administrative expenses increased $16 million YoY due to increased compensation-related expenses and additional headcount for carbon management business development[175] - 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] Liquidity and Capital Resources 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] - 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] 2022 Capital Program 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] - 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] Lawsuits, Claims, Commitments and Contingencies 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] Critical Accounting Estimates and Significant Accounting and Disclosure Changes 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] - Refer to Part I, Item 1 – Financial Statements, Note 2 Accounting Policy and Disclosure Changes for a discussion of new accounting standards[204] Forward-Looking Statements 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][207] - Other uncertainties include lower-than-expected production, inability to realize benefits from energy transition initiatives, and limitations on financial flexibility due to debt[207] Item 3 Quantitative and Qualitative Disclosures About Market Risk 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] - The company is exposed to commodity price risk (oil, NGL, and natural gas), which is primarily managed through a commodity hedging program[213] - Credit risk relates primarily to trade receivables and derivative financial instruments, with the majority of credit exposure with investment-grade counterparties[214][215] - 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] Item 4 Controls and Procedures 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] - 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] PART II OTHER INFORMATION This section provides additional disclosures not included in the financial statements, covering legal, risk, equity, and other matters Item 1 Legal Proceedings 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] Item 1A Risk Factors 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] - 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] Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 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] 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 This section indicates that there are no other disclosures to report - No other disclosures[227] Item 6 Exhibits 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]