Delaware (State or other jurisdiction of incorporation or organization) | 46-5670947 (I.R.S. Employer Identification No.) | |
9200 Oakdale Avenue, Suite 900 Los Angeles, California (Address of principal executive offices) | 91311 (Zip Code) |
Shares of common stock outstanding as of June 30, 2016 | 41,100,276 |
Page | ||
Part I | ||
Item 1 | Financial Statements (unaudited) | |
Consolidated Condensed Balance Sheets | ||
Consolidated Condensed Statements of Operations | ||
Consolidated Condensed Statements of Comprehensive Loss | ||
Consolidated Condensed Statements of Cash Flows | ||
Notes to Consolidated Condensed Financial Statements | ||
Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
The Separation and Spin-off | ||
Business Environment and Industry Outlook | ||
Seasonality | ||
Income Taxes | ||
Operations | ||
Fixed and Variable Costs | ||
Financial and Operating Results | ||
Recent Developments | ||
Balance Sheet Analysis | ||
Statement of Operations Analysis | ||
Liquidity and Capital Resources | ||
Cash Flow Analysis | ||
2016 Capital Program | ||
Subsequent Events | ||
Lawsuits, Claims, Contingencies and Commitments | ||
Significant Accounting and Disclosure Changes | ||
Safe Harbor Statement Regarding Outlook and Forward-Looking Information | ||
Item 3 | Quantitative and Qualitative Disclosures About Market Risk | |
Item 4 | Controls and Procedures | |
Part II | ||
Item 1 | Legal Proceedings | |
Item 1A | Risk Factors | |
Item 5 | Other Disclosures | |
Item 6 | Exhibits |
Item 1. | Financial Statements (unaudited) |
June 30, | December 31, | ||||||
2016 | 2015 | ||||||
CURRENT ASSETS | |||||||
Cash and cash equivalents | $ | 2 | $ | 12 | |||
Trade receivables, net | 195 | 200 | |||||
Inventories | 62 | 58 | |||||
Other current assets | 127 | 227 | |||||
Total current assets | 386 | 497 | |||||
PROPERTY, PLANT AND EQUIPMENT | 20,887 | 20,996 | |||||
Accumulated depreciation, depletion and amortization | (14,814 | ) | (14,684 | ) | |||
Total property, plant and equipment | 6,073 | 6,312 | |||||
OTHER ASSETS | 17 | 244 | |||||
TOTAL ASSETS | $ | 6,476 | $ | 7,053 | |||
CURRENT LIABILITIES | |||||||
Current maturities of long-term debt | $ | 99 | $ | 100 | |||
Accounts payable | 187 | 257 | |||||
Accrued liabilities | 306 | 222 | |||||
Current income taxes | — | 26 | |||||
Total current liabilities | 592 | 605 | |||||
LONG-TERM DEBT - PRINCIPAL AMOUNT | 5,843 | 6,043 | |||||
DEFERRED GAIN AND ISSUANCE COSTS, NET | 456 | 491 | |||||
DEFERRED INCOME TAXES | 45 | — | |||||
OTHER LONG-TERM LIABILITIES | 585 | 830 | |||||
EQUITY | |||||||
Preferred stock (20 million shares authorized at $0.01 par value) no shares outstanding at June 30, 2016 and December 31, 2015 | — | — | |||||
Common stock (200 million shares authorized at $0.01 par value) outstanding shares (June 30, 2016 - 41,100,276 and December 31, 2015 - 38,818,048) | — | — | |||||
Additional paid-in capital | 4,837 | 4,782 | |||||
Accumulated deficit | (5,873 | ) | (5,683 | ) | |||
Accumulated other comprehensive loss | (9 | ) | (15 | ) | |||
Total equity | (1,045 | ) | (916 | ) | |||
TOTAL LIABILITIES AND EQUITY | $ | 6,476 | $ | 7,053 | |||
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
REVENUES AND OTHER | |||||||||||||||
Oil and natural gas net sales | $ | 404 | $ | 621 | $ | 733 | $ | 1,167 | |||||||
Net derivative losses | (118 | ) | (17 | ) | (143 | ) | (18 | ) | |||||||
Other revenue | 31 | 30 | 49 | 62 | |||||||||||
Total revenues and other | 317 | 634 | 639 | 1,211 | |||||||||||
COSTS AND OTHER | |||||||||||||||
Production costs | 188 | 242 | 372 | 484 | |||||||||||
General and administrative expenses | 61 | 85 | 128 | 161 | |||||||||||
Depreciation, depletion and amortization | 138 | 251 | 285 | 504 | |||||||||||
Taxes other than on income | 42 | 53 | 81 | 108 | |||||||||||
Exploration expense | 5 | 7 | 10 | 24 | |||||||||||
Interest and debt expense, net | 74 | 83 | 148 | 162 | |||||||||||
Other (income) expenses, net | (51 | ) | 27 | (117 | ) | 51 | |||||||||
Total costs and other | 457 | 748 | 907 | 1,494 | |||||||||||
LOSS BEFORE INCOME TAXES | (140 | ) | (114 | ) | (268 | ) | (283 | ) | |||||||
Income tax benefit | — | 46 | 78 | 115 | |||||||||||
NET LOSS | $ | (140 | ) | $ | (68 | ) | $ | (190 | ) | $ | (168 | ) | |||
Net loss per share of common stock | |||||||||||||||
Basic | $ | (3.51 | ) | $ | (1.78 | ) | $ | (4.85 | ) | $ | (4.40 | ) | |||
Diluted | $ | (3.51 | ) | $ | (1.78 | ) | $ | (4.85 | ) | $ | (4.40 | ) | |||
Dividends per common share | $ | — | $ | 0.01 | $ | — | $ | 0.02 |
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Net loss | $ | (140 | ) | $ | (68 | ) | $ | (190 | ) | $ | (168 | ) | |||
Other comprehensive income (loss) items: | |||||||||||||||
Pension and postretirement losses (a) | — | (3 | ) | — | (3 | ) | |||||||||
Reclassification to income of realized losses on pension and postretirement (b) | 3 | 5 | 6 | 5 | |||||||||||
Other comprehensive income (loss), net of tax | 3 | 2 | 6 | 2 | |||||||||||
Comprehensive loss | $ | (137 | ) | $ | (66 | ) | $ | (184 | ) | $ | (166 | ) |
(a) | No associated tax for the three and six months ended June 30, 2016. Net of tax of $2 million for the three and six months ended June 30, 2015. See Note 9, Retirement and Postretirement Benefit Plans, for additional information. |
(b) | No associated tax for the three and six months ended June 30, 2016. Net of tax of $(3) million for the three and six months ended June 30, 2015, respectively. See Note 9, Retirement and Postretirement Benefit Plans, for additional information. |
Six months ended June 30, | |||||||
2016 | 2015 | ||||||
CASH FLOW FROM OPERATING ACTIVITIES | |||||||
Net loss | $ | (190 | ) | $ | (168 | ) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||
Depreciation, depletion and amortization | 285 | 504 | |||||
Deferred income tax expense (benefit) | (78 | ) | (115 | ) | |||
Net derivative losses | 143 | 18 | |||||
Proceeds from settled derivatives | 75 | 2 | |||||
Other non-cash (gains) losses in income, net | (150 | ) | 54 | ||||
Dry hole expenses | — | 7 | |||||
Changes in operating assets and liabilities, net | (41 | ) | (70 | ) | |||
Net cash provided by operating activities | 44 | 232 | |||||
CASH FLOW FROM INVESTING ACTIVITIES | |||||||
Capital investments | (26 | ) | (228 | ) | |||
Changes in capital investment accruals | (11 | ) | (203 | ) | |||
Asset divestitures | 19 | — | |||||
Acquisitions and other | — | (9 | ) | ||||
Net cash used by investing activities | (18 | ) | (440 | ) | |||
CASH FLOW FROM FINANCING ACTIVITIES | |||||||
Proceeds from revolving credit facility | 743 | 1,164 | |||||
Repayments of revolving credit facility | (701 | ) | (934 | ) | |||
Payments on long-term debt | (61 | ) | — | ||||
Debt repurchase and amendment costs | (20 | ) | — | ||||
Issuance of common stock | 3 | 5 | |||||
Cash dividends paid | — | (4 | ) | ||||
Net cash (used) provided by financing activities | (36 | ) | 231 | ||||
(Decrease) increase in cash and cash equivalents | (10 | ) | 23 | ||||
Cash and cash equivalents—beginning of period | 12 | 14 | |||||
Cash and cash equivalents—end of period | $ | 2 | $ | 37 |
NOTE 2 | ACCOUNTING AND DISCLOSURE CHANGES |
NOTE 3 | OTHER INFORMATION |
June 30, 2016 | December 31, 2015 | ||||||
(in millions) | |||||||
Materials and supplies | $ | 58 | $ | 55 | |||
Finished goods | 4 | 3 | |||||
Total | $ | 62 | $ | 58 |
June 30, 2016 | December 31, 2015 | ||||||
(in millions) | |||||||
Secured First Lien Bank Debt | |||||||
Revolving Credit Facility | $ | 781 | $ | 739 | |||
Term Loan Facility | 939 | 1,000 | |||||
Senior Secured Second Lien Notes | |||||||
8% Notes Due 2022 | 2,250 | 2,250 | |||||
Senior Unsecured Notes | |||||||
5% Notes Due 2020 | 392 | 433 | |||||
5 ½% Notes Due 2021 | 755 | 829 | |||||
6% Notes Due 2024 | 825 | 892 | |||||
Total Debt - Principal Amount | 5,942 | 6,143 | |||||
Less Current Maturities of Long-Term Debt | (99 | ) | (100 | ) | |||
Long-Term Debt - Principal Amount | $ | 5,843 | $ | 6,043 |
2016 | 2017 | 2018 | |||||||||||||
Q3 | Q4 | Q1 - Q4 | Q1 - Q4 | ||||||||||||
Crude Oil | |||||||||||||||
Calls: | |||||||||||||||
Barrels per day | 19,000 | 25,000 | 12,200 | 23,300 | |||||||||||
Weighted-average price per barrel | $ | 55.08 | $ | 53.62 | $ | 55.91 | $ | 57.99 | |||||||
Puts: | |||||||||||||||
Barrels per day | 28,000 | 3,000 | 4,300 | — | |||||||||||
Weighted-average price per barrel | $ | 50.65 | $ | 50.00 | $ | 50.00 | $ | — | |||||||
Swaps: | |||||||||||||||
Barrels per day | 1,000 | 29,000 | — | — | |||||||||||
Weighted-average price per barrel | $ | 61.25 | $ | 49.43 | $ | — | $ | — | |||||||
Gas | |||||||||||||||
Swaps: | |||||||||||||||
Millions British Thermal Units (MMBTU) per day | 330 | 5,500 | — | — | |||||||||||
Weighted-average price per MMBTU | $ | 3.13 | $ | 3.50 | $ | — | $ | — | |||||||
Forward Contracts: | |||||||||||||||
MMBTU per day | — | — | 6,200 | — | |||||||||||
Weighted-average price per MMBTU | $ | — | $ | — | $ | 3.53 | $ | — |
June 30, 2016 | |||||||||||||
Balance Sheet Classification | Gross Amounts Recognized at Fair Value | Gross Amounts Offset in the Balance Sheet | Net Fair Value Presented in the Balance Sheet | ||||||||||
Assets | |||||||||||||
Commodity Contracts | Other current assets | $ | 66 | $ | (48 | ) | $ | 18 | |||||
Liabilities | |||||||||||||
Commodity Contracts | Accrued liabilities | (52 | ) | 26 | (26 | ) | |||||||
Commodity Contracts | Other long-term liabilities | (95 | ) | 22 | (73 | ) | |||||||
Total derivatives | $ | (81 | ) | $ | — | $ | (81 | ) |
December 31, 2015 | |||||||||||||
Balance Sheet Classification | Gross Amounts Recognized at Fair Value | Gross Amounts Offset in the Balance Sheet | Net Fair Value Presented in the Balance Sheet | ||||||||||
Assets | |||||||||||||
Commodity Contracts | Other current assets | $ | 87 | $ | — | $ | 87 | ||||||
Liabilities | |||||||||||||
Commodity Contracts | Accrued liabilities | (1 | ) | — | (1 | ) | |||||||
Total derivatives | $ | 86 | $ | — | $ | 86 |
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(in millions, except per-share amounts) | |||||||||||||||
Basic EPS calculation | |||||||||||||||
Net loss | $ | (140 | ) | $ | (68 | ) | $ | (190 | ) | $ | (168 | ) | |||
Net loss allocated to participating securities | — | — | — | — | |||||||||||
Net loss available to common stockholders | $ | (140 | ) | $ | (68 | ) | $ | (190 | ) | $ | (168 | ) | |||
Weighted-average common shares outstanding - basic | 39.9 | 38.3 | 39.2 | 38.2 | |||||||||||
Basic EPS | $ | (3.51 | ) | $ | (1.78 | ) | $ | (4.85 | ) | $ | (4.40 | ) | |||
Diluted EPS calculation | |||||||||||||||
Net loss | $ | (140 | ) | $ | (68 | ) | $ | (190 | ) | $ | (168 | ) | |||
Net loss allocated to participating securities | — | — | — | — | |||||||||||
Net loss available to common stockholders | $ | (140 | ) | $ | (68 | ) | $ | (190 | ) | $ | (168 | ) | |||
Weighted-average common shares outstanding - basic | 39.9 | 38.3 | 39.2 | 38.2 | |||||||||||
Dilutive effect of potentially dilutive securities | — | — | — | — | |||||||||||
Weighted-average common shares outstanding - diluted | 39.9 | 38.3 | 39.2 | 38.2 | |||||||||||
Diluted EPS | $ | (3.51 | ) | $ | (1.78 | ) | $ | (4.85 | ) | $ | (4.40 | ) |
Three months ended June 30, | |||||||||||||||
2016 | 2015 | ||||||||||||||
Pension Benefit | Postretirement Benefit | Pension Benefit | Postretirement Benefit | ||||||||||||
(in millions) | |||||||||||||||
Service cost | $ | — | $ | 1 | $ | 1 | $ | 1 | |||||||
Interest cost | 1 | 1 | 1 | 1 | |||||||||||
Expected return on plan assets | (1 | ) | — | (1 | ) | — | |||||||||
Recognized actuarial loss | — | — | 1 | — | |||||||||||
Settlement loss | 3 | — | 8 | — | |||||||||||
Total | $ | 3 | $ | 2 | $ | 10 | $ | 2 |
Six months ended June 30, | |||||||||||||||
2016 | 2015 | ||||||||||||||
Pension Benefit | Postretirement Benefit | Pension Benefit | Postretirement Benefit | ||||||||||||
(in millions) | |||||||||||||||
Service cost | $ | 1 | $ | 2 | $ | 2 | $ | 2 | |||||||
Interest cost | 1 | 2 | 2 | 2 | |||||||||||
Expected return on plan assets | (2 | ) | — | (2 | ) | — | |||||||||
Recognized actuarial loss | 1 | — | 1 | — | |||||||||||
Settlement loss | 6 | — | 8 | — | |||||||||||
Total | $ | 7 | $ | 4 | $ | 11 | $ | 4 |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Brent oil ($/Bbl) | $ | 46.97 | $ | 63.50 | $ | 41.03 | $ | 59.33 | |||||||
WTI oil ($/Bbl) | $ | 45.59 | $ | 57.94 | $ | 39.52 | $ | 53.29 | |||||||
NYMEX gas ($/Mcf) | $ | 1.97 | $ | 2.74 | $ | 2.02 | $ | 2.90 |
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(in millions) | |||||||||||||||
Net loss | $ | (140 | ) | $ | (68 | ) | $ | (190 | ) | $ | (168 | ) | |||
Non-cash, unusual and infrequent items: | |||||||||||||||
Non-cash derivative losses | 137 | 17 | 218 | 20 | |||||||||||
Severance and other employee-related costs | 4 | 10 | 18 | 10 | |||||||||||
Plant turnaround and other costs | 2 | 1 | 9 | 3 | |||||||||||
Gain on retirement of notes | (44 | ) | — | (133 | ) | — | |||||||||
Gain from asset divestitures | (31 | ) | — | (31 | ) | — | |||||||||
Valuation allowance for deferred tax assets (a) | — | — | (63 | ) | — | ||||||||||
Tax effects of these items | — | (11 | ) | — | (13 | ) | |||||||||
Adjusted net loss | $ | (72 | ) | $ | (51 | ) | $ | (172 | ) | $ | (148 | ) | |||
Net loss per diluted share | $ | (3.51 | ) | $ | (1.78 | ) | $ | (4.85 | ) | $ | (4.40 | ) | |||
Adjusted net loss per diluted share | $ | (1.80 | ) | $ | (1.33 | ) | $ | (4.39 | ) | $ | (3.87 | ) |
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(in millions) | |||||||||||||||
Non-cash derivative losses | $ | 137 | $ | 17 | $ | 218 | $ | 20 | |||||||
Proceeds from settled derivatives | (19 | ) | — | (75 | ) | (2 | ) | ||||||||
Net derivative losses | $ | 118 | $ | 17 | $ | 143 | $ | 18 |
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(in millions) | |||||||||||||||
General and administrative expenses | $ | 61 | $ | 85 | $ | 128 | $ | 161 | |||||||
Severance and other employee-related costs | (4 | ) | (10 | ) | (18 | ) | (10 | ) | |||||||
Adjusted general and administrative expenses | $ | 57 | $ | 75 | $ | 110 | $ | 151 |
Three months ended June 30, | Six months ended June 30, | ||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||
Oil (MBbl/d) | |||||||||||
San Joaquin Basin | 56 | 67 | 58 | 67 | |||||||
Los Angeles Basin | 29 | 31 | 31 | 33 | |||||||
Ventura Basin | 5 | 6 | 5 | 6 | |||||||
Sacramento Basin | — | — | — | — | |||||||
Total | 90 | 104 | 94 | 106 | |||||||
NGLs (MBbl/d) | |||||||||||
San Joaquin Basin | 15 | 17 | 16 | 17 | |||||||
Los Angeles Basin | — | — | — | — | |||||||
Ventura Basin | 1 | 1 | 1 | 1 | |||||||
Sacramento Basin | — | — | — | — | |||||||
Total | 16 | 18 | 17 | 18 | |||||||
Natural gas (MMcf/d) | |||||||||||
San Joaquin Basin | 152 | 175 | 149 | 177 | |||||||
Los Angeles Basin | 4 | 2 | 3 | 2 | |||||||
Ventura Basin | 9 | 11 | 9 | 12 | |||||||
Sacramento Basin | 37 | 46 | 38 | 47 | |||||||
Total | 202 | 234 | 199 | 238 | |||||||
Total Production (MBoe/d)(a) | 140 | 161 | 144 | 163 |
Note: | MBbl/d refers to thousands of barrels per day; MMcf/d refers to millions of cubic feet per day; MBoe/d refers to thousands of barrels of oil equivalent per day. |
(a) | Natural gas volumes have been converted to Boe based on the equivalence of energy content between six Mcf of natural gas and one barrel of oil. Barrels of oil equivalence does not necessarily result in price equivalence. The price of natural gas on a barrel of oil equivalent basis is currently substantially lower than the corresponding price for oil and has been similarly lower for a number of years. For example, for the six months ended June 30, 2016, the average prices of Brent oil and NYMEX natural gas were $41.03 per barrel and $2.02 per Mcf, respectively, resulting in an oil-to-gas ratio of approximately 20 to 1. |
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Oil prices with hedge ($ per Bbl) | $ | 43.70 | $ | 56.73 | $ | 39.90 | $ | 51.51 | |||||||
Oil prices without hedge ($ per Bbl) | $ | 41.41 | $ | 56.73 | $ | 35.52 | $ | 51.48 | |||||||
NGLs prices ($ per Bbl) | $ | 22.54 | $ | 20.47 | $ | 19.35 | $ | 21.00 | |||||||
Gas prices ($ per Mcf) | $ | 1.66 | $ | 2.49 | $ | 1.85 | $ | 2.67 |
Three months ended June 30, | Six months ended June 30, | ||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||
Oil with hedge as a percentage of Brent | 93 | % | 89 | % | 97 | % | 87 | % | |||
Oil without hedge as a percentage of Brent | 88 | % | 89 | % | 87 | % | 87 | % | |||
Oil without hedge as a percentage of WTI | 91 | % | 98 | % | 90 | % | 97 | % | |||
Gas with hedge as a percentage of NYMEX | 84 | % | 91 | % | 92 | % | 92 | % |
June 30, 2016 | December 31, 2015 | ||||||
(in millions) | |||||||
Cash and cash equivalents | $ | 2 | $ | 12 | |||
Trade receivables, net | $ | 195 | $ | 200 | |||
Inventories | $ | 62 | $ | 58 | |||
Other current assets | $ | 127 | $ | 227 | |||
Property, plant and equipment, net | $ | 6,073 | $ | 6,312 | |||
Other assets | $ | 17 | $ | 244 |
Current maturities of long-term debt | $ | 99 | $ | 100 | |||
Accounts payable | $ | 187 | $ | 257 | |||
Accrued liabilities | $ | 306 | $ | 222 | |||
Current income taxes | $ | — | $ | 26 | |||
Long-term debt - principal amount | $ | 5,843 | $ | 6,043 | |||
Deferred gain and issuance costs, net | $ | 456 | $ | 491 | |||
Deferred income taxes | $ | 45 | $ | — | |||
Other long-term liabilities | $ | 585 | $ | 830 | |||
Equity | $ | (1,045 | ) | $ | (916 | ) |
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(in millions) | |||||||||||||||
Oil and gas net sales | $ | 404 | $ | 621 | $ | 733 | $ | 1,167 | |||||||
Net derivative losses | (118 | ) | (17 | ) | (143 | ) | (18 | ) | |||||||
Other revenue | 31 | 30 | 49 | 62 | |||||||||||
Production costs | (188 | ) | (242 | ) | (372 | ) | (484 | ) | |||||||
General and administrative expenses | (61 | ) | (85 | ) | (128 | ) | (161 | ) | |||||||
Depreciation, depletion and amortization | (138 | ) | (251 | ) | (285 | ) | (504 | ) | |||||||
Taxes other than on income | (42 | ) | (53 | ) | (81 | ) | (108 | ) | |||||||
Exploration expense | (5 | ) | (7 | ) | (10 | ) | (24 | ) | |||||||
Interest and debt expense, net | (74 | ) | (83 | ) | (148 | ) | (162 | ) | |||||||
Other income (expenses), net | 51 | (27 | ) | 117 | (51 | ) | |||||||||
Income tax benefit | — | 46 | 78 | 115 | |||||||||||
Net loss | $ | (140 | ) | $ | (68 | ) | $ | (190 | ) | $ | (168 | ) | |||
Adjusted net loss(a) | $ | (72 | ) | $ | (51 | ) | $ | (172 | ) | $ | (148 | ) | |||
Adjusted EBITDAX(b) | $ | 160 | $ | 270 | $ | 284 | $ | 468 | |||||||
Effective tax rate | — | % | 40 | % | 29 | % | 41 | % |
(a) | See "Financial and Operating Results" above for our Non-GAAP reconciliation. |
(b) | We define adjusted EBITDAX consistent with our Credit Facilities as earnings before interest expense; income taxes; depreciation, depletion and amortization; exploration expense; and other non-cash, unusual and infrequent items. Our management believes adjusted EBITDAX provides useful information in assessing our financial condition, results of operations and cash flows and is widely used by the industry and investment community. The amounts included in the calculation of adjusted EBITDAX were computed in accordance with GAAP. This measure is a material component of our financial covenants under our Credit Facilities and is provided in addition to, and not as an alternative for, income and liquidity measures calculated in accordance with GAAP. Certain items excluded from adjusted EBITDAX are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic cost of depreciable and depletable assets. Adjusted EBITDAX should be read in conjunction with the information contained in our financial statements prepared in accordance with GAAP. |
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(in millions) | |||||||||||||||
Net loss | $ | (140 | ) | $ | (68 | ) | $ | (190 | ) | $ | (168 | ) | |||
Interest and debt expense | 74 | 83 | 148 | 162 | |||||||||||
Income tax benefit | — | (46 | ) | (78 | ) | (115 | ) | ||||||||
Depreciation, depletion and amortization | 138 | 251 | 285 | 504 | |||||||||||
Exploration expense | 5 | 7 | 10 | 24 | |||||||||||
Adjusted income items(a) | 68 | 28 | 81 | 33 | |||||||||||
Other non-cash items | 15 | 15 | 28 | 28 | |||||||||||
Adjusted EBITDAX | $ | 160 | $ | 270 | $ | 284 | $ | 468 |
(a) | For 2016, includes non-cash losses on outstanding hedges, severance and other employee-related costs, plant turnaround costs, gain on retirement of notes and gain from the sale of assets. For 2015, includes non-cash losses on outstanding hedges, severance and other employee-related costs and rig termination costs. |
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Production costs | $ | 14.76 | $ | 16.59 | $ | 14.21 | $ | 16.39 | |||||||
General and administrative expenses | $ | 0.71 | $ | 1.03 | $ | 0.73 | $ | 0.95 | |||||||
Depreciation, depletion and amortization | $ | 10.21 | $ | 16.72 | $ | 10.28 | $ | 16.60 | |||||||
Taxes other than on income | $ | 2.75 | $ | 3.24 | $ | 2.71 | $ | 3.27 |
2016 | 2017 | 2018 | |||||||||||||
Q3 | Q4 | Q1 - Q4 | Q1 - Q4 | ||||||||||||
Crude Oil | |||||||||||||||
Calls: | |||||||||||||||
Barrels per day | 19,000 | 25,000 | 10,500 | 21,500 | |||||||||||
Weighted-average price per barrel | $ | 55.08 | $ | 53.62 | $ | 56.07 | $ | 58.21 | |||||||
Puts: | |||||||||||||||
Barrels per day | 28,000 | 3,000 | 4,300 | — | |||||||||||
Weighted-average price per barrel | $ | 50.65 | $ | 50.00 | $ | 50.00 | $ | — | |||||||
Swaps: | |||||||||||||||
Barrels per day | 1,000 | 29,000 | — | — | |||||||||||
Weighted-average price per barrel | $ | 61.25 | $ | 49.43 | $ | — | $ | — | |||||||
Gas | |||||||||||||||
Swaps: | |||||||||||||||
MMBTU per day | 330 | 5,500 | — | — | |||||||||||
Weighted-average price per MMBTU | $ | 3.13 | $ | 3.50 | $ | — | $ | — | |||||||
Forward Contracts: | |||||||||||||||
MMBTU per day | — | — | 6,200 | — | |||||||||||
Weighted-average price per MMBTU | $ | — | $ | — | $ | 3.53 | $ | — |
Six months ended June 30, | ||||||||
2016 | 2015 | |||||||
(in millions) | ||||||||
Net cash flows provided by operating activities | $ | 44 | $ | 232 | ||||
Net cash flows used in investing activities | $ | (18 | ) | $ | (440 | ) | ||
Net cash flows (used) provided by financing activities | $ | (36 | ) | $ | 231 | |||
Adjusted EBITDAX (a) | $ | 284 | $ | 468 |
(a) | We define adjusted EBITDAX consistent with our Credit Facilities as earnings before interest expense; income taxes; depreciation, depletion and amortization; exploration expense; and other non-cash, unusual and infrequent items. Our management believes adjusted EBITDAX provides useful information in assessing our financial condition, results of operations and cash flows and is widely used by the industry and investment community. The amounts included in the calculation of adjusted EBITDAX were computed in accordance with GAAP. This measure is a material component of certain of our financial covenants under our Credit Facilities and is provided in addition to, and not as an alternative for, income and liquidity measures calculated in accordance with GAAP. Certain items excluded from adjusted EBITDAX are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic cost of depreciable and depletable assets. Adjusted EBITDAX should be read in conjunction with the information contained in our financial statements prepared in accordance with GAAP. |
Six months ended June 30, | ||||||||
2016 | 2015 | |||||||
(in millions) | ||||||||
Net cash provided by operating activities | $ | 44 | $ | 232 | ||||
Cash interest | 180 | 149 | ||||||
Exploration expenditures | 10 | 17 | ||||||
Other changes in operating assets and liabilities | 41 | 67 | ||||||
Plant turnaround and other costs | 9 | 3 | ||||||
Adjusted EBITDAX | $ | 284 | $ | 468 |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
2016 | 2017 | 2018 | |||||||||||||
Q3 | Q4 | Q1 - Q4 | Q1 - Q4 | ||||||||||||
Crude Oil | |||||||||||||||
Calls: | |||||||||||||||
Barrels per day | 19,000 | 25,000 | 10,500 | 21,500 | |||||||||||
Weighted-average price per barrel | $ | 55.08 | $ | 53.62 | $ | 56.07 | $ | 58.21 | |||||||
Puts: | |||||||||||||||
Barrels per day | 28,000 | 3,000 | 4,300 | — | |||||||||||
Weighted-average price per barrel | $ | 50.65 | $ | 50.00 | $ | 50.00 | $ | — | |||||||
Swaps: | |||||||||||||||
Barrels per day | 1,000 | 29,000 | — | — | |||||||||||
Weighted-average price per barrel | $ | 61.25 | $ | 49.43 | $ | — | $ | — | |||||||
Gas | |||||||||||||||
Swaps: | |||||||||||||||
MMBTU per day | 330 | 5,500 | — | — | |||||||||||
Weighted-average price per MMBTU | $ | 3.13 | $ | 3.50 | $ | — | $ | — | |||||||
Forward Contracts: | |||||||||||||||
MMBTU per day | — | — | 6,200 | — | |||||||||||
Weighted-average price per MMBTU | $ | — | $ | — | $ | 3.53 | $ | — |
Item 4. | Controls and Procedures |
Item 1. | Legal Proceedings |
Item 1.A. | Risk Factors |
Item 5. | Other Disclosures |
Item 6. | Exhibits |
3.1 | Amended and Restated Certificate of Incorporation of California Resources Corporation (incorporated by reference herein to Exhibit 3.1 to the Registrant’s Registration Statement on Form 8-K filed on June 3, 2016). | |
4.1* | Guarantor Supplemental Indenture dated as of March 4, 2016, among California Resources Corporation, California Resources Coles Levee, LLC, certain other guarantors and The Bank of New York Mellon Trust Company, N.A.,, as trustee. | |
4.2* | Guarantor Supplemental Indenture dated as of March 4, 2016, among California Resources Corporation, California Resources Coles Levee, L.P., certain other guarantors and The Bank of New York Mellon Trust Company, N.A.,, as trustee. | |
10.1 | California Resources Corporation Long-Term Incentive Plan, as amended and restated effective May 4, 2016 (incorporated by reference herein to Annex B to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on March 23, 2016). | |
10.2 | First Amendment to the California Resources Corporation 2014 Employee Stock Purchase Plan effective May 4, 2016 (incorporated by reference herein to Annex C-1 to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on March 23, 2016). | |
10.3 | Fourth Amendment to Credit Agreement, dated April 22, 2016, among California Resources Corporation and JP Morgan Chase Bank, N.A., as Administrative Agent, A Swingline Lender and a Letter of Credit Issuer and Bank of America, N.A., as Syndication Agent, Swingline Lender and a Letter of credit Issuer (incorporated by reference herein Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed April 22, 2016). | |
10.4* | Guarantor Supplemental Indenture No. 2, dated as of April 29, 2016, among California Resources Corporation, California Resources Coles Levee, L.P. and California Resources Coles Levee, LLC, certain other guarantors and Wilmington Trust, National Association, as trustee. | |
10.5* | California Resources Corporation Long-Term Incentive Plan, 2016 Annual Incentive Award Summary. | |
10.6* | Form of California Resources Corporation Long-Term Incentive Plan Restricted Stock Unit Award Terms and Conditions. | |
12 | Computation of Ratios of Earnings to Fixed Charges. | |
31.1 | Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certifications of CEO and CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS | XBRL Instance Document. | |
101.SCH | XBRL Taxonomy Extension Schema Document. | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. |
CALIFORNIA RESOURCES CORPORATION |
DATE: | August 4, 2016 | /s/ Roy Pineci | |
Roy Pineci | |||
Executive Vice President - Finance | |||
(Principal Accounting Officer) |
3.1 | Amended and Restated Certificate of Incorporation of California Resources Corporation (incorporated by reference herein to Exhibit 3.1 to the Registrant’s Registration Statement on Form 8-K filed on June 3, 2016). | |
4.1* | Guarantor Supplemental Indenture dated as of March 4, 2016, among California Resources Corporation, California Resources Coles Levee, LLC, certain other guarantors and The Bank of New York Mellon Trust Company, N.A.,, as trustee. | |
4.2* | Guarantor Supplemental Indenture dated as of March 4, 2016, among California Resources Corporation, California Resources Coles Levee, L.P., certain other guarantors and The Bank of New York Mellon Trust Company, N.A.,, as trustee. | |
10.1 | California Resources Corporation Long-Term Incentive Plan, as amended and restated effective May 4, 2016 (incorporated by reference herein to Annex B to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on March 23, 2016). | |
10.2 | First Amendment to the California Resources Corporation 2014 Employee Stock Purchase Plan effective May 4, 2016 (incorporated by reference herein to Annex C-1 to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on March 23, 2016). | |
10.3 | Fourth Amendment to Credit Agreement, dated April 22, 2016, among California Resources Corporation and JP Morgan Chase Bank, N.A., as Administrative Agent, A Swingline Lender and a Letter of Credit Issuer and Bank of America, N.A., as Syndication Agent, Swingline Lender and a Letter of credit Issuer (incorporated by reference herein Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed April 22, 2016). | |
10.4* | Guarantor Supplemental Indenture No. 2, dated as of April 29, 2016, among California Resources Corporation, California Resources Coles Levee, L.P. and California Resources Coles Levee, LLC, certain other guarantors and Wilmington Trust, National Association, as trustee. | |
10.5* | California Resources Corporation Long-Term Incentive Plan, 2016 Annual Incentive Award Summary. | |
10.6* | Form of California Resources Corporation Long-Term Incentive Plan Restricted Stock Unit Award Terms and Conditions. | |
12 | Computation of Ratios of Earnings to Fixed Charges. | |
31.1 | Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certifications of CEO and CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS | XBRL Instance Document. | |
101.SCH | XBRL Taxonomy Extension Schema Document. | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. |
Dated: March 4, 2016 | California Resources Corporation, a Delaware corporation | |
By: | /s/ Michael L. Preston | |
Name: Michael L. Preston | ||
Title: Executive Vice President, General Counsel and Corporate Secretary | ||
California Resources Coles Levee, LLC | ||
By: | /s/ Michael L. Preston | |
Name: Michael L. Preston | ||
Title: Executive Vice President, General Counsel and Corporate Secretary | ||
California Heavy Oil, Inc. | ||
California Resources Petroleum Corporation | ||
California Resources Production Corporation | ||
Southern San Joaquin Production, Inc. | ||
Thums Long Beach Company | ||
By: | /s/ Michael L. Preston | |
Name: Michael L. Preston | ||
Title: Executive Vice President, General Counsel and Corporate Secretary |
California Resources Elk Hills, LLC | ||
CRC Construction Services, LLC | ||
CRC Services, LLC | ||
Socal Holding, LLC | ||
By: | /s/ Michael L. Preston | |
Name: Michael L. Preston | ||
Title: Executive Vice President, General Counsel and Corporate Secretary of California Resources Corporation, its Sole Member | ||
California Resources Long Beach, Inc. | ||
California Resources Tidelands, Inc. | ||
By: | /s/ Michael L. Preston | |
Name: Michael L. Preston | ||
Title: Executive Vice President, General Counsel and Corporate Secretary | ||
California Resources Wilmington, LLC | ||
By: | /s/ Michael L. Preston | |
Name: Michael L. Preston | ||
Title: Vice President, General Counsel and Corporate Secretary of California Resources Tidelands, Inc., its Sole Member | ||
CRC Marketing, Inc. | ||
By: | /s/ D. Adam Smith | |
Name: D. Adam Smith | ||
Title: Assistant Secretary | ||
Elk Hills Power, LLC | ||
By: | /s/ Michael L. Preston | |
Name: Michael L. Preston | ||
Title: Executive Vice President, General Counsel and Corporate Secretary of California Resources Corporation, the Sole Member of California Resources Elk Hills, LLC, its Sole Member | ||
Tidelands Oil Production Company | ||
By: | /s/ Michael L. Preston | |
Name: Michael L. Preston | ||
Title: Vice President, General Counsel and Corporate Secretary of California Resources Tidelands, Inc., its Managing Partner |
The Bank of New York Mellon Trust Company, N.A., as Trustee | ||
By: | /s/ Richard Tarnas | |
Name: Richard Tarnas | ||
Title: Vice President |
California Heavy Oil, Inc. |
California Resources Elk Hills, LLC |
California Resources Long Beach, Inc. |
California Resources Petroleum Corporation |
California Resources Production Corporation |
California Resources Tidelands, Inc. |
California Resources Wilmington, LLC |
CRC Construction Services, LLC |
CRC Marketing, Inc. |
CRC Services, LLC |
Elk Hills Power, LLC |
Socal Holding, LLC |
Southern San Joaquin Production, Inc. |
Thums Long Beach Company |
Tidelands Oil Production Company |
Dated: March 4, 2016 | California Resources Corporation, a Delaware corporation | |
By: | /s/ Michael L. Preston | |
Name: Michael L. Preston | ||
Title: Executive Vice President, General Counsel and Corporate Secretary | ||
California Resources Coles Levee, L.P. | ||
By: | /s/ Michael L. Preston | |
Name: Michael L. Preston | ||
Title: Executive Vice President, General Counsel and Corporate Secretary of California Resources Coles Levee, LLC, its General Partner | ||
California Heavy Oil, Inc. | ||
California Resources Petroleum Corporation | ||
California Resources Production Corporation | ||
Southern San Joaquin Production, Inc. | ||
Thums Long Beach Company | ||
By: | /s/ Michael L. Preston | |
Name: Michael L. Preston | ||
Title: Executive Vice President, General Counsel and Corporate Secretary |
California Resources Elk Hills, LLC | ||
CRC Construction Services, LLC | ||
CRC Services, LLC | ||
Socal Holding, LLC | ||
By: | /s/ Michael L. Preston | |
Name: Michael L. Preston | ||
Title: Executive Vice President, General Counsel and Corporate Secretary of California Resources Corporation, its Sole Member | ||
California Resources Long Beach, Inc. | ||
California Resources Tidelands, Inc. | ||
By: | /s/ Michael L. Preston | |
Name: Michael L. Preston | ||
Title: Vice President, General Counsel and Corporate Secretary | ||
California Resources Wilmington, LLC | ||
By: | /s/ Michael L. Preston | |
Name: Michael L. Preston | ||
Title: Vice President, General Counsel and Corporate Secretary of California Resources Tidelands, Inc., its Sole Member | ||
CRC Marketing, Inc. | ||
By: | /s/ D. Adam Smith | |
Name: D. Adam Smith | ||
Title: Assistant Secretary | ||
Elk Hills Power, LLC | ||
By: | /s/ Michael L. Preston | |
Name: Michael L. Preston | ||
Title: Executive Vice President, General Counsel and Corporate Secretary of California Resources Corporation, the Sole Member of California Resources Elk Hills, LLC, its Sole Member | ||
Tidelands Oil Production Company | ||
By: | /s/ Michael L. Preston | |
Name: Michael L. Preston | ||
Title: Vice President, General Counsel and Corporate Secretary of California Resources Tidelands, Inc., its Managing Partner |
The Bank of New York Mellon Trust Company, N.A., as Trustee | ||
By: | /s/ Richard Tarnas | |
Name: Richard Tarnas | ||
Title: Vice President | ||
California Heavy Oil, Inc. |
California Resources Elk Hills, LLC |
California Resources Long Beach, Inc. |
California Resources Petroleum Corporation |
California Resources Production Corporation |
California Resources Tidelands, Inc. |
California Resources Wilmington, LLC |
CRC Construction Services, LLC |
CRC Marketing, Inc. |
CRC Services, LLC |
Elk Hills Power, LLC |
Socal Holding, LLC |
Southern San Joaquin Production, Inc. |
Thums Long Beach Company |
Tidelands Oil Production Company |
COMPANY | ||
California Resources Corporation, a Delaware corporation | ||
By: | /s/ Michael L. Preston | |
Name: Michael L. Preston | ||
Title: Executive Vice President, General Counsel and Corporate Secretary | ||
NEW GUARANTORS | ||
California Resources Coles Levee, L.P. | ||
By: | /s/ Michael L. Preston | |
Name: Michael L. Preston | ||
Title: Executive Vice President, General Counsel and Corporate Secretary of California Resources Coles Levee, LLC, its General Partner | ||
California Resources Coles Levee, LLC | ||
By: | /s/ Michael L. Preston | |
Name: Michael L. Preston | ||
Title: Executive Vice President, General Counsel and Corporate Secretary | ||
California Resources Wilmington, LLC | ||
By: | /s/ Michael L. Preston | |
Name: Michael L. Preston | ||
Title: Vice President, General Counsel and Corporate Secretary of California Resources Tidelands, Inc., its Sole Member | ||
Wilmington Trust, National Association, as Trustee | ||
By: | /s/ Hallie E. Field | |
Name: Hallie E. Field | ||
Title: Assistant Vice President |
EXISTING GUARANTORS | ||
California Heavy Oil, Inc. | ||
California Resources Petroleum Corporation | ||
California Resources Production Corporation | ||
Southern San Joaquin Production, Inc. | ||
Thums Long Beach Company | ||
By: | /s/ Michael L. Preston | |
Name: Michael L. Preston | ||
Title: Executive Vice President, General Counsel and Corporate Secretary | ||
California Resources Elk Hills, LLC | ||
CRC Construction Services, LLC | ||
CRC Services, LLC | ||
Socal Holding, LLC | ||
By: | /s/ Michael L. Preston | |
Name: Michael L. Preston | ||
Title: Executive Vice President, General Counsel and Corporate Secretary of California Resources Corporation, its Sole Member | ||
California Resources Long Beach, Inc. | ||
California Resources Tidelands, Inc. | ||
By: | /s/ Michael L. Preston | |
Name: Michael L. Preston | ||
Title: Executive Vice President, General Counsel and Corporate Secretary | ||
California Resources Wilmington, LLC | ||
By: | /s/ Michael L. Preston | |
Name: Michael L. Preston | ||
Title: Vice President, General Counsel and Corporate Secretary of California Resources Tidelands, Inc., its Sole Member | ||
CRC Marketing, Inc. | ||
By: | /s/ D. Adam Smith | |
Name: D. Adam Smith | ||
Title: Assistant Secretary |
Elk Hills Power, LLC | ||
By: | /s/ Michael L. Preston | |
Name: Michael L. Preston | ||
Title: Executive Vice President, General Counsel and Corporate Secretary of California Resources Corporation, the Sole Member of California Resources Elk Hills, LLC, its Sole Member | ||
Tidelands Oil Production Company | ||
By: | /s/ Michael L. Preston | |
Name: Michael L. Preston | ||
Title: Vice President, General Counsel and Corporate Secretary of California Resources Tidelands, Inc., its Managing Partner |
Wilmington Trust, National Association, as Trustee | ||
By: | /s/ Hallie E. Field | |
Name: Hallie E. Field | ||
Title: Assistant Vice President |
California Heavy Oil, Inc. |
California Resources Elk Hills, LLC |
California Resources Long Beach, Inc. |
California Resources Petroleum Corporation |
California Resources Production Corporation |
California Resources Tidelands, Inc. |
California Resources Wilmington, LLC |
CRC Construction Services, LLC |
CRC Marketing, Inc. |
CRC Services, LLC |
Elk Hills Power, LLC |
Socal Holding, LLC |
Southern San Joaquin Production, Inc. |
Thums Long Beach Company |
Tidelands Oil Production Company |
Feature | Approved Terms |
Award Type | Cash; Performance-Based Award under section 5.2 of the Company’s Long-Term Incentive Plan (the “LTIP”) |
Grant Date | March 30, 2016 |
Target Incentive Amount | Individual amount as approved by the Compensation Committee on February 11, 2016, for each of the executive officers of the Company. In no event may the maximum amount payable with respect to any 2016 Annual Incentive Award exceed $1.65 million. |
Performance Period | January 1, 2016 to December 31, 2016 |
Performance Goals | See Exhibit 1. Payout percentages for each performance measure will be linearly interpolated for results between threshold and target and between target and maximum. |
Vesting Date | Award will vest upon certification by the committee appointed by the Board to administer the LTIP (the “Committee”) of attainment of Performance Goals following end of Performance Period. |
Committee Negative Discretion Factor | Downward discretion may be applied, at the Committee’s sole discretion, to the bonus payouts to take into consideration factors such as, among others, the state of the industry and the Company’s financial health overall as well as the Company’s competitive relationship to its peer companies. The Committee does not have the discretion to increase bonus payouts. |
Settlement | Payout of Target Incentive Amount (subject to proration as described below) times Total Performance Measure Result times Committee Negative Discretion Factor (if any) will be paid in cash as soon as administratively practicable following the Vesting Date, but in no event later than March 15, 2017. |
Retirement with Consent of Company, Involuntary Termination by the Company without Cause (as determined by the Committee) | If such retirement or termination occurs after June 30, 2016, pro rata forfeiture of Target Incentive Amount and award, based on remaining time in Performance Period. Remaining Target Incentive Amount settles based on actual performance through end of Performance Period. If such retirement or termination occurs on or before June 30, 2016, then the entire Target Incentive Amount and award is forfeited. |
Voluntary Termination (other than Retirement with Consent of Company), Termination by the Company for Cause (as determined by the Committee) | Forfeiture of entire Target Incentive Amount and award. |
Death, Disability | Pro rata forfeiture of Target Incentive Amount and award, based on time remaining in the Performance Period. Remaining Target Incentive Amount settles based on actual performance through end of Performance Period. |
Performance-Based Award | Payout of award amounts attributable to performance measures other than those identified as “Strategic and Individual” on Exhibit 1 are intended to qualify as performance-based compensation for purposes of Section 162(m) of the Internal Revenue Code. |
Date of Grant: | May 27, 2016 |
Restricted Stock Units: | See Morgan Stanley StockPlan Connect “Restricted Stock/Restricted Stock & Cash Units/Awarded” |
Vesting Date Schedule: | One-third of the Restricted Stock Units on May 26, 2017; One-third of the Restricted Stock Units on May 26, 2018; One-third of the Restricted Stock Units on May 26, 2019; (each being a “Vesting Date”) |
EXHIBIT 12 |
Six months ended June 30, | Year ended December 31, | |||||||||||||||||||||||||||
2016 | 2015 | 2015 | 2014(a) | 2013 | 2012 | 2011 | ||||||||||||||||||||||
(Loss) Income before income taxes (b)(c) | $ | (268 | ) | $ | (283 | ) | $ | (5,476 | ) | $ | (2,421 | ) | $ | 1,447 | $ | 1,181 | $ | 1,641 | ||||||||||
Add: | ||||||||||||||||||||||||||||
Interest expense and amortization of debt issuance costs and deferred gain | 148 | 162 | 326 | 72 | — | — | — | |||||||||||||||||||||
Portion of lease rentals representative of the interest factor | 2 | 1 | 4 | 3 | 4 | 4 | 3 | |||||||||||||||||||||
(Loss) Earnings before fixed charges | $ | (118 | ) | $ | (120 | ) | $ | (5,146 | ) | $ | (2,346 | ) | $ | 1,451 | $ | 1,185 | $ | 1,644 | ||||||||||
Fixed charges: | ||||||||||||||||||||||||||||
Interest expense and amortization of debt issuance costs and deferred gain, including capitalized interest | $ | 150 | $ | 168 | $ | 335 | $ | 76 | $ | — | $ | — | $ | — | ||||||||||||||
Portion of lease rentals representative of the interest factor | 2 | 1 | 4 | 3 | 4 | 4 | 3 | |||||||||||||||||||||
Total fixed charges | $ | 152 | $ | 169 | $ | 339 | $ | 79 | $ | 4 | $ | 4 | $ | 3 | ||||||||||||||
Ratio of earnings to fixed charges(d) | n/a | n/a | n/a | n/a | 363 | 296 | 548 | |||||||||||||||||||||
Insufficient coverage | $ | 270 | $ | 289 | $ | 5,485 | $ | 2,425 | $ | — | $ | — | $ | — |
(a) | Note: Had we been a stand-alone company for the full year 2014, and had the same level of debt throughout the year as we did on December 31, 2014, of approximately $6.4 billion, we would have incurred $314 million of pre-tax interest expense, on a pro-forma basis, for the year ended December 31, 2014, compared to the $72 million pre-tax interest expense reported on our statement of operations for the year then ended. Therefore, the insufficient coverage on a pro-forma basis would have been approximately $2,437 million. |
(b) | The six months ended June 30, 2016 amount includes non-cash, unusual and infrequent items consisting of $218 million of non-cash derivative losses and net $27 million of other non-recurring charges, offset by $133 million of gains on the retirement of our notes and $31 million of gains from asset divestitures. Excluding these items, our loss before income taxes for the six months ended June 30, 2016 would have been approximately $187 million. Therefore, the insufficient coverage would have been approximately $189 million. The six months ended June 30, 2015 amount includes non-cash, unusual and infrequent items consisting of $20 million of non-cash derivative losses and net $13 million of other non-recurring charges. Excluding these items, our loss before income taxes for the six months ended June 30, 2015 would have been approximately $250 million. Therefore, the insufficient coverage would have been approximately $256 million. |
(c) | The year ended December 31, 2015 amount includes non-cash, unusual and infrequent items consisting of $4.9 billion of asset impairments, $71 million of write-down of certain assets, $67 million of early retirement and severance costs, $11 million of rig termination and other costs and $8 million of debt transactions costs, partially offset by $52 million of non-cash derivative gains. Excluding these items, our loss before income taxes for the year ended December 31, 2015 would have been approximately $519 million. Therefore, the insufficient coverage would have been approximately $528 million. The December 31, 2014 amount includes non-cash, unusual and infrequent items consisting of $3.4 billion of asset impairments, $52 million of rig termination and other price-related costs, and $55 million of Spin-off and transition related costs. Excluding these items, our income before income taxes for the year ended December 31, 2014 would have been approximately $1.1 billion, and the ratio of earnings to fixed charges would have been 15. |
(d) | The 2014 ratio takes into consideration interest on the debt associated with the Spin-off which we entered into during the last half of 2014. |
1. | I have reviewed this quarterly report on Form 10-Q of California Resources Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ Todd A. Stevens | ||
Todd A. Stevens | ||
President and Chief Executive Officer | ||
(Principal Executive Officer) |
1. | I have reviewed this quarterly report on Form 10-Q of California Resources Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ Marshall D. Smith | ||||
Marshall D. Smith | ||||
Senior Executive Vice President and | ||||
Chief Financial Officer | ||||
(Principal Financial Officer) |
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Todd A. Stevens | ||||
Name: | Todd A. Stevens | |||
Title: | President and Chief Executive Officer | |||
Date: | August 4, 2016 |
/s/ Marshall D. Smith | ||||
Name: | Marshall D. Smith | |||
Title: | Senior Executive Vice President and Chief Financial Officer | |||
Date: | August 4, 2016 |
Document and Entity Information |
6 Months Ended |
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Jun. 30, 2016
shares
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Document and Entity Information | |
Entity Registrant Name | California Resources Corp |
Entity Central Index Key | 0001609253 |
Document Type | 10-Q |
Document Period End Date | Jun. 30, 2016 |
Amendment Flag | false |
Current Fiscal Year End Date | --12-31 |
Entity Current Reporting Status | Yes |
Entity Filer Category | Large Accelerated Filer |
Entity Common Stock, Shares Outstanding | 41,100,276 |
Document Fiscal Year Focus | 2016 |
Document Fiscal Period Focus | Q2 |
Consolidated Condensed Balance Sheets (Parenthetical) - $ / shares |
Jun. 30, 2016 |
Dec. 31, 2015 |
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Consolidated Condensed Balance Sheets | ||
Preferred stock, authorized shares | 20,000,000 | 20,000,000 |
Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, outstanding shares | 0 | 0 |
Common stock, authorized shares | 200,000,000 | 200,000,000 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, outstanding shares | 41,100,276 | 38,818,048 |
Consolidated Condensed Statements of Comprehensive Loss - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | |||||||
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Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
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Consolidated Condensed Statements of Comprehensive Loss | |||||||||
Net loss | $ (140) | $ (68) | $ (190) | $ (168) | |||||
Other comprehensive income (loss) items: | |||||||||
Pension and postretirement losses | [1] | (3) | (3) | ||||||
Reclassification to income of realized losses on pension and postretirement | [2] | 3 | 5 | 6 | 5 | ||||
Other comprehensive income (loss), net of tax | 3 | 2 | 6 | 2 | |||||
Comprehensive loss | $ (137) | $ (66) | $ (184) | $ (166) | |||||
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Consolidated Condensed Statements of Comprehensive Income (Parenthetical) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
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Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
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Consolidated Condensed Statements of Comprehensive Loss | ||||
Pension and postretirement losses, tax | $ 0 | $ 2 | $ 0 | $ 2 |
Reclassification to income of realized losses on pensions and postretirement, tax | $ 0 | $ (3) | $ 0 | $ (3) |
THE SPIN-OFF AND BASIS OF PRESENTATION |
6 Months Ended |
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Jun. 30, 2016 | |
THE SPIN-OFF AND BASIS OF PRESENTATION | |
THE SPIN-OFF AND BASIS OF PRESENTATION | NOTE 1THE SPIN-OFF AND BASIS OF PRESENTATION
The Separation and Spin-off
We are an independent oil and natural gas exploration and production company operating properties exclusively within the State of California. We were incorporated in Delaware as a wholly-owned subsidiary of Occidental Petroleum Corporation (Occidental) on April 23, 2014, and remained a wholly-owned subsidiary of Occidental until our spin-off on November 30, 2014 (the Spin-off). Prior to the Spin-off, all material existing assets, operations and liabilities of Occidental’s California business were consolidated under us. On November 30, 2014, Occidental distributed shares of our common stock on a pro rata basis to Occidental stockholders and we became an independent, publicly traded company. Occidental initially retained approximately 18.5% of our outstanding shares of common stock, which it distributed to Occidental stockholders on March 24, 2016.
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.
Basis of Presentation
In the opinion of our management, the accompanying financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to fairly present our financial position as of June 30, 2016, and the statements of operations, comprehensive income, and cash flows for the three and six months ended June 30, 2016 and 2015, as applicable. We have eliminated all of our significant intercompany transactions and accounts. The loss and cash flows for the periods ended June 30, 2016 and 2015 are not necessarily indicative of the loss or cash flows you should expect for the full year.
Certain prior year amounts have been reclassified to conform to the 2016 presentation.
We have prepared this report pursuant to the rules and regulations of the United States Securities and Exchange Commission applicable to interim financial information, which permit 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 not misleading. This Form 10-Q should be read in conjunction with the consolidated and combined financial statements and the notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2015.
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ACCOUNTING AND DISCLOSURE CHANGES |
6 Months Ended |
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Jun. 30, 2016 | |
ACCOUNTING AND DISCLOSURE CHANGES | |
ACCOUNTING AND DISCLOSURE CHANGES | NOTE 2ACCOUNTING AND DISCLOSURE CHANGES
In June 2016, the Financial Accounting Standards Board (FASB) issued rules that change how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value. These rules are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the impact of these rules on our financial statements.
In April 2016, the FASB issued rules requiring that entities recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, in March 2016, the FASB issued rules intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations and whether an entity reports revenue on a gross or net basis. These rules have the same effective date, generally in the first interim period of fiscal 2018, as the related revenue standard issued in 2014. We are currently evaluating the impact of these rules on our financial statements.
In March 2016, the FASB simplified several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. These rules are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, with early adoption permitted. We early adopted these rules in the second quarter of 2016 with no material changes reflected in our financial statements.
In February 2016, the FASB issued rules requiring lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months and to include qualitative and quantitative disclosures with respect to the amount, timing, and uncertainty of cash flows arising from leases. These rules will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with earlier application permitted. We are currently evaluating the impact of these rules on our financial statements.
In January 2016, the FASB issued rules that modify how entities measure equity investments and present changes in the fair value of financial liabilities. Unless the investments qualify for a practicality exception, the new rules require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). Entities will have to record changes in instrument-specific credit risk for financial liabilities measured under the fair value option in other comprehensive income. These new rules become effective for fiscal years beginning after December 15, 2017 with no early adoption permitted. We are currently evaluating the impact of these rules, but we do not expect them to have a significant impact on our financial statements.
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OTHER INFORMATION |
6 Months Ended |
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Jun. 30, 2016 | |
OTHER INFORMATION | |
OTHER INFORMATION | NOTE 3OTHER INFORMATION
Other current assets at June 30, 2016 and December 31, 2015, include amounts due from joint interest partners, net, of approximately $41 million and $42 million and deferred tax assets of $45 million and $59 million.
Other long-term liabilities include asset retirement obligations of $330 million and $343 million at June 30, 2016 and December 31, 2015, respectively.
Other revenue largely comprised sales of the portion of electricity generated by our power plant that is sold to third parties, and the related costs are included in other (income) expenses. In the quarter and six months ended June 30, 2016, other (income) expenses also included a $31 million of gain from the sale of non-core assets, as well as $44 million and $133 million, respectively, of gains related to the retirement of certain senior unsecured notes.
Fair Value of Financial Instruments
The carrying amounts of cash and other on-balance sheet financial instruments, other than debt, approximate fair value.
Supplemental Cash Flow Information
We did not make United States federal and state income tax payments during the six-month periods ended June 30, 2016 and 2015. Interest paid totaled approximately $180 million and $149 million for the six months ended June 30, 2016 and 2015, respectively.
Reverse Stock Split
Our stockholders approved a reverse stock split at the Company’s annual stockholders’ meeting on May 4, 2016. Following this approval, our board of directors authorized a reverse split using a ratio of one share of common stock for every ten shares then outstanding. The split occurred on May 31, 2016 with trading on a post-split basis commencing the following day. Share and per share amounts included in this report have been restated to reflect this reverse stock split.
The split proportionally decreased the number of authorized shares of common stock from 2.0 billion shares to 200 million shares and preferred stock from 200 million to 20 million shares. The compensation committee of our board approved proportionate adjustments to the number of shares outstanding and available for issuance under our stock-based compensation plans and to the exercise price, grant price or purchase price relating to any award under the plans, using the same reverse split ratio, pursuant to existing authority granted to the committee under the plans.
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INVENTORIES |
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INVENTORIES | NOTE 4INVENTORIES
Inventories as of June 30, 2016 and December 31, 2015, consisted of the following:
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DEBT |
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DEBT | NOTE 5DEBT
Debt as of June 30, 2016 and December 31, 2015, consisted of the following:
At June 30, 2016 deferred gain and issuance costs were $456 million net, consisting of $525 million of deferred gains offset by $69 million of deferred issuance costs. The December 31, 2015 deferred gain and issuance costs were $491 million net, consisting of $560 million of deferred gains offset by $69 million of deferred issuance costs.
Credit Facilities
We have a credit agreement effective through September 2019. The credit agreement provides for (i) a $939 million senior term loan facility (the Term Loan Facility) and (ii) a $1.6 billion senior revolving loan facility (the Revolving Credit Facility and, together with the Term Loan Facility, the Credit Facilities). All borrowings under the Credit Facilities are subject to certain customary conditions. We amended the Credit Facilities effective as of February 2016, to change certain of our financial and other covenants. We further amended these agreements in April 2016 to facilitate certain types of deleveraging transactions. Borrowings under our Credit Facilities are subject to a borrowing base which was reaffirmed at $2.3 billion as of May 2016. We have granted our lenders a first-priority lien in a substantial majority of our upstream assets.
The Revolving Credit Facility includes a sub-limit of $400 million for the issuance of letters of credit. As of June 30, 2016 and December 31, 2015, we had outstanding borrowings under our Revolving Credit Facility of $781 million and $739 million, respectively, and outstanding borrowings of $939 million and $1 billion under the Term Loan Facility, respectively. We made two scheduled $25 million quarterly payments on the Term Loan Facility during the quarters ended March 31, 2016 and June 30, 2016 and an $11 million payment from the proceeds of non-core asset sales.
Borrowings under the Credit Facilities bear interest, at our election, at either a LIBOR rate or an alternate base rate (ABR) (equal to the greatest of (i) the administrative agent’s prime rate, (ii) the one-month LIBOR rate plus 1.00% and (iii) the federal funds effective rate plus 0.50%), in each case plus an applicable margin. This applicable margin is based, while our total leverage ratio exceeds 3.00:1.00, on our borrowing base utilization and will vary from (a) in the case of LIBOR loans, 2.50% to 3.50% and (b) in the case of ABR loans, 1.50% to 2.50%. The unused portion of the Revolving Credit Facility commitments, as limited by the borrowing base, is subject to a commitment fee equal to 0.50% per annum. We also pay customary fees and expenses under the Credit Facilities. Interest on ABR loans is payable quarterly in arrears. Interest on LIBOR loans is payable at the end of each LIBOR period, but not less than quarterly.
Our financial performance covenants through December 31, 2016 comprise an obligation to achieve (i) a cumulative minimum EBITDAX during 2016 of $55 million through the first quarter, $130 million through the second quarter, $190 million through the third quarter and $250 million through the fourth quarter and (ii) a trailing four-quarter minimum interest coverage ratio of 2.00:1.00 as of the end of the first quarter of 2016, 1.50:1.00 as of the end of the second quarter, 1.25:1.00 as of the end of the third quarter, 0.70:1.00 as of the end of the fourth quarter and 2.00:1.00 thereafter as of each quarter end. Starting with the end of the first quarter of 2017, we will be subject to a trailing four-quarter maximum first lien senior secured leverage ratio of 2.25:1.00. Oil prices would need to increase significantly in order for us to comply with our covenants at the end of the first quarter of 2017. Unless prices for our products increase significantly, we expect we will need to amend the covenants under our credit facilities before the end of March 2017 in order to remain compliant. We can give no assurances that our lenders will amend our covenants. If we were to breach any of our covenants, our lenders would be permitted to accelerate the principal amount due under the Credit Facilities and foreclose on the assets securing them. If payment were accelerated under our Credit Facilities, it would result in a default under our outstanding notes and permit acceleration and foreclosure on the assets securing the secured notes.
Except as otherwise agreed with our lenders for specific transactions, our Credit Facilities require us to apply 100% of the proceeds from asset sales to repay loans outstanding under the Credit Facilities, except that we are permitted to use up to 40% of proceeds from non-borrowing base asset monetizations to repurchase our notes to the extent available at a significant minimum discount to par, as specified in the facilities. In addition, subject to compliance with our indentures, we may incur additional indebtedness to repurchase our notes to the extent available at a specified minimum discount to par, as follows: (i) up to $1 billion, which may be secured by liens that are junior to the liens securing our Credit Facilities, provided that at least 60% of the proceeds from such new debt is used first to repay loans outstanding under the Term Loan Facility, and (ii) up to $200 million, which may be secured by first-priority liens on our non-borrowing base properties. The Credit Facilities also permit us to incur up to an additional $50 million of non-Credit Facility indebtedness, which, subject to compliance with our indentures, may be secured; and the proceeds of which must be applied to repay the Term Loan Facility. We must apply cash on hand in excess of $150 million to repay amounts outstanding under our Revolving Credit Facility. Further, we are restricted from (i) paying dividends or making other distributions to common stockholders and (ii) making capital investments exceeding $100 million during 2016.
Our borrowing base is redetermined each May 1 and November 1. The borrowing base will be based upon a number of factors, including commodity prices and reserves levels. Increases in our borrowing base require approval of at least 80% of our revolving lenders, as measured by exposure, while decreases require a two-thirds approval. We and the lenders (requiring a request from the lenders holding two-thirds of the revolving commitments and outstanding loans) each may request a special redetermination once in any period between three consecutive scheduled redeterminations. We will be permitted to have collateral released when both (i) our credit ratings are at least Baa3 from Moody’s and BBB- from S&P, in each case with a stable or better outlook, and (ii) certain permitted liens securing other debt are released.
All obligations under the Credit Facilities are guaranteed jointly and severally by all of our material wholly-owned subsidiaries. The assets and liabilities of subsidiaries not guaranteeing the debt are de minimis.
Substantially all of the restrictions imposed by the February 2016 amendment to the Credit Facilities, other than the requirement for semiannual borrowing base redeterminations, may terminate in the future if we are able to comply with the financial covenants as they existed prior to giving effect to the amendment.
At June 30, 2016, we were in compliance with the financial and other covenants under our Credit Facilities.
See Note 11 - Subsequent Events for discussion of our recently announced tender offer, proposed syndicated loan facility and proposed amendment to our Credit Facilities.
Senior Notes
In October 2014, we issued $5.00 billion in aggregate principal amount of our senior unsecured notes, including $1.00 billion of 5% senior unsecured notes due January 15, 2020 (the 2020 notes), $1.75 billion of 5 ½% senior unsecured notes due September 15, 2021 (the 2021 notes) and $2.25 billion of 6% senior unsecured notes due November 15, 2024 (the 2024 notes and together with the 2020 notes and the 2021 notes, the unsecured notes). The unsecured notes were issued at par and are fully and unconditionally guaranteed on a senior unsecured basis by all of our material subsidiaries. We used the net proceeds from the issuance of the unsecured notes to make a $4.95 billion cash distribution to Occidental in October 2014.
In December 2015, we exchanged $534 million, $921 million and $1,358 million in aggregate principal amount of the 2020 notes, the 2021 notes, and the 2024 notes, respectively, for $2.25 billion in aggregate principal amount of newly issued 8% senior secured second lien notes due December 15, 2022 (the 2022 notes). We recorded a deferred gain of approximately $560 million on the debt exchange, which will be amortized using the effective interest rate method over the term of the 2022 notes. Additionally, we incurred approximately $28 million in third-party costs which were fully expensed in 2015. The second lien notes are secured on a second-priority basis, subject to the terms of an intercreditor agreement and collateral trust agreement by a lien on the same collateral used to secure our obligations under our Credit Facilities.
During the three months ended March 31, 2016, we repurchased over $100 million in aggregate principal amount of the senior unsecured notes for under $13 million in cash. During the three months ended June 30, 2016, we entered into privately negotiated exchange agreements with a holder of our 6% Senior Notes due 2024 and our 5 ½% Senior Notes due 2021 to exchange a total of approximately 2.1 million shares of our common stock on a post-split basis for notes in the aggregate principal amount of $80 million.
We will pay interest semiannually in cash in arrears on January 15 and July 15 for the 2020 notes, on March 15 and September 15 for the 2021 notes, on June 15 and December 15 for the 2022 notes and on May 15 and November 15 for the 2024 notes.
The indentures governing the senior unsecured notes and the second lien secured notes each include covenants that, among other things, limit our and our restricted subsidiaries’ ability to incur debt secured by liens. The indentures also restrict our ability to merge or consolidate with, or transfer all or substantially all of our assets to, another entity. These covenants are subject to a number of important qualifications and limitations that are set forth in the indenture. The covenants are not, however, directly linked to measures of our financial performance. In addition, if we experience a “change of control triggering event” (as defined in the indentures) with respect to a series of notes, we will be required, unless we have exercised our right to redeem the notes of such series, to offer to purchase the notes of such series at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest. The indenture governing our second lien secured notes also restricts our ability to sell certain assets and to release collateral from liens securing the second lien secured notes.
Other
We estimate the fair value of fixed-rate debt, which is classified as Level 1, based on prices from known market transactions for our instruments. The estimated fair value of our debt at June 30, 2016 and December 31, 2015, including the fair value of the variable rate portion, was approximately $4.3 billion and $3.6 billion, respectively, compared to a carrying value of approximately $5.9 billion and $6.1 billion. A one-eighth percent change in the variable interest rates on the borrowings under our Credit Facilities on June 30, 2016, would result in a $2.1 million change in annual interest expense.
As of June 30, 2016 and December 31, 2015, we had letters of credit in the aggregate amount of approximately $129 million and $70 million (including $120 million and $49 million under the Revolving Credit Facility), respectively, which were issued to support ordinary course marketing, insurance, regulatory and other matters.
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LAWSUITS, CLAIMS, COMMITMENTS AND CONTINGENCIES |
6 Months Ended |
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Jun. 30, 2016 | |
LAWSUITS, CLAIMS, COMMITMENTS AND CONTINGENCIES | |
LAWSUITS, CLAIMS, COMMITMENTS AND CONTINGENCIES | NOTE 6LAWSUITS, CLAIMS, COMMITMENTS AND CONTINGENCIES
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.
On April 21, 2016, a purported class action was filed against us in the United States District Court for the Southern District of New York on behalf of all beneficial owners of our unsecured notes from November 12, 2015 to the present. The complaint alleges that our December 2015 debt exchange excluded non-qualified institutional holders in violation of the Trust Indenture Act of 1939 and related law and, thereby, impaired their rights to receive principal and interest payments. The purported class action seeks declaratory relief that the debt exchange and the liens securing the new notes are null and void and that the debt exchange resulted in a default. The plaintiff also seeks monetary damages and attorneys’ fees. The Company plans to vigorously defend against the claims made by the plaintiff.
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. Reserves balances at June 30, 2016 and December 31, 2015 were not material to our 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 accrued on our balance sheet would not be material to our consolidated financial position or results of operations.
We, our subsidiaries, or both, have indemnified various parties against specific liabilities those parties might incur in the future in connection with the Spin-off, purchases and other transactions that they have entered into with us. These indemnities include indemnities made to Occidental against certain tax-related liabilities that may be incurred by Occidental relating to the Spin-off and liabilities related to operation of our business while it was still owned by Occidental. As of June 30, 2016, we are not aware of material indemnity claims pending or threatened against the Company.
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DERIVATIVES | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DERIVATIVES | NOTE 7DERIVATIVES
General
We use a variety of derivative instruments intended to improve the effective realized prices for oil and gas and protect our capital program in case of price deterioration. Derivatives are carried at fair value and on a net basis when a legal right of offset exists with the same counterparty. We apply hedge accounting when transactions meet specified criteria for cash-flow hedge treatment and management elects and documents such treatment. Otherwise, we recognize any fair value gains or losses, over the remaining term of the hedge instrument, in earnings in the current period.
As of June 30, 2016, we did not have any derivatives designated as hedges. 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 necessarily accounted for as cash flow or fair value hedges. As part of our hedging program, we entered into a number of derivative transactions that resulted in the following Brent-based crude oil and NYMEX-based gas hedge positions as of June 30, 2016:
During the three months ended June 30, 2016 and subsequent to that period, we purchased derivative assets that partially reduced our call exposure on 2017 production to a total of 10,500 barrels per day with a weighted-average ceiling of $56.07 and our call exposure on our 2018 production to a total of 21,500 barrels per day with a weighted-average ceiling of $58.21.
We will continue to be strategic and opportunistic in implementing our hedging program as market conditions permit. Our objective is to protect against the cyclical nature of commodity prices to protect our cash flows, margins and capital investment program and improve our ability to comply with our credit facility covenants in case of further price deterioration.
Fair Value of Derivatives
Our commodity derivatives are measured at fair value using industry-standard models with various inputs, including quoted forward prices, and are all classified as Level 2 in the required fair value hierarchy for the periods presented. The following table presents the fair values (at gross and net) of our outstanding derivatives as of June 30, 2016 and December 31, 2015 (in millions):
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EARNINGS PER SHARE | NOTE 8EARNINGS PER SHARE
We compute earnings per share (EPS) using the two-class method required for participating securities. Undistributed earnings allocated to participating securities are subtracted from net income in determining net income attributable to common stockholders. Restricted stock awards are considered participating securities because holders of such shares have non-forfeitable dividend rights in the event of our declaration of a dividend for common shares.
The denominator of basic EPS is the sum of the weighted-average number of common shares outstanding during the periods presented and vested stock awards that have not yet been issued as common stock; however, it excludes outstanding shares related to unvested stock awards. The denominator of diluted EPS is based on the basic shares outstanding, adjusted for the effect of outstanding option awards, to the extent they are dilutive. The effect of the stock options granted in August 2015 and December 2014 was anti-dilutive for the periods presented.
For the three and six months ended June 30, 2016, we issued approximately 86,000 shares and 184,000 shares, respectively, of common stock in connection with our employee stock purchase plan. The effect of the employee stock purchase plan was anti-dilutive for both periods.
The following table presents the calculation of basic and diluted EPS for the three- and six-month periods ended June 30, 2016 and 2015:
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RETIREMENT AND POSTRETIREMENT BENEFIT PLANS | NOTE 9RETIREMENT 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:
We contributed $1 million and $3 million to our defined benefit pension plans during the three months ended June 30, 2016 and 2015, respectively. We contributed $6 million and $3 million to our defined benefit pension plans during the six months ended June 30, 2016 and 2015, respectively. We expect to satisfy minimum funding requirements with contributions of $2 million to our defined benefit pension plans during the remainder of 2016. The 2016 and 2015 settlements were associated with early retirements.
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INCOME TAXES |
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INCOME TAXES | |
INCOME TAXES | NOTE 10INCOME TAXES
As a result of the debt exchange in December 2015, we generated cancellation of debt income of $1.39 billion for tax purposes, which represented the excess of the face value of the surrendered notes over the fair value of the newly issued notes at the time of the exchange. The tax gain exceeded our operating loss for the year. We reported the related $336 million of federal and state taxes in current and other long-term liabilities in the accompanying balance sheet at December 31, 2015. During the first quarter of 2016, we reclassified this amount to deferred taxes to reflect the reduction in the tax basis of our assets resulting from the exclusion of the $1.39 billion in cancellation of debt income from our 2015 taxable income. We also recorded a deferred income tax benefit of approximately $78 million to reflect a change in the valuation allowance on our deferred tax assets. During the second quarter of 2016, we recorded a full valuation allowance against the deferred tax assets that resulted from current period tax losses.
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SUBSEQUENT EVENTS |
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SUBSEQUENT EVENTS | |
SUBSEQUENT EVENTS | NOTE 11SUBSEQUENT EVENTS
We announced the commencement on August 1 of our offers to purchase (Tender Offers) up to the combined aggregate principal amount of our notes that can be purchased with $525 million in cash at stated discounts to par. The offers are conditioned on, among other things, (i) entry into, and effectiveness of, an amendment to our Credit Facilities and the availability of sufficient funds from the Credit Facilities necessary to consummate the Tender Offers and (ii) a sufficient aggregate principal amount of our notes being validly tendered (and not validly withdrawn) to result in a minimum of $500 million in aggregate principal amount of our notes being accepted for purchase. Notes accepted for purchase by us would receive base consideration of $510 per $1,000 in principal amount of our 2020 notes accepted, $490 per $1,000 in principal amount of our 2021 notes accepted, $460 per $1,000 in principal amount of our 2024 notes accepted and $625 per $1,000 in principal amount of our 2022 notes accepted, and an early participation premium of $50 per $1,000, plus accrued and unpaid interest. We will not accept more than $200 million in aggregate principal amount of our 2022 notes under the Tender Offers.
We are concurrently seeking to amend our Credit Facilities to permit the consummation of these offers and the incurrence of a new syndicated loan facility. We also expect that the amendment will, among other things, reduce the Revolving Credit Facility commitments from $1.6 billion to $1.4 billion, provide covenant relief until the end of the first quarter of 2018 and grant a lien on our substantially all of our assets not currently pledged to secure the Credit Facilities.
We are seeking an aggregate principal amount of at least $700 million under the syndicated facility, which will be secured by a first priority lien on the same collateral as used to secure the Credit Facilities, but with “second out” collateral recovery pursuant to an intercreditor agreement between the Credit Facility lenders and the syndicated facility lenders. We expect 25% of the proceeds from the syndicated facility to be used to pay down the Term Loan Facility and the balance to be used to pay down the Revolving Loan Facility.
We will consummate the Credit Facility amendment, the syndicated facility and the Tender Offers, if we are able to successfully complete the marketing of the syndicated facility on satisfactory pricing terms and conditions and achieve a successful outcome in the Tender Offers.
Our lenders, under the Credit Facilities or under the syndicated facility, may impose additional restrictions that we have not described. Also, we may otherwise alter the terms of these transactions in response to market conditions.
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THE SPIN-OFF AND BASIS OF PRESENTATION (Policies) |
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Jun. 30, 2016 | |
THE SPIN-OFF AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Basis of Presentation | Basis of Presentation
In the opinion of our management, the accompanying financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to fairly present our financial position as of June 30, 2016, and the statements of operations, comprehensive income, and cash flows for the three and six months ended June 30, 2016 and 2015, as applicable. We have eliminated all of our significant intercompany transactions and accounts. The loss and cash flows for the periods ended June 30, 2016 and 2015 are not necessarily indicative of the loss or cash flows you should expect for the full year.
Certain prior year amounts have been reclassified to conform to the 2016 presentation.
We have prepared this report pursuant to the rules and regulations of the United States Securities and Exchange Commission applicable to interim financial information, which permit 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 not misleading. This Form 10-Q should be read in conjunction with the consolidated and combined financial statements and the notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2015.
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INVENTORIES (Tables) |
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INVENTORIES | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Inventories |
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DEBT (Tables) |
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Schedule of Long-term Debt |
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DERIVATIVES (Tables) |
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Schedule of current hedge positions |
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Gross and net fair values of outstanding derivatives (in millions) | The following table presents the fair values (at gross and net) of our outstanding derivatives as of June 30, 2016 and December 31, 2015 (in millions):
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EARNINGS PER SHARE (Tables) |
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Calculation of basic and diluted EPS |
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RETIREMENT AND POSTRETIREMENT BENEFIT PLANS (Tables) |
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RETIREMENT AND POSTRETIREMENT BENEFIT PLANS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of the net periodic benefit cost |
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THE SPIN-OFF AND BASIS OF PRESENTATION (Details) |
Nov. 30, 2014 |
---|---|
Spinoff - CRC | Occidental Petroleum And Subsidiaries | |
Separation and Spin Off Transactions | |
Percentage of outstanding shares of common stock initially retained by Occidental | 18.50% |
OTHER INFORMATION (Details) shares in Millions, $ in Millions |
3 Months Ended | 6 Months Ended | ||||
---|---|---|---|---|---|---|
May 31, 2016
shares
|
Jun. 30, 2016
USD ($)
shares
|
Jun. 30, 2016
USD ($)
shares
|
Jun. 30, 2015
USD ($)
|
May 30, 2016
shares
|
Dec. 31, 2015
USD ($)
shares
|
|
Interest Paid | $ 180 | $ 149 | ||||
Reverse stock split ratio | 10 | |||||
Common stock, authorized shares | shares | 200 | 200 | 200 | 200 | ||
Preferred stock, authorized shares | shares | 20 | 20 | 20 | 20 | ||
Pre reverse stock split | ||||||
Common stock, authorized shares | shares | 2,000 | |||||
Preferred stock, authorized shares | shares | 200 | |||||
Other (income) expenses | ||||||
Gain on retirement of certain senior unsecured notes | $ 44 | $ 133 | ||||
Gains from the sale of non-core assets | 31 | 31 | ||||
Other current assets | ||||||
Amount due from joint interest partners | 41 | 41 | $ 42 | |||
Deferred tax assets | 45 | 45 | 59 | |||
Other long-term liabilities | ||||||
Asset retirement obligation | $ 330 | $ 330 | $ 343 |
INVENTORIES (Details) - USD ($) $ in Millions |
Jun. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
INVENTORIES | ||
Materials and supplies | $ 58 | $ 55 |
Finished goods | 4 | 3 |
Total | $ 62 | $ 58 |
DEBT - Fair Value and Letters of Credit (Details) - USD ($) $ in Millions |
6 Months Ended | |
---|---|---|
Jun. 30, 2016 |
Dec. 31, 2015 |
|
Other Fixed-Rate and Variable-Rate Debt Disclosures | ||
Estimated fair value of long-term debt | $ 4,300.0 | $ 3,600.0 |
Debt carrying value | $ 5,900.0 | $ 6,100.0 |
Pro Forma | Credit Facilities | ||
Other Variable-Rate Debt Disclosures | ||
Percentage of change in the variable interest rates | 0.125% | |
Effect of 1/8 percent change in annual interest expense | $ 2.1 |
EARNINGS PER SHARE (Details) - USD ($) $ / shares in Units, $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
EARNINGS PER SHARE | ||||
Common stock issued in connection with employee stock purchase plan | 86,000 | 184,000 | ||
Basic EPS | ||||
Net loss | $ (140) | $ (68) | $ (190) | $ (168) |
Net loss available to common stockholders | $ (140) | $ (68) | $ (190) | $ (168) |
Weighed average common shares outstanding - basic | 39,900,000 | 38,300,000 | 39,200,000 | 38,200,000 |
Basic EPS (in dollars per share) | $ (3.51) | $ (1.78) | $ (4.85) | $ (4.40) |
Diluted EPS | ||||
Net loss | $ (140) | $ (68) | $ (190) | $ (168) |
Net loss available to common stockholders | $ (140) | $ (68) | $ (190) | $ (168) |
Weighed average common shares outstanding - basic | 39,900,000 | 38,300,000 | 39,200,000 | 38,200,000 |
Weighted average common shares outstanding - diluted | 39,900,000 | 38,300,000 | 39,200,000 | 38,200,000 |
Diluted EPS (in dollars per share) | $ (3.51) | $ (1.78) | $ (4.85) | $ (4.40) |
RETIREMENT AND POSTRETIREMENT BENEFIT PLANS (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Net periodic benefit costs: | ||||
Employer contributions | $ 1 | $ 3 | $ 6 | $ 3 |
Expected contribution to defined benefit pension plans during the reminder of 2016 | 2 | |||
Pension Benefit | ||||
Net periodic benefit costs: | ||||
Service cost | 1 | 1 | 2 | |
Interest cost | 1 | 1 | 1 | 2 |
Expected return on plan assets | (1) | (1) | (2) | (2) |
Recognized actuarial loss | 1 | 1 | 1 | |
Settlement loss | 3 | 8 | 6 | 8 |
Total | 3 | 10 | 7 | 11 |
Postretirement Benefit | ||||
Net periodic benefit costs: | ||||
Service cost | 1 | 1 | 2 | 2 |
Interest cost | 1 | 1 | 2 | 2 |
Total | $ 2 | $ 2 | $ 4 | $ 4 |
INCOME TAXES (Details) - USD ($) $ in Millions |
1 Months Ended | 3 Months Ended |
---|---|---|
Dec. 31, 2015 |
Mar. 31, 2016 |
|
Cancellation of debt income, for tax purposes | $ 1,390 | |
Deferred tax liabilities | $ 1,390 | |
Deferred income tax benefit due to change in valuation allowance | $ 78 | |
Current and other long-term liabilities | ||
Federal and state taxes reported in current and other long-term liabilities | $ 336 |
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