On July 15, 2020, we filed voluntary petitions for relief under Chapter 11 of Title 11 of the Bankruptcy Code (Chapter 11 Cases) in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (Bankruptcy Court). The Chapter 11 Cases were jointly administered under the caption In re California Resources Corporation, et al., Case No. 20-33568 (DRJ). We filed with the Bankruptcy Court, on July 24, 2020, the Debtors’ Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code and, on October 8, 2020, the Amended Debtors’ Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code (as amended, supplemented or modified, the Plan). On October 13, 2020, the Bankruptcy Court confirmed the Plan, which was conditioned on certain items such as obtaining exit financing. The conditions to effectiveness of the Plan were satisfied and we emerged from Chapter 11 on October 27, 2020 (Effective Date). See Note 3 Fresh Start Accounting regarding the use of an accounting convenience date for the date of our emergence.

During the course of the Chapter 11 Cases, the Bankruptcy Court granted the relief requested in certain motions, authorizing payments of pre-petition liabilities with respect to certain employee compensation and benefits, taxes, royalties, certain essential vendor payments and insurance and surety obligations, which allowed our business operations to continue uninterrupted during the pendency of the Chapter 11 Cases. Payments for transactions outside the ordinary course of business required the prior approval of the Bankruptcy Court.

On May 29, 2020, we did not pay approximately $51 million in the aggregate of interest due under our 2017 Credit Agreement and 2016 Credit Agreement. Our failure to make those interest payments constituted events of default under the 2017 Credit Agreement, 2016 Credit Agreement and, as a result of cross default, under the 2014 Revolving Credit Facility.

On June 2, 2020, we entered into forbearance agreements (Forbearance Agreements) with (i) certain lenders of a majority of the outstanding principal amount of the loans under the 2014 Revolving Credit Facility, (ii) certain lenders of a majority of the outstanding principal amount of the loans under the 2016 Credit Agreement, and (iii) certain lenders of a majority of the outstanding principal amount of the loans under the 2017 Credit Agreement. Pursuant to the Forbearance Agreements, the lenders who were parties to the Forbearance Agreements agreed to forbear from exercising any remedies under the 2014 Revolving Credit Facility, 2016 Credit Agreement and 2017 Credit Agreement with respect to our failure to make the aforementioned interest payments, initially through June 14, 2020 and subsequently through July 15, 2020.

On June 15, 2020, we did not make an interest payment of approximately $72 million on our Second Lien Notes. The indenture governing the Second Lien Notes provides for a 30-day grace period, which expired on July 15, 2020. We did not make the July 15, 2020 interest payment and commenced bankruptcy proceedings.

The commencement of a voluntary proceeding in bankruptcy constituted an immediate event of default under the 2014 Revolving Credit Facility, 2016 Credit Agreement, 2017 Credit Agreement, and the indentures governing the Second Lien Notes, 2021 Notes and 2024 Notes, resulting in the automatic and immediate acceleration of all of our outstanding pre-petition long-term debt. Any efforts to enforce payment obligations related to the acceleration of our long-term debt were automatically stayed by the commencement of the Chapter 11 Cases, and the creditors’ rights of enforcement were subject to the applicable provisions of the Bankruptcy Code.

Upon the Effective Date, the balances of the 2016 Credit Agreement, 2017 Credit Agreement, Second Lien Notes, 2021 Notes and 2024 Notes were cancelled pursuant to the terms of the Plan, resulting in a gain of approximately $4 billion included in "Reorganization items, net" on our consolidated statement of operations.

On July 23, 2020, we entered into a Senior Secured Superpriority DIP Credit Agreement with JP Morgan, as administrative agent, and certain other lenders (Senior DIP Credit Agreement), which provided for the senior DIP facility in an aggregate principal amount of up to $483 million (Senior DIP Facility). The Senior DIP Facility included a $250 million revolving facility which was primarily used by us to (i) fund working capital needs, capital expenditures and additional letters of credit during the pendency of the Chapter 11 Cases and (ii) pay certain costs, fees and expenses related to the Chapter 11 Cases and the Senior DIP Facility. Following a hearing, the Bankruptcy Court entered a final order on August 14, 2020, which approved the Senior DIP Facility on a final basis. The Senior DIP Facility also included (i) a $150 million letter of credit facility which was used to redeem letters of credit outstanding under the 2014 Revolving Credit Facility as issued under the Senior DIP Facility, and (ii) $83 million of term loan borrowings which were used to repay a portion of the 2014 Revolving Credit Facility. The Senior DIP Facility allowed for the issuance of an additional $35 million of letters of credit.

On July 23, 2020, we entered into a Junior Secured Superpriority DIP Credit Agreement with Alter Domus, as administrative agent, and certain lenders (Junior DIP Credit Agreement), which provided for a junior DIP facility in an aggregate principal amount of $650 million (Junior DIP Facility and together with the Senior DIP Facility, the DIP Facilities). The proceeds of the Junior DIP Facility were used to (i) refinance in full all remaining obligations under the 2014 Revolving Credit Facility and (ii) pay certain costs, fees and expenses related to the Chapter 11 Cases and the Junior DIP Facility.

The Senior DIP Credit Agreement and Junior DIP Credit Agreement both contained representations, warranties, covenants and events of default that are customary for DIP facilities of their type, including certain milestones applicable to the Chapter 11 Cases, compliance with an agreed budget, hedging on not less than 25% of our share of expected crude oil production for a specified period, and other customary limitations on additional indebtedness, liens, asset dispositions, investments, restricted payments and other negative covenants, in each case subject to exceptions.

Borrowings under the Senior DIP Facility bore interest at the London interbank offered rate (LIBOR) plus 4.5% for LIBOR loans and the alternative base rate (ABR) plus 3.5% for alternative base rate loans. We also agreed to pay an upfront fee equal to 1.0% on the commitment amount of the Senior DIP Facility and quarterly commitment fees of 0.5% on the undrawn portion of the Senior DIP Facility.

Borrowings under the Junior DIP Facility bore interest at a rate of LIBOR plus 9.0% for LIBOR loans and ABR plus 8.0% for alternate base rate loans. We also agreed to pay an upfront fee equal to 1.0% of the commitment amount funded on the closing date and a fronting fee to a fronting lender.

Certain of our subsidiaries, including each of the debtors in the Chapter 11 Cases, guaranteed all obligations under the Senior DIP Credit Agreement and Junior DIP Credit Agreement. We also granted liens on substantially all of our assets, whether now owned or hereafter acquired to secure the obligations under the Senior DIP Credit Agreement and Junior DIP Credit Agreement.

The Senior DIP Facility was repaid in full and terminated on the Effective Date using proceeds borrowed under our new Revolving Credit Facility discussed in Note 8 Debt. The Junior DIP Facility was also repaid in full and terminated on the Effective Date using (i) $200 million from the Second Lien Term Loan discussed below and (ii) $450 million from the Subscription Rights Offering discussed below.

On July 15, 2020, immediately prior to the commencement of the Chapter 11 Cases, we and certain affiliates of Ares Management L.P. (Ares), including ECR Corporate Holdings L.P., a portfolio company of Ares (ECR), entered into a Settlement and Assumption Agreement (Settlement Agreement) related to our midstream joint venture, Elk Hills Power, LLC (Ares JV or Elk Hills Power), which held our Elk Hills power plant and a cryogenic gas processing plant. On August 25, 2020, the Bankruptcy Court entered an order approving the Settlement Agreement on a final basis. Among other things, the Settlement Agreement included a conversion right, which was deemed exercised upon our emergence from bankruptcy, allowing us to acquire all (but not less than all) of the equity interests in the Ares JV held by ECR in exchange for secured notes (EHP Notes; see Note 8 Debt for additional information), approximately 20.8% of our new common stock (Ares Settlement Stock) and approximately $2 million in cash. For more information on the Settlement Agreement, see Note 7 Joint Ventures.

Pursuant to the Plan, we issued subscription rights to holders of our 2017 Credit Agreement, 2016 Credit Agreement, Second Lien Notes, 2021 Notes and 2024 Notes (Rights Offering). These subscription rights entitled holders to purchase up to $450 million of newly issued shares of common stock at $13 per share. Certain holders of our pre-emergence indebtedness agreed to backstop the Rights Offering and purchase additional shares in the event the Rights Offering was not fully subscribed in exchange for a premium. The Rights Offering closed on the Effective Date and we issued 38.1 million shares of common stock pursuant to the Rights Offering, including 3.5 million common shares issued to the backstop parties as a premium.

The following transactions occurred on October 27, 2020, the effective date of the Plan, where we issued an aggregate of 83.3 million shares of new common stock, reserved 4.4 million shares for future issuance upon exercise of the warrants described below and reserved 9.3 million shares for future issuance under our management incentive plan, as described below:

•We acquired all of the member interests in the Ares JV held by ECR in exchange for the EHP Notes, 17.3 million shares of new common stock and approximately $2 million in cash (see Note 8 Debt and Note 7 Joint Ventures for additional information);

•Holders of secured claims under the 2017 Credit Agreement received 22.7 million shares of new common stock in exchange for those claims, and holders of deficiency claims under the 2017 Credit Agreement and all outstanding obligations under the 2016 Credit Agreement, Second Lien Notes, 2021 Notes and 2024 Notes received 4.4 million shares of new common stock in exchange for those claims;

•In connection with the Subscription Rights and Backstop Commitment Agreement, 34.6 million shares of new common stock were issued in exchange for $446 million (net of a $4 million allocation adjustment credit paid to certain backstop parties), the gross proceeds of which were used to pay down our Junior DIP Facility;

The holders of Unsecured Debt Claims (as defined in the Plan) under the 2016 Credit Agreement, Second Lien Notes, 2021 Notes and 2024 Notes received Tier 1 Warrants and Tier 2 Warrants (each as defined in the Plan and collectively, Warrants) to purchase up to 2% and 3%, respectively, of our outstanding shares (on a fully diluted basis calculated immediately after the Effective Date), with an initial exercise price of $36 per share, which expire on October 27, 2024 and have customary anti-dilution protections (refer to Note 15 Equity for additional information on the Warrants).

On January 18, 2021, our Board of Directors approved the California Resources Corporation 2021 Long Term Incentive Plan (2021 Incentive Plan). The shares issuable under the new long-term incentive plan had been previously authorized by the Bankruptcy Court in connection with our emergence from bankruptcy and the terms of the new long-term incentive plan were approved by our Board. As a result, the 2021 Incentive Plan became effective on January 18, 2021. The 2021 Incentive Plan provides for potential grants of stock options, stock appreciation rights, restricted stock awards, restricted stock units, vested stock awards, dividend equivalents, other stock-based awards and substitute awards to employees, officers, non-employee directors and other service providers of the Company and its affiliates. In January 2021, we granted approximately 258,000 restricted stock units to our non-employee directors as the equity portion of their compensation. In addition, certain of our executives were granted approximately 544,000 restricted stock units and approximately 544,000 performance stock units.

As a condition to our emergence, we repaid the outstanding balance of our debtor-in-possession financing with proceeds from our equity offering, Second Lien Term Loan and our new Revolving Credit Facility. For more information on our post-emergence indebtedness, see Note 8 Debt.

On October 27, 2020, all but one of our existing directors resigned and seven new non-employee directors were appointed to our Board of Directors (Board) in connection with our emergence from bankruptcy. In addition, our former Chief Executive Officer and director Todd A. Stevens departed on December 31, 2020. Our new Board is led by Mark A. (Mac) McFarland, our Chairman and interim Chief Executive Officer, and James N. Chapman, our Lead Independent Director.

We reduced our workforce in August 2020 in response to economic conditions. In addition, our former Chief Financial Officer (CFO) departed on August 14, 2020 and former Chief Executive Officer (CEO) on December 31, 2020. In connection with these events, we recorded a charge to other expenses, net of $10 million in the Predecessor period and $5 million in the Successor period for post employment costs which primarily consisted of notice and severance pay. As of December 31, 2020, our remaining liability of $7 million was included in accrued liabilities. During 2019, we implemented operational efficiencies and an organizational redesign that included a reduction in our workforce. We recorded a related charge of $41 million, consisting of $29 million in notice and severance pay and $12 million in other termination benefits. As of December 31, 2019, our remaining liability of $19 million was included in accrued liabilities.

We adopted fresh start accounting upon emergence from bankruptcy because (1) the holders of existing voting shares prior to emergence received less than 50% of our new voting shares following our emergence from bankruptcy and (2) the reorganization value of our assets immediately prior to the confirmation of the Plan was less than the post-petition liabilities and allowed claims, which were included in liabilities subject to compromise as of our emergence date.

For financial reporting purposes, fresh start accounting was applied as of October 31, 2020, an accounting convenience date, to coincide with the timing our normal month-end close process. We evaluated and concluded that events between October 28, 2020 and October 31, 2020 were not significant and the use of an accounting convenience date was appropriate.

Under fresh start accounting, the reorganization value of the emerging entity was assigned to individual assets and liabilities based on their estimated relative fair values. Reorganization value represents the fair value of our total assets prior to the consideration of liabilities and is intended to approximate the amount a willing buyer would pay for the assets immediately after a restructuring. The reorganization value was derived from our enterprise value, which was the estimated fair value of our long-term debt, asset retirement obligations and shareholder’s equity at emergence. In support of the Plan, our enterprise value was estimated and approved by the Bankruptcy Court to be in the range of $2.2 billion to $2.8 billion.

This valuation analysis was prepared using reserve information, development schedules, other financial information and financial projections, and applying standard valuation techniques, including net asset value analysis, precedent transactions analyses and comparable public company analyses. We engaged third-party valuation advisors to assist in determining the value of our Elk Hills power plant, cryogenic gas processing plant, certain real estate and warrants. Using these valuations along with our own internal estimates and assumptions for the value of our proved oil and natural gas reserves, we estimated our enterprise value to be $2.5 billion for financial reporting purposes.

Our principal assets are our oil and natural gas properties. In valuing our proved oil and natural gas properties we used an income approach. Our estimated future revenue, operating costs and development plans were developed internally by our reserve engineers. We applied a discount rate using a market-participant weighted average cost of capital which utilized a blended expected cost of debt and expected returns on equity for similar industry participants. We used a risk-adjusted discount rate for our proved undeveloped locations only. We estimated futures prices to calculate future revenue, as reported on the ICE Brent for oil and NGLs and NYMEX Henry Hub for natural gas as of October 31, 2020, adjusted for pricing differentials and without giving effect to derivative transactions. Operating costs and realized prices for periods after the forward price curve becomes illiquid were adjusted for inflation. No value was ascribed to unproved locations.

The fair value of our Elk Hills power plant, cryogenic gas processing facility (CGP-1) and commercial building in Bakersfield were estimated using a cost approach. The cost approach estimates fair value by considering the amount required to construct or purchase a new asset of equal utility at current prices, with adjustments for asset function, age, physical deterioration and obsolescence. We also considered the history of major capital expenditures.

The fair value of right of use (ROU) assets and associated lease liabilities were measured at the present value of the remaining fixed minimum lease payments as if the leases were new leases at emergence. We used our incremental borrowing rate as the discount rate in determining the present value of the remaining lease payments. Based upon the corresponding lease term, our incremental borrowing rates ranged from 4% to 5%.

The valuations of our pension liabilities and postretirement benefit obligations were performed by a third-party actuary. Valuation assumptions, including discount rates, expected future returns on plan assets, rates of future salary increases, rates of future increases in medical costs, turnover and mortality rates were developed in consultation with the third-party actuary based on current market conditions, current mortality rates and our expectation for future salary increases.

The fair value of our asset retirement obligations was estimated using a discounted cash flow approach for existing idle and currently producing wells and facilities. Our existing well population is approximately 18,000 individual well bores, on gross basis, and we estimated an average plugging and abandonment cost by field based on historical averages. We also factored in our testing plans related to idle well management and estimated failure rates to determine the timing of the cash flows. We utilized a credit adjusted risk free rate as our discount rate which was based on our credit rating and expected cost of borrowing at our emergence date. Our asset retirement obligations were reduced to our working interest share and factored in cost recovery related to our PSC-type contracts.

The fair value of the warrants was estimated using a Black-Scholes model, a commonly used option pricing model. The Black-Scholes was used to estimate the fair value of our warrants with a stock price equal to book equity value per share, strike price, time to expiration, risk-free rate, equity volatility, which was based on a peer group of energy companies and dividend yield, which we estimated to be zero.

The following consolidated balance sheet, with accompanying explanatory notes, illustrates the effects of the transactions contemplated by the Plan (Reorganization Adjustments) and fair value adjustments resulting from the adoption of fresh start accounting (Fresh Start Adjustments) as of October 31, 2020 (in millions):



	Predecessor		Reorganization Adjustments			Fresh Start Adjustments			Successor
CURRENT ASSETS
Cash	$	106	$	97	(1)	$	—		$	203
Trade receivables	149		—			—			149
Inventories	61		—			—			61
Other current assets, net	104		(2)		(2)	—			102
Total current assets	420		95			—			515
PROPERTY, PLANT AND EQUIPMENT	22,918		—			(20,236)		(12)	2,682
Accumulated depreciation, depletion and amortization	(18,588)		—			18,588		(12)	—
Total property, plant and equipment, net	4,330		—			(1,648)			2,682
OTHER ASSETS	77		18		(3)	(4)		(13)	91
TOTAL ASSETS	$	4,827	$	113		$	(1,652)		$	3,288


	Predecessor		Reorganization Adjustments			Fresh Start Adjustments			Successor
CURRENT LIABILITIES


Debtor-in-possession financing	733		(733)		(4)	—			—
Accounts payable	215		—			—			215
Accrued liabilities	233		(16)		(5)	14		(14)	231
Total current liabilities	1,181		(749)			14			446
LONG-TERM DEBT, NET	—		723		(6)	—			723
OTHER LONG-TERM LIABILITIES	725		—			49		(15)	774
LIABILITIES SUBJECT TO COMPROMISE	4,516		(4,516)		(7)	—			—
MEZZANINE EQUITY
Redeemable noncontrolling interests	691		(691)		(8)	—			—
EQUITY
Predecessor preferred stock	—		—			—			—
Predecessor common stock	—		—			—			—
Predecessor additional paid-in capital	5,149		(5,149)		(9)	—			—
Successor preferred stock	—					—			—
Successor common stock	—		1		(10)	—			1
Successor additional paid-in capital	—		1,253		(10)	—			1,253
Successor warrants	—		15		(10)	—			15
Accumulated deficit	(7,481)		9,226		(11)	(1,745)		(16)	—
Accumulated other comprehensive loss	(23)		—			23		(17)	—
Total equity attributable to common stock	(2,355)		5,346			(1,722)			1,269
Equity attributable to noncontrolling interests	69		—			7		(18)	76
Total equity	(2,286)		5,346			(1,715)			1,345
TOTAL LIABILITIES AND EQUITY	$	4,827	$	113		$	(1,652)		$	3,288


Proceeds from Revolving Credit Facility	$	225
Proceeds from Subscription Rights and Backstop Commitment, net	446
Proceeds from Second Lien Term Loan	200
Repayment of debtor-in-possession facilities	(733)
Payment of legal, professional and other fees	(15)
Debt issuance costs for the Revolving Credit Facility	(18)
Debt issuance costs for the Second Lien Term Loan	(2)
Acquisition of noncontrolling interest as part of the Settlement Agreement	(2)
Distribution to noncontrolling interest holder	(3)
Payment of accrued interest and bank fees	(1)
Net change	$	97

Our cash balance of $203 million at October 31, 2020 included $158 million of restricted cash, of which $118 million was used to temporarily collateralize letters of credit, $22 million was held for distributions to a JV partner and $18 million was reserved for legal and professional fees related to our Chapter 11 Cases.

(4)Represents the payoff of $733 million of debtor-in-possession financing including $83 million of borrowings that were outstanding under our Senior DIP Facility and $650 million of borrowings that were outstanding under our Junior DIP Facility. Refer to Note 2 Chapter 11 Proceedings for more information on our debtor-in-possession credit agreements.


Long-term debt (principal amount):
2017 Credit Agreement	$	1,300
2016 Credit Agreement	1,000
Second Lien Notes	1,808
5.5% Senior Notes due 2021	100
6% Senior Notes due 2024	144
Accrued interest	164
Total liabilities subject to compromise	$	4,516

(8)Represents the acquisition of the noncontrolling interest in our Ares JV. In accordance with the Settlement Agreement, we exercised a conversion right upon our emergence from bankruptcy, allowing us to acquire all (but not less than all) of the equity interests in the Ares JV held by ECR in exchange for the EHP Notes, Ares Settlement Stock and approximately $2 million in cash.

(14) Represents a $20 million fair value adjustment to the current portion of asset retirement obligations partially offset by a $5 million decrease in our liability for self-insured medical. Also included are fair value adjustments for our postretirement benefits and a remeasurement of the current portion of our lease liability.

(15) Represents a $36 million fair value adjustment related to the long-term portion of asset retirement obligations and $8 million related to environmental and other abandonment obligations. The adjustment also includes $5 million related to remeasuring our long-term lease liability as if our contracts were new leases.