California Resources Corp 10-Q

Item 1 Financial Statements (unaudited) CALIFORNIA RESOURCES CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets As of June 30, 2021 and December 31, 2020 (in millions, except share data) Successor June 30, December 31, 2021 2020 CURRENT ASSETS Cash $ 151 $ 28 Trade receivables 238 177 Inventories 58 61 Assets held for sale 50 — Other current assets 80 63 Total current assets 577 329 PROPERTY, PLANT AND EQUIPMENT 2,711 2,689 Accumulated depreciation, depletion and amortization ( 138 ) ( 34 ) Total property, plant and equipment, net 2,573 2,655 OTHER ASSETS 90 90 TOTAL ASSETS $ 3,240 $ 3,074 CURRENT LIABILITIES Accounts payable 248 212 Liabilities associated with assets held for sale 101 — Accrued liabilities 537 261 Total current liabilities 886 473 LONG-TERM DEBT, NET 589 597 OTHER LONG-TERM LIABILITIES 850 822 STOCKHOLDERS' EQUITY 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) 1 1 Treasury stock ( 1,440,203 shares held at cost at June 30, 2021 and no shares held at December 31, 2020) ( 45 ) — Additional paid-in capital 1,273 1,268 Accumulated deficit ( 328 ) ( 123 ) Accumulated other comprehensive loss ( 8 ) ( 8 ) Total equity attributable to common stock 893 1,138 Equity attributable to noncontrolling interests 22 44 Total stockholders' equity 915 1,182 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,240 $ 3,074 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 CALIFORNIA RESOURCES CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Operations For the three and six months ended June 30, 2021 and 2020 (dollars in millions, except per share data) 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 REVENUES Oil, natural gas and natural gas liquids (NGL) sales $ 478 $ 245 $ 910 $ 675 Net derivative (loss) gain from commodity contracts ( 265 ) ( 4 ) ( 478 ) 75 Trading revenue 48 14 146 59 Electricity sales 33 19 66 32 Other revenue 10 2 23 8 Total revenues 304 276 667 849 COSTS Operating costs 169 127 333 319 General and administrative expenses 48 69 96 129 Depreciation, depletion and amortization 54 88 106 207 Asset impairments — — 3 1,736 Taxes other than on income 37 38 77 79 Exploration expense 2 2 4 7 Trading costs 30 8 91 32 Electricity cost of sales 17 14 41 30 Transportation costs 14 8 26 21 Other expenses, net 23 37 53 53 Total costs 394 391 830 2,613 OPERATING LOSS ( 90 ) ( 115 ) ( 163 ) ( 1,764 ) NON-OPERATING (LOSS) INCOME Reorganization items ( 2 ) — ( 4 ) — Interest and debt expense, net ( 13 ) ( 85 ) ( 26 ) ( 172 ) Net (loss) gain on early extinguishment of debt — — ( 2 ) 5 Other non-operating expenses ( 2 ) ( 47 ) ( 1 ) ( 61 ) LOSS BEFORE INCOME TAXES ( 107 ) ( 247 ) ( 196 ) ( 1,992 ) Income tax — — — — NET LOSS ( 107 ) ( 247 ) ( 196 ) ( 1,992 ) NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS Mezzanine equity — ( 30 ) — ( 60 ) Stockholders' equity ( 4 ) 6 ( 9 ) ( 15 ) Net income attributable to noncontrolling interests ( 4 ) ( 24 ) ( 9 ) ( 75 ) NET LOSS ATTRIBUTABLE TO COMMON STOCK $ ( 111 ) $ ( 271 ) $ ( 205 ) $ ( 2,067 ) Net loss attributable to common stock per share Basic $ ( 1.34 ) $ ( 5.47 ) $ ( 2.46 ) $ ( 41.84 ) Diluted $ ( 1.34 ) $ ( 5.47 ) $ ( 2.46 ) $ ( 41.84 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 3 CALIFORNIA RESOURCES CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Comprehensive Income (Loss) For the three and six months ended June 30, 2021 and 2020 (dollars in millions) 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 Net loss $ ( 107 ) $ ( 247 ) $ ( 196 ) $ ( 1,992 ) Net income attributable to noncontrolling interests ( 4 ) ( 24 ) ( 9 ) ( 75 ) Comprehensive loss attributable to common stock $ ( 111 ) $ ( 271 ) $ ( 205 ) $ ( 2,067 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 4 CALIFORNIA RESOURCES CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Equity For the three and six months ended June 30, 2021 (dollars in millions) 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 Equity 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 Equity Balance, December 31, 2020 $ 1 $ — $ 1,268 $ ( 123 ) $ ( 8 ) 1,138 $ 44 $ 1,182 Net (loss) income (a) — — — ( 205 ) — ( 205 ) 9 ( 196 ) Distributions to noncontrolling interest holders — — — — — — ( 31 ) ( 31 ) 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. 5 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 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 Comprehensive Loss Equity Attributable to Common Stock Equity Attributable to Noncontrolling Interests Total Equity Redeemable Noncontrolling Interests (b) Balance, December 31, 2019 $ — $ 5,004 $ ( 5,370 ) $ ( 23 ) ( 389 ) $ 93 $ ( 296 ) $ 802 Net (loss) income (a) — — ( 2,067 ) — ( 2,067 ) 15 ( 2,052 ) 60 Contributions from noncontrolling interest holders — — — — — 2 Distributions to noncontrolling interest holders — — — — — ( 32 ) ( 32 ) ( 36 ) Share-based compensation, net — 4 — — 4 — 4 — 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 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. 6 CALIFORNIA RESOURCES CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows For the three and six months ended June 30, 2021 and 2020 (dollars in millions) 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 (used in) operating activities: Depreciation, depletion and amortization 54 88 106 207 Asset impairments — — 3 1,736 Net derivative loss (gain) from commodity contracts 265 4 478 ( 75 ) Net (payments) proceeds from settled commodity derivatives ( 82 ) 5 ( 121 ) 103 Net loss (gain) on early extinguishment of debt — — 2 ( 5 ) Amortization of deferred gain — ( 16 ) — ( 33 ) Gain on asset divestiture — — ( 2 ) — Other non-cash charges to income, net 22 14 29 22 Changes in operating assets and liabilities, net ( 25 ) 17 ( 25 ) 130 Net cash provided by (used in) operating activities 127 ( 135 ) 274 93 CASH FLOW FROM INVESTING ACTIVITIES Capital investments ( 50 ) ( 3 ) ( 77 ) ( 33 ) Changes in accrued capital investments 8 ( 9 ) 13 ( 28 ) Proceeds from asset divestitures — — 2 41 Other ( 1 ) ( 3 ) ( 1 ) ( 7 ) Net cash used in investing activities ( 43 ) ( 15 ) ( 63 ) ( 27 ) CASH FLOW FROM FINANCING ACTIVITIES Proceeds from Revolving Credit Facility — — 16 — Repayments of Revolving Credit Facility — — ( 115 ) — Proceeds from 2014 Revolving Credit Facility — 346 — 795 Repayments of 2014 Revolving Credit Facility — ( 123 ) — ( 582 ) Proceeds from Senior Notes — — 600 — Debt repurchases — — — ( 3 ) Debt issuance costs ( 1 ) — ( 13 ) — Repayment of Second Lien Term Loan — — ( 200 ) — Repayment of EHP Notes — — ( 300 ) — Repayment of 2020 Senior Notes — — — ( 100 ) 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) provided by financing activities ( 63 ) 199 ( 88 ) 43 Increase in cash 21 49 123 109 Cash—beginning of period 130 77 28 17 Cash—end of period $ 151 $ 126 $ 151 $ 126 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 CALIFORNIA RESOURCES CORPORATION AND SUBSIDIARIES Notes to the Condensed Consolidated Financial Statements June 30, 2021 NOTE 1 BASIS OF PRESENTATION We are an independent oil and natural gas exploration and production company operating properties exclusively within California. 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. 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, results of operations, comprehensive income, equity and cash flows for all periods presented. We have eliminated all significant intercompany transactions and accounts. We account for our share of oil and natural gas producing activities, 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 financial statements. 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. We believe our disclosures are adequate to make the information presented not misleading. The preparation of financial statements in conformity with GAAP requires management to select appropriate accounting policies and make informed estimates and judgments regarding certain types of financial statement balances and disclosures. Actual results could differ. Management believes that these estimates and judgments provide a reasonable basis for the fair presentation of our condensed consolidated financial statements. 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). 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. We adopted an accounting convenience date of October 31, 2020 for the application of fresh start accounting. As a result of the application of fresh start accounting and the effects of the implementation of the Plan, the financial statements after October 31, 2020 may not be comparable to the financial statements prior to that date. Accordingly, “black-line” financial statements are presented to distinguish between the Predecessor and Successor companies. References to "Predecessor” refer to the Company for periods ended on or prior to October 31, 2020 and references to “Successor” refer to the Company for periods subsequent to October 31, 2020. See Part II, Item 8 – Financial Statements and Supplementary Data, Note 2 Chapter 11 Proceedings and Note 3 Fresh Start Accounting in our 2020 Annual Report for additional information on the terms of the Plan, our emergence from bankruptcy and application of fresh start accounting. 8 We adopted new accounting guidance on current expected credit losses on January 1, 2020, using a modified retrospective approach to the first period in which the guidance was effective. The new rules changed 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 results in the earlier recognition of an allowance for losses. The adoption of these new rules did not have a significant impact on our condensed consolidated financial statements. NOTE 3 OTHER INFORMATION Other current assets — Other current assets includes the following: Successor June 30, December 31, 2021 2020 (in millions) Amounts due from joint interest partners $ 48 $ 42 Receivables for premiums on derivative contracts 8 — Prepaid expenses 19 20 Other 5 1 Other current assets $ 80 $ 63 Other assets - Other assets includes the following: Successor June 30, December 31, 2021 2020 (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: Successor June 30, December 31, 2021 2020 (in millions) Accrued employee-related costs $ 61 $ 72 Accrued taxes other than on income 31 36 Asset retirement obligations 49 50 Accrued interest 20 1 Lease liability 8 7 Fair value of derivative contracts 265 50 Deferred premiums on derivative contracts 28 18 Net settlement payments due on derivative contracts 34 3 Other 41 24 Accrued liabilities $ 537 $ 261 9 Other long-term liabilities — Other long-term liabilities includes the following: Successor June 30, December 31, 2021 2020 (in millions) Asset retirement obligations $ 448 $ 547 Deferred compensation and postretirement 181 184 Lease liability 31 35 Fair value of derivative contracts 156 6 Deferred premiums on derivative contracts 16 31 Other 18 19 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 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 The carrying amounts of cash and on-balance sheet financial instruments, other than debt, approximate fair value. Refer to Note 5 Debt for the fair value of our debt. Refer to Note 12 Asset Impairments for impairment charges related to our long-lived assets. 10 NOTE 4 INVENTORIES 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: Successor June 30, December 31, 2021 2020 (in millions) Materials and supplies $ 56 $ 58 Finished goods 2 3 Inventories $ 58 $ 61 NOTE 5 DEBT As of June 30, 2021 and December 31, 2020, our long-term debt consisted of the following: Successor June 30, December 31, 2021 2020 Interest Rate Maturity (in millions) Revolving Credit Facility $ — $ 99 LIBOR plus 3 %- 4 % ABR plus 2 %- 3 % April 29, 2024 Second Lien Term Loan — 200 LIBOR plus 9 %- 10.5 % ABR plus 8 %- 9.5 % October 27, 2025 EHP Notes — 300 6 % October 27, 2027 Senior Notes 600 — 7.125 % February 1, 2026 Principal Amount $ 600 $ 599 Unamortized debt issuance costs ( 11 ) ( 2 ) Long-term debt, net $ 589 $ 597 Revolving Credit Facility On October 27, 2020, we entered into a Credit Agreement with Citibank, N.A., as administrative agent, and certain other lenders. 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. The letters of credit were issued to support ordinary course marketing, insurance, regulatory and other matters. The borrowing base is redetermined around April and October of each year and was most recently set at $ 1.2 billion in May 2021. The borrowing base takes into account the estimated value of our proved reserves, total indebtedness and other relevant factors consistent with customary reserves-based lending criteria. The amount we are able to borrow under our Revolving Credit Facility is limited to the amount of the commitment described above. On May 7, 2021, we amended the Revolving Credit Facility to: • increase our borrowing base from $ 1.167 billion to $ 1.2 billion; • evidence the reduction in the aggregate commitment of lenders from $ 540 million to $ 492 million; • 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; and • 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 NGLs for a 48 -month period. 11 As of June 30, 2021, our availability under the Revolving Credit facility was as follows: Successor June 30, 2021 (in millions) Borrowing capacity $ 492 Outstanding letters of credit ( 125 ) Availability $ 367 Senior Notes 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). The net proceeds of $ 587 million, after $ 13 million of debt issuance costs, were used to repay in full our Second Lien Term Loan and EHP Notes, with the remainder used to repay substantially all of the then outstanding borrowings under our Revolving Credit Facility. 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 Term Loan and EHP Notes. We recognized a $ 2 million loss on extinguishment of debt, including unamortized debt issuance costs, associated with these repayments. Other 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. Fair Value We estimate that the fair value of our variable rate debt approximates its carrying value because the interest rate approximates current market rates. 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). Successor June 30, December 31, 2021 2020 (in millions) Variable rate debt $ — $ 299 Fixed rate debt Senior Notes 633 — EHP Notes — 300 Fair Value of Long-Term Debt $ 633 $ 599 12 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 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 (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. Commitment 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 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. Our Revolving Credit Facility requires that we hedge a significant amount of crude oil production for a period of 36 months from the effective date of the facility. In addition, the Revolving Credit Facility requires that we maintain hedges on production for not less than two years from each quarter end. 13 Summary of open derivative contracts — We held the following Brent-based crude oil contracts as of June 30, 2021: Q3 2021 Q4 2021 Q1 2022 Q2 2022 2H 2022 2023 Sold Calls Barrels per day 36,688 37,037 35,347 35,343 28,773 14,790 Weighted-average price per barrel $ 50.47 $ 60.75 $ 60.37 $ 60.63 $ 59.07 $ 58.01 Purchased Puts Barrels per day 36,943 35,820 35,347 35,343 28,773 14,790 Weighted-average price per barrel $ 40.18 $ 40.19 $ 40.57 $ 41.13 $ 40.70 $ 40.00 Sold Puts Barrels per day 14,647 14,193 6,869 — 2,674 — Weighted-average price per barrel $ 30.00 $ 32.00 $ 32.00 $ — $ 32.00 $ — Swaps Barrels per day 11,063 11,922 10,869 8,669 8,386 6,930 Weighted-average price per barrel $ 51.02 $ 52.61 $ 52.62 $ 51.31 $ 51.22 $ 52.15 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. • Swaps – we make settlement payments for prices above the indicated weighted-average price per barrel and receive settlement payments for prices below the indicated weighted-average price per barrel. We use combinations of these positions to meet the requirements of our Revolving Credit Facility and to increase the efficacy of our hedging program. 14 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 Assets (in millions) Other current assets $ 6 $ ( 6 ) $ — Other assets 18 ( 18 ) — Liabilities Accrued liabilities ( 271 ) 6 ( 265 ) Other long-term liabilities ( 174 ) 18 ( 156 ) $ ( 421 ) $ — $ ( 421 ) December 31, 2020 (Successor) Classification Gross Amounts at Fair Value Netting Net Fair Value Assets (in millions) Other current assets, net $ 21 $ ( 21 ) $ — Other assets 63 ( 63 ) — Liabilities Accrued liabilities ( 71 ) 21 ( 50 ) Other long-term liabilities ( 69 ) 63 ( 6 ) $ ( 56 ) $ — $ ( 56 ) 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 and six months ended June 30, 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. NOTE 9 EARNINGS PER SHARE 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. In loss periods, no allocation is made to participating securities because participating securities do not share in losses. For basic EPS, the weighted-average number of common shares outstanding excludes underlying shares related to unvested equity-settled awards and warrants. For diluted EPS, the basic shares outstanding are adjusted by adding potential common shares, if dilutive. 15 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 EPS Net loss $ ( 107 ) $ ( 247 ) $ ( 196 ) $ ( 1,992 ) Less : 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 EPS Weighted-average shares 83.1 49.5 83.2 49.4 EPS Basic $ ( 1.34 ) $ ( 5.47 ) $ ( 2.46 ) $ ( 41.84 ) Diluted $ ( 1.34 ) $ ( 5.47 ) $ ( 2.46 ) $ ( 41.84 ) Weighted-average anti-dilutive shares 6.4 5.2 5.9 4.9 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 and six months ended June 30, 2021 and 2020: Successor Predecessor Three months ended June 30, Three months ended June 30, 2021 2020 Pension Benefit Postretirement Benefit Pension Benefit Postretirement Benefit (in millions) Service cost $ 1 $ 1 $ 1 $ 1 Interest cost — 1 — 1 Expected return on plan assets ( 1 ) — — — Total $ — $ 2 $ 1 $ 2 Successor Predecessor Six months ended June 30, Six months ended June 30, 2021 2020 Pension Benefit Postretirement Benefit Pension Benefit Postretirement Benefit (in millions) Service cost $ 1 $ 2 $ 1 $ 2 Interest cost — 2 1 2 Expected return on plan assets ( 1 ) — — — Total $ — $ 4 $ 2 $ 4 16 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 We estimate our annual effective income tax rate to record our quarterly income tax provision in the jurisdictions in which we operate. 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 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. We believe that there is a reasonable possibility that some or all of this allowance could be released in the foreseeable future. However, the amount of the net deferred tax assets considered realizable depends on the sustained level of profitability that we can achieve. NOTE 12 ASSET IMPAIRMENTS The following table presents a summary of our asset impairments: Successor Predecessor Six months ended June 30, Six months ended June 30, 2021 2020 (in millions) Proved oil and natural gas properties $ — $ 1,487 Unproved properties — 228 Other 3 21 Total $ 3 $ 1,736 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. 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 and other asset impairments during the six months ended June 30, 2020. NOTE 13 STOCK-BASED COMPENSATION 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. 17 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 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 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 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 June 30, 2021 (Successor) 1,144 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 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 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 generally vest on the third anniversary of the grant date and are settled in shares of our common stock at that time. 18 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 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 and second quarter of 2021 were as follows: Second Quarter First Quarter 2021 2021 Expected volatility (a) 60.00 % - 65.00 % 65.00 % Risk-free interest rate (b) 0.16 % - 0.17 % 0.17 % - 0.32 % Dividend yield — % — % Forecast period (in years) 2 - 3 3 (a) Expected volatility was calculated using a peer group due to our limited trading history since our emergence from bankruptcy. (b) Based on the U.S. Treasury yield for a three-year term at the grant date. Compensation expense is recognized on a straight-line basis over the requisite service periods adjusted for actual forfeitures, if any. 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 Acquisitions 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. 19 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. 20