What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-11-05 compared with 2020-08-06 · 515 added, 330 removed, 379 unchanged (69% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

As of June 30, 2020 and December 31, 2019

(in millions, except share data)

June 30, December 31,

As of September 30, 2020 and December 31, 2019

(dollars in millions, except share data)

(DEBTOR-IN-POSSESSION:

Entity Operating Under Chapter 11)

September 30, December 31,

CURRENT ASSETS

13 unchanged sentences

Current portion of long-term debt — 100

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

Debtor-in-possession financing 733 —

Accounts payable 221 296

4 unchanged sentences

OTHER LONG-TERM LIABILITIES 727 720

LIABILITIES SUBJECT TO COMPROMISE 4,516 —

MEZZANINE EQUITY

Redeemable noncontrolling interests

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 )

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

Common stock ( 200 million shares authorized at $ 0.01 par value) outstanding shares (September 30, 2020 - 49,498,227 and December 31, 2019 - 49,175,843 )

Additional paid-in capital 5,148 5,004

8 unchanged sentences

Condensed Consolidated Statements of Operations

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

(in millions, except share data)

For the three and nine months ended September 30, 2020 and 2019

(dollars in millions, except share data)

(DEBTOR-IN-POSSESSION:

Entity Operating Under Chapter 11)

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2020 2019 2020 2019

Oil and natural gas sales $ 312 $ 541 $ 987 $ 1,720

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

Net derivative gain (loss) from commodity contracts — 37 75 ( 31 )

Marketing and trading revenue 50 62 109 230

Electricity sales 43 38 75 88

Other revenue 4 3 12 17

7 unchanged sentences

Exploration expense 2 5 9 25

Marketing and trading costs 35 45 67 170

Electricity cost of sales 17 18 47 51

Transportation costs 10 10 31 30

Other expenses, net 22 8 75 33

2 unchanged sentences

NON-OPERATING (LOSS) INCOME

Reorganization items, net 66 — 66 —

Interest and debt expense, net ( 28 ) ( 95 ) ( 200 ) ( 293 )

10 unchanged sentences

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 )

Basic (includes return from noncontrolling interest) $ 2.20 $ 1.89 $ ( 39.64 ) $ 0.78

Diluted (includes return from noncontrolling interest) $ 2.20 $ 1.89 $ ( 39.64 ) $ 0.77

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

1 unchanged sentence

Condensed Consolidated Statements of Comprehensive Income (Loss)

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

(in millions)

For the three and nine months ended September 30, 2020 and 2019

(dollars in millions)

(DEBTOR-IN-POSSESSION:

Entity Operating Under Chapter 11)

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2020 2019 2020 2019

4 unchanged sentences

Comprehensive (loss) income attributable to common stock $ ( 29 ) $ 94 $ ( 2,096 ) $ 40

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

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

See Note 11 Pension and Postretirement Benefit Plans for additional information.

2 unchanged sentences

Condensed Consolidated Statements of Equity

For the three and six months ended June 30, 2020

(in millions)

Three months ended June 30, 2020

For the three and nine months ended September 30, 2020

(dollars in millions)

(DEBTOR-IN-POSSESSION:

Entity Operating Under Chapter 11)

Three months ended September 30, 2020

Additional Paid-in Capital Accumulated Deficit Accumulated Other

1 unchanged sentence

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 )

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

Net loss — ( 29 ) — ( 29 ) ( 3 ) ( 32 )

Distributions to noncontrolling interest holders — — — — ( 5 ) ( 5 )

— — — — ( 6 ) ( 6 )

Share-based compensation, net 2 — — 2 — 2

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

Six months ended June 30, 2020

Return from noncontrolling interest holders 138 — — 138 — 138

Balance, September 30, 2020 $ 5,148 $ ( 7,466 ) $ ( 23 ) $ ( 2,341 ) $ 68 $ ( 2,273 )

Nine months ended September 30, 2020

Additional Paid-in Capital Accumulated Deficit Accumulated Other

4 unchanged sentences

Distributions to noncontrolling interest holders — — — — ( 37 ) ( 37 )

— — — — ( 32 ) ( 32 )

Share-based compensation, net 6 — — 6 — 6

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

Return from noncontrolling interest holders 138 — — 138 — 138

Balance, September 30, 2020 $ 5,148 $ ( 7,466 ) $ ( 23 ) $ ( 2,341 ) $ 68 $ ( 2,273 )

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

See Note 6 Joint Ventures for more information.

See Note 7 Joint Ventures for more information about our noncontrolling interests and a settlement agreement entered into with one of our noncontrolling interest holders in the third quarter of 2020 where the modification of terms was treated as a return from noncontrolling interest holders.

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

1 unchanged sentence

Condensed Consolidated Statements of Equity

For the three and six months ended June 30, 2019

(in millions)

Three months ended June 30, 2019

For the three and nine months ended September 30, 2019

(dollars in millions)

(DEBTOR-IN-POSSESSION:

Entity Operating Under Chapter 11)

Three months ended September 30, 2019

Additional Paid-in Capital Accumulated Deficit Accumulated Other

1 unchanged sentence

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

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

Net loss — 12 — 12 — 12

Contributions from noncontrolling interest holders, net

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

Net income — 94 — 94 3 97

Distributions to noncontrolling interest holders — — — — ( 32 ) ( 32 )

— — — — ( 8 ) ( 8 )

Issuance of common stock

Other comprehensive income

Warrant 2 — — 2 — 2

Share-based compensation, net 4 — — 4 — 4

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

Six months ended June 30, 2019

Balance, September 30, 2019 $ 5,000 $ ( 5,303 ) $ ( 5 ) $ ( 308 ) $ 100 $ ( 208 )

Nine months ended September 30, 2019

Additional Paid-in Capital Accumulated Deficit Accumulated Other

2 unchanged sentences

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

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

Net income (loss) — 39 — 39 ( 2 ) 37

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

— — — — 49 49

Distributions to noncontrolling interest holders — — — — ( 61 ) ( 61 )

— — — — ( 29 ) ( 29 )

Other comprehensive income — — 1 1 — 1

Warrant 2 — — 2 — 2

Share-based compensation, net 11 — — 11 — 11

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

Balance, September 30, 2019 $ 5,000 $ ( 5,303 ) $ ( 5 ) $ ( 308 ) $ 100 $ ( 208 )

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

3 unchanged sentences

Condensed Consolidated Statements of Cash Flows

For the six months ended June 30, 2020 and 2019

(in millions)

Six months ended

For the nine months ended September 30, 2020 and 2019

(dollars in millions)

(DEBTOR-IN-POSSESSION:

Entity Operating Under Chapter 11)

Nine months ended

September 30,

CASH FLOW FROM OPERATING ACTIVITIES

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

Adjustments to reconcile net loss to net cash provided by

Net (loss) income $ ( 1,999 ) $ 124

Adjustments to reconcile net (loss) income to net cash provided by

operating activities:

5 unchanged sentences

Amortization of deferred gain ( 39 ) ( 54 )

Reorganization items, net (non-cash) ( 125 ) —

Reorganization items, net (debtor-in-possession financing costs) 25 —

Dry hole expenses — 7

4 unchanged sentences

Capital investments ( 37 ) ( 393 )

Changes in capital investment accruals ( 28 ) ( 57 )

Decreases in accrued capital investments ( 25 ) ( 49 )

Asset divestitures 41 164

5 unchanged sentences

Repayments of 2014 Revolving Credit Facility ( 1,315 ) ( 1,776 )

Proceeds from debtor-in-possession facilities 782 —

Repayments of debtor-in-possession facilities ( 49 ) —

Debtor-in-possession financing costs ( 25 ) —

Debt repurchases ( 3 ) ( 149 )

Debt transaction costs — ( 2 )

2020 Senior Notes payment ( 100 ) —

2 unchanged sentences

Issuance of common stock — 3

Shares canceled for taxes ( 1 ) ( 3 )

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

Shares cancelled for taxes ( 1 ) ( 3 )

Net cash used in financing activities ( 8 ) ( 244 )

Increase in cash 105 5

4 unchanged sentences

Notes to the Condensed Consolidated Financial Statements

June 30, 2020

NOTE 1 BASIS OF PRESENTATION

We are an independent oil and natural gas exploration and production company operating properties exclusively within California.

We were incorporated in Delaware and became a publicly traded company on December 1, 2014.

September 30, 2020

(DEBTOR-IN-POSSESSION:

Entity Operating Under Chapter 11)

NOTE 1 CHAPTER 11 PROCEEDINGS

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.

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 asset sales, joint ventures, debt exchanges, tenders, debt repurchases and other financing transactions to reduce our overall level of debt and improve our balance sheet prior to filing for bankruptcy.

As of September 30, 2020, we had outstanding net long-term debt of approximately $ 5.1 billion, of which $ 4.4 billion is presented as liabilities subject to compromise on our condensed consolidated balance sheet.

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

The Chapter 11 Cases were 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).

We filed with the Bankruptcy Court, on July 24, 2020, the Debtors’ Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code and, on October 8, 2020, the Amended Debtors’ Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code (as amended, supplemented or modified, the Plan ).

On October 13, 2020, the Bankruptcy Court confirmed the Plan, which was conditioned on certain items such as obtaining exit financing.

The conditions to effectiveness of the Plan were satisfied and we emerged from Chapter 11 on October 27, 2020 (Effective Date).

During the course of the Chapter 11 Cases, the Bankruptcy Court granted the relief requested in certain motions, 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, which allowed our business operations to continue uninterrupted during the pendency of the Chapter 11 Cases.

All transactions outside the ordinary course of business required the prior approval of the Bankruptcy Court.

On July 15, 2020, immediately prior to the commencement of the Chapter 11 Cases, we and certain affiliates of Ares Management L.P.

(Ares), including ECR Corporate Holdings L.P., a portfolio company of Ares (ECR), entered into a Settlement and Assumption Agreement (Settlement Agreement) related to our midstream joint venture, Elk Hills Power, LLC (Ares JV or Elk Hills Power), which holds our Elk Hills power plant and a cryogenic gas processing plant.

On August 25, 2020, the Bankruptcy Court entered an order approving the Settlement Agreement on a final basis.

Among other things, the Settlement Agreement included a conversion right, which would be deemed exercised upon our emergence from bankruptcy, allowing us to acquire all (but not less than all) of the equity interests in the Ares JV held by ECR in exchange for secured notes (EHP Notes), approximately 20.8 % of our new common stock (Ares Settlement Stock) and $ 2.5 million in cash.

For more information on the Settlement Agreement, see Note 7 Joint Ventures.

The commencement of the Chapter 11 Cases constituted 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 New York 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 and together with the 5 % Senior Notes due 2020 and 2021 Notes, the Senior 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.

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

See Note 6 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 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.

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 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.

Joint Plan of Reorganization Under Chapter 11

Pursuant to the Plan, the following transactions occurred on the Effective Date:

• We issued an aggregate of 83.3 million shares of new common stock and reserved 4.4 million shares for issuance upon exercise of the warrants described below;

• We acquired all of the member interests in the Ares JV held by ECR in exchange for the EHP Notes, 17.3 million shares of new common stock and $ 2.5 million in cash (see Note 6 Debt and Note 7 Joint Ventures for additional information);

• Holders of secured claims under the 2017 Credit Agreement received 22.7 million shares of new common stock in exchange for those claims, and holders of deficiency claims under the 2017 Credit Agreement and all outstanding obligations under the 2016 Credit Agreement, Second Lien Notes, 2021 Notes and 2024 Notes received 4.4 million shares of new common stock in exchange for those claims;

• In connection with the Subscription Rights offering and Backstop Commitment Agreement, 34.6 million shares of new common stock were issued in exchange for $ 446 million (net of a $ 4 million fee), the proceeds of which were used to pay down our debtor-in-possession financing;

• Our Subscription Rights offering was backstopped by certain creditors who received 3.5 million shares of new common stock as a backstop commitment premium (refer to Note 16 Equity for additional information on the backstop commitment premium);

• The holders of Unsecured Debt Claims (as defined in the Plan) under the 2016 Credit Agreement, Second Lien Notes, 2021 Notes and 2024 Notes received Tier 1 Warrants and Tier 2 Warrants (each as defined in the Plan and collectively, Warrants) to purchase up to 2 % and 3 %, respectively, of our outstanding shares (on a fully diluted basis calculated immediately after the Effective Date), with an initial exercise price of $ 36.00 per share, which expire on October 27, 2024 and have customary anti-dilution protections (refer to Note 16 Equity for additional information on the Warrants);

• All other general unsecured claims will be paid or disputed in the ordinary course of business;

• All existing equity interests were cancelled and their holders received no distributions.

As a condition to our emergence, we repaid the outstanding balance of our debtor-in-possession financing with proceeds from our Subscription Rights offering, Backstop Commitment Agreement and a new senior secured revolving credit facility led by Citibank, N.A.

We also issued approximately 821,000 shares of new common stock for a debtor-in-possession exit fee.

For more information on our debtor-in-possession credit agreements and our post-emergence indebtedness, see Note 6 Debt .

One of the conditions of the Plan was to establish a new Board of Directors, which occurred on October 27, 2020.

Changes to our Stock-Based Compensation Programs

As a result of our bankruptcy, the outstanding stock-based awards under our Amended and Restated California Resources Corporation Long-Term Incentive Plan were cancelled on our Effective Date.

Any new stock-based awards or compensation plans will be reviewed and approved by our Board of Directors, which includes seven new directors appointed on October 27, 2020.

The cancellation of these stock-based compensation awards resulted in the recognition of all previously unrecognized compensation expense for equity-settled awards and the liability related to our cash-settled awards was eliminated as the participants received no consideration.

The net effect of these adjustments was not material to our financial statements.

Changes to the 2020 Compensation Programs in Second Quarter 2020

In the second quarter of 2020, resulting from the unprecedented circumstances affecting the industry and market volatility, we reviewed our incentive programs for the entire workforce to determine whether those programs appropriately aligned compensation opportunities with our 2020 goals and ensured the stability of our workforce.

Following this review, effective May 19, 2020, our then Board of Directors approved changes in the variable compensation programs for all participating employees.

The previously established target amounts of 2020 variable compensation programs did not change;

however, all amounts that vest are being settled in cash.

As a condition to receiving any award, participants waived participation in our 2020 annual incentive program and forfeited all stock-based compensation awards previously granted in 2020.

At that time, there were no changes to stock-based compensation awards granted prior to February 2020;

however, these pre-2020 awards were subsequently cancelled as part of the Plan.

Changes to the variable compensation programs had 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 remained largely the same as the amounts that would have been paid at target prior to the changes.

Our future compensation programs will be determined by our new Board of Directors.

Organizational Changes

During the course of the Chapter 11 Cases, we evaluated the structure of our workforce and, in August 2020, we implemented organizational changes that resulted in a reduction of our headcount from 1,250 to approximately 1,100 employees.

We believe the steps taken improved and strengthened our business as we emerge from bankruptcy.

We recorded a one-time $ 10 million restructuring charge in the third quarter of 2020.

We will continue to evaluate resource levels depending on commodity prices.

NOTE 2 BASIS OF PRESENTATION

We are an independent oil and natural gas exploration and production company operating properties exclusively within California.

We were incorporated in Delaware and became a publicly traded company on December 1, 2014.

We have applied Financial Accounting Standards Board Accounting Standards Codification 852, Reorganizations (ASC 852), in preparing these unaudited condensed consolidated financial statements.

ASC 852 requires that the financial statements, for periods subsequent to the petition date (July 15, 2020), distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business.

As a result, we have segregated liabilities and obligations whose treatment and satisfaction are dependent on the outcome of the Chapter 11 Cases and classified these items as liabilities subject to compromise (LSTC) on our condensed consolidated balance sheet as of September 30, 2020.

In addition, we have classified all income, expenses, gains or losses that were incurred or realized as a result of the Chapter 11 Cases subsequent to the petition date as reorganization items, net in our condensed consolidated statements of operations for the period ended September 30, 2020.

Fresh Start Accounting

We believe that we are required to adopt fresh start accounting upon emergence from bankruptcy because (1) the holders of existing voting shares prior to emergence received less than 50 % of our new voting shares following our emergence from bankruptcy and (2) the reorganization value of our assets immediately prior to the confirmation of the Plan was less than the post-petition liabilities and allowed claims, which are included in LSTC.

Fresh start accounting will be applied as of October 27, 2020, the date we emerged from bankruptcy.

Under the principles of fresh start accounting, a new reporting entity is considered to have been created, and, as a result, the reorganization value of the emerging entity is assigned to individual assets and liabilities based on their estimated relative fair values.

The process of estimating the fair value of our assets, liabilities and equity upon emergence is currently ongoing.

In support of the Plan, the enterprise value of the successor company was estimated and approved by the Bankruptcy Court to be in the range of $ 2.2 billion to $ 2.8 billion.

As a result of the application of fresh start accounting and the effects of the implementation of the Plan, the financial statements of the successor entity will not be comparable to the financial statements, including this statement, prepared prior to our Effective Date.

Liabilities Subject to Compromise – Pre-petition Debt

LSTC include our long-term debt and related accrued interest up to the petition date, which represents all of the known or potential obligations resolved in connection with our Plan.

Contractual interest on these obligations through September 30, 2020 was $ 289 million, of which $ 72 million was not recognized in our financial statements.

Upon emergence, all general unsecured claims, other than debt, will be paid or disputed in the ordinary course of business pursuant to the Plan.

As of September 30, 2020, LSTC on our condensed consolidated balance sheet included the following:

September 30,

(in millions)

Long-term debt (principal amount):

2017 Credit Agreement $ 1,300

2016 Credit Agreement 1,000

Second Lien Notes 1,808

5.5 % Senior Notes due 2021

6 % Senior Notes due 2024

Accrued interest on long-term debt 164

Total liabilities subject to compromise $ 4,516

Reorganization Items Related to our Chapter 11 Cases

Reorganization items, net represent the one-time costs related to our reorganization, including the non-cash write-off of unamortized deferred gain, original issue discounts and deferred issuance costs associated with our long-term debt impacted by the Chapter 11 Cases.

Legal, professional and other fees incurred subsequent to our petition date through September 30, 2020, including success-based fees, are also included in reorganization items, net as these fees were incurred as a result of the restructuring process.

Reorganization items, net consisted of the following for the three and nine months ended September 30, 2020 (in millions):

Unamortized deferred gain and issuance costs, net (a)

Legal, professional and other, net (b)

Debtor-in-possession financing costs ( 25 )

Total reorganization items, net $ 66

(a) Reflects non-cash adjustments necessary to the carrying amount of our long-term debt to state such amounts at face value.

(b) Includes $ 27 million of unpaid items included in changes in operating assets and liabilities, net on our condensed consolidated statement of cash flows at September 30, 2020.

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 September 30, 2020 and December 31, 2019 and the statements of operations, comprehensive income (loss), equity and cash flows for the three and nine months ended September 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 and the rules and regulations of the U.S.

We have prepared this report in accordance with generally accepted accounting principles (GAAP) 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.

3 unchanged sentences

Recently Adopted Accounting and Disclosure Changes

We adopted the Financial Accounting Standards Board's new rules on current expected credit losses on January 1, 2020, using a modified retrospective approach to the first period in which the guidance is effective.

We adopted the FASB's new rules on current expected credit losses on January 1, 2020, using a modified retrospective approach to the first period in which the guidance is effective.

The new rules change the measurement of credit losses for financial assets and certain other instruments, including trade and other receivables with a right to receive cash, and require the use of a new forward-looking expected loss model that will result in the earlier recognition of an allowance for losses.

4 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 June 30, 2020 was not material and losses associated with counterparty credit risk have been insignificant for all periods presented.

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

NOTE 4 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.

Restricted cash — Cash at September 30, 2020 included $ 24 million which was restricted under agreements to fund operating expenses at one of our joint ventures and 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 June 30, 2020 and December 31, 2019 consisted of the following:

June 30, December 31,

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

September 30, December 31,

(in millions)

Net amounts due from joint interest partners (a)

Derivative assets (b)

Amounts due from joint interest partners, net (a)

Derivative assets 17 39

Prepaid expenses 24 19

Other current assets, net $ 82 $ 130

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

June 30, December 31,

(a) Both September 30, 2020 and December 31, 2019 balances included a $ 19 million allowance for credit losses against amounts due from joint interest partners.

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

September 30, December 31,

(in millions)

Accrued employee-related costs (a)

Accrued taxes other than on income (b)

Accrued interest (c)

Accrued taxes other than on income 64 57

Accrued interest 1 13

Lease liability 11 28

1 unchanged sentence

Accrued liabilities $ 240 $ 313

(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.

(a) Accrued employee-related costs declined $ 35 million primarily due to incentive, retention, and severance payments made to employees and former employees.

(b) Other accrued liabilities declined $ 16 million primarily due to payments to joint interest partners and legal settlement payments.

These decreases were partially offset by an increase in accrued legal and professional fees.

Other long-term liabilities — Other long-term liabilities included asset retirement obligations of $ 507 million and $ 489 million at September 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.

1 unchanged sentence

We did no t make U.S.

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.

federal and state income tax payments during the nine months ended September 30, 2020 and 2019.

Interest paid, net of capitalized amounts, totaled $ 72 million and $ 290 million for the nine months ended September 30, 2020 and 2019, respectively.

Cash paid for legal and professional fees, which is included in reorganization items, net on our condensed consolidated statement of operations for the nine months ended September 30, 2020, totaled $ 7 million.

Non-cash financing activities in 2020 included a $ 138 million downward adjustment to mezzanine equity related to a Settlement Agreement with one of our joint venture partners.

See Note 7 Joint Ventures for more on the Settlement Agreement.

Fair Value of Financial Instruments

The carrying amounts of cash and other on-balance sheet financial instruments, other than debt, approximate fair value.

Refer to Note 6 Debt for the fair value of our debt.

NOTE 5 INVENTORIES

Materials and supplies are valued at weighted-average cost and are reviewed periodically for obsolescence.

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

June 30, December 31,

Inventory is valued at the lower of cost and net realizable value.

Finished goods predominantly comprise oil and natural gas liquids (NGLs).

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

September 30, December 31,

(in millions)

2 unchanged sentences

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:

Pre-Emergence Indebtedness

As of September 30, 2020 and December 31, 2019, our short-term debtor-in-possession (DIP) financing and current portion of long-term debt consisted of the following:

Outstanding Principal Interest Rate Security

June 30, 2020

September 30, 2020

December 31, 2019

Credit Agreements ($ in millions)

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

($ in millions)

Senior DIP Facility $ 83 $ — LIBOR plus 4.5 %

ABR plus 3.5 %

Secured Superpriority

Junior DIP Facility 650 — LIBOR plus 9.0 %

ABR plus 8.0 %

Secured Superpriority

Current portion of long-term debt — 100

Total short-term borrowings and current maturities $ 733 $ 100

As of September 30, 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 Security

September 30, 2020

December 31, 2019

($ in millions)

Credit Agreements

2014 Revolving Credit Facility (a)

— 518 LIBOR plus 3.25 %- 4.00 %

ABR plus 2.25 %- 3.00 %

Shared First-Priority Lien

13 unchanged sentences

144 144 6 % Unsecured

Total Debt $ 5,083 $ 4,977

Outstanding long-term debt $ 4,352 $ 4,977

Current portion of long-term debt — ( 100 )

Amounts reclassified to LSTC ( 4,352 ) —

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 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.

(a) The proceeds from our debtor-in-possession credit agreements were used to repay the balance of our 2014 Revolving Credit Facility.

Borrowings under our debtor-in-possession credit agreements are classified as a current liability on our condensed consolidated balance sheet at September 30, 2020.

As of September 30, 2020, we had letters of credit outstanding of $ 151 million under the Senior DIP Facility.

As of December 31, 2019, we had letters of credit outstanding under the 2014 Revolving Credit Facility of $ 165 million.

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

Related to the Chapter 11 Cases, we recorded a non-cash gain of $ 125 million to write off all of the related unamortized deferred gain, discount and debt issuance costs as a reorganization item, net in our condensed consolidated statements of operations for the three and nine months ended September 30, 2020.

As of December 31, 2019, net deferred gain and issuance costs were $ 146 million, consisting of deferred gain and issuance costs of $ 211 million and $ 65 million, respectively.

Note Repurchases

In the first quarter of 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.

We did not repurchase any notes in the second or third quarters of 2020.

In the nine months ended September 30, 2019, we repurchased approximately $ 229 million in face value of our Second Lien Notes for $ 149 million in cash resulting in a pre-tax gain of $ 108 million, including the effect of unamortized deferred gain and issuance costs.

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.

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 were 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 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.

Commencement of Bankruptcy Proceedings

Any efforts to enforce payment obligations related to the acceleration of our long-term debt were automatically stayed by the commencement of the Chapter 11 Cases, and the creditors’ rights of enforcement were subject to the applicable provisions of the Bankruptcy Code.

See Note 1 Chapter 11 Proceedings for more information on our Chapter 11 Cases.

Pursuant to the Plan, on the Effective Date, the obligations of the Debtors under each of the following debt instruments were cancelled and the applicable agreements governing such obligations were terminated:

(a) the Credit Agreement, dated as of November 17, 2017, among The Bank of New York Mellon Trust Company, N.A., as administrative agent, as amended, restated, supplemented or otherwise modified (the “2017 Term Loan Agreement”);

(b) the Credit Agreement, dated as of August 12, 2016, among The Bank of New York Mellon Trust Company, N.A., as administrative agent and collateral agent, as amended, restated, supplemented or otherwise modified (the “2016 Term Loan Agreement”);

(c) the Indenture dated as of December 15, 2015, among The Bank of New York Mellon Trust Company, N.A., as trustee, pursuant to which the 8 % Senior Secured Second Lien Notes due 2022 were issued, as amended, supplemented or otherwise modified (the “Second Lien Notes Indenture”);

and (d) the Indenture dated as of October 1, 2014, among Wilmington Trust, National Association, as successor to Wells Fargo Bank, National Association, as trustee, pursuant to which the 5 % Senior Notes due 2020, 5.5 % Senior Notes due 2021 and 6 % Senior Notes due 2024 were issued, as amended, supplemented or otherwise modified (the “Unsecured Notes Indenture”).

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).

On July 23, 2020, we entered into a Senior Secured Superpriority DIP Credit Agreement with JP Morgan, as administrative agent, and certain other lenders (Senior DIP Credit Agreement), which provided for the senior DIP facility in an aggregate principal amount of up to $ 483 million (Senior DIP Facility).

The Senior DIP Facility included a $ 250 million revolving facility which was primarily used by us to (i) fund working capital needs, 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.

Following a hearing, the Bankruptcy Court entered a final order on August 14, 2020, which approved the Senior DIP Facility on a final basis.

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

The Senior DIP Facility allowed for the issuance of an additional $ 35 million of letters of credit.

On July 23, 2020, we entered into a Junior Secured Superpriority DIP Credit Agreement with Alter Domus, as administrative agent, and certain lenders (Junior DIP Credit Agreement), which provided for a junior DIP facility in an aggregate principal amount of $ 650 million (Junior DIP Facility and together with the Senior DIP Facility, the DIP Facilities).

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.

1 unchanged sentence

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.

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

Borrowings under the Senior DIP Facility bear interest at the London interbank offered rate (LIBOR) plus 4.5 % for LIBOR loans and the alternative base rate (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.

3 unchanged sentences

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

June 30, 2020 (a)

December 31, 2019

(in millions)

Deferred gain $ 176 $ 211

Issuance costs and original issue discounts ( 51 ) ( 65 )

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.

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

The Senior DIP Facility was repaid in full and terminated on the Effective Date using proceeds borrowed under our new Revolving Credit Facility discussed below.

The Junior DIP Facility was also repaid in full and terminated on the Effective Date using (i) $ 200 million from the Second Lien Term Loan discussed below and (ii) $ 450 million from the subscription rights offering discussed in Note 1 Chapter 11 Proceedings .

Post-Emergence Indebtedness

Revolving Credit Facility

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.

Note Repurchases

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 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.

On October 27, 2020, we entered into a Credit Agreement with Citibank, N.A., as administrative agent, and certain other lenders.

This credit agreement currently consists of a $ 540 million senior revolving loan facility (Revolving Credit Facility), which we are permitted to increase if we obtain additional commitments from new or existing lenders.

Our Revolving Credit Facility also includes a sub-limit of $ 200 million for the issuance of letters of credit.

The revolving commitments are subject to an automatic reduction if certain conditions are not met by April 2021.

On the Effective Date, we borrowed $ 225 million under the Revolving Credit Facility to refinance our DIP Facilities, replace our existing letters of credit and pay certain costs, fees and expenses related to the other transactions consummated on the Effective Date.

Our initial borrowings included $ 118 million used to cash collateralize on an interim basis certain letters of credit that were outstanding under our Senior DIP Facility.

We expect that these letters of credit will be transitioned into our new Revolving Credit Facility and will no longer be cash collateralized.

In addition, we had unrestricted cash of $ 72 million on the Effective Date.

The proceeds of all or a portion of the Revolving Credit Facility may be used for our working capital needs and for other purposes subject to meeting certain criteria.

Security – The lenders have a first-priority lien on a substantial majority of our assets, except assets securing the EHP Notes as discussed below.

Interest Rate – We can elect to borrow at either an adjusted LIBOR rate or an ABR rate, subject to a 1 % floor and 2 % floor, respectively, plus an applicable margin.

The ABR is equal to the highest of (i) the federal funds effective rate plus 0.50 %, (ii) the administrative agent prime rate and (iii) the one-month adjusted LIBOR rate plus 1 %.

The applicable margin is adjusted based on the borrowing base utilization percentage and will vary from (i) in the case of LIBOR loans, 3 % to 4 % and (ii) in the case of ABR loans, 2 % to 3 %;

provided that in the event that the EHP Notes are not paid in full on or prior to December 31, 2021, the applicable margin will be increased by 0.25 % effective as of January 1, 2022 and will be increased by an additional 0.25 % at the beginning of each subsequent fiscal quarter until such date on which the EHP Notes are paid in full.

The unused portion of the facility is subject to a commitment fee of 0.5 % per annum.

We also pay customary fees and expenses.

Interest on ABR loans is payable quarterly in arrears.

Interest on LIBOR loans is payable at the end of each LIBOR period, but not less than quarterly.

Maturity Date – Our Revolving Credit Facility matures 42 months after closing.

Amortization Payments – The Revolving Credit Facility does not include any obligation to make amortizing payments.

Borrowing Base – The borrowing base, currently $ 1.2 billion, will be redetermined semi-annually in April and October.

Financial Covenants – Our Revolving Credit Facility includes the following financial covenants:

Ratio Components Required Levels Tested

Consolidated Total Net Leverage Ratio Ratio of consolidated total secured debt to consolidated EBITDAX (a)

Not greater than 3.00 to 1.00 (c)

Current Ratio Ratio of consolidated current assets to consolidated current liabilities (b)

Not less than 1.00 to 1.00

(a) EBITDAX is calculated as defined in the credit agreement.

(b) The available credit under our Revolving Credit Facility is included in consolidated current assets as part of the calculation of the current ratio.

(c) In the event that the EHP Notes are not paid in full prior to December 31, 2021 (and until the EHP Notes are repaid in full), the Consolidated Total Net Leverage Ratio for the Test Period ending on December 31, 2021 and as of the last day of any Test Period ending thereafter may not exceed 2.50 to 1.00.

Liquidity – We will become subject to a monthly minimum liquidity requirement of $ 200 million if, as of the date of our scheduled spring 2021 borrowing base redetermination, (a) our liquidity is less than $ 290 million and (b) we are not able to obtain at least $ 60 million in additional commitments under our Revolving Credit Facility or through capital markets or other junior financing transactions, for so long as the conditions in (a) and (b) remain unmet.

Other Covenants – Our Revolving Credit Facility includes covenants that, among other things, restrict our ability to incur additional indebtedness, grant liens, make asset sales and investments, repay existing indebtedness, make subsidiary distributions and enter into transactions that would result in fundamental changes.

We are also restricted in the amount of cash dividends we can pay on our common stock unless we meet certain covenants included in the credit agreement.

Our Revolving Credit Facility also requires us to maintain hedges on a minimum amount of crude oil production, determined semi-annually, of no less than (i) 75 % of our reasonably anticipated oil production from our proved reserves for the first 24 months after the closing of the Revolving Credit Facility, which occurred on the Effective Date, and (ii) 50 % of our reasonably anticipated oil production from our proved reserves for a period from the 25th month through the 36th month after the same date.

The Revolving Credit Facility specifies the forms of hedges and prices (which can be prevailing prices) that must be used.

In addition, for the first 24 months after closing an additional 25 % of production from proved reserves needs to be hedged, which may take any form.

We must also maintain acceptable commodity hedges for no less than 50 % of the reasonably anticipated oil production from our proved reserves for at least 24 months following the date of delivery of each reserve report.

We may not hedge more than 80 % of reasonably anticipated total forecasted production of crude oil, natural gas and natural gas liquids from our oil and gas properties for a 48-month period following the date of entry into any commodity hedging contract.

Events of Default and Change of Control – Our Revolving Credit Facility provides for certain events of default, including upon a change of control, as defined in the credit agreement, that entitles our lenders to declare the outstanding loans immediately due and payable, subject to certain limitations and conditions.

Second Lien Term Loan

On October 27, 2020, we entered into a $ 200 million credit agreement with Alter Domus Products Corp., as administrative agent, and certain other lenders (Second Lien Term Loan).

The proceeds were used to refinance our Junior DIP Facility and to pay certain costs, fees and expenses related to the other transactions consummated on the Effective Date.

Security – The lenders have a second-priority lien (junior to the Revolving Credit Facility) on a substantial majority of our assets, except assets securing the EHP Notes as discussed below.

Interest Rate – We can elect to pay interest at either an adjusted LIBOR rate or ABR rate, subject to a 1 % floor and 2 % floor, respectively, plus an applicable margin.

The ABR rate is equal to the highest of (i) the prime rate, (ii) the federal funds rate effective rate plus 0.5 %, and (iii) the one-month adjusted LIBOR rate plus 1 %.

In the case of an adjusted LIBOR rate election, the applicable margin is 9 % per annum if interest is paid in cash and 10.5 % per annum if interest is paid-in-kind.

Prior to the second anniversary of the closing date of the Second Lien Term Loan, the applicable margin in the case of an ABR rate election is 8 % per annum if paid in cash and 9.5 % per annum if paid-in-kind, and the applicable margin in the case of an adjusted LIBOR rate election is 9 % if paid in cash and 10.5 % if paid-in-kind.

After the second anniversary of the closing date, the applicable margin is 8 % with respect to any ABR loan and 9 % with respect to an adjusted LIBOR loan.

Interest on ABR loans is paid quarterly in arrears and interest based on the adjusted LIBOR rate is due at the end of each LIBOR period, which can be one, two, three or six months but not less than quarterly.

We also pay customary fees and expenses.

Maturity Date – Our Second Lien Term Loan matures five years after the closing date, subject to extension.

Amortization Payments – We are required to make scheduled amortization payments only with respect to extended loans, the terms of such extension to be agreed with the extending lender at the time of such extension.

Repurchases – We are permitted to repurchase our Second Lien Term Loan in open market purchases or tender offers on a non-pro rata basis.

Redemption – We may redeem all or part of our Second Lien Term Loan, at any time prior to the maturity date, at redemption price equal to (i) 100 % of the principal amount if redeemed prior to 90 days after closing, (ii) 105 % of the principal amount if redeemed after 90 days and before the first anniversary date, (iii) 103 % of the principal amount if redeemed on or after the first anniversary date and before the second anniversary date, (iv) 102 % of the principal amount if redeemed on or after the second anniversary date and before the third anniversary date, (v) 101 % of the principal amount if redeemed on or after the third anniversary date and before the fourth anniversary date, and (vi) at 100 % of the principal amount if redeemed in the fifth year.

Financial Covenants – Our Second Lien Term Loan includes the following financial covenants:

Ratio Components Required Levels Tested

Consolidated Total Net Leverage Ratio Ratio of consolidated total debt to consolidated EBITDAX (a)

Not greater than 3.45 to 1.00 (c)

Current Ratio Ratio of consolidated current assets to consolidated current liabilities (b)

Not less than 0.85 to 1.00

(a) EBITDAX is calculated as defined in the credit agreement.

(b) The available credit under our Revolving Credit Facility is included in consolidated current assets as part of the calculation of the current ratio.

Liquidity – We will become subject to a monthly minimum liquidity requirement of $ 170 million if, as of the Spring 2021 Scheduled Redetermination (as defined in the Revolving Credit Facility), (a) our liquidity is less than $ 247 million and (b) we are not able to obtain at least $ 51 million in additional commitments under our Revolving Credit Facility or through capital markets or other junior financing transactions, for so long as the conditions in (a) and (b) remain unmet.

Other Covenants – Our Second Lien Term Loan includes covenants that, among other things, restrict our ability to incur additional indebtedness, grant liens, make asset sales and investments, repay existing indebtedness, make subsidiary distributions and enter into transactions that would result in fundamental changes.

We are also restricted in the amount of cash dividends we can pay on our common stock unless we meet certain covenants included in the credit agreement.

Our Second Lien Term Loan also requires us to maintain hedges on a minimum amount of crude oil production, determined semi-annually, of no less than (i) 75 % of our reasonably anticipated oil production from our proved reserves for the first 24 months after the closing of the Revolving Credit Facility, which occurred on the Effective Date, and (ii) 50 % of our reasonably anticipated oil production from our proved reserves for a period from the 25th month through the 36th month after the same date.

The Second Lien Term Loan specifies the forms of hedges and prices (which can be prevailing prices) that must be used.

In addition, for the first 24 months after closing an additional 25 % of production from proved reserves needs to be hedged, which may take any form.

We must also maintain acceptable commodity hedges hedging no less than 50 % of the reasonably anticipated oil production from our proved reserves for at least 24 months following the date of delivery of each reserve report.

Events of Default and Change of Control – Our Second Lien Term Loan provides for certain events of default, including upon a change of control, as defined in the credit agreement, that entitles our lenders to declare the outstanding loans immediately due and payable, subject to certain limitations and conditions.

We are subject to a cross-default provision that causes a default under this facility if certain defaults occur under the Revolving Credit Facility or the EHP Notes.

On the Effective Date, our wholly-owned subsidiary, EHP Midco Holding Company, LLC (Elk Hills Issuer) entered into a Note Purchase Agreement (Note Purchase Agreement) with certain subsidiaries of Ares and Wilmington Trust, N.A.

as collateral agent.

The $ 300 million Notes were issued as partial consideration for the Class B Preferred Units, Class A Common Units and Class C Common Units in the Ares JV previously held by ECR (EHP Notes).

The EHP Notes are senior notes due in 2027, and are secured by a first-priority security interest in all of the assets of Elk Hills Power, any third-party offtake contracts for power generated by Elk Hills Power, all of the equity interests of Elk Hills Power held by Elk Hills Issuer and all of the equity interests of Elk Hills Issuer held by its direct parent, EHP Topco Holding Company, LLC, our wholly-owned subsidiary.

We and Elk Hills Power have guaranteed, on a joint and several basis, all of the obligations of Elk Hills Issuer under the EHP Notes.

The EHP Notes bear an interest rate of 6.0 % per annum through the fourth anniversary of issuance, increasing to 7.0 % per annum after the fourth anniversary of issuance and to 8.0 % per annum after the fifth anniversary of issuance.

The EHP Notes may be redeemed at any time prior to their maturity date without payment of premium or penalty.

At September 30, 2020, we estimated the fair value of our DIP Facilities, which are classified as Level 2 in the fair value hierarchy, to approximate their carrying value of $ 733 million due to their short-term maturities.

Our long-term debt at September 30, 2020 was presented as LSTC and will be impaired under the Plan.

As of September 30, 2020, we estimated the fair value of our long-term debt to approximate $ 500 million based on observable inputs in less active markets (Level 2) compared to a carrying value of $ 4.4 billion.

The estimated fair value of our long-term debt, at December 31, 2019, based on prices from known market transactions (Level 1), was approximately $ 3.8 billion compared to a carrying value of $ 5.0 billion.

NOTE 7 JOINT VENTURES

Noncontrolling Interests

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:

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

Equity Attributable to

5 unchanged sentences

Net income (loss) attributable to noncontrolling interests 3 9 12 86 ( 1 ) 85

Return from noncontrolling interest — — — ( 138 ) — ( 138 )

Contributions from noncontrolling interest holders, net — — — — 1 1

Distributions to noncontrolling interest holders ( 3 ) ( 34 ) ( 37 ) ( 58 ) — ( 58 )

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

Balance, September 30, 2020 $ — $ 68 $ 68 $ 692 $ — $ 692

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

2 unchanged sentences

Distributions to noncontrolling interest holders ( 6 ) ( 55 ) ( 61 ) ( 54 ) — ( 54 )

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

Balance, September 30, 2019 $ — $ 100 $ 100 $ 789 $ — $ 789

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.

ECR holds 50 % of the Class A common interest, 100 % of the Class B preferred interest and 4.75 % of the Class C common interest.

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.

We have the option to extend the redemption period for up to an additional two and one-half years, in which case the interests can be redeemed for $ 750 million for the Class B interest and $ 80 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 seven and one-half years from inception.

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:

(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.

On the Effective Date, as required by the Note Purchase Agreement, CREH transferred its ownership of two low temperature separation plants located at the Elk Hills field to Elk Hills Power.

Prior to our Effective Date, we held 50 % of the Class A common interest and 95.25 % of the Class C common interest in the Ares JV.

ECR held 50 % of the Class A common interest, 100 % of the Class B preferred interest and 4.75 % of the Class C common interest.

The Ares JV was 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 purchased electricity 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 were 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 served as the operator of the Ares JV and provided operational and support services in exchange for a monthly fee pursuant to a Master Services Agreement.

These agreements became intercompany agreements on the Effective Date and were cancelled as described below.

As described in Note 1 Chapter 11 Proceedings , we entered into the Settlement Agreement with ECR and Ares which, among other things, changed the liquidation preference for the Class B member interest to $ 835 million, decreased the preferred return from 13.5 % per annum to 9.5 % per annum payable at the end of each month, removed the liquidation premium for the Class A common interest and removed the payment of any previously accrued but unpaid preferred distributions plus a make-whole payment that ECR, as the holder of the Class B preferred interests, would otherwise have been entitled to in the event of a redemption transaction.

The Settlement Agreement granted us the right (Conversion Right) to acquire all (but not less than all) of the equity interests of Elk Hills Power owned by ECR in exchange for the EHP Notes, Ares Settlement Stock and $ 2.5 million in cash.

The Conversion Right was deemed to have been exercised on the Effective Date.

Although certain provisions in the Settlement Agreement were not effective until certain conditions were met, such as the Bankruptcy Court entering a final order, we determined that the amended terms were substantively different such that the existing Class A common, Class B preferred and Class C common member interests held by ECR were treated as redeemed in exchange for new member interests issued at fair value.

The estimated fair value of the new member interests was lower than the carrying value of the existing member interests by $ 138 million.

In accordance with GAAP, the return from noncontrolling interest holders was recorded to additional paid-in capital on our condensed consolidated balance sheet as of September 30, 2020.

However, as required by GAAP, the return is included in our earnings per share calculations.

See Note 10 Earnings Per Share for adjustments to net income (loss) attributable to common stock which includes a return from noncontrolling interest holders.

We were deemed to have exercised the Conversion Right on the Effective Date and we issued the EHP Notes in the aggregate principal amount of $ 300 million, Ares Settlement Stock comprising approximately 20.8 % (subject to dilution) of the new common stock (Conversion) and $ 2.5 million in cash.

Upon the Conversion, Elk Hills Power became an indirect wholly-owned subsidiary, and Ares and its affiliates ceased to have any direct or indirect interest in Elk Hills Power, other than any interest Ares may have indirectly through its interests in the EHP Notes and Ares Settlement Stock.

In connection with the Conversion, Elk Hills Power’s limited liability company agreement was amended and restated.

In connection with the Conversion, on the Effective Date, we entered into a Sponsor Support Agreement dated the Effective Date (Support Agreement) pursuant to which, among other things, the parties agreed that Elk Hills Power will be our primary provider of electricity to, and will be the primary processor of our natural gas produced from, the Elk Hills field, which is already consistent with our current practice.

On the Effective Date, in connection with the Conversion, we terminated:

(a) the Commercial Agreement, dated as of February 7, 2018, by and between Elk Hills Power and CREH and (b) the Master Services Agreement, dated as of February 7, 2018, by and between Elk Hills Power and CREH.

Our condensed consolidated statements of operations for all periods presented 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) reported in net income attributable to noncontrolling interests in our condensed consolidated statements of operations.

Elk Hills Carbon JV

In January 2020, we entered into an agreement with OGCI Climate Investments Elk Hills Carbon Inc.

(OGCI) to determine the technical and economic feasibility of retrofitting the Elk Hills power plant with a post-combustion, carbon-capture system, which includes a Front-End Engineering Design scope and study.

In January 2020, we entered into an agreement with OGCI Climate Investments LLP (OGCI) to determine the technical and economic feasibility of retrofitting the Elk Hills power plant with a post-combustion, carbon-capture system, which includes a front-end engineering design scope and study.

The project received financial assistance from the U.S.

2 unchanged sentences

OGCI contributed approximately $ 2 million to the Elk Hills Carbon JV in February 2020.

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

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

1 unchanged sentence

Alpine made an initial commitment to invest $ 320 million over a period of up to three years in accordance with a 275 -well development plan.

On March 27, 2020 , Alpine elected to suspend its funding obligations pursuant to a contractual right that is triggered if the average NYMEX 12-month forward strip price for Brent crude oil falls below $ 45 per barrel over a 30 -trading day period.

The suspension is automatically lifted and Alpine is obligated to renew funding at such time as the average price exceeds that threshold over any 30 -trading day period.

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.

On March 27, 2020 , Alpine elected to suspend its funding obligations pursuant to a contractual right that was triggered when the average NYMEX 12-month forward strip price for Brent crude oil fell below $ 45 per barrel over a 30 -trading day period.

The suspension may be lifted by mutual consent.

As of September 30, 2020, funding for the initial development phase has not re-started.

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.

4 unchanged sentences

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

Reserve balances at September 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.

Subject to certain exceptions under the Bankruptcy Code, the filing of the Chapter 11 Cases on July 15, 2020 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, government authorities may determine to continue actions brought under regulatory powers.

On October 13, 2020, the Bankruptcy Court confirmed our Amended Debtors’ Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code , which was conditioned on certain items such as obtaining exit financing.

On October 27, 2020 the conditions to effectiveness of the Plan were satisfied and we emerged from Chapter 11 on the Effective Date.

Upon effectiveness of the Plan, the automatic stay discussed above no longer applies to ongoing judicial or administrative proceedings.

NOTE 9 DERIVATIVES

1 unchanged sentence

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 and six months ended June 30, 2020 and 2019.

We did not have any derivative instruments designated as accounting hedges as of and during the three and nine months ended September 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.

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.

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

The Senior DIP Credit Agreement required 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.

We entered into various derivative instruments, as shown in the table below, to satisfy this requirement.

We held the following Brent-based crude oil contracts as of September 30, 2020:

2021 July 2021

Barrels per day 4,800 4,500 4,500 4,200

Weighted-average price per barrel $ 48.05 $ 48.05 $ 48.05 $ 48.05

Purchased Puts:

Barrels per day 18,600 18,000 9,000 8,400

Weighted-average price per barrel $ 44.84 $ 45.00 $ 40.00 $ 40.00

Barrels per day 13,800 13,500 4,500 4,200

Weighted-average price per barrel $ 36.52 $ 36.67 $ 30.00 $ 30.00

Barrels per day 6,400 6,000 6,000 5,600

Weighted-average price per barrel $ 44.75 $ 44.75 $ 44.75 $ 44.75

The outcomes of the derivative positions are as follows:

• Sold calls – we make settlement payments for prices above the indicated weighted-average price per barrel.

• Purchased puts – we receive settlement payments for prices below the indicated weighted-average price per barrel.

• Sold puts – we make settlement payments for prices below the indicated weighted-average price per barrel.

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 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

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

September 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

11 unchanged sentences

Total derivatives $ 35 $ — $ 35

Interest-rate risk — We hold derivative contracts that limit our interest-rate exposure with respect to $ 1.3 billion of our variable-rate indebtedness.

We hold derivative contracts that limit our interest-rate exposure with respect to $ 1.3 billion of our variable-rate indebtedness.

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 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.

For the three months ended September 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.

For the nine months ended September 30, 2020 and 2019, we reported no change in fair value and a loss of $ 4 million, respectively, on these contracts in other non-operating expenses on our condensed 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.

We recognize fair value changes on derivative instruments in each reporting period.

We recognized fair value changes on derivative instruments each reporting period in net derivative gain (loss) from commodity contracts on our condensed consolidated statements of operations for the three and nine months ended September 30, 2020 and 2019.

The changes in fair value result from the relationship between our existing positions, volatility, time to expiration, contract prices or interest rates and the associated forward curves.

NOTE 10 EARNINGS PER SHARE

Upon our emergence from bankruptcy on October 27, 2020, as discussed in Note 1 Chapter 11 Proceedings , our then common and preferred stock, including contracts on our equity, were cancelled and new common stock and Warrants were issued.

The per share amounts disclosed below would be materially different if our emergence from bankruptcy had occurred on or before September 30, 2020.

We compute basic and diluted earnings per share (EPS) using the two-class method required for participating securities.

4 unchanged sentences

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 and six months ended June 30, 2020 and 2019:

The following table presents the calculation of basic and diluted EPS, prior to our emergence, for the three and nine months ended September 30, 2020 and 2019:

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2020 2019 2020 2019

3 unchanged sentences

Net (loss) income attributable to common stock ( 29 ) 94 ( 2,096 ) 39

Net income allocated to participating securities — ( 1 ) — ( 1 )

Return from noncontrolling interest holders (a)

Net income (loss) available to common shares 109 93 ( 1,958 ) 38

Weighted-average common shares outstanding — basic

5 unchanged sentences

Net (loss) income attributable to common stock ( 29 ) 94 ( 2,096 ) 39

Net income allocated to participating securities — ( 1 ) — ( 1 )

Return from noncontrolling interest holders (a)

Net income (loss) available to common shares 109 93 ( 1,958 ) 38

Weighted-average common shares outstanding — basic

5 unchanged sentences

Weighted-average anti-dilutive shares 3.3 3.2 4.4 2.3

(a) Return from noncontrolling interest holders relates to the deemed redemption of the noncontrolling interests in the Ares JV.

For more information on the Ares JV and the Settlement Agreement, see Note 7 Joint Ventures .

NOTE 11 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 and six months ended June 30, 2020 and 2019:

Three months ended June 30,

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 nine months ended September 30, 2020 and 2019:

Three months ended September 30,

Benefit Postretirement

8 unchanged sentences

$ — $ 2 $ — $ 2

Six months ended June 30,

Nine months ended September 30,

Benefit Postretirement

8 unchanged sentences

Total $ 2 $ 6 $ 3 $ 6

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 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.

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

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted on March 27, 2020 and allowed 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 for the first nine months of 2020 until December 2020.

We made contributions of $ 1 million and $ 2 million, respectively for the three months and nine months ended September 30, 2019.

The post-retirement benefit cost associated with our August 2020 workforce reduction was not significant.

The 2019 settlement loss, which was reclassified from accumulated other comprehensive income, was associated with early retirements and workforce reductions.

NOTE 12 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 and six months ended June 30, 2020 and 2019:

We derive most 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 and nine months ended September 30, 2020 and 2019:

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2020 2019 2020 2019

6 unchanged sentences

Other revenue:

Electricity 19 16 32 50

Marketing, trading and other 16 38 67 182

Electricity sales 43 38 75 88

Marketing and trading revenue 50 62 109 230

Other revenue 4 3 12 17

97 103 196 335

Net derivative gain (loss) from commodity contracts — 37 75 ( 31 )

1 unchanged sentence

NOTE 13 LEASES

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

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

Balance Sheet Location September 30, 2020 December 31, 2019

(in millions) (in millions)

9 unchanged sentences

Total lease liabilities $ 42 $ 66

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 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 industry downturn and 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 15 Asset Impairments .

4 unchanged sentences

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 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.

For the nine months ended September 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 all periods presented includes changes to maintain our full valuation allowance against our net deferred tax assets given our recent and anticipated future earnings trends.

We believe that there is a reasonable possibility that some or all of this allowance could be released in the foreseeable future.

3 unchanged sentences

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.

The final regulations in the regulation package were published in the Federal Register on September 14, 2020 and are effective for tax years beginning on or after November 13, 2020.

Although not yet effective, the publication of the final regulations clarified the amount of allowed addback for depreciation, depletion and amortization in the calculation of the limitation on the deduction of business interest expense.

Based on our evaluation, these final regulations did not have a significant impact on our financial statements taken as a whole due to our full valuation allowance.

Certain of the transactions occurring upon our emergence from bankruptcy, and application of fresh start accounting, may have a material impact on our deferred tax balances, the full extent of which is currently unknown.

Cancellation of debt income resulting from these transactions will primarily reduce our tax attributes, including but not limited to our net operating loss carryforwards, and our tax basis in property, plant and equipment.

Further, as discussed in Note 1 Chapter 11 Proceedings , our pre-emergence common stock was cancelled and new common stock was issued on the Effective Date.

This resulted in a change in ownership and, under IRC Section 382, may limit the deduction of our pre-emergence tax attributes, if any, and interest expense carryforwards.

Additionally, we have incurred a significant amount of legal and professional fees related to the reorganization, a substantial portion of which may not be deductible for income tax purposes.

NOTE 15 ASSET IMPAIRMENTS

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:

Six months ended

June 30, 2020

(in millions)

During the quarter ended March 31, 2020, we recorded a $ 1.7 billion impairment 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 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 as of our March 31, 2020 assessment date (in millions):

Proved oil and natural gas properties $ 1,487

Unproved properties 228

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.

These inputs were based on management's expectations for the future considering the current environment and included index prices based on forward curves until the market became illiquid and internally generated price forecasts thereafter, pricing adjustments for differentials, estimates of future oil and natural gas production, estimated future operating costs and capital development plans based on the embedded price assumptions.

These inputs were based on management's expectations for the future considering the then-current environment and included index prices based on forward curves until the market became illiquid and internally generated price forecasts thereafter, pricing adjustments for differentials, estimates of future oil and natural gas production, estimated future operating costs and capital development plans based on the embedded price assumptions.

We used a market-based weighted average cost of capital to discount the future net cash flows.

The impairment charge primarily related to a steamflood property located 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 assets.

NOTE 15 COMPENSATION PLANS

Changes to the 2020 Compensation Programs

In connection with the unprecedented circumstances affecting the industry and market volatility resulting from the recent industry downturn, we reviewed our incentive programs for the entire workforce to determine whether those programs appropriately align compensation opportunities with our 2020 goals and ensure the stability of our workforce.

Following this review, effective May 19, 2020, our Board of Directors approved changes in the variable compensation programs for all participating employees.

The previously established target amounts of 2020 variable compensation programs did not change;

however, all amounts that vest will be settled in cash and the replacement awards are no longer stock-based compensation.

As a condition to receiving any award, participants waived participation in our 2020 annual incentive program and forfeited all stock-based compensation awards previously granted in 2020.

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.

Unproved properties — In the first quarter of 2020, we determined our ability to develop our unproved properties was constrained for the foreseeable future.

NOTE 16 EQUITY

Chapter 11 Proceedings

On the Effective Date, as discussed in Note 1 Chapter 11 Proceedings , our pre-emergence authorized common and preferred stock were cancelled, pursuant to the Plan.

Holders of our pre-emergence issued and outstanding common stock, including holders of contracts on our equity, did not receive any recovery.

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.

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

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

NOTE 16 CONDENSED CONSOLIDATING FINANCIAL INFORMATION

Our Credit Facilities, Second Lien Notes and Senior Notes are guaranteed both fully and unconditionally and jointly and severally by our material wholly owned subsidiaries (Guarantor Subsidiaries).

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 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 June 30, 2020 and December 31, 2019

Post-Emergence Equity

On the Effective Date, we issued an aggregate 83.3 million shares of new common stock, par value $ 0.01 per share, to the holders of allowed claims and ECR, as defined in the Plan.

We reserved an aggregate 4.4 million shares of new common stock for future issuances in connection with the exercise of Warrants.

In accordance with the Plan, our new common stock was issued as follows:

• 17.3 million shares to Ares as partial consideration for its member interests in the Ares JV;

• 27.1 million shares to our pre-petition creditor group in cancellation of their outstanding debt plus accrued interest up to the petition date;

• 33 million shares in our Subscription Rights offering and 1.6 million shares to backstop parties in exchange for $ 446 million (net of a $ 4 million fee);

• 3.5 million shares to backstop parties for the backstop commitment premium;

• Approximately 821,000 shares for a Junior DIP Facility exit fee.

Before we emerged from the Chapter 11 Cases, our new common stock was approved for trading on the NYSE.

On the Effective Date, we filed a Form 8-A to register the new common stock under Section 12(b) of the Exchange Act.

Trading in the new common stock commenced on the NYSE on October 28, 2020 under the ticker "CRC".

As discussed in Note 1 Chapter 11 Proceedings , on the Effective Date, we reserved an aggregate 4.4 million shares for Warrants.

The Tier 1 Warrants and Tier 2 Warrants are exercisable for 2 % of the outstanding shares of new common stock and 3 % of the outstanding new common stock (on a fully diluted basis calculated immediately after the Effective Date), respectively, both at an initial exercise price of $ 36 per share.

The Warrants are exercisable from the Effective Date for a period of four years .

The Warrant Agreement contains customary anti-dilution adjustments in the event of any stock split, reverse stock split, stock dividend, equity awards under a management incentive plan that our Board of Directors may establish pursuant to the Plan (if any) or other distributions.

The warrant holder may elect, in its sole discretion, to pay cash or to exercise on a cashless basis, pursuant to which the holder will not be required to pay cash for shares of common stock upon exercise of the warrant but will instead receive fewer shares.

Unregistered Issuance of Equity Securities

Other than the shares issued in reliance of Section 4(a)(2) of the Securities Act as described below, we relied on Section 1145(a)(1) of the Bankruptcy Code as an exemption from the registration requirements of the Securities Act for the issuance of our new common stock and warrants.

Section 1145(a)(1) of the Bankruptcy Code exempts the offer and sale of securities under a plan of reorganization from registration under Section 5 of the Securities Act and state laws if three principal requirements are satisfied:

• The securities must be issued under a plan of reorganization by the debtor, its successor under a plan, or an affiliate participating in a joint plan of reorganization with the debtor;

• The recipients of the securities must hold a claim against, an interest in, or a claim for administrative expense in the case concerning the debtor or such affiliate;

• The securities must be issued either (a) in exchange for the recipient’s claim against, interest in or claim for administrative expense in the case concerning the debtor or such affiliate or (b) principally in such exchange and partly for cash or property.

The (a) shares of new common stock issued pursuant to the Backstop Commitment Agreement, (b) shares of new common stock issued in connection with the payment of the backstop commitment premium and the exit fee for the Junior DIP Facility, and (c) Ares Settlement Stock issued to Ares pursuant to the Settlement Agreement were issued in each case without registration in reliance upon the exemption set forth in Section 4(a)(2) of the Securities Act and are therefore “restricted securities.”

On the Effective Date, we entered into a registration rights agreement with the backstop parties under the Backstop Commitment Agreement and each holder of at least 1 % of the new common stock outstanding on the Effective Date, granting such parties customary registration rights with respect to their new common stock.

NOTE 17 CONDENSED COMBINED DEBTOR-IN-POSSESSION FINANCIAL INFORMATION

The financial statements below represent the unaudited condensed combined financial statements of the Debtors.

Effective July 1, 2020, the results of the non-filing entities, which are comprised primarily of our consolidated joint ventures (see Note 7 Joint Ventures ), are not included in these condensed combined financial statements.

Intercompany transactions among the Debtors have been eliminated in the financial statements.

Intercompany transactions among the Debtors and the non-Debtors have not been eliminated in these financial statements.

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

Condensed Consolidating Debtors' Balance Sheet

As of September 30, 2020

(in millions)

June 30, 2020

Parent Combined Guarantor Subsidiaries Combined Non-Guarantor Subsidiaries Eliminations Consolidated

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

Investments in consolidated subsidiaries 3,156 ( 53 ) — ( 3,103 ) —

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

Other long-term liabilities 159 557 3 — 719

Amounts due to (from) affiliates 87 ( 88 ) 1 — —

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

Parent Combined Guarantor Subsidiaries Combined Non-Guarantor Subsidiaries Eliminations Consolidated

(DEBTOR-IN-POSSESSION:

Entity Operating Under Chapter 11)

September 30, 2020

Total current assets $ 379

Investments in consolidated subsidiaries 5,956 223 — ( 6,179 ) —

Investments in subsidiaries ( 261 )

Total property, plant and equipment, net 3,937

2 unchanged sentences

Total current liabilities 1,217

Long-term debt 4,877 — — — 4,877

Deferred gain and issuance costs, net 146 — — — 146

Other long-term liabilities 724

Amounts due to (from) affiliates 951 ( 953 ) 2 — —

Mezzanine equity — — 802 — 802

Liabilities subject to compromise 4,516

Total equity ( 2,341 )

TOTAL LIABILITIES AND EQUITY $ 4,116

Condensed Consolidating Statements of Operations

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

Condensed Consolidating Debtors' Statement of Operations

For the three months ended September 30, 2020

(in millions)

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 )

NET (LOSS) INCOME ( 190 ) ( 101 ) 44 — ( 247 )

Net income attributable to noncontrolling interests — — ( 24 ) — ( 24 )

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

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 )

NET (LOSS) INCOME ( 135 ) 122 54 — 41

Net income attributable to noncontrolling interest — — ( 29 ) — ( 29 )

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

(DEBTOR-IN-POSSESSION:

Entity Operating Under Chapter 11)

Three months ended September 30, 2020

Total revenues $ 357

Total costs 436

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 six months ended June 30, 2020 and 2019

Non-operating income 6

NET LOSS $ ( 73 )

Condensed Consolidating Debtors' Statement of Cash Flows

For the three months ended September 30, 2020

(in millions)

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

Net cash provided by (used in) investing activities 1 ( 28 ) — — ( 27 )

Net cash provided by (used in) financing activities 340 ( 153 ) ( 144 ) — 43

Increase in cash 3 96 10 — 109

Cash—beginning of period — 6 11 — 17

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

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

(DEBTOR-IN-POSSESSION:

Entity Operating Under Chapter 11)

Three months ended September 30, 2020

Net cash used in operating activities $ ( 38 )

Net cash used in investing activities ( 1 )

Net cash provided by (used in) financing activities 353 ( 149 ) ( 296 ) — ( 92 )

Increase in cash — — 10 — 10

Net cash provided by financing activities 31

Decrease in cash ( 8 )

Cash—beginning of period 105

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 1. Financial Statements