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California Resources Fights Tide of Excess Oil

With the precipitous drop in oil prices amid excessive supplies worldwide, the future of California Resources Corp., one of the largest oil producers in the state, remains in doubt. An attempt to reach an executive from the Santa Clarita company was not successful but an email response from Rich Venn, director of communications, said that California Resources consistently pursues options to preserve and enhance the value of the company. “We are very proud of the diligent efforts of our essential workforce who safely operate critical energy infrastructure in the state,” the email said. “We provide a valuable crude supply to the California economy aligned with California’s stringent environmental and labor standards, and in stark contrast to the 30 foreign crude tankers currently piled up outside Los Angeles ports.” For the fourth quarter ending Dec. 31, California Resources reported an adjusted net income of $36 million (73 cents a share), compared with adjusted net income of $26 million (53 cents) in the same period a year earlier. Revenue dropped 43 percent to $610 million. The company’s share price has lost about 76 percent of its value since the start of the year when it was at $9.57. The share price closed at $2.31 on May 6. On March 27 the company issued a statement addressing media speculation about a possible Chapter 11 reorganization filing. “Over the past five years, we have consistently pursued options to preserve and enhance the value of CRC and we are fighting hard for the best outcome for our shareholders and other stakeholders,” the company said in its statement. “We have significant operating flexibility and are focusing on controlling what we can control, including reducing our capital program and operating costs.” Bloomberg cited anonymous sources who said bankruptcy was an option as CRC works on refinancing about $5 billion in debt, which will start maturing next year. A payment of $74 million in interest is due in June and a proposed out of court debt swap fell through because of the crashing oil demand due to the coronavirus and the conflict for market share between Saudi Arabia and Russia, which has seen global crude prices tumble, the Bloomberg article said. In its statement, California Resources said it would not provide public updates on its financial decisions. Difficult predictions At least one analyst who follows the company was of the opinion that it is difficult to tell for sure how likely it is that the company would go the bankruptcy route. In an email to the Business Journal, Muhammed Ghulam, an analyst with Raymond James & Associates Inc., in St. Petersburg, Fla., said that the coronavirus outbreak has made for unprecedented times. “A lot of this depends on the negotiations between the company and its creditors, which are very difficult to predict,” Ghulam said in the email. California Resources has one advantage over competing oil producers in that fields don’t have shale-centric wells, which deplete quickly. CRC’s structurally mature, shallow-decline-rate asset base makes it more manageable to slash capital spending. “That is indeed what the company has done, halting everything except ‘mechanical integrity’ spending in order to conserve cash,” Ghulam wrote. In early March, in response to a drop in oil prices, California Resources said it was stopping all capital investment and would spend money on keeping its facilities operating in a safe and environmentally responsible manner. “(California Resources) has effectively ceased investment in its internally funded field development and growth projects until the company sees a higher degree of market clarity,” it said in a release, adding that it was already on pace to invest less than $35 million of internally funded capital in the first quarter. However, Ghulam cautioned in the email, there is a very realistic chance that these cost saving measures may not be enough. At the current oil price – which closed at $26.49 a barrel on May 6 – there is minimal operating cash flow and California Resources is among the most highly leveraged oil producers in its peer group, he said. “While there are no debt maturities until June 2021, there is significant concern about the tight margin for error vis-à-vis the upcoming borrowing base redeterminations, as well as the drastically worsened backdrop for any additional joint ventures or asset sales,” Ghulam added. While anything is possible, an acquisition of California Resources by another oil producer is not likely, he continued. “M&A activity typically requires stability in asset and commodity prices as well as credit availability, both of which are in short supply for the oil industry these days,” Ghulam wrote in the email.

Mark Madler
Mark Madler
Mark R. Madler covers aviation & aerospace, manufacturing, technology, automotive & transportation, media & entertainment and the Antelope Valley. He joined the company in February 2006. Madler previously worked as a reporter for the Burbank Leader. Before that, he was a reporter for the City News Bureau of Chicago and several daily newspapers in the suburban Chicago area. He has a bachelor’s of science degree in journalism from the University of Illinois, Urbana-Champaign.
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