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Oxy Spinoff California Resources Corp. Still in Learning Process, CEO Says

With the prolonged commodity price slump as its introduction to independent operations, Occidental Petroleum Corp. (Oxy) spinoff California Resources Corp. (CRC) has recast its corporate strategy after five quarters of independent operations that have seen red ink increase while capital spending and operating costs have been slashed.

From a highly leveraged enterprise that was expected to grow when it was pushed off on its own by Oxy in late 2014 (see Daily GPI, Dec. 2, 2014), CRC CEO Todd Stevens told analysts on a quarterly conference call last Thursday the company is still going through an accelerated learning curve. "The reason you do a spin off is you want to focus on assets that aren't being focused on as much in a larger company," Stevens said.

"With the greater level of focus and work, our operating and management team has given us a much better feel and understanding of things. We've got a much better feel for how to add value."

Noting that he feels better than he did going into the spinoff in understanding the assets at CRC, Stevens said the first priority is restoring CRC's balance sheet but eventually he expects to get back to the original plans for growth of the business. "I'm much more confident with our overall portfolio and all of our assets."

Stevens said CRC continues to struggle with its plans from last year to sell some assets to lower its overall debt, although he promised a sale and a joint venture involving either upstream or midstream assets by the end of this year.

While growth expectations have been scaled back to the upper-single-digit percentages, Stevens said there is a lot of interest in the market for some joint ventures with CRC. "The midstream is still an active market, but it is a matter of trying to do what's best for the company over the longer term," he said. "It is not as if we couldn't just pull the trigger if we wanted to on a  lot of transactions because we have a lot of counterparties that are eager."

Doing the long-promised monetization of some assets (see Daily GPI, Jan. 7) is a matter of selecting the right options and executing the deals at the right time, Stevens said.

Citing 30- to 50-cent price improvements in natural gas future price strips, Stevens said CRC is definitely paying close attention to its gas assets. "We're long on natural gas and have an enormous amount of gas inventory in the Sacramento Basin” in Northern California, he said. "It's something that we're monitoring closely, and, yes, we might hedge a capital program -- either with a joint or workover rig."

Stevens called the closed Southern California Gas Co. Aliso Canyon underground gas storage field a "wild card" and emphasized that electricity blackouts this summer are a real possibility. He thinks this will have the effect of raising price bases between Southern California and other pricing points as the year moves on.

In regard to other questions on what might be a turnaround commodity price for CRC to switch from its hunkered down, defensive posture to a more offensive push for growth, Stevens indicated that CRC could begin deploying rigs again in a sustained $50/bbl environment.

For 1Q2016, the company reported an adjusted net loss of $100 million (minus 26 cents/share), compared to an adjusted net loss of $97 million (minus 25 cents) for the same period in 2015.

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