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Friday, Mar 29, 2024

California Resources Suffers From Oil Price Fall

California Resources Corp. has seen oil prices get knocked around in 2020, resulting in major losses in its share price. The Santa Clarita oil and gas producer saw its shares close on March 11 at $2.96, a 69 percent drop from the start of the year when the price was $9.57. Over the same period, the price of oil closed on March 11 at $33.28 a barrel down 45 percent from its $61.18 price at the start of the year. Andrew Ginsburg, an analyst who follows California Resources for R.W. Pressprich & Co., an institutional broker-dealer in New York, said that there are three factors impacting the company’s stock right now. Those are the price of oil, the company’s debt and the regulatory environment in California. “There is a lot of uncertainty,” Ginsburg said about the environmental regulations, “and it is hard for some people to get comfortable in investing when you have that regulatory overhang constantly.” Ginsburg wasn’t sure about the impact on the company of a California appellate court decision in February finding that a Kern County ordinance on oil and gas drilling violated state environmental laws. The court ordered that the county must stop issuing permits under the ordinance within 30 days and that all new permits would undergo review by the state. Ginsburg had not talked with California Resources management since that ruling came down, but in a previous conversation about environmental regulations in general, he said they liked the position they were in concerning their permits. “They feel comfortable from that perspective and they weren’t too concerned with it impacting production,” Ginsburg said. Much of California Resources’ oil and natural gas wells are in Kern County and a large majority of oil produced in the state comes from there. During a conference call with analysts to discuss fourth quarter earnings, Chief Executive Todd Stevens had some good news concerning the company’s debt. He said that the total amount was below $5 billion, the lowest since California Resources was created in 2014 after being spun off from energy giant Occidental Petroleum Corp., now headquartered in Houston. For the quarter ending Dec. 31, the company reported adjusted net income of $36 million (73 cents a share), compared with adjusted net income of $26 million (53 cents) in the same period a year earlier. Revenue dropped by 43 percent to $610 million. California Resources has about 1,250 employees, with approximately 900 workers in field operations on the oil and natural gas wells in the San Joaquin, Los Angeles, Ventura and Sacramento basins. “We have a large ownership interest in several of the largest existing oil fields in the San Joaquin basin, including Elk Hills, Buena Vista and Kettleman North Dome,” the company said in a Securities & Exchange Commission filing last month. $1 billion strategy A recent tender offer from the company is meant to reduce the overall debt load by another $1 billion, Ginsburg said. “They are doing a lot of financial engineering to try to make the capital structure work without having to go into bankruptcy,” he added. A recent research note on California Resources by Pavel Molchanov and Muhammed Ghulam, analysts with Raymond James & Associates Inc., in St. Petersburg, Fla., said that the tender offer gave holders of second-lien and senior notes the option of either taking a stake in a new entity with a royalty sharing agreement on the Elk Hills property or a new term loan and warrants convertible into common stock. “Given the popularity of royalty-type structures, we think that will be the more popular option,” the analysts wrote in the note. “The bottom line is this: If fully subscribed, the transaction would be (California Resources’s) most impactful debt reduction transaction since the original spinoff, reducing net debt by nearly $1 billion and interest expense by $64 million.” As for whether California Resources might end up in a financial restructuring procedure, Ginsburg said the company still has a lot of leverage to pull with infrastructure assets it can sell and the ability to issue more debt. For instance, the company sold a 50 percent interest in its Lost Hills property, Stevens said during the analyst conference call. “The proceeds from this sale and our use of free cash flow directly contributed to our lower debt level,” Stevens explained. “Our work continues to further strengthen the balance sheet and reduce debt to our targeted level.” But from his view, it certainly seems the market is expecting the company to file for bankruptcy, Ginsburg said. “From my perspective, it seems like they have been able to do a lot of financial engineering to come up with ways to push off any bankruptcy situation,” Ginsburg added. “It comes down to who comes to the table and what kind of agreement they are able to make to avoid a bankruptcy.”

Mark Madler
Mark Madler
Mark R. Madler covers aviation & aerospace, manufacturing, technology, automotive & transportation, media & entertainment and the Antelope Valley. He joined the company in February 2006. Madler previously worked as a reporter for the Burbank Leader. Before that, he was a reporter for the City News Bureau of Chicago and several daily newspapers in the suburban Chicago area. He has a bachelor’s of science degree in journalism from the University of Illinois, Urbana-Champaign.

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