What changed in this filing

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Item 1. Financial Statements

2021-08-06 compared with 2021-05-13 · 225 added, 190 removed, 340 unchanged (55% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

As of March 31, 2021 and December 31, 2020

(dollars and shares in millions, except par value)

March 31, December 31,

As of June 30, 2021 and December 31, 2020

(in millions, except share data)

June 30, December 31,

CURRENT ASSETS

2 unchanged sentences

Inventories 58 61

Assets held for sale 50 —

Other current assets 80 63

8 unchanged sentences

Accounts payable 248 212

Liabilities associated with assets held for sale 101 —

Accrued liabilities 537 261

3 unchanged sentences

STOCKHOLDERS' EQUITY

Preferred stock ( 20 shares authorized at $ 0.01 par value) no shares outstanding at March 31, 2021 and December 31, 2020

Common stock ( 200 shares authorized at $ 0.01 par value) outstanding shares ( 83.3 at March 31, 2021 and December 31, 2020)

Preferred stock ( 20,000,000 shares authorized at $ 0.01 par value) no shares outstanding at June 30, 2021 and December 31, 2020

Common stock ( 200,000,000 shares authorized at $ 0.01 par value) issued shares ( 83,319,660 at June 30, 2021 and December 31, 2020)

Treasury stock ( 1,440,203 shares held at cost at June 30, 2021 and no shares held at December 31, 2020)

Additional paid-in capital 1,273 1,268

8 unchanged sentences

Condensed Consolidated Statements of Operations

For the three months ended March 31, 2021 and 2020

For the three and six months ended June 30, 2021 and 2020

(dollars in millions, except per share data)

Successor Predecessor

Successor Predecessor Successor Predecessor

Three months ended

March 31, Three months ended

Oil, natural gas and NGL sales $ 432 $ 430

June 30, Three months ended

June 30, Six months ended

2021 2020 2021 2020

Oil, natural gas and natural gas liquids (NGL) sales $ 478 $ 245 $ 910 $ 675

Net derivative (loss) gain from commodity contracts ( 265 ) ( 4 ) ( 478 ) 75

19 unchanged sentences

Net (loss) gain on early extinguishment of debt — — ( 2 ) 5

Gain on asset divestitures 2 —

Other non-operating expenses ( 2 ) ( 47 ) ( 1 ) ( 61 )

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Condensed Consolidated Statements of Comprehensive Income (Loss)

For the three months ended March 31, 2021 and 2020

For the three and six months ended June 30, 2021 and 2020

(dollars in millions)

Successor Predecessor

Successor Predecessor Successor Predecessor

Three months ended

March 31, Three months ended

June 30, Three months ended

June 30, Six months ended

2021 2020 2021 2020

Net loss $ ( 107 ) $ ( 247 ) $ ( 196 ) $ ( 1,992 )

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Condensed Consolidated Statements of Equity

For the three months ended March 31, 2021 and 2020

For the three and six months ended June 30, 2021

(dollars in millions)

Three months ended March 31, 2021 (Successor)

Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other

Three months ended June 30, 2021 (Successor)

Common Stock Treasury Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other

Comprehensive

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

Balance, March 31, 2021 $ 1 $ — $ 1,270 $ ( 217 ) $ ( 8 ) $ 1,046 $ 35 $ 1,081

Net (loss) income (a)

— — — ( 111 ) — ( 111 ) 4 ( 107 )

Distributions to noncontrolling interest holders — — — — — — ( 17 ) ( 17 )

Share-based compensation — — 3 — — 3 — 3

Repurchases of common stock — ( 45 ) — — — ( 45 ) — ( 45 )

Balance, June 30, 2021 $ 1 $ ( 45 ) $ 1,273 $ ( 328 ) $ ( 8 ) $ 893 $ 22 $ 915

Six months ended June 30, 2021 (Successor)

Common Stock Treasury Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other

Comprehensive

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

Balance, December 31, 2020 $ 1 $ — $ 1,268 $ ( 123 ) $ ( 8 ) 1,138 $ 44 $ 1,182

3 unchanged sentences

Share-based compensation — — 5 — — 5 — 5

Repurchases of common stock — ( 45 ) — — — ( 45 ) — ( 45 )

Balance, June 30, 2021 $ 1 $ ( 45 ) $ 1,273 $ ( 328 ) $ ( 8 ) $ 893 $ 22 $ 915

(a) For the three and six months ended June 30, 2021, we allocated $ 4 million and $ 9 million of net income to noncontrolling interest holders, respectively, with the remaining $ 111 million and $ 205 million of net loss attributed to holders of our common stock, both of which were included in stockholders' equity on our condensed consolidated balance sheet.

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

CALIFORNIA RESOURCES CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Equity

For the three and six months ended June 30, 2020

(dollars in millions)

Three months ended June 30, 2020 (Predecessor)

Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other

Comprehensive

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

Equity Redeemable Noncontrolling Interests (b)

Balance, March 31, 2020 $ — $ 5,006 $ ( 7,166 ) $ ( 23 ) ( 2,183 ) $ 88 $ ( 2,095 ) $ 816

Three months ended March 31, 2020 (Predecessor)

Net (loss) income (a)

— — ( 271 ) — ( 271 ) ( 6 ) ( 277 ) 30

Distributions to noncontrolling interest holders — — — — — ( 6 ) ( 6 ) ( 18 )

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

Balance, June 30, 2020 $ — $ 5,008 $ ( 7,437 ) $ ( 23 ) $ ( 2,452 ) $ 76 $ ( 2,376 ) $ 828

Six months ended June 30, 2020 (Predecessor)

Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other

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

Balance, March 31, 2020 $ — $ 5,006 $ ( 7,166 ) $ ( 23 ) $ ( 2,183 ) $ 88 $ ( 2,095 ) $ 816

(a) For the three months ended March 31, 2020, we allocated $ 51 million of net income to noncontrolling interest holders, of which $ 21 million was included in stockholders' equity and $ 30 million was included in mezzanine equity on our condensed consolidated balance sheet.

The remaining net loss of $ 1,796 million for the three months ended March 31, 2020 was attributed to holders of our common stock and included in stockholders' equity on our condensed consolidated balance sheet.

For the three months ended March 31, 2021, we allocated $ 5 million of net income to noncontrolling interest holders, with the remaining $ 94 million of net loss attributed to holders of our common stock, both of which were included in stockholders' equity on our condensed consolidated balance sheet.

Balance, June 30, 2020 $ — $ 5,008 $ ( 7,437 ) $ ( 23 ) $ ( 2,452 ) $ 76 $ ( 2,376 ) $ 828

(a) For the three months ended June 30, 2020, we allocated $ 24 million of net income to noncontrolling interest holders, of which a $ 6 million net loss was included in stockholders' equity and $ 30 million was included in mezzanine equity on our condensed consolidated balance sheet.

The remaining net loss of $ 271 million for the three months ended June 30, 2020 was attributed to holders of our common stock and included in stockholders' equity on our condensed consolidated balance sheet.

For the six months ended June 30, 2020, we allocated $ 75 million of net income to noncontrolling interest holders, of which $ 15 million was included in stockholders' equity and $ 60 million was included in mezzanine equity on our condensed consolidated balance sheet.

The remaining net loss of $ 2,067 million for the six months ended June 30, 2020 was attributed to holders of our common stock and included in stockholders' equity on our condensed consolidated balance sheet.

(b) Redeemable noncontrolling interests are reported in mezzanine equity on our condensed consolidated balance sheets in Predecessor periods.

See Note 7 Joint Ventures for more information about our noncontrolling interests in the Ares and Elk Hills Carbon joint ventures.

See Part II, Item 8 – Financial Statements and Supplementary Data, Note 7 Joint Ventures in our Annual Report on Form 10-K for the year ended December 31, 2020 for more information about our noncontrolling interests in the Ares and Elk Hills Carbon joint ventures.

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

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Condensed Consolidated Statements of Cash Flows

For the three months ended March 31, 2021 and 2020

For the three and six months ended June 30, 2021 and 2020

(dollars in millions)

Successor Predecessor

Three months ended March 31, Three months ended March 31,

Successor Predecessor Successor Predecessor

Three months ended June 30, Three months ended June 30, Six months ended June 30, Six months ended June 30,

2021 2020 2021 2020

CASH FLOW FROM OPERATING ACTIVITIES

Net loss $ ( 107 ) $ ( 247 ) $ ( 196 ) $ ( 1,992 )

Adjustments to reconcile net loss to net cash provided by

operating activities:

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation, depletion and amortization 54 88 106 207

7 unchanged sentences

Changes in operating assets and liabilities, net ( 25 ) 17 ( 25 ) 130

Net cash provided by operating activities 147 228

Net cash provided by (used in) operating activities 127 ( 135 ) 274 93

CASH FLOW FROM INVESTING ACTIVITIES

15 unchanged sentences

Repayment of 2020 Senior Notes — — — ( 100 )

Contributions from noncontrolling interest holders — 2

Repurchases of common stock ( 45 ) — ( 45 ) —

Contribution from noncontrolling interest holders — — — 2

Distributions paid to noncontrolling interest holders ( 17 ) ( 24 ) ( 31 ) ( 68 )

Shares cancelled for taxes — — — ( 1 )

Net cash used in financing activities ( 25 ) ( 156 )

Net cash (used in) provided by financing activities ( 63 ) 199 ( 88 ) 43

Increase in cash 21 49 123 109

4 unchanged sentences

Notes to the Condensed Consolidated Financial Statements

March 31, 2021

June 30, 2021

NOTE 1 BASIS OF PRESENTATION

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These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2020 (2020 Annual Report).

Restructuring and Organization Changes

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

On October 13, 2020, the Bankruptcy Court confirmed our joint plan of reorganization (the Plan) and we subsequently emerged from Chapter 11 proceedings on October 27, 2020.

In connection with our emergence from bankruptcy, our Board of Directors was reconstituted in October 2020.

On December 31, 2020, our former President, Chief Executive Officer and director Todd A.

Stevens departed and Mark A.

(Mac) McFarland was appointed as interim Chief Executive Officer in addition to his role as Chair of our Board of Directors.

On March 22, 2021, the Board of Directors appointed Mr.

McFarland as President and Chief Executive Officer on a permanent basis.

On April 15, 2021, Tiffany (TJ) Thom Cepak replaced Mr.

McFarland as the Chair of our Board of Directors.

McFarland will continue to serve as a director.

In January 2021, we reduced the size of our management team and then realigned several functions in February 2021, which resulted in additional headcount and cost reductions.

We recorded a restructuring charge of $ 14 million for the three months ended March 31, 2021, which is included in other expenses, net on our condensed consolidated statement of operations.

As of March 31, 2021, our remaining liability for workforce reductions which occurred in 2020 and during the first quarter of 2021 is $ 16 million, which is included in accrued liabilities on our condensed consolidated balance sheet.

NOTE 2 ACCOUNTING AND DISCLOSURE CHANGES

Recently Adopted Accounting and Disclosure Changes

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

On October 13, 2020, the Bankruptcy Court confirmed our joint plan of reorganization (the Plan) and we subsequently emerged from Chapter 11 on October 27, 2020 with a new Board of Directors, new equity owners and a significantly improved financial position.

We qualified for and adopted fresh start accounting upon emergence from bankruptcy at which point we became a new entity for financial reporting purposes.

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NOTE 3 OTHER INFORMATION

Other current assets — Other current assets consisted of the following:

March 31, December 31,

Other current assets — Other current assets includes the following:

June 30, December 31,

(in millions)

Amounts due from joint interest partners $ 48 $ 42

Amounts due from counterparties on derivative contracts 8 —

Receivables for premiums on derivative contracts 8 —

Prepaid expenses 19 20

Other current assets $ 80 $ 63

Accrued liabilities — Accrued liabilities consisted of the following:

March 31, December 31,

Other assets - Other assets includes the following:

June 30, December 31,

(in millions)

Operating lease right-of-use assets 35 38

Deferred financing costs - Revolving Credit Facility 14 17

Emission reduction credits 11 11

Prepaid power plant maintenance 17 14

Long-term deposits and other 13 10

Other assets $ 90 $ 90

Accrued liabilities — Accrued liabilities includes the following:

June 30, December 31,

(in millions)

Accrued employee-related costs $ 61 $ 72

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Fair value of derivative contracts 265 50

Amounts due to counterparties on derivative contracts 44 21

Deferred premiums on derivative contracts 28 18

Net settlement payments due on derivative contracts 34 3

Accrued liabilities $ 537 $ 261

Other long-term liabilities — Other long-term liabilities included the following:

March 31, December 31,

Other long-term liabilities — Other long-term liabilities includes the following:

June 30, December 31,

(in millions)

3 unchanged sentences

Fair value of derivative contracts 156 6

Amounts due to counterparties on derivative contracts 24 31

Deferred premiums on derivative contracts 16 31

Other long-term liabilities $ 850 $ 822

Oil, natural gas and NGL sales — Disaggregated revenue for sales of oil, natural gas and NGLs to customers includes the following:

Successor Predecessor Successor Predecessor

Three months ended June 30, Three months ended June 30, Six months ended June 30, Six months ended June 30,

2021 2020 2021 2020

(in millions)

Oil $ 380 $ 193 $ 711 $ 549

Natural gas 45 26 92 64

NGLs 53 26 107 62

Oil, natural gas and NGL sales $ 478 $ 245 $ 910 $ 675

Other expenses, net — Other expenses, net includes the following:

Successor Predecessor Successor Predecessor

Three months ended June 30, Three months ended June 30, Six months ended June 30, Six months ended June 30,

2021 2020 2021 2020

(in millions)

Accretion expense $ 13 $ 10 $ 26 $ 20

Severance and termination costs 1 — 15 —

Deficiency payment on a pipeline delivery contract — 20 — 20

Other, net 9 7 12 13

Other expenses, net $ 23 $ 37 53 53

Supplemental Cash Flow Information

We did no t make U.S.

federal and state income tax payments during the three months ended March 31, 2021 and 2020.

Interest paid, net of capitalized amounts, totaled $ 2 million and $ 45 million for the three months ended March 31, 2021 and 2020, respectively.

Cash paid for reorganization items during the three months ended March 31, 2021 was $ 2 million.

federal and state income tax payments during the three and six months ended June 30, 2021 and 2020.

Interest paid, net of capitalized amounts, totaled $ 2 million and $ 6 million for the three months ended June 30, 2021 and 2020, respectively.

Interest paid, net of capitalized amounts, totaled $ 4 million and $ 51 million for the six months ended June 30, 2021 and 2020, respectively.

Cash paid for reorganization items during the three and six months ended June 30, 2021 was $ 2 million and $ 4 million, respectively, for legal, professional and other fees.

Fair Value of Financial Instruments

3 unchanged sentences

NOTE 4 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 or net realizable value.

Materials and supplies, which primarily consist of well equipment and tubular goods used in our oil and natural gas operations, are valued at weighted-average cost and are reviewed periodically for obsolescence.

Finished goods predominantly comprise produced oil and NGLs in storage, which are valued at the lower of cost or net realizable value.

Inventories, by category, are as follows:

March 31, December 31,

June 30, December 31,

(in millions)

2 unchanged sentences

Inventories $ 58 $ 61

As of March 31, 2021 and December 31, 2020, our long-term debt consisted of the following:

March 31, December 31,

As of June 30, 2021 and December 31, 2020, our long-term debt consisted of the following:

June 30, December 31,

2021 2020 Interest Rate Maturity

13 unchanged sentences

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 $ 492 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 aggregate commitment was $ 540 million as of March 31, 2021, which was automatically reduced to $ 492 million in April 2021 pursuant to the terms of our Revolving Credit Facility.

This credit agreement consists of a senior revolving loan facility (Revolving Credit Facility) with an aggregate commitment of $ 492 million, 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.

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The amount we are able to borrow under our Revolving Credit Facility is limited to the amount of the commitment described above.

As of March 31, 2021 and April 30, 2021, our availability for borrowing under the Revolving Credit facility was as follows:

March 31, April 30,

(in millions)

Borrowing capacity $ 540 $ 492

Letters of credit outstanding ( 125 ) ( 125 )

Total availability $ 415 $ 367

On May 7, 2021, we amended the Revolving Credit Facility to:

1 unchanged sentence

• evidence the reduction in the aggregate commitment of lenders from $ 540 million to $ 492 million;

• increase our capacity to make certain restricted payments;

• increase our capacity to make certain restricted payments, including paying dividends and repurchasing our common stock;

• reduce the minimum amount of hedges that we are required to maintain for a rolling 24 month period on reasonably anticipated forecasted crude oil production from 50 % to 33 % so long as our total net leverage ratio is less than 2.00 :1.00;

• increase our maximum hedging limitation to 85 % (and permit purchased puts and floors up to 100 %) of reasonably anticipated total forecasted production of crude oil, natural gas and natural gas liquids for a 48 -month period.

As of June 30, 2021, our availability under the Revolving Credit facility was as follows:

(in millions)

Borrowing capacity $ 492

Outstanding letters of credit ( 125 )

Availability $ 367

On January 20, 2021, we completed an offering of $ 600 million in aggregate principal amount of our 7.125 % senior unsecured notes due 2026 (Senior Notes).

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We recognized a $ 2 million loss on extinguishment of debt, including unamortized debt issuance costs, associated with these repayments.

Security – Our Senior Notes are general unsecured obligations which are guaranteed on a senior unsecured basis by certain of our material subsidiaries.

Redemption – Prior to February 1, 2023, we may elect to redeem up to 35 % of the aggregate principal amount of our Senior Notes with an amount of cash not greater than the net cash proceeds from certain equity offerings at a redemption price equal to 107 % of the aggregate amount of the Senior Notes redeemed, plus accrued and unpaid interest.

In addition, prior to February 1, 2023, we may redeem the Senior Notes at a “make whole” premium plus accrued and unpaid interest.

On or after February 1, 2023, we may redeem the Senior Notes at any time prior to the maturity date at a redemption price equal to (i) 104 % of the principal amount if redeemed in the twelve months beginning February 1, 2023, (ii) 102 % of the principal amount if redeemed in the twelve months beginning February 1, 2024 and (iii) 100 % of the principal amount if redeemed after February 1, 2025, in each case plus accrued and unpaid interest.

Other Covenants – Our Senior Notes include covenants that, among other things, restrict our ability to incur additional indebtedness, issue preferred stock, grant liens, make asset sales and investments, repay existing indebtedness, make subsidiary distributions and enter into transactions that would result in fundamental changes.

Events of Default and Change of Control – Our Senior Notes provide for certain triggering events, including upon a change of control, as defined in the indenture, that would require us to repurchase all or any part of the Senior Notes at a price equal to 101 % of the aggregate principal amount plus accrued and unpaid interest.

At March 31, 2021, we were in compliance with all financial and other debt covenants under our Revolving Credit Facility and Senior Notes.

At June 30, 2021, we were in compliance with all financial and other debt covenants under our Revolving Credit Facility and Senior Notes.

Predecessor 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.

Other than repaying in full our EHP Notes in January 2021, we did not repurchase or repay any notes in the second quarter of 2020 or the six months ended June 30, 2021.

See Part II, Item 8 – Financial Statements and Supplementary Data, Note 8 Debt in our 2020 Annual Report for a description of our Second Lien Notes.

1 unchanged sentence

As shown in the table below, we estimated the fair value of our fixed rate Senior Notes based on observable inputs (Level 1) and the fair value of our EHP Notes with no observable inputs (Level 3).

March 31, December 31,

June 30, December 31,

(in millions)

4 unchanged sentences

Fair Value of Long-Term Debt $ 633 $ 599

NOTE 6 JOINT VENTURES

The following is a summary of our current consolidated joint venture arrangements:

In February 2017, we entered into a development joint venture (JV) with Benefit Street Partners (BSP) to develop certain oil and natural gas assets in exchange for a preferred interest in the BSP JV.

BSP is entitled to preferred distributions and, if it receives cash distributions equal to a predetermined threshold, the preferred interest is automatically redeemed in full with no additional payment.

BSP has invested $ 200 million to date, before transaction costs.

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 on our condensed consolidated statements of operations for all periods presented.

Distributions to our joint venture partner are reported as financing cash outflows on our condensed consolidated statements of cash flows for all periods presented.

Elk Hills Carbon JV

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 (FEED) scope and study.

The project received financial assistance from the U.S.

Department of Energy and project participants include us, Electric Power Research Institute (EPRI), and Fluor Corporation.

We formed a joint venture with OGCI called Elk Hills Carbon LLC (Elk Hills Carbon JV) to assist with our share of the funding obligation.

OGCI contributed approximately $ 2 million to the Elk Hills Carbon JV in the first quarter of 2020 and the cost-sharing payment was made to EPRI during the second quarter of 2020.

We are currently evaluating the results of the FEED scope and study.

The amounts related to our Elk Hills Carbon JV are not significant to our condensed consolidated financial statements for all periods presented.

The following is a summary of a consolidated joint venture arrangement which was terminated in October 2020 in connection with our emergence from bankruptcy:

In February 2018, our wholly-owned subsidiary California Resources Elk Hills, LLC entered into a midstream joint venture with ECR Corporate Holdings, L.P.

(ECR), a portfolio company of Ares, with respect to the Elk Hills power plant and a cryogenic gas processing plant (Ares JV).

These assets were held by the joint venture entity, Elk Hills Power, LLC (Elk Hills Power).

We held 50 % of the Class A common interest and 95.25 % of the Class C common interest in Elk Hills Power and 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.

As described in Part II, Item 8 – Financial Statements and Supplementary Data, Note 7 Joint Ventures in our 2020 Annual Report, upon our emergence from bankruptcy, we acquired all of the equity interests held by ECR in exchange for EHP Notes, 20.8 % (subject to dilution) of our common stock and approximately $ 2 million in cash.

Our condensed consolidated statements of operations for the three months ended March 31, 2020 reflect the operations of the Ares JV, with ECR's share of net income (loss) reported in net income attributable to noncontrolling interests.

Distributions to our former joint venture partner are reported as financing cash outflows on our condensed consolidated statement of cash flows for the period ended March 31, 2020.

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., and the JV with Royale Energy, Inc., please see Part II, Item 8 – Financial Statements and Supplementary Data, Note 7 Joint Ventures in our 2020 Annual Report.

NOTE 6 ASSETS HELD FOR SALE

In the second quarter of 2021, we entered into agreements to sell our Ventura basin operations.

We expect to receive cash consideration of up to $ 102 million plus additional earn-out consideration that is linked to future commodity prices.

The consideration includes $ 82 million of cash to be paid at closing and up to $ 20 million of potential additional consideration if the buyer does not perform certain abandonment obligations with respect to the divested properties.

The additional consideration is secured by production payments of $ 20 million over a five-year period.

To the extent the buyer satisfies all of the required abandonment obligations within a five-year period following the close date, none of the $ 20 million of potential additional consideration will be paid to us.

The closing of the transaction is subject to customary closing conditions, including satisfaction of land and environmental due diligence and third-party consents.

The sale of our Ventura basin operations met the criteria for assets held for sale and is classified as such on our condensed consolidated balance sheet as of June 30, 2021.

The amount reported as assets held for sale primarily consists of property, plant and equipment along with associated asset retirement obligations.

These transactions are expected to close in the second half of 2021.

NOTE 7 LAWSUITS, CLAIMS, COMMITMENTS AND CONTINGENCIES

Litigation and Claims

We, or certain of our subsidiaries, are involved, in the normal course of business, in lawsuits, environmental and other claims and other contingencies that seek, among other things, compensation for alleged personal injury, breach of contract, property damage or other losses, punitive damages, civil penalties, or injunctive or declaratory relief.

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

Reserve balances at March 31, 2021 and December 31, 2020 were not material to our condensed consolidated balance sheets as of such dates.

Reserve balances at June 30, 2021 and December 31, 2020 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 cannot be accurately determined.

In October 2020, Signal Hill Services, Inc.

defaulted on its decommissioning obligations associated with two offshore platforms.

The Bureau of Safety and Environmental Enforcement determined that former lessees, including our former parent, Occidental Petroleum Corporation (Oxy) with an approximately 35 % share, are responsible for accrued decommissioning obligations associated with these offshore platforms.

The Bureau of Safety and Environmental Enforcement (BSEE) determined that former lessees, including our former parent, Occidental Petroleum Corporation (Oxy) with a 37.5 % share, are responsible for accrued decommissioning obligations associated with these offshore platforms.

Oxy sold its interest in the platforms approximately 30 years ago and it is our understanding that Oxy has not had any connection to the operations since that time, and is challenging BSEE's order.

Oxy notified us of the claim under the indemnification provisions of the Separation and Distribution Agreement between us and Oxy.

We are currently evaluating this claim.

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 cannot be accurately determined.

We have a commitment of $ 12 million for evaluation and development activities at one of our oil and natural gas properties which is not recorded on our condensed consolidated balance sheets.

In the second quarter of 2021, we entered into an amendment allowing us to accept certain land use requirements which will relieve us from our remaining obligation on or before May 2022.

NOTE 8 DERIVATIVES

We maintain a commodity hedging program primarily focused on crude oil to help protect our cash flows, margins and capital program from the volatility of commodity prices.

We did not have any derivative instruments designated as accounting hedges as of and during the three months ended March 31, 2021 and 2020.

We did not have any derivative instruments designated as accounting hedges as of and for the three and six months ended June 30, 2021 and 2020.

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.

1 unchanged sentence

In addition, the Revolving Credit Facility requires that we maintain hedges on production for not less than two years from each quarter end.

Summary of open derivative contracts — We held the following Brent-based crude oil contracts as of March 31, 2021:

2021 2022 January - October 2023

Summary of open derivative contracts — We held the following Brent-based crude oil contracts as of June 30, 2021:

Barrels per day 36,688 37,037 35,347 35,343 28,773 14,790

13 unchanged sentences

We use combinations of these positions to meet the requirements of our Revolving Credit Facility and to increase the efficacy of our hedging program.

Fair value of derivatives — The following tables present the fair values on a recurring basis (at gross and net) of our outstanding commodity derivatives as of March 31, 2021 and December 31, 2020:

March 31, 2021 (Successor)

Fair value of derivatives — The following tables present the fair values on a recurring basis (at gross and net) of our outstanding commodity derivatives as of June 30, 2021 and December 31, 2020:

June 30, 2021 (Successor)

Classification Gross Amounts at Fair Value Netting Net Fair Value

14 unchanged sentences

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 recognized fair value changes on derivative instruments each reporting period in net derivative (loss) gain from commodity contracts on our condensed consolidated statements of operations for the three months ended March 31, 2021 and 2020.

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

Fair value of interest rate contracts — At March 31, 2021, we held derivative contracts that limited our interest-rate exposure with respect to a notional amount of $ 1.3 billion of variable-rate indebtedness.

The fair value of our interest-rate derivative contracts was not significant for all periods presented and these contracts expired on May 4, 2021.

NOTE 9 EARNINGS PER SHARE

We compute basic and diluted earnings per share (EPS) using the treasury stock method for the three months ended March 31, 2021 and the two-class method for the three months ended March 31, 2020 which is required for participating securities.

Certain of our restricted and performance stock unit awards outstanding during the Predecessor period were considered participating securities because they had non-forfeitable dividend rights at the same rate as our pre-emergence common stock.

Our restricted and performance stock unit awards granted in the first quarter of 2021, as described in Note 15 Stock-Based Compensation , are not considered participating securities since the dividend rights on unvested shares are forfeitable.

Basic and diluted earnings per share (EPS) was calculated using the treasury stock method for the three and six months ended June 30, 2021 and the two-class method for the three and six months ended June 30, 2020, which is required for participating securities.

Certain of our restricted and performance stock unit awards outstanding during the six months ended June 30, 2020 were considered participating securities because they had non-forfeitable dividend rights at the same rate as our pre-emergence common stock.

Our restricted and performance stock unit awards granted during the first half of 2021, as described in Note 13 Stock-Based Compensation , are not considered participating securities since the dividend rights on unvested shares are forfeitable.

Under the two-class method, undistributed earnings allocated to participating securities are subtracted from net income attributable to common stock in determining net income available to common stockholders.

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For diluted EPS, the basic shares outstanding are adjusted by adding potential common shares, if dilutive.

The following table presents the calculation of basic and diluted EPS, for the three months ended March 31, 2021 and 2020:

Successor Predecessor

Three months ended

March 31, Three months ended

The following table presents the calculation of basic and diluted EPS, for the three and six months ended June 30, 2021 and 2020:

Successor Predecessor Successor Predecessor

Three months ended June 30, Three months ended June 30, Six months ended June 30, Six months ended June 30,

2021 2020 2021 2020

(in millions, except per-share amounts)

Numerator for Basic and Diluted Earnings per Share

Numerator for Basic and Diluted EPS

Net loss $ ( 107 ) $ ( 247 ) $ ( 196 ) $ ( 1,992 )

net income attributable to noncontrolling interests

( 4 ) ( 24 ) ( 9 ) ( 75 )

Net loss attributable to common stock $ ( 111 ) $ ( 271 ) $ ( 205 ) $ ( 2,067 )

Denominator for Basic and Diluted Earnings per Share

Denominator for Basic and Diluted EPS

Weighted-average shares 83.1 49.5 83.2 49.4

Earnings per Share

Basic $ ( 1.34 ) $ ( 5.47 ) $ ( 2.46 ) $ ( 41.84 )

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NOTE 10 PENSION AND POSTRETIREMENT BENEFIT PLANS

The following table sets forth the components of the net periodic benefit costs for our defined benefit pension and postretirement benefit plans for the three months ended March 31, 2021 and 2020:

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, 2021 and 2020:

Successor Predecessor

Three months ended March 31, Three months ended March 31,

Three months ended June 30, Three months ended June 30,

Benefit Postretirement

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Interest cost — 1 — 1

Expected return on plan assets ( 1 ) — — —

$ — $ 2 $ 1 $ 2

We did no t make significant contributions to our defined benefit plans for the three months ended March 31, 2021.

We expect to satisfy minimum funding requirements with contributions of approximately $ 3 million to our defined benefit pension plans during the remainder of 2021.

We did no t make significant contributions to our defined benefit pension plans for the three months ended March 31, 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 during 2020, which we paid in December 2020.

NOTE 11 REVENUE RECOGNITION

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

The following table provides disaggregated revenue for sales for oil, natural gas and NGLs to customers:

Successor Predecessor

Three months ended

March 31, Three months ended

(in millions)

Oil, natural gas and NGL sales:

Oil $ 331 $ 356

Natural gas 47 38

NOTE 12 LEASES

Balance sheet information related to our operating and finance leases was as follows:

Classification March 31, 2021 December 31, 2020

Six months ended June 30, Six months ended June 30,

Benefit Postretirement

Benefit Pension

Benefit Postretirement

(in millions)

Operating Other assets $ 39 $ 38

Finance PP&E 1 1

Total leased assets $ 40 $ 39

Operating Accrued liabilities $ 9 $ 6

Finance Accrued liabilities 1 1

Operating Other long-term liabilities 34 35

Finance Other long-term liabilities — —

Total lease liabilities $ 44 $ 42

Our operating lease assets and liabilities increased from year end 2020 primarily due to adding one drilling rig in the first quarter of 2021.

Service cost $ 1 $ 2 $ 1 $ 2

Interest cost — 2 1 2

Expected return on plan assets ( 1 ) — — —

$ — $ 4 $ 2 $ 4

We contributed $ 1 million to our defined benefit plans during the three and six months ended June 30, 2021.

We expect to satisfy our minimum funding requirements with contributions of approximately $ 3 million to our defined benefit pension plans during the remainder of 2021.

We did no t make 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 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.

During 2020, we deferred contributions to our defined benefit pension plans of approximately $ 5 million, which we funded in December 2020.

NOTE 11 INCOME TAXES

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Statutory tax rate changes and other significant or unusual items, if any, are not included in our annual effective income tax rate and are instead recognized as discrete items in the quarter in which they occur.

For the three months ended March 31, 2021 and 2020, we did not provide any current or deferred income tax provision or benefit.

For the six months ended June 30, 2021 and 2020, we did not provide any current or deferred income 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.

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Successor Predecessor

March 31, 2021 March 31, 2020

Six months ended June 30, Six months ended June 30,

(in millions)

2 unchanged sentences

Total $ 3 $ 1,736

At March 31, 2021, we recorded a $ 3 million impairment which was triggered by the change in our business strategy and capital allocation priorities resulting in the impairment of capitalized costs related to projects which were abandoned.

At March 31, 2020, we recorded a $ 1.7 billion impairment which was triggered by the sharp drop in commodity prices at the end of the first quarter of 2020 due to the significant decrease in 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), Russia and other allied producing countries.

Other asset impairments recorded in the three months ended March 31, 2020 primarily included the write-off of amounts due from joint interest partners which were recoverable solely from our partners’ share of future production from associated fields.

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

See Part II, Item 8 – Financial Statements and Supplementary Data, Note 13 Asset Impairment in our 2020 Annual Report for a description of our impairment of proved and unproved oil and gas properties as of March 31, 2020.

We recognized a $ 3 million impairment charge during the six months ended June 30, 2021 which was triggered by the change in our business strategy and capital allocation priorities resulting in the abandonment of certain capital projects.

During the six months ended June 30, 2020, we recorded a $ 1.7 billion impairment which was triggered by the sharp drop in commodity prices at the end of the first quarter of 2020.

NOTE 13 STOCK-BASED COMPENSATION

As a result of our bankruptcy, our Amended and Restated California Resources Corporation Long-Term Incentive Plan was cancelled and, upon emergence, all outstanding stock-based compensation awards granted under this plan were cancelled.

On January 18, 2021, our Board of Directors approved the California Resources Corporation 2021 Long Term Incentive Plan (2021 Incentive Plan) and as a result, the 2021 Incentive Plan became effective.

The 2021 Incentive Plan provides for potential grants of stock options, stock appreciation rights, restricted stock awards, restricted stock units, vested stock awards, dividend equivalents, other stock-based awards and substitute awards to employees, officers, non-employee directors and other service providers of the Company and its affiliates.

See Part II, Item 8 – Financial Statements and Supplementary Data, Note 14 Stock-Based Compensation in our 2020 Annual Report for additional information including the number of shares authorized for awards.

Shares of our common stock may be withheld by us in satisfaction of tax withholding obligations arising upon the vesting of restricted stock and performance stock units.

Stock-based compensation expense is recorded as a component of operating costs and general and administrative expenses on our condensed consolidated statements of operations as follows:

Successor Predecessor

Three months ended

March 31, Three months ended

The California Resources Corporation 2021 Long Term Incentive Plan (Long Term Incentive Plan) provides for potential grants of stock options, stock appreciation rights, restricted stock awards, restricted stock units, vested stock awards, dividend equivalents, other stock-based awards and substitute awards to employees, officers, non-employee directors and other service providers of the Company and its affiliates.

The Long Term Incentive Plan replaces the earlier Amended and Restated California Resources Corporation Long Term Incentive Plan which was cancelled upon our emergence from bankruptcy, along with all outstanding stock-based compensation awards granted thereunder.

Shares of our common stock may be withheld by us in satisfaction of tax withholding obligations arising upon the vesting of restricted stock units (RSUs) and performance stock units (PSUs).

Stock-based compensation expense is primarily recorded in general and administrative expenses on our condensed consolidated statements of operations based on job function of the employees receiving the grants as shown in the table below.

Stock-based compensation reported as a component of operating costs is not significant for all periods presented.

Successor Predecessor Successor Predecessor

Three months ended June 30, Three months ended June 30, Six months ended June 30, Six months ended June 30,

2021 2020 2021 2020

(in millions)

General and administrative expenses $ 4 $ 1 $ 6 $ 2

Operating costs — ( 1 )

Total stock-based compensation expense $ 2 $ —

For the three months ended March 31, 2021 and 2020, we did no t recognize any income tax benefit related to our stock-based compensation.

For the three months ended March 31, 2020, we made cash payments of $ 8 million for the cash-settled portion of our pre-emergence awards.

For the three and six months ended June 30, 2021 and 2020, we did no t recognize any income tax benefit related to our stock-based compensation.

For the three and six months ended June 30, 2020, we made cash payments of $ 7 million and $ 15 million, for the cash-settled portion of our pre-emergence awards, respectively.

Restricted Stock Units

In the first quarter of 2021, we granted restricted stock units (RSUs) to our non-employee directors and certain of our executives.

Executives and non-employee directors were granted RSUs during the first half of 2021 which are in the form of, or equivalent in value to, actual shares of our common stock.

The awards generally vest ratably over three years , with one third of the granted units vesting on each of the first three anniversaries of the applicable date of grant.

RSUs are settled in shares of our common stock at the end of the three-year vesting period.

Compensation expense was measured on the date of grant using the quoted market price of our common stock and is recognized on a straight-line basis over the requisite service periods adjusted for actual forfeitures, if any.

As of March 31, 2021, the unrecognized compensation expense for all of our unvested RSUs was approximately $ 25 million and is expected to be recognized over a weighted-average period of three years .

RSUs are settled in shares of our common stock at the end of the third year of the three-year vesting period.

The following table sets forth RSU activity for the six months ended June 30, 2021:

Number of Units Weighted-Average Grant-Date Fair Value

(in thousands)

Unvested at December 31, 2020 (Successor) — $ —

Granted 1,180 $ 24.74

Cancelled or Forfeited ( 36 ) $ 24.50

Unvested at March 31, 2021 (Successor) 1,048

Unvested at June 30, 2021 (Successor) 1,144

As of June 30, 2021, the unrecognized compensation expense for all of our unvested RSUs was approximately $ 25 million and is expected to be recognized over a weighted-average period of approximately three years .

Performance Stock Units

In the first quarter of 2021, we granted certain of our executives performance stock units (PSUs).

PSUs are earned upon the attainment of specified 60 -trading day volume weighted average prices for shares of our common stock during a three-year service period commencing on the grant date.

Executives were granted PSUs during the first half of 2021 which contained a market condition.

PSUs are earned upon the attainment of specified 60 -trading day volume weighted average prices for shares of our common stock generally during a three-year service period commencing on the grant date.

Once units are earned, the earned units are not reduced for subsequent decreases in stock price.

For the duration of the three-year period, a minimum of 0 % and a maximum of 100 % of the PSUs granted could be earned.

Earned PSUs vest on the third anniversary of the grant date and are settled in shares of our common stock at that time.

Earned PSUs generally vest on the third anniversary of the grant date and are settled in shares of our common stock at that time.

The following table sets forth PSU activity for the six months ended June 30, 2021:

Number of Units Weighted-Average Grant-Date Fair Value

(in thousands)

Unvested at December 31, 2020 (Successor) — $ —

Granted 969 $ 19.72

Cancelled or Forfeited ( 21 ) $ 19.31

Unvested at March 31, 2021 (Successor) 860

Unvested at June 30, 2021 (Successor) 948

The grant date fair value and associated equity compensation expense was measured using a Monte Carlo simulation model which runs a probabilistic assessment of the number of units that will be earned based on a projection of our stock price during the three-year service period.

The range of assumptions used in the Monte Carlo simulation model for the PSUs granted during the first quarter of 2021 were as follows:

The range of assumptions used in the Monte Carlo simulation model for the PSUs granted during the first and second quarter of 2021 were as follows:

Second Quarter First Quarter

Expected volatility (a)

60.00 % - 65.00 %

Risk-free interest rate (b)

0.16 % - 0.17 %

0.17 % - 0.32 %

Dividend yield — % — %

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Compensation expense is recognized on a straight-line basis over the requisite service periods adjusted for actual forfeitures, if any.

As of March 31, 2021, the unrecognized compensation expense for all of our unvested PSUs was approximately $ 16 million and is expected to be recognized over a weighted-average period of three years .

As of June 30, 2021, the unrecognized compensation expense for all of our unvested PSUs was approximately $ 17 million and is expected to be recognized over a weighted-average period of approximately three years .

NOTE 14 EQUITY

In May 2021, our Board of Directors authorized a Share Repurchase Program to acquire up to $ 150 million of our common stock through March 31, 2022.

See Note 15 Subsequent Events for more information on an increase to our Share Repurchase Program.

The repurchases may be effected from time-to-time through open market purchases, privately negotiated transactions, Rule 10b5-1 plans, accelerated stock repurchases, derivative contracts or otherwise in compliance with Rule 10b-18, subject to market conditions.

The Share Repurchase Program does not obligate us to repurchase any dollar amount or number of shares and our Board of Directors may modify, suspend, or discontinue authorization of the program at any time.

As of June 30, 2021, we repurchased 1.4 million shares of our common stock, at an average price of $ 31.56 per share, through either open market purchases or a Rule 10b5-1 plan at an aggregate cost of $ 45 million.

Shares repurchased were held as treasury stock as of June 30, 2021.

NOTE 15 SUBSEQUENT EVENTS

In May 2021, our Board of Directors authorized a Share Repurchase Program (SRP) to acquire up to $ 150 million of our common stock through March 31, 2022.

The repurchases may be affected from time-to-time through open market purchases, privately negotiated transactions, Rule 10b5-1 plans, accelerated stock repurchases, derivative contracts or otherwise in compliance with Rule 10b-18, subject to market conditions.

The SRP does not obligate us to repurchase any dollar amount or number of shares and our Board of Directors may modify, suspend, or discontinue authorization of the program at any time.

Refer to Note 5 Debt for a description of lender commitments in April 2021 and a May 2021 amendment to our Revolving Credit Facility which provides flexibility on hedging requirements and increased our capacity to make certain restricted payments.

In April 2017, we entered into a development joint venture with Macquarie Infrastructure and Real Assets Inc.

(MIRA) to develop certain of our oil and natural gas properties in the San Joaquin basin in exchange for a 90 % working interest in the related properties.

In August 2021, we purchased MIRA’s entire working interest share in the conveyed assets for $ 53 million, before transaction costs.

Prior to the acquisition, our consolidated results reflect only our 10 % working interest share in the productive wells.

Share Repurchase Program

In August 2021, our Board of Directors authorized an increase to the Share Repurchase Program of $ 100 million to $ 250 million of our common stock through March 31, 2022.

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