Part I Business and Properties 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 acres6217 - 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) projects677 - 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 date7237 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 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 sequestration266 - 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 decline9 - 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 business219 - 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 billion239 - 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 metrics10 Oil and Natural Gas Operations 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 infrastructure13242270 - 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 - 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 2023273 Production, Price and Cost History 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 results21279 Estimated Proved Reserves and Future Net Cash Flows 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 revisions3435282 - 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 challenges35 - 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 years2728 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 202231 Carbon Management Business 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 time74 - 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 projects7798 - 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 Basin74 - 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 projects75 Human Capital Management 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 business100 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 positions8283 - The company achieved a workforce Total Recordable Incident Rate (TRIR) of 0.62 in 2022, demonstrating a strong focus on health and safety10 Regulation of the Industries in Which We Operate 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 permitting8788140 - 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 202211091 - 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 feasibility151152 - 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 credits124154 Risk Factors 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 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 actions164136 - Operations are exclusively in California, making the company vulnerable to regional risks such as state-specific regulations, local price fluctuations, natural disasters, and permitting delays167194 - 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 LCFS172175201 - 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 capital176178 - 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 results214210 Risks Related to Regulation and Government Action 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 reserves459461 - 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 reserves433463 - 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 uneconomical467469 - 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 assets471502 Risks Related to our Indebtedness 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 shares479510 - 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 borrowings513514 - 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 debt515485 Risks Related to Our Common Stock 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 agreements547519 - 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 ownership488489 - As of December 31, 2022, five shareholders collectively owned approximately 40% of the common stock, giving them significant influence over corporate matters522 Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments561531 Legal Proceedings 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 6532 Mine Safety Disclosures This section is not applicable to the company - Not applicable563 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 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 approval566 - 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, 2023567618 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 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 effects607608 - 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 decline610 - 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 activities744 - 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 Facility743 Statement of Operations Analysis 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 volumes596 - Energy operating costs increased by 27% to $323 million in 2022, primarily due to higher prices for purchased natural gas and electricity used in operations659 - 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 allowance635 Liquidity and Capital Resources 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 costs704 - Net cash used in investing activities increased to $317 million in 2022 from $161 million in 2021, primarily due to a larger capital program646 - Net cash used in financing activities was $371 million in 2022, mainly for common stock repurchases ($313 million) and dividends ($59 million)677745 Financial Statements and Supplementary Data 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, 2022692719 - 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 model698700 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 |
California Resources (CRC) - 2022 Q4 - Annual Report