Chatsworth oil producer California Resources Corp. engineered a debt swap last month that increased the interest rate it pays to note holders in return for reducing the principal amount of the debt. Under the deal, the company will accept $2.8 billion in notes, which will have interest rates between 5 percent and 6 percent and come due between 2020 and 2024. Under the offer, note holders will receive new notes that pay 8 percent, but instead of a face value of $1,000, they will be worth either $750 or $800, depending on when the notes were offered. The company was oversubscribed for the offering. On Dec. 1, it announced $3.65 billion worth of notes were tendered, representing about 73 percent of eligible notes outstanding. After the swap, the $2.8 billion in debt will shrink to about $2.2 billion. Since the deal was offered, CRC’s stock has been on the decline. On Nov. 10, the company’s stock closed at $4.93; three days later, after the results of the offer were announced, it closed at $3.85, a 22 percent drop. Shares closed Dec. 9 at $2.71. In a statement to the Business Journal, CRC said its top financial priority remains to reduce the debt on its balance sheet. “This action is a solid step in that direction,” said the statement. Since the beginning of the year, crude oil prices have dropped to about $40 a barrel from $70 in January – and more than $100 in summer of last year. Pavel Molchanov, who works as an analyst at Raymond James Financial Inc. in Houston, said CRC is buying time with the debt exchange, a move that has become common in the oil industry. “We’ve seen many oil and gas companies take similar steps over the past six months or so,” he said. “Many oil and gas company bonds are trading at sizable discounts to par (in the context of the depressed commodity environment). Thus, management teams can essentially do bond swaps on advantageous terms. In addition, many companies are trying to extend the maturity to a longer timeframe, because this provides extra breathing room, financially speaking.” Just over a year ago, CRC was a subsidiary of Occidental Petroleum Corp., one of the major global oil and gas producers. When Occidental decided to move to Houston, it spun off CRC on Dec. 1 of last year. As part of the spinoff, CRC paid Occidental about $6 billion in dividends, which it funded by issuing $5 billion in bonds. Interest for these bonds costs the company around $330 million annually, a massive debt burden at a time of low oil prices. However, the time-buying strategy might work, as some analysts are predicting oil prices could recuperate if new wells are not drilled and production slows. The debt exchange could provide the company with enough capital to weather this period of exceptionally low barrel prices. “U.S. production is now forecast to decline by a half-million barrels per day over the next six months,” wrote Nick Exarhos, an economist in Toronto for research firm CIBC World Markets, in a Dec. 7 report. “(That’s) a reason to expect at least some price recovery in 2016,” Exarhos continued.