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Wednesday, Dec 7, 2022
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California Resources Joins Reverse Split Parade

Oil producer California Resources Corp. earlier this month completed a 1-for-10 reverse stock split to avoid becoming a penny stock. But its stock price has continued to decline and now the company must wait to see if oil prices will rebound before it runs out of money. The Chatsworth company is one of several energy companies that have effected reverse splits recently to jack up their share price to stay above the $1 threshold necessary for listing on the Nasdaq or New York Stock Exchange. In a reverse split, a company reduces the number of outstanding shares but multiplies the price by the same factor so shareholders don’t lose any value. In the case of California Resources, each 10 shares of stock became one new share, increasing the price from about $1.50 to more than $15. “I think not only for CRC (California Resources) but for stocks in general, when they start trading very close to $1, especially stocks that usually trade higher, they tend to start thinking about reverse stock splits because of the volatility of day-to-day trading,” said Luana Siegfried, research associate at Raymond James Financial Inc.’s Houston office who follows CRC. Siegfried said the company’s stock traded below the $1 level for about 15 days, putting it at risk of delisting from the New York Stock Exchange. Other companies that reverse split their stock in response to low oil prices include PetroQuest Energy Inc. of Lafayette, La., which completed its 1-for-4 split on May 19; Pacific Drilling of Luxembourg, which completed a 1-for-10 split May 25; Resolute Energy Corp. of Denver, completing a 1-for-5 reverse split June 8; and Stone Energy Corp., also of Lafayette, completing its 1-for-10 reverse split on June 13. “It is generally an admission that the company is in trouble when it enacts a reverse split,” said Robert R. Johnson, chief executive of the American College of Financial Services of Bryn Mawr, Penn. “When done to maintain exchange listing, reverse stock splits are a lifeline for the company to attempt to reverse course and survive and thrive.” Oil stock prices closely correlate to oil prices, which collapsed in late 2014. Previously, oil had traded above $100 a barrel but fell to a low of $32 in January. It currently sells for about $50 a barrel. Oil prices are slowly recovering but perhaps not fast enough for energy companies carrying a lot of debt, including California Resources. “With oil rebounding, cash flows for CRC should get better, and this will probably alleviate all the difficulties in the balance sheet. But timing here will be very important for them,” said Siegfried at Raymond James. “If oil rebounds at the end of this year, we don’t see any issues with the company. But if the rebound lags a little bit, the company could be in an even more difficult situation.”

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