In November 2014 – just as oil and gas prices were cascading down to what would become the sharpest price drop-off since the 1990s – California Resources Corp. struck out on its own. Since then, the Chatsworth energy and gas company has failed to turn a profit, its share price has fallen nearly 90 percent over the past year and the New York Stock Exchange has warned the company its stock will be delisted unless the share price returns above the $1 minimum. California Resources is not alone. Many of its larger and smaller competitors are facing similar distress in the pricing downturn. While California Resources is one of the largest oil and gas producers in the state, the same downward price pressures have impacted the industry’s smaller companies and suppliers in the San Fernando Valley region. Across the industry, energy companies have slashed capital budgets, cut back on drilling and ordered large layoffs. BNK Petroleum Inc. in Camarillo, also a spinoff, saw its oil and gas revenue drop nearly 33 percent to $4.5 million from $6.7 million year to year in its last third quarter, but it still managed to turn a profit for the quarter. The company has dealt with the downturn through layoffs and has also suspended its shale rock drilling and well development, said Chief Executive Wolf Regener. “We cut our (capital expenditure) to zero – we’ll see how the year goes and will adjust, depending on the pricing of oil,” Regener said. The downturn, he noted, “has been longer than we were anticipating.” Oil and gas prices will have to reach around mid-$40 a barrel for BNK to start drilling again, Regener said. The company is looking for partners to help run its European drilling operations or it might have to shut them down. Deepening impact California Resources’ fourth-quarter financials and other bad news for the firm are distressing signs, although the company is striking a positive tone. Revenue dropped 31 percent for the quarter ended Dec. 31, spending on oil and gas exploration was cut by nearly 90 percent, adjusted net loss widened 91 percent and the company announced another round of layoffs. The company has stopped drilling and its creditors, through an amended agreement, have required California Resources to limit capital spending to $100 million for the year and to stop paying dividends. “Expect to see us demonstrate financial discipline to maintain sufficient liquidity through 2016,” Todd Stevens, chief executive, said in a statement about the quarter. “We plan to continue building economically-viable drilling inventory, while managing our activity consistent with our principle of living within cash flow.” California Resources said it will seek approval at its upcoming May shareholder meeting for a reverse stock split to raise the firm’s share price and stay on the New York Stock Exchange. The company said at a recent investor conference that it is considering selling off certain assets, such as its gas or water treatment plants and steam generators. Executives declined to comment for this story because the company was in a “quiet period” before earnings release. Problems facing California Resources started with the less than ideal timing of its spinoff from Occidental Petroleum Corp., followed immediately by the oil price meltdown, said Luana Siegfried, a research associate on the oil and gas industry for investment firm Raymond James & Associates Inc. in St. Petersburg, Fla. “The company is doing what other companies are doing – cutting capex and cutting production and trying to keep up with its balance sheet,” Siegfried said. “Lenders gave them an imposed limit of $100 million for spending and investments for the year. This is below maintenance level for them. The impact on them first is lower production.” The company also will likely start selling off assets not essential to operations, Siegfried said, as many other oil and gas companies are doing to further minimize the impact of the downturn. Purchases of seismic data that show oil and gas exploration companies where it’s safe to drill are down, she added, meaning there’s less drilling of producing wells and less drilling of exploratory wells because those don’t deliver money immediately. “After a while, lower investment is translated into lower oil supply; and this lower supply will continue to fall up to the moment that demand is actually higher, so consumers are (then) willing to pay more for oil barrels,” she said. Taking toll The low-price trend has taken its tolls on BNK Petroleum and Seven Lakes Technologies, a Westlake Village supplier of software to companies in oil and gas exploration. BNK’s recent third-quarter earnings were sprinkled with some good news despite drops in revenue. Production was up 60 percent compared with a year ago and the company generated $4.2 million in net income compared with a roughly $300,000 loss a year ago. That reversal was due to drastic cost-cutting early last year, Regener said, and its price-hedging, which allows it to protect its oil and gas prices from sharp fluctuations. In addition, BNK boosted production after completing two wells last spring when it took them from exploration to production. Lastly, he said, service company and materials costs have come down, and BNK is in better shape than many of its competitors. “We’re performing quite well; production is holding really well,” Regener said. “Hedging makes a huge difference to cash flow – we have hedges in place through 2018. We’re actually looking for opportunities as well – from other operators that are in trouble and that can’t survive – and where we can pick up other oil and gas properties, if accretive to shareholders.” As a supplier to oil producers, Seven Lakes is sharing in the industry’s decline. Its customers have become much more stringent on spending, said Bret Wiener, the company’s chief technology officer. Seven Lakes’ software helps client companies analyze well profitability, expenses, scheduling and other aspects against approved budgets. “Customers are taking longer to get through the selection process and their due diligence,” Wiener said. “They’re scrutinizing more about every dollar they spend and we have to invest more into convincing them that the investment makes sense.” A sales deal that took two months and one or two sales presentations a year and a half ago before closing is now taking four to five months, he said. However, its sales are roughly on par with where it was at this time last year, Wiener said. Seven Lakes’ third quarter was its strongest yet for licensing out its software, and the company has expanded its staff count over the year and added customers. “Seven Lakes is doing pretty well despite the downturn,” Wiener said. “We’ve had customers or prospects tell us they’re looking to be competitive a year or two down the road by investing in technology.”
