California Resources (CRC) - 2023 Q2 - Quarterly Report

Part I Financial Statements (unaudited) Net income for H1 2023 surged to $398 million, driven by commodity derivative gains, while total assets slightly decreased and operating cash flow increased Condensed Consolidated Balance Sheets Total assets slightly decreased to $3.90 billion as of June 30, 2023, while stockholders' equity increased to $2.11 billion Condensed Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $3,900 | $3,967 | | Cash and cash equivalents | $448 | $307 | | Total property, plant and equipment, net | $2,745 | $2,786 | | Total Liabilities | $1,790 | $2,103 | | Total current liabilities | $582 | $894 | | Long-term debt, net | $593 | $592 | | Total Stockholders' Equity | $2,110 | $1,864 | Condensed Consolidated Statements of Operations Net income for Q2 2023 was $97 million, down from Q2 2022, while H1 2023 net income surged to $398 million due to derivative gains Key Operating Results (in millions, except per share data) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Total operating revenues | $591 | $747 | $1,615 | $900 | | Oil, natural gas and NGL sales | $447 | $718 | $1,162 | $1,346 | | Net gain (loss) from commodity derivatives | $31 | $(100) | $73 | $(662) | | Operating Income | $147 | $278 | $540 | $89 | | Net Income | $97 | $190 | $398 | $15 | | Diluted EPS | $1.35 | $2.41 | $5.47 | $0.19 | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity increased by $246 million to $2.11 billion in H1 2023, driven by net income, offset by repurchases and dividends Changes in Stockholders' Equity (Six months ended June 30, 2023, in millions) | Description | Amount | | :--- | :--- | | Balance, December 31, 2022 | $1,864 | | Net income | $398 | | Repurchases of common stock | $(123) | | Cash dividend | $(41) | | Share-based compensation & other | $12 | | Balance, June 30, 2023 | $2,110 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities increased to $418 million in H1 2023, resulting in a $141 million increase in cash and cash equivalents Cash Flow Summary (Six months ended June 30, in millions) | Cash Flow Category | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $418 | $341 | | Net cash used in investing activities | $(105) | $(129) | | Net cash used in financing activities | $(172) | $(193) | | Increase in cash and cash equivalents | $141 | $19 | | Cash and cash equivalents—end of period | $448 | $324 | Notes to the Condensed Consolidated Financial Statements Notes detail the company's energy and carbon management business, CCS joint venture, debt structure, and capital return activities - The company is an independent energy and carbon management company, developing carbon capture and storage (CCS) projects through its subsidiary Carbon TerraVault, which has a joint venture with Brookfield[26] - The Carbon TerraVault JV with Brookfield involves an initial $500 million commitment from Brookfield for CCS projects; CRC accounts for its 51% interest using the equity method[31][32] - In April 2023, the company amended its Revolving Credit Facility, extending maturity to 2027 and increasing aggregate commitment to $627 million[41] - The company's Share Repurchase Program is authorized for up to $1.1 billion through June 30, 2024, with $584 million repurchased since inception[63] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q2 2023 revenue and income decrease to lower commodity prices, while H1 2023 results improved, despite regulatory challenges and permit delays Business Environment and Industry Outlook Company results are heavily influenced by commodity prices, with global oil prices slightly declining and natural gas prices significantly decreasing in Q2 2023 Average Daily Benchmark Prices | Benchmark | Q2 2023 | Q1 2023 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Brent oil ($/Bbl) | $78.01 | $82.22 | $80.12 | $104.59 | | WTI oil ($/Bbl) | $73.78 | $76.13 | $74.95 | $101.35 | | NYMEX Henry Hub ($/MMBtu) | $2.10 | $3.42 | $2.76 | $6.06 | Regulatory Updates The company faces significant regulatory hurdles, including limited new production well permits and discussions on injection well pressure in the Wilmington Oil Field - Since December 2022, CalGEM has issued a limited number of permits for new production wells in California, none to CRC[97] - Discussions are ongoing with CalGEM regarding injection well pressure in the Wilmington Oil Field; a mandated reduction could negatively impact production and reserves[98] Supply Chain Constraints and Inflation Pricing for goods and services remained relatively flat in 2023, with rising labor and electricity costs offsetting supply chain improvements - Rising labor and electricity costs have partially negated the benefits of improving supply chains in 2023[99] - The company has entered into one- to three-year contracts for materials and services to limit the effects of inflation[100] Production Total daily net production decreased to 86 MBoe/d in Q2 2023 due to natural decline, with H1 2023 average production at 88 MBoe/d Average Net Production (MBoe/d) | Period | Q2 2023 | Q1 2023 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Net Production | 86 | 89 | 88 | 90 | - The decrease in production in Q2 2023 compared to Q1 2023 was largely due to natural decline and changes in NGL storage volumes, partially offset by drilling and workover activity[103] Prices and Realizations In Q2 2023, realized oil prices were $75.77/Bbl, NGL prices fell to $42.48/Bbl, and natural gas prices significantly decreased to $3.46/Mcf Average Realized Prices (without derivative settlements) | Product | Q2 2023 | Q1 2023 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Oil ($/Bbl) | $75.77 | $78.68 | $77.25 | $104.07 | | NGLs ($/Bbl) | $42.48 | $58.88 | $50.88 | $72.57 | | Natural gas ($/Mcf) | $3.46 | $21.56 | $12.44 | $6.58 | - The significant decrease in realized natural gas prices from Q1 to Q2 2023 was due to moderate weather and rebounding California storage inventories from historically low levels[111] Statements of Operations Analysis Q2 2023 net income was $97 million, lower than Q1, due to decreased sales, while H1 2023 net income surged to $398 million due to derivative results - The decrease in oil, natural gas, and NGL sales of $268 million from Q1 to Q2 2023 was primarily due to lower realized prices, which accounted for a $254 million negative impact[119][120] - Compared to H1 2022, oil, gas, and NGL sales in H1 2023 decreased by $184 million due to lower oil and NGL prices, partially offset by significantly higher realized natural gas prices[132][133] Operating Costs per Boe | Cost Category ($ per Boe) | Q2 2023 | Q1 2023 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Energy operating costs | $7.39 | $15.56 | $11.52 | $9.24 | | Non-energy operating costs | $15.68 | $15.43 | $15.56 | $13.11 | | Total Operating costs | $23.71 | $31.61 | $27.71 | $22.90 | Liquidity and Capital Resources Total liquidity was $927 million as of June 30, 2023, supporting a $200-$245 million capital program and continued shareholder returns Liquidity Summary (June 30, 2023, in millions) | Component | Amount | | :--- | :--- | | Cash and cash equivalents | $448 | | Revolving Credit Facility Availability | $479 | | Total Liquidity | $927 | 2023 Capital Program Estimate (in millions) | Category | Full Year Estimate | H1 2023 Actual | | :--- | :--- | :--- | | Oil and natural gas operations | $165 - $195 | $75 | | Carbon management business | $5 - $15 | $1 | | Corporate and other | $30 - $35 | $10 | | Total Capital | $200 - $245 | $86 | - Primary uses of operating cash flow in H1 2023 were capital investments, common stock repurchases, and dividends[146] Quantitative and Qualitative Disclosures About Market Risk The company manages commodity price volatility through hedging, with minimal interest rate risk due to no variable-rate debt outstanding - The company's primary market risk is commodity price volatility, which it manages through a hedging program focused on crude oil[172] - As of June 30, 2023, the company had no outstanding variable-rate debt, minimizing its interest-rate risk[175] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal controls - Management concluded that disclosure controls and procedures were effective as of June 30, 2023[176] Part II Legal Proceedings The company is involved in routine legal proceedings, with accrued reserves for these matters not material as of June 30, 2023 - The company is involved in routine legal proceedings, but reserve balances for these matters were not material as of June 30, 2023[180] Risk Factors A key risk is the highly regulated business environment, with significant delays in obtaining permits and potential production impacts from injection well pressure discussions - A material risk factor is the company's ability to obtain and maintain permits, with significant delays noted from CalGEM, which has slowed new drill permit approvals[182][185] - A potential regulatory requirement to reduce injection well pressure in the Wilmington Oil Field could result in a decrease in production and reserves[183] Unregistered Sales of Equity Securities and Use of Proceeds In Q2 2023, the company repurchased 1,618,746 shares for $64 million, with $517 million remaining under the $1.1 billion Share Repurchase Program Share Repurchase Activity (Q2 2023) | Period | Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2023 | 542,465 | $39.60 | | May 2023 | 449,631 | $39.70 | | June 2023 | 626,650 | $38.28 | | Total Q2 2023 | 1,618,746 | $39.12 | - The total value of shares that may yet be purchased under the Share Repurchase Program was $517 million as of June 30, 2023[188] Other Disclosures The company entered into an employment agreement with Omar Hayat, new EVP of Operations, effective July 27, 2023, outlining his compensation - The company entered into an employment agreement with its new EVP of Operations, Omar Hayat, effective July 27, 2023, outlining his compensation structure[189] Exhibits This section lists exhibits filed with the Form 10-Q, including officer certifications, employment agreements, and XBRL data files