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California Resources Corp. Lays Down Its Last Rigs, Concentrates on Workovers

Officials at struggling Los Angeles-based California Resources Corp. (CRC) on Monday reported a small increase in production for last year and the 4Q2015 amid a sea of red ink and operations cutbacks across the board. As a result, 2016 looks like more of the same, according to CRC senior executives.

While reporting multi-billion-dollar impairment charges and substantial quarterly and full-year losses, CRC CEO Todd Stevens said the company's workforce has been cut 25% to 1,500 employees, the number of contractors was slashed by 90%, capital expenditures were dropped to $50 million this year compared to $2.1 billion in 2014, and the last three exploration/production (E&P) rigs were laid down earlier this year.

"We're investing in steam flood and water floods, in addition to workovers, all of which are among our highest return and most impactful projects," Stevens said, adding that overall production was up 1% last year (160,000 boe/d) and 5% for crude oil (104,000 b/d).

The strategy for CRC continues to be slashing costs and reducing more than $6 billion in debt through sales of assets that so far have been delayed by the low commodity price environment (see Daily GPIJan. 7). Last fall, Stevens had indicated the company's first asset sale would be completed by the end of 2015 (see Daily GPI, Nov. 10, 2015), but that didn't happen due to continuing decreasing commodity prices, and he was vague again Monday when asked about the sales by analysts on an earnings conference call.

In response to questions about previous goals of $1 billion in sales, Stevens said CRC has "fairly advanced discussions with two different parties, particularly for non-E&P assets, but the market conditions as they deteriorated late in the year and January didn't help, creating a lot of uncertainty in people’s minds. We continue to have fairly advanced discussions and we like what we see."

Stevens said CRC plans to "get something executed by year-end." He was pressed on whether asset sales could come sooner, but was noncommittal. "We don't want to count our chickens before they have hatched," he said.

CFO Mark Smith explained that "liquidity and prudence" were the key, and CRC is working with its banks under an amended financing package to bring down its debt, which was $6.7 billion a year earlier when Occidental Petroleum Corp. spun off its California operations into CRC and is now about $6.1 billion.

But regardless of how he and Stevens described it, losses were everywhere in the 4Q2015 and full-year 2015 results -- an adjusted net loss of $77 million (minus 20 cents/share) for 4Q2015, compared to an adjusted net loss of $7 million (minus 2 cents) for the same period in 2014; and an adjusted net loss for all of 2015 of $311 million (minus 81 cents), compared to adjusted net income of $650 million ($1.67) for all of 2014.

Without the adjustments, the net loss for 4Q2015 was $3.3 billion (minus $8.54), compared with a net loss of $2.1 billion (minus $5.47) for the final quarter in 2014. Similarly, the net loss for all of 2015 was $3.6 billion (minus $9.27), compared to a net loss in 2014 of $1.4 billion (minus $3.75).

The quarterly adjusted net loss did not include a noncash, after-tax impairment charges of $2.9 billion ($4.9 billion pre-tax). And for the full year, the adjusted net loss excluded the same impairment charges, along with $40 million for voluntary retirement and employee reductions; $54 million reflecting the effect of prices on other assets; and an after-tax gain of $31 million for unrealized hedges.

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