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Oxy Spinoff Hunkers Down, Searching For 'New Normal'

Preparing for a longer period of low crude prices, perhaps two or three more years, Los Angeles-based California Resources Corp. (CRC) after its second full quarter separated from Occidental Petroleum Corp.(Oxy), is focused on whittling down up to $1.6 billion in debt and concentrating on workover rigs in the vast steam flood operations it has in the San Joaquin Basin in the central valley.

CRC CEO Todd Stevens said the company is trying to be "opportunistic and protect investments" as it works to slash costs and get its debt down to $5 billion by the end of next year, principally by selling assets or forming joint ventures (JV) around them. He reported more red ink in the 2Q2015 and for the first half of this year, compared to profits in the same periods in 2014 while still part of Oxy in a much higher-priced crude environment.

In response to questions from analysts, Stevens said CRC has acquired numerous data on all of its potential sales or JV targets -- midstream and upstream. "In some cases we have site visits ongoing [with potential customers], and we're in active discussions with a wide spectrum of players for potential deals," he said. Debt reduction is CRC's top priority.

Stevens said the intent is to have one or two deals worth hundreds of millions of dollars by the end of this year as a start toward the end goal of $1.2 billion reduction by the end of next year. "Everything is on the table," he said.

Part of the plan is to bring in partners on some of the exploration/development of CRC's portfolio of resources. While exploration generally is being cut back in today's low-price environment, Stevens said there still are many parties interested in partnering. "And on the development side, we have looked at anything and everything from dry gas in the Sacramento Basin down to every type of opportunity you might think of in the San Joaquin, Ventura and LA basins," he said

"We are still trying to find a 'new normal' for oil and natural gas prices," Stevens said, adding that until that happens the company and the industry will have to face the challenges that accompany increased volatility in commodity markets. He called CRC's portfolio of about 100,000 b/d production a group of "low-decline assets" that can maintain production levels in the current low-price environment with about $600-700 million in capital spending annually.

"We think this will enable us to sustain production volumes at today's level for each of the next three years, or even longer," Stevens said. "And we think we can do this while maintaining a lower overall decline rate that moderates and continues to do so into the future."

In 2Q2015, CRC's oil production was 104,000 b/d, a 7,000 b/d increase, or 7% on a year-over-year basis. But the production was down by 4,000 b/d compared to 1Q2015, due mostly to production sharing contracts with the city of Long Beach.

CRC is banking a lot on its extensive steam flood operations to keep up its production while most of its drilling rigs are idled by emphasizing workover rigs, which Stevens said can create more value than is generally recognized.

"The workover rig creates much more value for us than any drilling rig typically in this type of environment," he said. "There is no better bang for the buck."

For 2Q2015, CRC recorded an adjusted net loss of $51 million (minus 13 cents/share), compared to adjusted net income of $246 million (63 cents) for the same period last year. For the first six months this year, the adjusted net loss was $148 million (minus 39 cents), compared with adjusted net income of $469 million ($1.21) for the first six months of 2014.

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