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Item 1A. Risk Factors

2020-08-06 compared with 2020-06-25 · 164 added, 64 removed, 14 unchanged (94% of the section changed)

Item 1A Risk Factors

We are subject to various risks and uncertainties in the course of our business.

A discussion of such risks and uncertainties may be found under the heading Risk Factors in our Form 10-K for the year ended December 31, 2019.

Other than as provided below, there were no material changes to those risk factors during the three months ended March 31, 2020.

We have concluded there is substantial doubt about our ability to continue as a going concern.

There can be no assurances that we will be able to successfully restructure our indebtedness and any restructuring could result in holders of certain liabilities and/or securities, including our common stock, receiving no distributions on account of their claims or interest.

Other than as provided below, there were no material changes to those risk factors during the six months ended June 30, 2020.

We are subject to the risks and uncertainties associated with the Chapter 11 Cases.

On July 15, 2020, we filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court.

For the duration of the Chapter 11 Cases, our operations and our ability to develop and execute our business plan, as well as our continuation as a going concern, are subject to the risks and uncertainties associated with bankruptcy.

These risks include the following:

• our ability to confirm and consummate the plan of reorganization contemplated by the RSA (the RSA Plan), or develop, negotiate, confirm and consummate an alternative plan;

• our ability to obtain court approval with respect to motions filed in the Chapter 11 Cases from time to time;

• our ability to maintain our relationships with our suppliers, service providers, customers, employees and other third parties;

• our ability to maintain contracts that are critical to our operations;

• our ability to execute our business plan;

• the ability of third parties to seek and obtain court approval to terminate contracts and other agreements with us;

• our ability to obtain Bankruptcy Court approval of the various motions and other requests, including with respect to our Senior DIP Credit Agreement and the Junior DIP Credit Agreement (together, the DIP facilities);

• the ability of third parties to seek and obtain court approval to terminate or shorten the exclusivity period for us to propose and confirm a plan of reorganization, to appoint a Chapter 11 trustee, or to convert the Chapter 11 Cases to a Chapter 7 proceeding;

• the high costs of bankruptcy proceedings and related fees;

• the actions and decisions of our creditors and other third parties who have interests in the Chapter 11 Cases that may be inconsistent with our plans.

These risks and uncertainties could affect our business and operations in various ways.

For example, negative events or publicity associated with the Chapter 11 Cases could adversely affect our relationships with our suppliers, service providers, customers, employees, and other third parties, which in turn could adversely affect our operations and financial condition.

Also, prior approval of the Bankruptcy Court is required to enter into transactions outside the ordinary course of business, which may limit our ability to respond to certain events or take advantage of certain opportunities.

In addition, certain of our creditors and other stakeholders may bring litigation against us during the course of the Chapter 11 Cases.

Because of the risks and uncertainties associated with the Chapter 11 Cases, we cannot accurately predict or quantify the ultimate impact of events that will occur during the Chapter 11 Cases that may be inconsistent with our plans.

Operating during the Chapter 11 Cases for a long period of time may harm our business.

Our future results are dependent upon the successful confirmation and implementation of a plan of reorganization.

A long period of operating under Chapter 11 of the Bankruptcy Code and subject to Bankruptcy Court supervision may have a material adverse effect on our business, financial condition, results of operations and liquidity.

So long as the Chapter 11 Cases continue, our senior management may be required to spend a significant amount of time and effort dealing with the reorganization instead of focusing exclusively on our business operations.

A prolonged period of operating under Chapter 11 of the Bankruptcy Code also may make it more difficult to retain management and other key personnel necessary to the success and growth of our business.

In addition, the longer the Chapter 11 Cases continue, the more likely it is that our customers and suppliers may lose confidence in our ability to reorganize our business successfully and may seek to establish alternative commercial relationships.

Furthermore, we cannot predict the ultimate amount of all settlement terms for the liabilities that will be subject to a plan of reorganization.

Even once a plan of reorganization is approved and implemented, our operating results may be adversely affected by the possible reluctance of prospective lenders and other counterparties to do business with a company that recently reorganized under Chapter 11 of the Bankruptcy Code.

The RSA is subject to significant conditions and milestones that may be beyond our control and may be difficult for us to satisfy.

If the RSA is terminated, our ability to confirm a plan of reorganization and consummate a restructuring of our debt could be materially and adversely affected.

The RSA sets forth certain conditions we must satisfy during the Chapter 11 Cases, including the timely satisfaction of certain milestones to consummate a plan of reorganization (the RSA Plan).

Our ability to timely satisfy such conditions and milestones is subject to risks and uncertainties that are beyond our control.

The parties to the RSA may terminate the RSA under certain circumstances, such as our failure to fulfill certain conditions or reach certain milestones.

A termination of the RSA may result in, among other things, the loss of support for the RSA Plan, which could adversely affect our ability to confirm and consummate the RSA Plan and our ability to emerge from Chapter 11.

If the RSA Plan is not consummated, there can be no assurance that any new plan of reorganization would provide the same treatment to holders of claims or interests as those proposed under the RSA Plan, and our Chapter 11 proceedings may become protracted, which could significantly and detrimentally impact our relationships with regulators, government agencies, vendors, suppliers, employees and major customers.

There can be no assurance that the solicited classes of claims will vote to accept the RSA Plan.

There can be no assurance that the RSA Plan will receive the necessary level of support to be implemented or will be approved by the Bankruptcy Court.

The success of the restructuring transactions will depend on the willingness of certain existing creditors to agree to the exchange or modification of their claims and approval by the Bankruptcy Court, and there can be no certainty of success with respect to those matters.

Holders of certain claims that are impaired under the RSA Plan are entitled to vote to accept or reject the RSA Plan.

Although certain parties are bound to vote for the RSA Plan, if the RSA is terminated they will not be so bound and any vote or consent given by such parties prior to such termination may be revoked.

We may receive objections to the terms of the RSA, including official objections to confirmation of the RSA Plan from the various stakeholders in the Chapter 11 Cases.

We cannot predict the impact that any objection or third party motion may have on the Bankruptcy Court’s decision to confirm the RSA Plan or our ability to complete an in-court restructuring as contemplated by the RSA or otherwise.

Any objection may cause us to devote significant resources in response which could materially and adversely affect our business, financial condition and results of operations.

If we do not receive sufficient support for the RSA Plan, or if the RSA Plan is not confirmed by the Bankruptcy Court, it is unclear what, if any, distributions holders of claims against us may ultimately receive with respect to their claims and interests.

There can be no assurance as to whether or when we will emerge from Chapter 11.

If no plan of reorganization can be confirmed, or if the Bankruptcy Court otherwise finds that it would be in the best interest of holders of claims and interests, the Chapter 11 Cases may be converted to a case under Chapter 7 of the Bankruptcy Code, pursuant to which a trustee would be appointed or elected to liquidate our assets for distribution in accordance with the priorities established by the Bankruptcy Code.

We may not be able to obtain confirmation of the RSA Plan or another Chapter 11 plan of reorganization.

Even if the RSA Plan is approved by the creditors entitled to vote thereon, the Bankruptcy Court, as a court of equity, may exercise substantial discretion and may choose not to confirm the RSA Plan.

Section 1129 of the Bankruptcy Code requires, among other things, a showing that confirmation of a plan of reorganization will not be followed by liquidation or the need for further financial reorganization, and that the value of distributions to dissenting holders of claims and interests will not be less than the value such holders would receive if we liquidated under Chapter 7.

Although we believe that the RSA Plan will satisfy such tests, there can be no assurance that the Bankruptcy Court will reach the same conclusion.

Confirmation of the RSA Plan will also be subject to certain conditions.

These conditions may not be met and there can be no assurance that a sufficient number of creditors will agree to modify or waive such conditions to the extent required by the RSA or RSA Plan, as applicable.

Further, changed circumstances may necessitate changes to the RSA Plan.

Any such modifications may result in less favorable treatment than the treatment currently anticipated to be included in the RSA Plan based upon the agreed terms of the RSA.

Such less favorable treatment may include a distribution of property (including the new common stock that would be issued upon our emergence from bankruptcy) to the class affected by the modification of a lesser value than currently anticipated to be included in the RSA Plan or no distribution of property whatsoever under the RSA Plan.

Changes to the RSA Plan may also delay the confirmation of the RSA Plan and our emergence from bankruptcy, which could result in, among other things, increased costs and expenses to the estates of the debtors and could prevent us from exercising our right to acquire ECR’s equity interests in the Ares JV.

The conversion right granted to us under the Ares JV Settlement Agreement is only exercisable by us prior to December 31, 2021, and subject to confirmation of the RSA Plan and certain other conditions described in the Settlement Agreement.

If these conditions are not met, we will not be able to exercise the conversion right and ECR will continue as our partner in the Ares JV.

The RSA Plan or other plan of reorganization that we may implement will be based in large part upon assumptions and analyses developed by us.

If these assumptions and analyses prove to be incorrect, our plan may be unsuccessful in its execution.

Even if the RSA Plan or other plan of reorganization is consummated, we may not be able to achieve our stated goals and continue as a going concern.

The RSA or other plan of reorganization that we may implement could affect both our capital structure and the ownership, structure and operation of our business and will reflect assumptions and analyses based on our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we consider appropriate under the circumstances.

In addition, the RSA Plan or other plan of reorganization will rely upon financial projections, including with respect to revenues, capital expenditures, debt service and cash flow.

Financial forecasts are necessarily speculative, and it is likely that one or more of the assumptions and estimates that are the basis of these financial forecasts may not be accurate.

Whether actual future results and developments will be consistent with our expectations and assumptions depends on a number of factors, including but not limited to (i) our ability to substantially change our capital structure, (ii) our ability to obtain adequate liquidity and financing sources, (iii) our ability to maintain customers’ confidence in our viability as a continuing entity and to attract and retain sufficient business from them, (iv) our ability to retain key employees, and (v) the overall strength and stability of general economic conditions of the financial markets and oil and gas industry, both in the U.S.

and in global markets.

The failure of any of these factors could materially adversely affect the successful reorganization of our business.

Consequently, there can be no assurance that the results or developments contemplated by the RSA Plan or any plan of reorganization we may implement will occur or, even if they do occur, that they will have the anticipated effects on us and our subsidiaries or our business or operations.

The failure of any such results or developments to materialize as anticipated could materially adversely affect the successful execution of the RSA Plan or plan of reorganization.

Even if the RSA Plan or other plan of reorganization is consummated, we will continue to face a number of risks, including further deterioration in commodity prices or other changes in economic conditions, changes in our industry, changes in market demand and increasing expenses.

Accordingly, we cannot provide any assurance that the RSA Plan or other plan of reorganization will achieve our stated goals.

Our ability to continue as a going concern is dependent upon our ability to raise additional capital.

As a result, we cannot give any assurance of our ability to continue as a going concern, even if the RSA Plan or other plan of reorganization is confirmed.

We may have insufficient liquidity for our business operations during the Chapter 11 Cases.

Although we have been able to lower our cost structure and create efficiencies, our business remains capital intensive.

In addition to the cash requirements necessary to fund ongoing operations, we have incurred significant professional fees and other costs in connection with the Chapter 11 Cases and expect that we will continue to incur significant professional fees and costs throughout the Chapter 11 Cases.

Although we believe that we will have sufficient liquidity to operate our business during the pendency of the Chapter 11 Cases, there can be no assurance that the cash made available to us under the DIP facilities or otherwise in our restructuring process and revenue generated by our business operations will be sufficient to fund our operations.

In the event that revenue flows and other available cash are not sufficient to meet our liquidity requirements, we may be required to seek additional financing.

There can be no assurance that such additional financing would be available or, if available, offered on terms that are acceptable.

Our liquidity, including our ability to meet our ongoing operational obligations, is dependent upon, among other things:

(i) our ability to comply with the terms and conditions of the DIP facilities, (ii) our ability to comply with the terms and conditions of any order governing the use of our cash collateral that may be entered by the Bankruptcy Court in connection with the Chapter 11 Cases, (iii) our ability to maintain adequate cash on hand, (iv) our ability to generate cash flow from operations, (v) our ability to develop, confirm and consummate a plan of reorganization or other alternative restructuring transaction, and (vi) the cost, duration and outcome of the Chapter 11 Cases.

Our long-term liquidity requirements and the adequacy of our capital resources are difficult to predict at this time.

We face uncertainty regarding the adequacy of our liquidity and capital resources and have extremely limited, if any, access to additional financing beyond the DIP facilities.

In addition to the cash requirements necessary to fund ongoing operations, we have incurred significant professional fees and other costs in connection with our evaluation of strategic alternatives and preparation for the Chapter 11 Cases and expect that we will continue to incur significant professional fees and costs throughout the Chapter 11 Cases.

We cannot assure you that cash on hand, cash flow from operations, the DIP facilities and any financing we are able to obtain in connection with our emergence from the Chapter 11 Cases will be sufficient to continue to fund our operations and allow us to satisfy our obligations related to the Chapter 11 Cases until we emerge from the Chapter 11 Cases.

We may be unable to comply with restrictions or with budget, liquidity, or other covenants imposed by the agreements governing the DIP facilities.

Such non-compliance could result in an event of default under the terms of the DIP facilities that, if not cured or waived, may have a material adverse effect on our business, financial condition and results of operations.

The DIP facilities require that we comply with general affirmative and negative covenants such as prohibiting us from incurring or permitting debt, investments, liens or dispositions unless specifically permitted.

Our ability to comply with these provisions may be affected by events beyond our control and our failure to comply, or obtain a waiver in the event we cannot comply with a covenant, may result in an event of default under the DIP facilities and permit the lenders thereunder to accelerate the loans and otherwise exercise remedies allowable by the agreements governing the DIP facilities.

As a result of the Chapter 11 Cases, our financial results may be volatile and may not reflect historical trends.

During the pendency of the Chapter 11 Cases, we expect our financial results to continue to be volatile and restructuring activities and expenses, claims assessments and continued commodity price volatility to significantly impact our consolidated financial statements.

As a result, our historical financial performance is likely not indicative of our financial performance after the date of the bankruptcy filing.

In addition, if we emerge from the Chapter 11 Cases, the amounts reported in subsequent consolidated financial statements may materially change relative to historical consolidated financial statements, including as a result of revisions to our operating plans pursuant to a plan of reorganization.

We also may be required to adopt fresh start accounting, in which case our assets and liabilities will be recorded at fair value as of the fresh start reporting date, which may differ materially from the recorded values of assets and liabilities on our consolidated balance sheets.

Our financial results after the application of fresh start accounting also may be different from historical trends.

We may be subject to claims that will not be discharged in the Chapter 11 Cases, which may have a material adverse effect on our financial condition and results of operations.

The Bankruptcy Code provides that the confirmation of a plan of reorganization discharges a debtor from substantially all debts arising prior to confirmation.

With few exceptions, all claims that arose prior to confirmation of the plan of reorganization (i) would be subject to compromise and/or treatment under the plan of reorganization and/or (ii) would be discharged in accordance with the terms of the plan of reorganization.

Any claims not ultimately discharged through the plan of reorganization could be asserted against the reorganized entities and may have an adverse effect on our financial condition and results of operations on a post-reorganization basis.

Certain claims against the debtor arising after July 15, 2020 may be entitled to priority under the Bankruptcy Code along with other claims which may not be subject to discharge by the Bankruptcy Court.

These claims may have an adverse effect on our results of operations and cash flow.

The pursuit of the restructuring transactions under the RSA will consume a substantial portion of the time and attention of our management, which may have an adverse effect on our business and results of operations, and we may face increased levels of employee attrition.

Although the RSA and RSA Plan are designed to minimize the length of our Chapter 11 proceedings, it is impossible to predict with certainty the amount of time and resources necessary to successfully implement the restructuring transactions contemplated by the RSA.

Compliance with the terms of the RSA will involve additional expense and our management will be required to spend a significant amount of time and effort focusing on the proposed transactions.

This diversion of attention may materially adversely affect the conduct of our business, and, as a result, our financial condition and results of operations, particularly if the Chapter 11 proceedings are protracted.

As a result of the Chapter 11 Cases, we may experience increased levels of employee attrition, and our employees likely will face considerable distraction and uncertainty.

A loss of key personnel or material erosion of our employee morale could adversely affect our business and results of operations.

The implementation of a plan of reorganization is expected to reduce or eliminate our federal and state income tax net operating loss carryforwards and may impair our ability to utilize any remaining net operating loss carryforwards and certain other tax attributes during the current year and in future years.

Moreover, subsequent transfers of our equity, or issuances of equity, may further impair our ability to utilize our tax attributes.

federal income tax law, a corporation is generally permitted to offset net taxable income in a given year with net operating losses (NOLs) carried forward from prior years.

As of December 31, 2019, we had U.S.

federal NOL carryforwards and California NOL carryforwards of approximately $1 billion and $2 billion, respectively.

In connection with the restructuring process, our NOL carryforwards and certain other tax attributes are expected to be reduced by the amount of discharge of indebtedness we recognize upon the implementation of a plan of reorganization under Section 108 of the Internal Revenue Code of 1986, as amended (the Code).

Further, our ability to utilize any remaining NOL carryforwards to offset future taxable income and to reduce U.S.

federal and state income tax liabilities is subject to certain requirements and restrictions.

If we experience an "ownership change" during or in connection with the restructuring process, as defined in Section 382 of the Code, then our ability to use our NOL carryforwards and certain other tax attributes may also be impaired.

A corporation generally will experience an ownership change if one or more stockholders (or groups of stockholders) who are each deemed to own at least 5% of the corporation’s stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period.

Under Section 382 and Section 383 of the Code, absent an applicable exception, if a corporation undergoes an ownership change, the amount of its NOLs and other tax attributes that may be used to reduce future U.S.

federal and state income tax obligations generally is subject to an annual limitation.

The Bankruptcy Court approved restrictions on certain transfers of our stock to limit the risk of an ownership change prior to our emergence from the Chapter 11 Cases.

However, we anticipate that the implementation of a plan of reorganization will result in an ownership change and our ability to utilize our NOL carryforwards and certain other tax attributes may be materially restricted by the resulting annual limitation.

Although an exception to the imposition of an annual limitation can apply in certain Chapter 11 cases under Section 382(l)(5) of the Code, it is currently unknown if a plan of reorganization, once implemented, will meet the requirements of such section or if we will elect out of the application of such section.

Moreover, if we apply Section 382(l)(5) of the Code and experience a subsequent ownership change within two years, any remaining net operating losses and certain other tax attributes may be subject to further and more severe limitations.

We have concluded there is substantial doubt about our ability to 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.

There can be no assurance that we will be able to successfully restructure our indebtedness and any restructuring could result in holders of certain liabilities and/or securities, including our common stock, receiving no distributions on account of their claims or interests.

Our significant indebtedness, the unprecedented impact to our financial position resulting from the sharp decrease in commodity prices as a result of the COVID-19 pandemic and the 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 of March 31, 2020, we had approximately $4.9 billion of debt outstanding and we had cash on hand of approximately $77 million.

We currently have deferred interest payments of $72.3 million with respect to the Second Lien Notes and approximately $51 million in the aggregate under our 2016 Credit Agreement and 2017 Credit Agreement.

The forbearance agreements we have entered into with certain of the lenders under our 2014 Revolving Credit Facility, 2016 Credit Agreement and 2017 Credit Agreement will expire at the earlier of June 30, 2020 or an event of termination as set forth in the respective Forbearance Agreements.

Among other things, our failure to maintain aggregate book cash balances of at least $40 million for any three consecutive business days would cause the Forbearance Agreements to terminate.

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

See Part I, Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources for additional information.

Our ability to continue as a going concern is subject to our ability to de-lever our balance sheet, which could include restructuring our existing debt or seeking additional financing.

Further, external perceptions regarding our ability to continue as a going concern and our continued net operating losses increase the difficulty of achieving such actions, and there can be no assurances that such measures will prove successful.

We, with the assistance of our financial and legal advisors, are in active discussions with several of our stakeholders to restructure our capital and address our liquidity constraints.

We have a complicated capital structure with numerous stakeholders.

Negotiating with numerous stakeholders makes reaching agreement on a restructuring more time consuming and uncertain.

In addition, our senior management is required to spend a significant amount of time and effort dealing with the restructuring efforts instead of focusing exclusively on our business operations.

We have incurred significant professional fees and other costs in connection with our restructuring negotiations with our creditors and other stakeholders and may continue to incur significant fees in connection with any restructuring.

There can be no assurances that we will be able to successfully restructure our indebtedness and no assurances can be given as to what values, if any, will be ascribed to each of our securities or what types 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 our common stock, receiving no distribution on account of their claims or interests.

The COVID-19 pandemic has caused crude oil prices to decline significantly in 2020, which has materially and adversely affected our business, results of operation, financial condition and liquidity.

The COVID-19 pandemic has adversely affected the global economy, and has resulted in, among other things, travel restrictions, business closures and the institution of quarantining and other mandated and self-imposed restrictions on movement.

As a result, there has been an unprecedented reduction in demand for crude oil.

In March 2020, crude oil prices declined significantly as a result of market concerns about the economic impact from the coronavirus pandemic, restrictions and other measures implemented in response to the pandemic as well as certain actions of OPEC, Russia and other foreign oil producers.

In April 2020, oil prices continued to decline precipitously reaching negative prices for spot WTI crude.

The severity, magnitude and duration of current or future COVID-19 outbreaks, the extent of actions that have been or may be taken to contain or treat their impact, and the impacts on the economy generally and oil prices in particular, are uncertain, rapidly changing and hard to predict.

The current futures forward curve for Brent crude indicates that prices may continue at relatively lower prices for an extended period of time.

As a result, we reduced our operating expenses and planned capital expenditures to those necessary to maintain mechanical integrity of its facilities to operate them in a safe and environmentally responsible manner.

In addition, we have shut in approximately 6,000 barrels of oil equivalent per day in net production in May 2020.

These operational decisions starting in March 2020 will negatively impact our production levels beginning in the second quarter and, combined with expected lower commodity prices, will materially adversely affect our operating cash flows and may materially and adversely affect the quantity of estimated proved reserves that may be attributed to our properties.

Our operations also may be adversely affected if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions or other restrictions in connection with the pandemic.

In addition, we are exposed to changes in commodity prices which have been and will likely remain volatile and depressed for the foreseeable future.

The foregoing has placed significant pressure on our liquidity and financial condition and required us to record a material impairment charge.

The ability or willingness of OPEC and other oil exporting nations to set and maintain production levels has a significant impact on oil and natural gas commodity prices.

OPEC is an intergovernmental organization that seeks to manage the price and supply of oil on the global energy market.

Actions taken by OPEC members, including those taken alongside other oil exporting nations, have a significant impact on global oil supply and pricing.

For example, OPEC and certain other oil exporting nations have previously agreed to take measures, including production cuts, to support crude oil prices.

In March 2020, members of OPEC and Russia considered extending and potentially increasing these oil production cuts.

However, those negotiations were unsuccessful.

As a result, Saudi Arabia announced an immediate reduction in export prices and Russia announced that all previously agreed upon oil production cuts would expire on April 1, 2020.

These actions led to an immediate and steep decrease in oil prices, which reached a closing NYMEX price low of under negative $37.00 per barrel of crude oil in April 2020.

There can be no assurances that OPEC members and other oil exporting nations will agree to future production cuts or other actions to support and stabilize oil prices, nor can there be any assurances that they will not further reduce oil prices or increase production.

Uncertainty regarding future actions to be taken by OPEC members or other oil exporting countries could lead to increased volatility in the price of oil, which could adversely affect our business, financial condition, results of operations and cash flows.

Other Disclosures

As of June 30, 2020, we had approximately $5.1 billion of debt outstanding, and we had cash on hand of approximately $126 million, of which $21 million was restricted.

We believe the Chapter 11 Cases provide the most expeditious manner in which to deleverage our current capital structure.

However, the outcome of the Chapter 11 Cases is subject to uncertainty and is dependent upon factors that are outside of our control, including actions of the Bankruptcy Court and our creditors.

There can be no assurance that we will be able to reorganize our capital structure on the terms set forth in the RSA or on other terms acceptable to us, our creditors or other stakeholders, or at all.

Priorities among various constituencies of creditors are dictated by the Bankruptcy Code.

Unless creditors agree otherwise, pre-petition liabilities and post-petition liabilities must be satisfied in full before stockholders are entitled to receive any distribution or retain any property under a plan of reorganization.

The RSA Plan, if approved, will result in holders of common stock receiving no distribution on account of their claims or interests.

However, the ultimate recovery to creditors and/or stockholders, if any, will not be determined until the Bankruptcy Court confirms a plan of reorganization.

No assurance can be given that the Bankruptcy Court will approve the RSA Plan or 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.

Our common stock is quoted on the OTC Pink Market, and thus may have a limited market and lack of liquidity.

Effective July 17, 2020, our common stock began to be quoted on the OTC Pink Market under the ticker symbol "CRCQQ", which may have an unfavorable impact on our stock price and liquidity.

The OTC Pink Marketplace is a significantly more limited market than the New York Stock Exchange or the Nasdaq Stock Market.

There is no guarantee that active trading in our common stock will develop on the OTC Pink Market.

The quotation of our shares on such marketplace may result in a less liquid market available for existing and potential stockholders to trade.

Item 5 Other Disclosures

Item 6 Exhibits

3.1 Amended and Restated Certificate of Incorporation of California Resources Corporation (filed as Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed June 3, 2016 and incorporated herein by reference).

3.2 Amended and Restated Bylaws of California Resources Corporation (filed as Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed November 10, 2015 and incorporated herein by reference).

California Resources Corporation Executive Severance Plan, dated as of March 20, 2020 (filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed March 24, 2020 and incorporated herein by reference).

Tenth Amendment to the Credit Agreement, dated as of April 30, 2020, among the Company, as the Borrower, JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders party thereto (filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed May 6, 2020 and incorporated herein by reference).

Forbearance Agreement, dated as of June 2, 2020, by and among the Company, as the Borrower, the other Guarantors party thereto, the various Lenders identified therein, and JP Morgan Chase Bank, N.A., as Administrative Agent (filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed June 8, 2020 and incorporated herein by reference).

Forbearance Agreement, dated as of June 2, 2020, by and among the Company, as the Borrower, the other Guarantors party thereto, the various Lenders identified therein and the Bank of New York Mellon Trust Company, N.A., as Administrative Agent (filed as Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed June 8, 2020 and incorporated herein by reference).

Forbearance Agreement, dated as of June 2, 2020, by and among the Company, as the Borrower, the other Guarantors party thereto, the various Lenders identified therein and the Bank of New York Mellon Trust Company, N.A., as Administrative Agent (filed as Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed June 8, 2020 and incorporated herein by reference).

First Amendment to Forbearance Agreement, dated as of June 12, 2020, by and among the Company, as the Borrower, the other Guarantors party thereto, the various Lenders identified therein, JPMorgan Chase Bank, N.A., as Administrative Agent (filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed June 15, 2020 and incorporated herein by reference).

First Amendment to Forbearance Agreement, dated as of June 12, 2020, by and among the Company, as the Borrower, the other Guarantors party thereto, the various Lenders identified therein and The Bank of New York Mellon Trust Company, N.A., as Administrative Agent (filed as Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed June 15, 2020 and incorporated herein by reference).

First Amendment to Forbearance Agreement, dated as of June 12, 2020, by and among the Company, as the Borrower, the other Guarantors party thereto, the various Lenders identified therein and The Bank of New York Mellon Trust Company, N.A., as Administrative Agent (filed as Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed June 15, 2020 and incorporated herein by reference).

Form of Quarterly Incentive Award.

Form of Retention Bonus Agreement.

Quarterly Incentive Plan dated May 19, 2020.

Notice and Severance Pay Plan dated May 26, 2020.

Form of 2020 Nonstatutory Stock Option Award Terms and Conditions.

Form of 2020 Restricted Stock Unit Award Terms and Conditions.

Form of 2020 Performance Stock Unit Award Terms and Conditions.

10.1 Second Amendment to Forbearance Agreement, dated as of June 30, 2020, by and among the Company, the subsidiary guarantors party thereto, certain Lenders identified therein, JPMorgan Chase Bank, N.A., as Administrative Agent, a Lender and a Letter of Credit Issuer, and Bank of America, N.A., a Lender and a Letter of Credit Issuer (filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed J uly 2 , 2020 and incorporated herein by reference).

10.2 Second Amendment to Forbearance Agreement, dated as of June 30, 2020, by and among the Company, as the Borrower, the subsidiary guarantors party thereto, the various Lenders identified therein and The Bank of New York Mellon Trust Company, N.A., as Administrative Agent (filed as Exhibit 10.2 to Registrant’s Current Report on Form 8-K filed July 2 , 2020 and incorporated herein by reference).

10.3 Second Amendment to Forbearance Agreement, dated as of June 30, 2020, by and among the Company, as the Borrower, the subsidiary guarantors party thereto, the various Lenders identified therein and The Bank of New York Mellon Trust Company, N.A., as Administrative Agent (filed as Exhibit 10.3 to Registrant's Current Report on Form 8-K filed Ju ly 2 , 2020 and incorporated herein by reference).

10.4 Restructuring Support Agreement, dated as of July 15, 2020, by and among the Company and the other parties named therein (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 16, 2020).

10.5 Senior Secured Superpriority Debtor-in-Possession Revolving Credit Facility Commitment Letter, dated as of July 15, 2020, by and among California Resources Corporation, certain of its subsidiaries and JPMorgan Chase Bank, N.A.

(filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed July 16, 2020).

10.6 Settlement and Assumption Agreement, dated as of July 15, 2020, by and among the Company, California Resources Elk Hills, LLC, Elk Hills Power, LLC, ECR Corporate Holdings GP LLC, ECR I, L.P., SSF IV Energy I AIV 1, L.P., SSF IV Energy I AIV 2, L.P., AEOF ECR Holdings, L.P., and ECR Corporate Holdings, L.P.

(filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed July 16, 2020).

10.7 Backstop Commitment Agreement, dated as of July 15, 2020, among California Resources Corporation and the Backstop Parties hereto (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed July 1 7 , 2020).

10.8 Senior Secured Superpriority Debtor-in-Possession Credit Agreement dated as of July 23, 2020, among California Resources Corporation, as the Borrower, the several lenders from time to time parties hereto, and JPMorgan Chase Bank, N.A., as Administrative Agent and as Sole Lead Arranger and Bookrunner (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 24, 2020).

10.9 Junior Secured Superpriority Debtor-in-Possession Credit Agreement dated as of July 2 3 , 2020, among California Resources Corporation, as the Borrower, the several lenders from time to time parties hereto, and Alter Domus Products Corp., as Administrative Agent (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed July 2 4 , 2020).

10.10 Amended and Restated Restructuring Support Agreement, dated as of July 24, 2020, by and among California Resources Corporation, certain of its subsidiaries and the Consenting Parties (as defined therein) (filed as Exhibit 10.

3 to the Company’s Current Report on Form 8-K filed July 2 4 , 2020).

10.11 Amended and Restated Backstop Commitment Agreement, dated as of July 24, 2020, by and among California Resources Corporation, certain of its subsidiaries and the Backstop Parties (as defined therein) (filed as Exhibit 10.

4 to the Company’s Current Report on Form 8-K filed July 2 4 , 2020).

31.1* Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

1 unchanged sentence

32.1* Certifications of CEO and CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Inline XBRL Instance Document.

Inline XBRL Taxonomy Extension Schema Document.

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

Inline XBRL Taxonomy Extension Label Linkbase Document.

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.INS* Inline XBRL Instance Document.

101.SCH* Inline XBRL Taxonomy Extension Schema Document.

101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document.

104 Cover Page Interactive Data File (formatted in inline XBRL and contained in Exhibits 101).

2 unchanged sentences

CALIFORNIA RESOURCES CORPORATION

June 25, 2020

August 6, 2020 /s/ Roy M.

Executive Vice President - Finance

1 unchanged sentence

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 1A. Risk Factors