What changed in this filing

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Item 1. Financial Statements

2020-08-06 compared with 2020-06-25 · 365 added, 224 removed, 344 unchanged (63% of the section changed)

Financial Statements (unaudited)

Item 1 Financial Statements (unaudited)

CALIFORNIA RESOURCES CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

As of March 31, 2020 and December 31, 2019

As of June 30, 2020 and December 31, 2019

(in millions, except share data)

June 30, December 31,

CURRENT ASSETS

Cash $ 126 $ 17

Trade receivables 132 277

Inventories 61 67

Other current assets, net 84 130

1 unchanged sentence

PROPERTY, PLANT AND EQUIPMENT

22,914 22,889

Accumulated depreciation, depletion and amortization

( 18,465 ) ( 16,537 )

Total property, plant and equipment, net 4,449 6,352

OTHER ASSETS 78 115

TOTAL ASSETS $ 4,930 $ 6,958

CURRENT LIABILITIES

Current maturities of long-term debt

Current portion of long-term debt 5,083 100

Current portion of deferred gain and issuance costs, net 125 —

Accounts payable 196 296

6 unchanged sentences

Redeemable noncontrolling interests

Preferred stock (20 million shares authorized at $0.01 par value) no shares outstanding at March 31, 2020 and December 31, 2019

Common stock (200 million shares authorized at $0.01 par value) outstanding shares (March 31, 2020 - 49,453,297 and

December 31, 2019 - 49,175,843)

Preferred stock ( 20 million shares authorized at $ 0.01 par value) no shares outstanding at June 30, 2020 and December 31, 2019

Common stock ( 200 million shares authorized at $ 0.01 par value) outstanding shares (June 30, 2020 - 49,453,297 and December 31, 2019 - 49,175,843 )

Additional paid-in capital 5,008 5,004

3 unchanged sentences

Equity attributable to noncontrolling interests 76 93

Total equity ( 2,376 ) ( 296 )

TOTAL LIABILITIES AND EQUITY $ 4,930 $ 6,958

2 unchanged sentences

Condensed Consolidated Statements of Operations

For the three months ended March 31, 2020 and 2019

For the three and six months ended June 30, 2020 and 2019

(in millions, except share data)

Three months ended

June 30, Six months ended

2020 2019 2020 2019

Oil and natural gas sales $ 245 $ 578 $ 675 $ 1,179

Net derivative gain (loss) from commodity contracts

Net derivative (loss) gain from commodity contracts ( 4 ) 21 75 ( 68 )

Other revenue 35 54 99 232

2 unchanged sentences

General and administrative expenses

69 79 129 162

Depreciation, depletion and amortization 88 121 207 239

3 unchanged sentences

Other expenses, net 67 55 136 203

Total costs 391 531 2,613 1,164

OPERATING (LOSS) INCOME ( 115 ) 122 ( 1,764 ) 179

3 unchanged sentences

Other non-operating expenses ( 47 ) ( 3 ) ( 61 ) ( 10 )

LOSS BEFORE INCOME TAXES

(LOSS) INCOME BEFORE INCOME TAXES ( 247 ) 41 ( 1,992 ) ( 3 )

Income tax — — — —

NET (LOSS) INCOME ( 247 ) 41 ( 1,992 ) ( 3 )

NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

Mezzanine equity ( 30 ) ( 29 ) ( 60 ) ( 57 )

Equity 6 — ( 15 ) 5

Net income attributable to noncontrolling interests ( 24 ) ( 29 ) ( 75 ) ( 52 )

NET LOSS ATTRIBUTABLE TO COMMON STOCK

Net loss attributable to common stock per share

NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCK $ ( 271 ) $ 12 $ ( 2,067 ) $ ( 55 )

Net (loss) income attributable to common stock per share

Basic $ ( 5.47 ) $ 0.25 $ ( 41.84 ) $ ( 1.13 )

Diluted $ ( 5.47 ) $ 0.24 $ ( 41.84 ) $ ( 1.13 )

The accompanying notes are an integral part of these condensed consolidated financial statements.

CALIFORNIA RESOURCES CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Loss

For the three months ended March 31, 2020 and 2019

Condensed Consolidated Statements of Comprehensive Income (Loss)

For the three and six months ended June 30, 2020 and 2019

(in millions)

Three months ended

June 30, Six months ended

2020 2019 2020 2019

Net (loss) income $ ( 247 ) $ 41 $ ( 1,992 ) $ ( 3 )

Net income attributable to noncontrolling interests ( 24 ) ( 29 ) ( 75 ) ( 52 )

Comprehensive loss attributable to common stock

Other comprehensive income:

Reclassification of realized losses on pension and postretirement benefits to income (a)

Comprehensive (loss) income attributable to common stock $ ( 271 ) $ 13 $ ( 2,067 ) $ ( 54 )

(a) No associated tax for the three and six months ended June 30, 2020 and 2019.

See Note 10 Pension and Postretirement Benefit Plans for additional information.

The accompanying notes are an integral part of these condensed consolidated financial statements.

1 unchanged sentence

Condensed Consolidated Statements of Equity

For the three months ended March 31, 2020 and 2019

For the three and six months ended June 30, 2020

(in millions)

Three months ended March 31, 2020

Additional Paid-in Capital

Accumulated (Deficit) Earnings

Accumulated Other

Three months ended June 30, 2020

Additional Paid-in Capital Accumulated Deficit Accumulated Other

Comprehensive

(Loss) Income

Equity Attributable to Common Stock

Equity Attributable to Noncontrolling Interests

Loss Equity Attributable to Common Stock Equity Attributable to Noncontrolling Interests Total

Balance, March 31, 2020 $ 5,006 $ ( 7,166 ) $ ( 23 ) $ ( 2,183 ) $ 88 $ ( 2,095 )

Net loss — ( 271 ) — ( 271 ) ( 6 ) ( 277 )

Distributions to noncontrolling interest holders

— — — — ( 6 ) ( 6 )

Share-based compensation, net

Balance, June 30, 2020 $ 5,008 $ ( 7,437 ) $ ( 23 ) $ ( 2,452 ) $ 76 $ ( 2,376 )

Six months ended June 30, 2020

Additional Paid-in Capital Accumulated Deficit Accumulated Other

Comprehensive

Loss Equity Attributable to Common Stock Equity Attributable to Noncontrolling Interests Total

Balance, December 31, 2019 $ 5,004 $ ( 5,370 ) $ ( 23 ) $ ( 389 ) $ 93 $ ( 296 )

1 unchanged sentence

Distributions to noncontrolling interest holders

— — — — ( 32 ) ( 32 )

Share-based compensation, net

Balance, June 30, 2020 $ 5,008 $ ( 7,437 ) $ ( 23 ) $ ( 2,452 ) $ 76 $ ( 2,376 )

The above tables exclude amounts related to redeemable noncontrolling interests reported in mezzanine equity.

See Note 6 Joint Ventures for more information.

The accompanying notes are an integral part of these condensed consolidated financial statements.

CALIFORNIA RESOURCES CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Equity

For the three and six months ended June 30, 2019

(in millions)

Three months ended June 30, 2019

Additional Paid-in Capital Accumulated Deficit Accumulated Other

Comprehensive

Loss Equity Attributable to Common Stock Equity Attributable to Noncontrolling Interests Total

Balance, March 31, 2019 $ 4,989 $ ( 5,409 ) $ ( 6 ) $ ( 426 ) $ 137 $ ( 289 )

Three months ended March 31, 2019

Additional Paid-in Capital

Accumulated Deficit

Accumulated Other

Net loss — 12 — 12 — 12

Contributions from noncontrolling interest holders, net

Distributions to noncontrolling interest holders

— — — — ( 8 ) ( 8 )

Issuance of common stock

Other comprehensive income

Share-based compensation, net

Balance, June 30, 2019 $ 4,994 $ ( 5,397 ) $ ( 5 ) $ ( 408 ) $ 129 $ ( 279 )

Six months ended June 30, 2019

Additional Paid-in Capital Accumulated Deficit Accumulated Other

Comprehensive

(Loss) Income

Equity Attributable to Common Stock

Equity Attributable to Noncontrolling Interests

Loss Equity Attributable to Common Stock Equity Attributable to Noncontrolling Interests Total

Balance, December 31, 2018 $ 4,987 $ ( 5,342 ) $ ( 6 ) $ ( 361 ) $ 114 $ ( 247 )

Contribution from noncontrolling interest holders, net

Net loss — ( 55 ) — ( 55 ) ( 5 ) ( 60 )

Contributions from noncontrolling interest holders, net

— — — — 49 49

Distributions to noncontrolling interest holders

— — — — ( 29 ) ( 29 )

Other comprehensive income

Share-based compensation, net

Balance, March 31, 2019

The above tables exclude amounts related to redeemable noncontrolling interests reported as mezzanine equity.

Balance, June 30, 2019 $ 4,994 $ ( 5,397 ) $ ( 5 ) $ ( 408 ) $ 129 $ ( 279 )

The above tables exclude amounts related to redeemable noncontrolling interests reported in mezzanine equity.

See Note 6 Joint Ventures for more information.

2 unchanged sentences

Condensed Consolidated Statements of Cash Flows

For the three months ended March 31, 2020 and 2019

For the six months ended June 30, 2020 and 2019

(in millions)

Three months ended

Six months ended

CASH FLOW FROM OPERATING ACTIVITIES

Net loss $ ( 1,992 ) $ ( 3 )

Adjustments to reconcile net loss to net cash provided by

14 unchanged sentences

Asset divestitures 41 165

Acquisitions — ( 2 )

Other ( 7 ) ( 5 )

Net cash used in investing activities ( 27 ) ( 170 )

6 unchanged sentences

Distributions paid to noncontrolling interest holders ( 68 ) ( 65 )

Issuance of common stock — 1

Shares canceled for taxes ( 1 ) ( 3 )

Net cash (used in) provided by financing activities

Net cash provided by (used in) financing activities 43 ( 92 )

Increase in cash 109 10

4 unchanged sentences

Notes to the Condensed Consolidated Financial Statements

March 31, 2020

June 30, 2020

NOTE 1 BASIS OF PRESENTATION

2 unchanged sentences

Except when the context otherwise requires or where otherwise indicated, all references to ‘‘CRC,’’ the ‘‘Company,’’ ‘‘we,’’ ‘‘us’’ and ‘‘our’’ refer to California Resources Corporation and its subsidiaries.

Voluntary Petitions for Relief Under Chapter 11 of the Bankruptcy Code

On July 15, 2020, we filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code (Bankruptcy Code) in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (Bankruptcy Court).

The Chapter 11 cases filed by us (Chapter 11 Cases) are being jointly administered under the caption In re California Resources Corporation, et al.

20-33568 (DRJ).

On July 24, 2020, we filed a Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code with the Bankruptcy Court.

We continue to operate our business as “debtors-in-possession” (DIP) under the jurisdiction of the Bankruptcy Court and in accordance with the Bankruptcy Code.

To ensure our ability to continue operating in the ordinary course of business and to minimize the effect of the Chapter 11 Cases on our employees, vendors and customers, we filed motions for customary “first day” relief with the Bankruptcy Court.

On July 17, 2020, the Bankruptcy Court entered interim or final orders that included authorizing payments of pre-petition liabilities with respect to certain employee compensation and benefits, taxes, royalties, certain essential vendor payments and insurance and surety obligations.

On July 21, 2020, the Bankruptcy Court approved on a final basis an order designed to assist us in preserving certain tax attributes.

This order established the procedures that certain stockholders and potential stockholders will be required to comply with regarding transfers of, or declarations of worthlessness with respect to, our common stock as well as certain notice obligations.

On July 22, 2020, the Bankruptcy Court approved on an interim basis a motion authorizing us to enter into DIP financing.

The commencement of the Chapter 11 Cases constitutes an event of default that accelerated our obligations under the following agreements:

(i) Credit Agreement, dated as of September 24, 2014, among JPMorgan Chase Bank, N.A., as administrative agent, and the lenders that are party thereto (2014 Revolving Credit Facility), (ii) Credit Agreement, dated as of August 12, 2016, among The Bank of New York Mellon Trust Company, N.A., as collateral and administrative agent, and the lenders that are party thereto (2016 Credit Agreement), (iii) Credit Agreement, dated as of November 17, 2017, among The Bank of America Mellon Trust Company, N.A., as administrative agent, and the lenders that are party thereto (2017 Credit Agreement), and (iv) the indentures governing our 8 % Senior Secured Second Lien Notes due 2022 (Second Lien Notes), 5.5 % Senior Notes due 2021 (2021 Notes) and 6 % Senior Notes due 2024 (2024 Notes).

Additionally, other events of default, including cross-defaults, are present under these debt agreements.

Under the Bankruptcy Code, the creditors under these debt agreements are stayed from taking any action against us, including exercising remedies as a result of any event of default.

See Note 5 Debt for additional details about our debt.

Restructuring Support Agreement

On July 15, 2020, we entered into a Restructuring Support Agreement which was subsequently amended on July 24, 2020 (RSA).

This RSA contemplates a restructuring plan that establishes a reorganized company with a new capital structure.

The transactions contemplated by the RSA plan include (i) entering into a senior secured superpriority DIP credit facility (Senior DIP Facility) in an aggregate principal amount of up to approximately $ 483 million, (ii) entering into a junior secured superpriority DIP term loan facility in an aggregate amount of $ 650 million, (iii) the implementation of financing upon emergence from bankruptcy, (iv) the issuance of new common stock, and (v) a $ 450 million equity rights offering, backstopped by certain parties to the RSA.

The following creditors have entered into the RSA:

(i) lenders holding approximately 85 % of the outstanding principal amount of loans under the 2017 Credit Agreement, (ii) creditors holding approximately 68 % of the aggregate claims arising under the 2016 Credit Agreement, the Second Lien Notes, the 2021 Notes and the 2024 Notes, and (iii) one or more funds, investment vehicles and/or accounts managed or advised by Ares Management LLC (Ares) or its affiliates, including ECR Corporate Holdings L.P.

The transactions contemplated by the RSA, if approved, will result in current holders of our common stock receiving no distribution on account of their claims or interests.

No assurance can be given that the Bankruptcy Court will approve the terms proposed under the RSA.

Debtor-in-Possession Credit Agreements

On July 23, 2020, we entered into (1) a Senior Secured Superpriority DIP Credit Agreement with JP Morgan, as administrative agent, and certain other lenders (Senior DIP Credit Agreement) and (2) a Junior Secured Superpriority DIP Credit Agreement with Alter Domus, as administrative agent, and certain lenders (Junior DIP Credit Agreement).

For more information on our debtor-in-possession credit agreements, see Note 5 Debt.

Ares JV Settlement Agreement

On July 15, 2020, prior to the commencement of the Chapter 11 Cases, we and certain affiliates of Ares, including ECR, entered into a settlement and assumption agreement (Settlement Agreement).

On July 17, 2020, the Bankruptcy Court entered an order approving the Settlement Agreement on an interim basis pending a final hearing.

Upon entry of a final order by the Bankruptcy Court, we will be granted the right to acquire all of the equity interests of the Ares JV owned by ECR in exchange for secured notes, cash and common stock upon emergence from bankruptcy.

We have also agreed to certain covenants and amendments to the Ares JV limited liability company agreement.

The Settlement Agreement may be terminated in certain limited circumstances.

For more information on the Ares JV, see Note 6 Joint Ventures.

Ability to Continue as a Going Concern

Our liquidity and ability to meet our debt obligations have been negatively impacted by the sharp decrease in commodity prices as a result of the Coronavirus Disease 2019 (COVID-19) pandemic and by the actions of foreign producers.

Our primary sources of liquidity and capital resources are cash flow from operations and available borrowing capacity under our Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and certain other lenders (2014 Revolving Credit Facility).

As of March 31, 2020 , we had available liquidity of $ 395 million , consisting of $ 67 million in unrestricted cash and $ 328 million of available borrowing capacity under our 2014 Revolving Credit Facility (before a $ 150 million month-end minimum liquidity requirement).

On April 30, 2020, our 2014 Revolving Credit Facility was amended to reduce the limit on our revolving credit facility from $ 1 billion to $ 900 million , among other things.

Our ability to borrow under our 2014 Revolving Credit Facility is limited by our ability to comply with its covenants, including quarterly financial covenants, and by our borrowing base.

Pursuant to a semi-annual borrowing base redetermination, our borrowing base was reduced from $ 2.3 billion to $ 1.2 billion effective as of May 18, 2020, with no further reduction in our ability to borrow under the 2014 Revolving Credit Facility.

As of May 31, 2020, we had available liquidity of $ 165 million , consisting of $ 148 million in unrestricted cash and $ 17 million of available borrowing capacity under our 2014 Revolving Credit Facility (before a $ 150 million month-end minimum liquidity requirement).

However, the Forbearance Agreements do not permit us to make any drawings under the 2014 Revolving Credit Facility until the expiration of the forbearance period described below.

We expect that operating cash flow and expected available credit capacity will not be sufficient to meet our commitments over the next twelve months.

Our spin–off from Occidental Petroleum Corporation (Occidental) in December 2014 burdened us with significant debt which was used to pay a $ 6 billion cash dividend to Occidental.

Together with the activity level and payables that we assumed from Occidental and due to Occidental's retention of a vast majority of receivables, our debt peaked at approximately $ 6.8 billion in May 2015.

Since then, we have engaged in a series of assets sales, joint ventures, debt exchanges, tenders and other financing transactions to reduce our overall debt and improve our balance sheet.

As of March 31, 2020 , we had reduced outstanding debt to approximately $ 4.9 billion , a substantial portion of which will mature in 2021.

Our significant indebtedness, the unprecedented impact to our financial position resulting from commodity price decreases due to the COVID–19 pandemic and actions of foreign producers, and the continued challenging conditions in the credit and capital markets raise substantial doubt regarding our ability to continue as a going concern.

As discussed further below, we are actively discussing the terms of a restructuring with our creditors and other stakeholders with the objective of enabling us to continue operations better positioned to capitalize on our asset base and operating capabilities.

On February 20, 2020, we launched offers to exchange a significant portion of our Second Lien Notes and our 5.5 % Senior Notes due 2021 (2021 Notes) and 6 % Senior Notes due 2024 (2024 Notes) into interests in an entity that would hold a term royalty interest in certain of our oil and natural gas assets or new term loans and warrants to purchase our common stock.

If the offers were fully subscribed, we expected that the transactions would have reduced our net debt by approximately $ 1 billion if successfully completed.

On March 16, 2020, we announced the termination of the offers as a result of developments in the commodity and financial markets at that time that rendered the offers inadvisable and impractical.

On May 15, 2020, we did not make an interest payment of approximately $ 4.3 million on our 2024 Notes.

The indenture governing the 2024 Notes provides for a 30 -day grace period and the payment was made on June 12, 2020.

On May 29, 2020, we did not pay approximately $ 51 million in the aggregate of interest due under (i) our $ 1.3 billion credit agreement with The Bank of New York Mellon Trust Company, N.A., as administrative agent, and certain other lenders (2017 Credit Agreement), and (ii) our $ 1 billion credit agreement with The Bank of New York Mellon Trust Company, N.A., as administrative agent, and certain other lenders (2016 Credit Agreement).

Our failure to make those interest payments constituted events of default under the 2017 Credit Agreement, 2016 Credit Agreement and, as a result of cross default, under the 2014 Revolving Credit Facility.

On June 2, 2020, we entered into forbearance agreements (Forbearance Agreements) with (i) certain lenders of a majority of the outstanding principal amount of the loans under the 2014 Revolving Credit Facility, (ii) certain lenders of a majority of the outstanding principal amount of the loans under the 2016 Credit Agreement, and (iii) certain lenders of a majority of the outstanding principal amount of the loans under the 2017 Credit Agreement.

Pursuant to the Forbearance Agreements, the lenders who are parties to the Forbearance Agreements agreed to forbear from exercising any remedies under the 2014 Revolving Credit Facility, 2016 Credit Agreement and 2017 Credit Agreement with respect to our failure to make the aforementioned interest payments, through the earlier of June 14, 2020 or an event of termination as set forth in the Forbearance Agreements.

On June 12, 2020, we amended the Forbearance Agreements to extend the forbearance period to June 30, 2020 .

The Forbearance Agreements include a requirement that we maintain an aggregate book cash balance of not less than $ 40 million for more than three consecutive business days.

On June 15, 2020, we did not make an interest payment of approximately $ 72.3 million on our 8 % Senior Secured Second Lien Notes due 2022 (Second Lien Notes).

The indenture governing the Second Lien Notes (Second Lien Notes Indenture) provides for a 30 -day grace period, which will expire on July 15, 2020.

A failure to pay the interest within the 30 -day grace period would constitute an event of default under the Second Lien Notes Indenture and cross defaults under our other debt instruments and agreements.

We are actively discussing the terms of a restructuring with our creditors and other stakeholders with the objective of reaching an agreement before the forbearance period under the Forbearance Agreements expires on June 30, 2020 .

There can be no assurances that an agreement regarding a restructuring will be reached by the end of the forbearance period or at all or that we will be able to successfully restructure our indebtedness.

In addition, no assurances can be given as to what values, if any, will be ascribed to each of our securities or what type or amounts of distributions, if any, our various stakeholders would receive in any restructuring.

Any restructuring could result in holders of certain liabilities and/or securities, including common stock, receiving no distribution on account of their claims or interest.

See Part II, Item 1A – Risk Factors , below for further discussion regarding risks related to our ability to continue as a going concern.

Our spin–off from Occidental Petroleum Corporation (Occidental) on November 30, 2014 burdened us with significant debt which was used to pay a $ 6.0 billion cash dividend to Occidental.

Together with the activity level and payables that we assumed from Occidental and due to Occidental's retention of the vast majority of our receivables, our debt peaked at approximately $ 6.8 billion in May 2015.

Since then, we have engaged in a series of assets sales, joint ventures, debt exchanges, tenders and repurchases and other financing transactions to reduce our overall debt and improve our balance sheet.

As of June 30, 2020, we had reduced our outstanding debt to approximately $ 5.1 billion, a substantial portion of which would have matured in 2021.

We currently expect that our cash flows, cash on hand and financing available through our DIP credit agreements should provide sufficient liquidity during the pendency of the Chapter 11 Cases.

However, for the duration of the Chapter 11 Cases, our operations and our ability to develop and execute our business plan are subject to a high degree of risks and uncertainty associated with the Chapter 11 proceedings.

The outcome of the Chapter 11 Cases is also subject to a high degree of uncertainty and is dependent upon factors that are outside of our control, including actions of the Bankruptcy Court, our creditors, and Ares.

There can be no assurance that we will confirm and consummate the plan under the RSA or complete another plan of reorganization with respect to the Chapter 11 proceedings.

There is substantial doubt that we can continue as a going concern if we are not able to complete the plan of reorganization contemplated by the RSA or another plan of reorganization as part of the Chapter 11 Cases.

For the duration of the Chapter 11 Cases, our operations and ability to develop and execute our business plan are subject to the risks and uncertainties associated with the Chapter 11 Cases.

See Part II, Item 1A – Risk Factors , below for further discussion of these risks and risks related to our ability to continue as a going concern.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared assuming we will continue as a going concern.

These financial statements do not include any adjustments that might result from the outcome of a going concern uncertainty.

If we cannot continue as a going concern, adjustments to the carrying values and classification of assets and liabilities and the reported amounts of income and expenses could be required and could be material.

In the opinion of our management, the accompanying unaudited financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to fairly present our financial position as of March 31, 2020 and December 31, 2019 and the statements of operations, comprehensive loss, equity and cash flows for the three months ended March 31, 2020 and 2019 , as applicable.

These financial statements do not include any adjustments that might result from the outcome of our going concern uncertainty or the Chapter 11 Cases.

Further, the Chapter 11 Cases could result in a change in the basis of our accounting, which may have a material effect on the carrying value of certain assets and liabilities.

In the opinion of our management, the accompanying unaudited financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to fairly present our financial position as of June 30, 2020 and December 31, 2019 and the statements of operations, comprehensive income (loss), equity and cash flows for the three and six months ended June 30, 2020 and 2019, as applicable.

We have eliminated all significant intercompany transactions and accounts.

We account for our share of oil and natural gas exploration and development ventures, in which we have a direct working interest, by reporting our proportionate share of assets, liabilities, revenues, costs and cash flows within the relevant lines on our condensed consolidated balance sheets, statements of operations, equity and cash flows.

We have prepared this report in accordance with generally accepted accounting principles in the United States (U.S.) and the rules and regulations of the U.S.

We have prepared this report in accordance with generally accepted accounting principles in the United States and the rules and regulations of the U.S.

Securities and Exchange Commission applicable to interim financial information, which permit the omission of certain disclosures to the extent they have not changed materially since the latest annual financial statements.

1 unchanged sentence

This Form 10-Q should be read in conjunction with the condensed consolidated financial statements and the notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2019.

ACCOUNTING AND DISCLOSURE CHANGES

NOTE 2 ACCOUNTING AND DISCLOSURE CHANGES

Recently Adopted Accounting and Disclosure Changes

6 unchanged sentences

Concentration of credit risk is regularly reviewed to ensure that counterparty credit risk is adequately diversified.

We believe exposure to counterparty credit-related losses at March 31, 2020 was not material and losses associated with counterparty credit risk have been insignificant for all periods presented.

OTHER INFORMATION

Restricted cash — Cash at March 31, 2020 included $ 10 million which was restricted under agreements to fund operating expenses at one of our joint ventures, fund a carbon capture feasibility study and hold for distributions to a joint venture (JV) partner.

We believe exposure to counterparty credit-related losses at June 30, 2020 was not material and losses associated with counterparty credit risk have been insignificant for all periods presented.

NOTE 3 OTHER INFORMATION

Restricted cash — Cash at June 30, 2020 included $ 21 million which was restricted under agreements to fund operating expenses at one of our joint ventures and hold for distributions to a joint venture (JV) partner.

Cash at December 31, 2019 included $ 3 million, which was restricted for distributions to a JV partner.

Other current assets, net — Other current assets, net as of March 31, 2020 and December 31, 2019 consisted of the following:

Other current assets, net — Other current assets, net as of June 30, 2020 and December 31, 2019 consisted of the following:

June 30, December 31,

(in millions)

3 unchanged sentences

Other current assets, net $ 84 $ 130

Both March 31, 2020 and December 31, 2019 balances include $ 19 million in an allowance for credit losses against the receivables from our joint interest partners.

Derivative assets at March 31, 2020 include only commodity contracts held by the Benefit Street Partners joint venture (BSP JV).

(a) Both June 30, 2020 and December 31, 2019 balances included $ 19 million in an allowance for credit losses against the receivables from our joint interest partners.

(b) Derivative assets at June 30, 2020 included only commodity contracts held by the Benefit Street Partners joint venture (BSP JV).

Derivative assets at December 31, 2019 included commodity contracts for our hedge positions and those held by the BSP JV.

Accrued liabilities — Accrued liabilities as of March 31, 2020 and December 31, 2019 consisted of the following:

Accrued liabilities — Accrued liabilities as of June 30, 2020 and December 31, 2019 consisted of the following:

June 30, December 31,

(in millions)

Accrued employee-related costs

Accrued taxes other than on income

Accrued interest

Accrued employee-related costs (a)

Accrued taxes other than on income (b)

Accrued interest (c)

Lease liability 15 28

Asset retirement obligation

Asset retirement obligations 28 28

Accrued liabilities $ 355 $ 313

Other long-term liabilities — Other long-term liabilities included asset retirement obligations of $ 495 million and $ 489 million at March 31, 2020 and December 31, 2019 , respectively.

The remainder of the balance for each year consisted primarily of postretirement and pension benefit obligations, liabilities related to stock-based and deferred compensation arrangement and lease liabilities.

(a) As of June 30, 2020, accrued employee-related costs declined $ 68 million primarily due to bonus, long term incentive and severance payments made to employees and former employees.

(b) Accrued taxes other than income increased $ 37 million as of June 30, 2020 primarily due to missed property tax payments in April 2020 as a result of the economic impact of Coronavirus Disease 2019 (COVID-19).

(c) Accrued interest increased $ 141 million as of June 30, 2020 primarily due to missed interest payments as described in Note 5 Debt .

(d) Other accrued liabilities declined $ 55 million as of June 30, 2020 primarily due to the timing of payments with joint interest partners and settlement payments.

Other long-term liabilities — Other long-term liabilities included asset retirement obligations of $ 499 million and $ 489 million at June 30, 2020 and December 31, 2019, respectively.

The remainder of the balance for each year consisted primarily of postretirement and pension benefit obligations, liabilities related to deferred compensation arrangements and lease liabilities.

Supplemental Cash Flow Information

We did no t make U.S.

federal and state income tax payments during the three months ended March 31, 2020 and 2019 .

Interest paid, net of capitalized amounts, totaled $ 45 million and $ 69 million for the three months ended March 31, 2020 and 2019 , respectively.

federal and state income tax payments during the six months ended June 30, 2020 and 2019.

Interest paid, net of capitalized amounts, totaled $ 51 million and $ 219 million for the six months ended June 30, 2020 and 2019, respectively.

Fair Value of Financial Instruments

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Finished goods predominantly comprise oil and natural gas liquids (NGLs), which are valued at the lower of cost and net realizable value.

Inventories as of March 31, 2020 and December 31, 2019 consisted of the following:

Inventories as of June 30, 2020 and December 31, 2019 consisted of the following:

June 30, December 31,

(in millions)

Materials and supplies (a)

Materials and supplies $ 59 $ 64

Finished goods 2 3

Based on our assessment of the utility of our inventory at March 31, 2020 , we recorded a $ 7 million write down to our materials and supplies, which is included in asset impairments on our condensed consolidated statements of operations.

As of March 31, 2020 and December 31, 2019 , our long-term debt consisted of the following credit agreements, Second Lien Notes and Senior Notes:

Outstanding Principal

Interest Rate

March 31, 2020

Total $ 61 $ 67

We have classified all our long-term debt as current due to events of default that occurred prior to June 30, 2020 and the commencement of the Chapter 11 Cases on July 15, 2020 as described below.

As of June 30, 2020 and December 31, 2019, our debt consisted of the following credit agreements, Second Lien Notes and Senior Notes:

Outstanding Principal Interest Rate Security

June 30, 2020

December 31, 2019

Credit Agreements

(in millions)

2014 Revolving Credit Facility

LIBOR plus 3.25%-4.00%

Credit Agreements ($ in millions)

2014 Revolving Credit Facility $ 731 $ 518 LIBOR plus 3.25 %- 4.00 %

ABR plus 2.25 %- 3.00 %

June 30, 2021

Shared First-Priority Lien

2017 Credit Agreement

LIBOR plus 4.75%

2017 Credit Agreement 1,300 1,300 LIBOR plus 4.75 %

ABR plus 3.75 %

December 31, 2022 (a)

Shared First-Priority Lien

2016 Credit Agreement

LIBOR plus 10.375%

2016 Credit Agreement 1,000 1,000 LIBOR plus 10.375 %

ABR plus 9.375 %

December 31, 2021

First-Priority Lien

Second Lien Notes

December 15, 2022 (b)

Second-Priority Lien

Second Lien Notes 1,808 1,815 8 % Second-Priority Lien

5 % Senior Notes due 2020

January 15, 2020

— 100 5 % Unsecured

5.5 % Senior Notes due 2021

September 15, 2021

100 100 5.5 % Unsecured

6 % Senior Notes due 2024

November 15, 2024

144 144 6 % Unsecured

Total Debt $ 5,083 $ 4,977

Current Portion of Long-Term Debt ( 5,083 ) ( 100 )

Total Long-Term Debt $ — $ 4,877

For a detailed description of our credit agreements, Second Lien Notes and Senior Notes, please see our most recent Form 10-K for the year ended December 31, 2019.

The 2017 Credit Agreement is subject to a springing maturity of 91 days prior to the maturity of our 2016 Credit Agreement if more than $ 100 million in principal of the 2016 Credit Agreement is outstanding at that time.

The Second Lien Notes require principal repayments of $ 286 million in June 2021, $ 57 million in December 2021, $ 60 million in June 2022 and $ 1,406 million in December 2022.

At March 31, 2020 , we were in compliance with all financial and other debt covenants under our 2014 Revolving Credit Facility, 2016 Credit Agreement, 2017 Credit Agreement, Second Lien Notes, 2021 Notes and 2024 Notes.

All obligations under our 2014 Revolving Credit Facility, 2016 Credit Agreement and 2017 Credit Agreement (collectively, Credit Facilities) as well as our Second Lien Notes and Senior Notes are guaranteed both fully and unconditionally and jointly and severally by all of our material wholly owned subsidiaries.

See Note 1 Basis of Presentation above for discussion of forbearance agreements entered into in connection with certain missed interest payments.

The commencement of a voluntary proceeding in bankruptcy constituted an immediate event of default under the 2014 Revolving Credit Facility, 2016 Credit Agreement, 2017 Credit Agreement, and the indentures governing the Second Lien Notes, 2021 Notes and 2024 Notes, resulting in the automatic and immediate acceleration of all of our outstanding debt.

Any efforts to enforce payment obligations related to the acceleration of our debt were automatically stayed immediately upon the filing of the Chapter 11 Cases, and the creditors’ rights of enforcement are subject to the applicable provisions of the Bankruptcy Code.

See Note 1 Basis of Presentation for more information on the Chapter 11 Cases.

Debtor-in-Possession Credit Agreements

On July 23, 2020, we entered into the Senior DIP Credit Agreement, which provides for the senior DIP facility in an aggregate principal amount of up to $ 483 million (Senior DIP Facility).

The Senior DIP Facility includes a $ 250 million revolving facility which will be primarily used by us to (i) fund working capital needs and capital expenditures and additional letters of credit during the pendency of the Chapter 11 Cases and (ii) pay certain costs, fees and expenses related to the Chapter 11 Cases and the Senior DIP Facility.

Until the Bankruptcy Court enters a final order with respect to our DIP credit agreements, only $ 85 million of revolving borrowings are available.

If the Bankruptcy Court enters a final order approving the Senior DIP Facility in its current form following a hearing on August 14, 2020, we expect the full remaining amount of the $ 250 million revolving facility to become available.

The Senior DIP Facility also includes (a) a $ 150 million letter of credit facility which was used to deem letters of credit outstanding under the 2014 Revolving Credit Facility as issued under the Senior DIP Facility, and (b) $ 83 million of term loan borrowings which were used to repay a portion of the 2014 Revolving Credit Facility.

On July 23, 2020, we entered into the Junior DIP Credit Agreement, which provides for a junior DIP facility in an aggregate principal amount of $ 650 million (Junior DIP Facility).

The proceeds of the Junior DIP Facility were used to (i) refinance in full all remaining obligations under the 2014 Revolving Credit Facility and (ii) pay certain costs, fees and expenses related to the Chapter 11 Cases and the Junior DIP Facility.

The Senior DIP Credit Agreement and Junior DIP Credit Agreement both contain representations, warranties, and covenants that are customary for DIP facilities of their type, including certain milestones applicable to the Chapter 11 Cases, compliance with an agreed budget, hedging on not less than 25 % of our share of expected crude oil production for a specified period, and other customary limitations on additional indebtedness, liens, asset dispositions, investments, restricted payments and other negative covenants, in each case subject to exceptions.

Additionally, the Senior DIP Credit Agreement and Junior DIP Credit Agreement require us to maintain (i) minimum liquidity over a rolling four-week period of not less than $ 50 million, and (ii) minimum liquidity at all times of not less than $ 35 million.

The Senior DIP Credit Agreement and Junior DIP Credit Agreement also contain customary events of default for facilities of their type, including failure to achieve the milestones and the occurrence of certain events in the Chapter 11 Cases.

If an event of default occurs or is continuing, the applicable administrative agent may accelerate repayment of the indebtedness outstanding under the Senior DIP Facility or the Junior DIP Facility.

Borrowings under the Senior DIP Facility bear interest at a rate of LIBOR plus 4.5 % for LIBOR loans and ABR plus 3.5 % for alternative base rate loans.

We also agreed to pay an upfront fee equal to 1.0 % on the commitment amount of the Senior DIP Facility and quarterly commitment fees of 0.5 % on the undrawn portion of the Senior DIP Facility.

Borrowings under the Junior DIP Facility bear interest at a rate of LIBOR plus 9.0 % for LIBOR loans and ABR plus 8.0 % for alternate base rate loans.

We also agreed to pay an upfront fee equal to 1.0 % of the commitment amount funded on the closing date and a fronting fee to a fronting lender.

Certain of our subsidiaries, including each of the debtors in the Chapter 11 Cases, have guaranteed all obligations under the Senior DIP Credit Agreement and Junior DIP Credit Agreement.

To secure the obligations under the Senior DIP Credit Agreement and Junior DIP Credit Agreement, we have granted liens on substantially all of our assets, whether now owned or hereafter acquired.

The Senior DIP Facility and the Junior DIP Facility both mature on January 15, 2021.

Net Deferred Gain and Issuance Costs

As of March 31, 2020 and December 31, 2019 , net deferred gain and issuance costs consisted of the following:

March 31, 2020

As of June 30, 2020 and December 31, 2019, net deferred gain and issuance costs consisted of the following:

June 30, 2020 (a)

December 31, 2019

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Net deferred gain and issuance costs

(a) Due to uncertainties at June 30, 2020 regarding default and the commencement of the Chapter 11 Cases on July 15, 2020, we have classified all our outstanding debt and associated deferred gain, unamortized debt issue costs and discounts as a current liability as of June 30, 2020.

Refer to Note 1 Basis of Presentation for more information on the Chapter 11 Cases.

Missed Interest Payments and Forbearance

On May 15, 2020, we did not make an interest payment of approximately $ 4 million on our 2024 Notes.

The indenture governing the 2024 Notes provides for a 30 -day grace period and the payment was made on June 12, 2020.

On May 29, 2020, we did not pay approximately $ 51 million in the aggregate of interest due under our 2017 Credit Agreement and 2016 Credit Agreement.

Pursuant to the Forbearance Agreements, the lenders who are parties to the Forbearance Agreements agreed to forbear from exercising any remedies under the 2014 Revolving Credit Facility, 2016 Credit Agreement and 2017 Credit Agreement with respect to our failure to make the aforementioned interest payments, initially through June 14, 2020 and subsequently through July 15, 2020.

On June 15, 2020, we did not make an interest payment of approximately $ 72 million on our Second Lien Notes.

The indenture governing the Second Lien Notes (Second Lien Notes Indenture) provides for a 30 -day grace period, which expired on July 15, 2020.

We did not make the July 15, 2020 interest payment and commenced bankruptcy proceedings.

2014 Revolving Credit Facility

As of March 31, 2020 , we had $ 328 million of available borrowing capacity under our 2014 Revolving Credit Facility, before a $ 150 million month-end minimum liquidity requirement.

On April 30, 2020, our 2014 Revolving Credit Facility was amended to reduce the limit on our revolving credit facility from $ 1 billion to $ 900 million , defer the redetermination of our borrowing base from May 1, 2020 to May 15, 2020, introduce a floor on the prevailing rate used in the calculation of our borrowing rate and make other technical amendments.

Effective May 18, 2020, the borrowing base under this facility was reduced to $ 1.2 billion , with no further reduction in our ability to borrow under the 2014 Revolving Credit Facility.

Our 2014 Revolving Credit Facility also includes a sub-limit of $ 400 million for the issuance of letters of credit.

As of both March 31, 2020 and December 31, 2019 , we had letters of credit outstanding of $ 165 million .

As of April 30, 2020 and May 31, 2020 , we had letters of credit outstanding of $ 152 million .

As of June 30, 2020, we had no ability to borrow under our 2014 Revolving Credit Facility due to the Forbearance Agreements described above.

As of June 30, 2020 and December 31, 2019, we had letters of credit outstanding of $ 152 million and $ 165 million, respectively.

These letters of credit were issued to support ordinary course marketing, insurance, regulatory and other matters.

However, the Forbearance Agreements do not permit us to make any drawings under the 2014 Revolving Credit Facility until the expiration of the forbearance period described in Note 1 Basis of Presentation .

We expect that operating cash flow and expected available credit capacity will not be sufficient to meet our commitments over the next twelve months.

Note Repurchases

In the three months ended March 31, 2020 , we repurchased $ 7 million in face value of our 8 % Second Lien Notes for $ 3 million in cash resulting in a pre-tax gain of $ 5 million , including the effect of unamortized deferred gain and issuance costs.

In the three months ended March 31, 2019 , we repurchased approximately $ 18 million in face value of our Second Lien Notes for $ 14 million in cash resulting in a pre-tax gain of $ 6 million , including the effect of unamortized deferred gain and issuance costs.

At March 31, 2020, we estimate the fair value of our debt, which is classified as Level 1, based on prices from known market transactions or quoted market prices for our instruments.

In the six months ended June 30, 2020, we repurchased $ 7 million in face value of our Second Lien Notes for $ 3 million in cash resulting in a pre-tax gain of $ 5 million, including the effect of unamortized deferred gain and issuance costs.

In the six months ended June 30, 2019, we repurchased approximately $ 76 million in face value of our Second Lien Notes for $ 59 million in cash resulting in a pre-tax gain of $ 26 million, including the effect of unamortized deferred gain and issuance costs.

At June 30, 2020, we estimate the fair value of our debt, which is classified as Level 1, based on prices from known market transactions or quoted market prices for our instruments.

At December 31, 2019, the fair value of the variable rate portion of our debt was based on other observable (Level 2) inputs.

The estimated fair value of our debt at March 31, 2020 and December 31, 2019 , including the fair value of the variable-rate portion, was $ 1.0 billion and $ 3.8 billion , respectively, compared to a carrying value of $ 4.9 billion and $ 5.0 billion , respectively.

JOINT VENTURES

The estimated fair value of our debt at June 30, 2020 and December 31, 2019, including the fair value of the variable-rate portion, was $ 1.2 billion and $ 3.8 billion, respectively, compared to a carrying value of $ 5.1 billion and $ 5.0 billion, respectively.

NOTE 6 JOINT VENTURES

Noncontrolling Interests

The following table presents the changes in noncontrolling interests for our consolidated JVs, which is reported in equity and mezzanine equity on the condensed consolidated balance sheets for the three months ended March 31, 2020 and 2019 :

The following table presents the changes in noncontrolling interests for our consolidated JVs, which are reported in equity and mezzanine equity on the condensed consolidated balance sheets for the six months ended June 30, 2020 and 2019:

Equity Attributable to

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Mezzanine Equity - Redeemable Noncontrolling Interests

Elk Hills Carbon JV

Ares JV BSP JV Total Ares JV Elk Hills Carbon JV Total

(in millions)

Balance, December 31, 2019 $ — $ 93 $ 93 $ 802 $ — $ 802

Net income attributable to noncontrolling interests

Net income (loss) attributable to noncontrolling interests 3 12 15 61 ( 1 ) 60

Contributions from noncontrolling interest holders, net — — — — 2 2

Distributions to noncontrolling interest holders ( 3 ) ( 29 ) ( 32 ) ( 36 ) — ( 36 )

Balance, March 31, 2020

Balance, June 30, 2020 $ — $ 76 $ 76 $ 827 $ 1 $ 828

Balance, December 31, 2018 $ 15 $ 99 $ 114 $ 756 $ — $ 756

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Contributions from noncontrolling interest holders, net — 49 49 — — —

Accrued distributions

Distributions to noncontrolling interest holders ( 4 ) ( 25 ) ( 29 ) ( 36 ) — ( 36 )

Balance, March 31, 2019

Our condensed consolidated statements of operations reflect the operations of our midstream JV with ECR Corporate Holdings L.P.

(ECR), a portfolio company of Ares, with ECR's share of net income (loss) reported in net income attributable to noncontrolling interests.

ECR's redeemable noncontrolling interests are reported in mezzanine equity due to an embedded optional redemption feature.

Balance, June 30, 2019 $ 5 $ 124 $ 129 $ 777 $ — $ 777

In February 2018, our wholly owned subsidiary California Resources Elk Hills, LLC (CREH) entered into a midstream JV with ECR, a portfolio company of Ares.

The Ares JV holds the Elk Hills power plant (a 550-megawatt natural gas fired power plant) and a 200 MMcf/d cryogenic gas processing plant.

We hold 50 % of the Class A common interest and 95.25 % of the Class C common interest in the Ares JV.

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The Ares JV is required to distribute each month its excess cash flow over its working capital requirements first to the Class B holders and then to the Class C common interests, on a pro-rata basis.

As contemplated by the terms of the JV, CREH purchases electricity, steam and gas processing services from the Ares JV (subject to certain limitations, including certain geographical limitations) in exchange for monthly capacity payments pursuant to the terms of a Commercial Agreement, the proceeds of which will be used by the Ares JV to make distributions as contemplated by the Second Amended and Restated Limited Liability Company Agreement of Elk Hills Power, LLC.

CREH also serves as the operator of the Ares JV and provides operational and support services in exchange for a monthly fee pursuant to a Master Services Agreement.

We can cause the Ares JV to redeem ECR's Class A and Class B interests, in whole, but not in part, at any time by paying $ 750 million for the Class B interest and $ 60 million for the Class A interest, plus any previously accrued but unpaid preferred distributions and a make-whole payment if the redemption happens prior to five years from inception.

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ECR can sell its Class A and Class B interest or cause a sale of the Ares JV assets in certain circumstances, which include but are not limited to the following:

(1) we do not cause the Ares JV to exercise its option to redeem the Class A and Class B interest held by ECR by the end of the seven and one-half year redemption period, (2) we fail to make payment for purchases of power or gas processing services followed by the failure to make a preferred distribution payment within 60 days, (3) we default on indebtedness in excess of $ 100 million and such indebtedness is declared due and payable or (4) we commence bankruptcy proceedings.

(i) we do not cause the Ares JV to exercise its option to redeem the Class A and Class B interest held by ECR by the end of the seven and one-half year redemption period, (ii) we fail to make payment for purchases of power or gas processing services followed by the failure to make a preferred distribution payment within 60 days, (iii) we default on indebtedness in excess of $ 100 million and such indebtedness is declared due and payable or (iv) we commence bankruptcy proceedings.

See Note 1 Basis of Presentation regarding our Chapter 11 Cases and the Settlement Agreement entered into relating to the Ares JV.

Our condensed consolidated statements of operations reflect the operations of the Ares JV, with ECR's share of net income (loss) reported in net income attributable to noncontrolling interests.

ECR's redeemable noncontrolling interests are reported in mezzanine equity due to an embedded optional redemption feature.

Benefit Street Partners (BSP) JV

Our condensed consolidated results reflect the operations of our development JV with BSP, with BSP's preferred interest reported in equity on our condensed consolidated balance sheets and BSP’s share of net income (loss) being reported in net income attributable to noncontrolling interests in our condensed consolidated statements of operations.

Our condensed consolidated results reflect the operations of our development JV with BSP, with BSP's preferred interest reported in equity on our condensed consolidated balance sheets and BSP’s share of net income (loss) reported in net income attributable to noncontrolling interests in our condensed consolidated statements of operations.

Elk Hills Carbon JV

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If prices remain below the threshold for over 100 consecutive trading days, the development phase may be terminated by us, subject to agreement by Alpine.

For more information on our other joint ventures that are not noncontrolling interests, including the Alpine JV, Macquarie Infrastructure and Real Assets Inc.

(MIRA) JV, and Royale Energy, Inc.

For more information on our other joint ventures that are unconsolidated joint ventures, including the Alpine JV, the JV with Macquarie Infrastructure and Real Assets Inc.

(MIRA JV), and the JV with Royale Energy, Inc.

(Royale JV), please see our most recent Form 10-K for the year ended December 31, 2019.

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We accrue reserves for currently outstanding lawsuits, claims and proceedings when it is probable that a liability has been incurred and the liability can be reasonably estimated.

Reserve balances at March 31, 2020 and December 31, 2019 were not material to our condensed consolidated balance sheets as of such dates.

Reserve balances at June 30, 2020 and December 31, 2019 were not material to our condensed consolidated balance sheets as of such dates.

We also evaluate the amount of reasonably possible losses that we could incur as a result of these matters.

We believe that reasonably possible losses that we could incur in excess of reserves accrued would not be material to our condensed consolidated financial statements taken as a whole.

Subject to certain exceptions under the Bankruptcy Code, the filing of the Chapter 11 Cases automatically stayed, among other things, the continuation of most judicial or administrative proceedings or the filing of other actions against or on behalf of us or our property to recover on, collect or secure a claim arising prior to July 15, 2020 or to exercise control over property of our bankruptcy estates, unless and until the Bankruptcy Court modifies or lifts the automatic stay as to any such action, or judicial or administrative proceeding.

Notwithstanding the general application of the automatic stay described above, governmental authorities may determine to continue actions brought under regulatory powers.

NOTE 8 DERIVATIVES

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These derivatives are intended to help us maintain adequate liquidity and improve our ability to comply with the covenants of our credit facilities in case of price deterioration.

We did not have any derivative instruments designated as accounting hedges as of and during the three months ended March 31, 2020 and 2019 .

We did not have any derivative instruments designated as accounting hedges as of and during the three and six months ended June 30, 2020 and 2019.

Unless otherwise indicated, we use the term "hedge" to describe derivative instruments that are designed to achieve our hedging program goals, even though they are not accounted for as accounting hedges.

The Senior DIP Credit Agreement requires us to enter into hedging arrangements covering at least 25% of our share of expected crude oil production for the next twelve months.

On July 17, 2020, the Bankruptcy Court authorized us to engage in hedging activities.

On July 24, 2020, we entered into various derivative instruments through July 2021 to satisfy this requirement.

Commodity-price risk — In March 2020, we monetized all of our crude oil hedges in place for April 2020 forward with our counterparties, except for certain hedges held by our BSP JV, for approximately $ 63 million.

We recognized the proceeds received in net derivative gain (loss) from commodity contracts on our condensed consolidated statements of operations in the first quarter of 2020.

As a result, we did not have any commodity hedges that we would benefit from after the end of the first quarter.

We did not enter into any new hedges during the second quarter of 2020.

The BSP JV holds crude oil derivatives and natural gas swaps for insignificant volumes through 2021 that are included in our consolidated results.

The hedges entered into by the BSP JV could affect the timing of the redemption of BSP's preferred interest.

The following table presents the fair values (at gross and net) of our outstanding commodity derivatives as of March 31, 2020 and December 31, 2019 :

March 31, 2020

Balance Sheet Classification

Gross Amounts Recognized at Fair Value

Gross Amounts Offset in the Balance Sheet

Net Fair Value Presented in the Balance Sheet

The following table presents the fair values on a recurring basis (at gross and net) of our outstanding commodity derivatives as of June 30, 2020 and December 31, 2019:

June 30, 2020

Balance Sheet Classification Gross Amounts Recognized at Fair Value Gross Amounts Offset in the Balance Sheet Net Fair Value Presented in the Balance Sheet

(in millions)

Other current assets, net $ 7 $ — $ 7

Other assets — — —

Accrued liabilities — — —

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December 31, 2019

Balance Sheet Classification

Gross Amounts Recognized at Fair Value

Gross Amounts Offset in the Balance Sheet

Net Fair Value Presented in the Balance Sheet

Balance Sheet Classification Gross Amounts Recognized at Fair Value Gross Amounts Offset in the Balance Sheet Net Fair Value Presented in the Balance Sheet

(in millions)

Other current assets, net $ 49 $ ( 10 ) $ 39

Other assets 1 — 1

Accrued liabilities ( 15 ) 10 ( 5 )

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These interest-rate contracts reset monthly and require the counterparties to pay any excess interest owed on such amount in the event the one-month LIBOR exceeds 2.75 % for any monthly period prior to May 2021.

For the quarter ended March 31, 2020 and 2019, we reported no change in fair value and a $ 3 million non-cash loss, respectively, on these contracts in other nonoperating expenses on our consolidated statements of operations.

For the quarters ended June 30, 2020 and 2019, we reported no change in fair value on these contracts in other non-operating expenses on our consolidated statements of operations.

Fair value of derivatives — Our derivative contracts are measured at fair value using industry-standard models with various inputs, including quoted forward prices, and are classified as Level 2 in the required fair value hierarchy for the periods presented.

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For diluted EPS, the basic shares outstanding are adjusted by adding all potentially dilutive securities.

The following table presents the calculation of basic and diluted EPS for the three months ended March 31, 2020 and 2019 :

The following table presents the calculation of basic and diluted EPS for the three and six months ended June 30, 2020 and 2019:

Three months ended

Basic EPS calculation

(in millions, except per-share amounts)

June 30, Six months ended

2020 2019 2020 2019

Basic EPS calculation (in millions, except per-share amounts)

Net (loss) income $ ( 247 ) $ 41 $ ( 1,992 ) $ ( 3 )

Net income attributable to noncontrolling interests ( 24 ) ( 29 ) ( 75 ) ( 52 )

Net loss attributable to common stock

Net loss attributable to common stockholders

Net loss (income) attributable to common stock ( 271 ) 12 ( 2,067 ) ( 55 )

Weighted-average common shares outstanding — basic

49.5 48.9 49.4 48.8

Basic EPS $ ( 5.47 ) $ 0.25 $ ( 41.84 ) $ ( 1.13 )

Diluted EPS calculation

Net (loss) income $ ( 247 ) $ 41 $ ( 1,992 ) $ ( 3 )

Net income attributable to noncontrolling interests ( 24 ) ( 29 ) ( 75 ) ( 52 )

Net loss attributable to common stock

Net loss attributable to common stockholders

Net loss (income) attributable to common stock ( 271 ) 12 ( 2,067 ) ( 55 )

Weighted-average common shares outstanding — basic

49.5 48.9 49.4 48.8

Dilutive effect of potentially dilutive securities — 0.3 — —

Weighted-average common shares outstanding — diluted

49.5 49.2 49.4 48.8

Diluted EPS $ ( 5.47 ) $ 0.24 $ ( 41.84 ) $ ( 1.13 )

Weighted-average anti-dilutive shares 5.2 1.9 4.9 2.6

NOTE 10 PENSION AND POSTRETIREMENT BENEFIT PLANS

The following table sets forth the components of the net periodic benefit costs for our defined benefit pension and postretirement benefit plans for the three months ended March 31, 2020 and 2019 :

Three months ended March 31,

Postretirement

The following table sets forth the components of the net periodic benefit costs for our defined benefit pension and postretirement benefit plans for the three and six months ended June 30, 2020 and 2019:

Three months ended June 30,

Benefit Postretirement

Benefit Pension

Benefit Postretirement

(in millions)

Service cost $ 1 $ 1 $ — $ 1

Interest cost — 1 — 2

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Recognized actuarial loss — — — 1

We did no t make contributions to our defined benefit pension plans in each of the three months ended March 31, 2020 and 2019 , respectively.

Settlement loss — — 1 —

$ 1 $ 2 $ 1 $ 3

Six months ended June 30,

Benefit Postretirement

Benefit Pension

Benefit Postretirement

(in millions)

Service cost $ 1 $ 2 $ — $ 2

Interest cost 1 2 1 3

Expected return on plan assets — — ( 1 ) ( 1 )

Recognized actuarial loss — — 1 1

Settlement loss — — 1 —

Total $ 2 $ 4 $ 2 $ 5

We did no t make any significant contributions to our defined benefit pension plans for the three and six months ended June 30, 2020.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) became law on March 27, 2020 and allows for the deferral of contributions to a single employer pension plan otherwise due during 2020 to January 1, 2021.

We deferred contributions to our defined benefit pension plans of approximately $ 5 million from the first quarter of 2020 until December 2020 .

We deferred contributions to our defined benefit pension plans of approximately $ 5 million for the first six months of 2020 until December 2020.

We made contributions of $ 1 million for the three months and six months ended June 30, 2019.

The 2019 settlement losses, which were reclassified from accumulated other comprehensive income, were associated with early retirements.

NOTE 11 REVENUE RECOGNITION

We derive substantially all of our revenue from sales of oil, natural gas and NGLs, with the remaining revenue generated from sales of electricity and marketing activities related to storage and managing excess pipeline capacity.

The following table provides disaggregated revenue for the three months ended March 31, 2020 and 2019 :

The following table provides disaggregated revenue for the three and six months ended June 30, 2020 and 2019:

Three months ended

June 30, Six months ended

2020 2019 2020 2019

(in millions)

Oil and natural gas sales:

Oil $ 193 $ 496 $ 549 $ 976

Natural gas 26 43 64 105

NGLs 26 39 62 98

245 578 675 1,179

Other revenue:

Electricity 19 16 32 50

Marketing, trading and other 16 38 67 182

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NOTE 12 LEASES

Balance sheet information related to our operating and finance leases as of March 31, 2020 and December 31, 2019 was as follows:

Balance Sheet Location

March 31, 2020

December 31, 2019

(in millions)

Balance sheet information related to our operating and finance leases as of June 30, 2020 and December 31, 2019 was as follows:

Balance Sheet Location June 30, 2020 December 31, 2019

(in millions) (in millions)

Right-of-Use Assets

Operating lease, net

Finance lease, net

Operating lease, net Other assets $ 45 $ 59

Finance lease, net PP&E 1 2

Total right-of-use assets $ 46 $ 61

Lease Liabilities

Operating lease

Accrued liabilities

Finance lease

Accrued liabilities

Operating lease

Other long-term liabilities

Finance lease

Other long-term liabilities

Operating lease Accrued liabilities $ 14 $ 27

Finance lease Accrued liabilities 1 1

Operating lease Other long-term liabilities 33 37

Finance lease Other long-term liabilities — 1

Total lease liabilities $ 48 $ 66

Our operating lease assets and liabilities decreased from year end 2019 primarily due to releasing five of our leased drilling rigs as a result of the current economic environment.

Our operating lease assets and liabilities decreased from year end 2019 primarily due to releasing five of our leased drilling rigs in the first quarter of 2020 in response to the economic environment.

Our remaining two leased drilling rigs have been cold stacked and were included with our proved properties in our impairment assessment as discussed in Note 14 Asset Impairments .

These right-of-use assets were determined to not be impaired as of March 31, 2020 .

These right-of-use assets were not impaired.

NOTE 13 INCOME TAXES

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We maintained a full valuation allowance against our net deferred tax assets after considering cumulative losses, including oil and natural gas asset impairments.

For the three months ended March 31, 2020 and 2019 , we did not provide any current or deferred tax provision or benefit.

For the six months ended June 30, 2020 and 2019, we did not provide any current or deferred tax provision or benefit.

The difference between our statutory tax rate and our effective tax rate of zero for the periods presented includes changes to maintain our full valuation allowance against our net deferred tax assets given our recent and anticipated future earnings trends.

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There was no impact on our income tax provision due to our full valuation allowance.

On July 28, 2020 the Internal Revenue Service (IRS) issued final and new proposed regulations related to the limitation on the deduction for business interest.

We are in the process of evaluating the final and new proposed regulations, which may change the composition of our deferred tax assets, specifically the amount reported for net operating loss and business interest expense carryforwards.

Due to our full valuation allowance position, these regulations are not expected to have a material impact to our financial statements.

NOTE 14 ASSET IMPAIRMENTS

Triggered by the sharp drop in commodity prices at the end of the first quarter of 2020 due to decreased demand for oil and natural gas products as a result of the COVID-19 pandemic and coupled with the over-supply resulting from the OPEC+ price war, we performed impairment tests on all of our oil and natural gas properties and other assets at March 31, 2020 .

We did no t impair any of our long-lived assets during the three-month period ended June 30, 2020, but recorded a $ 1.7 billion impairment during the three-month period ended March 31, 2020.

Our impairments of long-lived assets were triggered by the sharp drop in commodity prices due to decreased demand for oil and natural gas products as a result of the Coronavirus Disease 2019 (COVID-19) pandemic coupled with the over-supply resulting from a price war between members of the Organization of the Petroleum Exporting Countries (OPEC) and Russia and other allied producing countries.

The following table presents a summary of our asset impairments:

Asset Impairments:

Six months ended

June 30, 2020

(in millions)

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Unrecovered capital costs 11

Total $ 1,736

Proved oil and natural gas properties — The fair values of our proved oil and natural gas properties were determined as of the date of the assessment using discounted cash flow models incorporating a number of fair value inputs which are categorized as Level 3 on the fair value hierarchy.

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The impairment charge primarily related to a steamflood property located in the San Joaquin basin.

Unproved properties — In the current economic environment and for the foreseeable future our ability to develop our unproved properties is constrained.

Accordingly, we do not intend to develop these assets and impaired all of our unproved properties, which primarily consist of leases held by production in the San Joaquin basin.

Unproved properties — We determined our ability to develop our unproved properties was constrained for the foreseeable future.

Accordingly, we do not intend to develop these assets and impaired all of our unproved properties in the first quarter of 2020, which primarily consist of leases held by production in the San Joaquin basin.

Unrecovered capital costs — Net amounts due from joint interest partners, which are included in other current assets on our condensed consolidated balance sheet, include amounts for capital and operating costs incurred by us that are recoverable solely from our partners' share of future production from associated fields.

The dramatic commodity price decline during the first quarter of 2020 resulted in changes to our cash flow forecasts and we impaired the carrying value of these amounts.

NOTE 15 OTHER SUBSEQUENT EVENTS

The dramatic commodity price decline during the first quarter of 2020 resulted in changes to our cash flow forecasts and we impaired the carrying value of these assets.

NOTE 15 COMPENSATION PLANS

Changes to the 2020 Compensation Programs

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There were no changes to stock-based compensation awards granted prior to February 2020.

Changes to the variable compensation programs will have the effect of accelerating the associated payments into 2020 from future periods.

However, the total amount of compensation to be paid under the variable compensation programs at target for 2020 remains largely the same as the amounts that would have been paid at target prior to the changes.

Employee Stock Purchase Plan

On May 26, 2020, our Board of Directors approved the termination of the California Resources Corporation 2014 Employee Stock Purchase Plan.

No additional shares will be purchased through the plan after March 31, 2020 .

No additional shares were issued under the plan after March 31, 2020.

NOTE 16 CONDENSED CONSOLIDATING FINANCIAL INFORMATION

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Certain of our subsidiaries do not guarantee our Credit Facilities, Second Lien Notes and Senior Notes (Non-Guarantor Subsidiaries) either because they hold assets that are less than 1 % of our total consolidated assets or because they are not considered a "subsidiary" under the applicable financing agreement.

The following condensed consolidating balance sheets as of March 31, 2020 and December 31, 2019 and the condensed consolidating statements of operations and statements of cash flows for the three months ended March 31, 2020 and 2019 , as applicable, reflect the condensed consolidating financial information of our parent company, CRC (Parent), our combined Guarantor Subsidiaries, our combined Non-Guarantor Subsidiaries and the elimination entries necessary to arrive at the information for the Company on a consolidated basis.

The following condensed consolidating balance sheets as of June 30, 2020 and December 31, 2019 and the condensed consolidating statements of operations and statements of cash flows for the three and six months ended June 30, 2020 and 2019, as applicable, reflect the condensed consolidating financial information of our parent company, CRC (Parent), our combined Guarantor Subsidiaries, our combined Non-Guarantor Subsidiaries and the elimination entries necessary to arrive at the information for the Company on a consolidated basis.

The financial information may not necessarily be indicative of results of operations, cash flows or financial position had the Guarantor Subsidiaries operated as independent entities.

Condensed Consolidating Balance Sheets

As of March 31, 2020 and December 31, 2019

As of June 30, 2020 and December 31, 2019

(in millions)

March 31, 2020

Combined Guarantor Subsidiaries

Combined Non-Guarantor Subsidiaries

June 30, 2020

Parent Combined Guarantor Subsidiaries Combined Non-Guarantor Subsidiaries Eliminations Consolidated

Total current assets $ 22 $ 341 $ 68 $ ( 28 ) $ 403

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Total property, plant and equipment, net 24 3,972 453 — 4,449

Other assets 1 64 13 — 78

TOTAL ASSETS $ 3,203 $ 4,324 $ 534 $ ( 3,131 ) $ 4,930

Total current liabilities 5,409 371 7 ( 28 ) 5,759

Long-term debt

Deferred gain and issuance costs, net

Other long-term liabilities 159 557 3 — 719

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Mezzanine equity — — 828 — 828

Total equity ( 2,452 ) 3,484 ( 305 ) ( 3,103 ) ( 2,376 )

TOTAL LIABILITIES AND EQUITY $ 3,203 $ 4,324 $ 534 $ ( 3,131 ) $ 4,930

December 31, 2019

Combined Guarantor Subsidiaries

Combined Non-Guarantor Subsidiaries

Parent Combined Guarantor Subsidiaries Combined Non-Guarantor Subsidiaries Eliminations Consolidated

Total current assets $ 8 $ 436 $ 60 $ ( 13 ) $ 491

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Total property, plant and equipment, net 35 5,846 471 — 6,352

Other assets 1 82 32 — 115

TOTAL ASSETS $ 6,000 $ 6,587 $ 563 $ ( 6,192 ) $ 6,958

Total current liabilities 248 469 5 ( 13 ) 709

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Mezzanine equity — — 802 — 802

Total equity ( 389 ) 6,522 ( 250 ) ( 6,179 ) ( 296 )

TOTAL LIABILITIES AND EQUITY $ 6,000 $ 6,587 $ 563 $ ( 6,192 ) $ 6,958

Condensed Consolidating Statements of Operations

For the three months ended March 31, 2020 and 2019

For the three and six months ended June 30, 2020 and 2019

(in millions)

Three months ended March 31, 2020

Combined Guarantor Subsidiaries

Combined Non-Guarantor Subsidiaries

Three months ended June 30, 2020

Parent Combined Guarantor Subsidiaries Combined Non-Guarantor Subsidiaries Eliminations Consolidated

Total revenues $ — $ 253 $ 94 $ ( 71 ) $ 276

Total costs 55 357 50 ( 71 ) 391

Non-operating (loss) income ( 135 ) 3 — — ( 132 )

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NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCK $ ( 190 ) $ ( 101 ) $ 20 $ — $ ( 271 )

Three months ended March 31, 2019

Combined Guarantor Subsidiaries

Combined Non-Guarantor Subsidiaries

Three months ended June 30, 2019

Parent Combined Guarantor Subsidiaries Combined Non-Guarantor Subsidiaries Eliminations Consolidated

Total revenues $ — $ 610 $ 113 $ ( 70 ) $ 653

Total costs 52 490 59 ( 70 ) 531

Non-operating (loss) income ( 83 ) 2 — — ( 81 )

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NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCK $ ( 135 ) $ 122 $ 25 $ — $ 12

Six months ended June 30, 2020

Parent Combined Guarantor Subsidiaries Combined Non-Guarantor Subsidiaries Eliminations Consolidated

Total revenues $ — $ 779 $ 210 $ ( 140 ) $ 849

Total costs 102 2,546 105 ( 140 ) 2,613

Non-operating (loss) income ( 230 ) 2 — — ( 228 )

NET (LOSS) INCOME ( 332 ) ( 1,765 ) 105 — ( 1,992 )

Net income attributable to noncontrolling interest — — ( 75 ) — ( 75 )

NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCK $ ( 332 ) $ ( 1,765 ) $ 30 $ — $ ( 2,067 )

Six months ended June 30, 2019

Parent Combined Guarantor Subsidiaries Combined Non-Guarantor Subsidiaries Eliminations Consolidated

Total revenues $ — $ 1,255 $ 235 $ ( 147 ) $ 1,343

Total costs 106 1,074 131 ( 147 ) 1,164

Non-operating (loss) income ( 187 ) 5 — — ( 182 )

NET (LOSS) INCOME ( 293 ) 186 104 — ( 3 )

Net income attributable to noncontrolling interest — — ( 52 ) — ( 52 )

NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCK $ ( 293 ) $ 186 $ 52 $ — $ ( 55 )

Condensed Consolidating Statements of Cash Flows

For the three months ended March 31, 2020 and 2019

For the six months ended June 30, 2020 and 2019

(in millions)

Three months ended March 31, 2020

Combined Guarantor Subsidiaries

Combined Non-Guarantor Subsidiaries

Six months ended June 30, 2020

Parent Combined Guarantor Subsidiaries Combined Non-Guarantor Subsidiaries Eliminations Consolidated

Net cash (used in) provided by operating activities $ ( 338 ) $ 277 $ 154 $ — $ 93

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Cash—end of period $ 3 $ 102 $ 21 $ — $ 126

Three months ended March 31, 2019

Combined Guarantor Subsidiaries

Combined Non-Guarantor Subsidiaries

Six months ended June 30, 2019

Parent Combined Guarantor Subsidiaries Combined Non-Guarantor Subsidiaries Eliminations Consolidated

Net cash (used in) provided by operating activities $ ( 348 ) $ 303 $ 317 $ — $ 272

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements