California Resources Corporation Reports Strong Third Quarter 2022 Results, Announces 66% Increase in Quarterly Dividend and $200 Million Increase in Share Repurchase Program

LONG BEACH, Calif.–(BUSINESS WIRE)–California Resources Corporation (NYSE: CRC), an independent oil and natural gas company committed to energy transition in the sector, today reported third quarter 2022 operational and financial results.

“CRC’s strong financial performance, coupled with our consistent operational execution, allowed us to increase our fixed dividend by 66% and our Share Repurchase Program by an additional $200 million. Our disciplined capital allocation and shareholder return strategy demonstrate our continued commitment to our stakeholders. With these changes, CRC is on track to deliver nearly $1 billion in cumulative shareholder returns by year end 2023,” said Mac McFarland, CRC’s President and Chief Executive Officer.

McFarland continued, “On the carbon management side, we continue to work with emitters, advance our permits, progress our Carbon TerraVault JV partnership and remain optimistic on our carbon management goals. CRC’s carbon management strategy and energy transition efforts continue to be a unique differentiator and support our corporate objectives while delivering on our financial goals and sustainability targets.”

Primary Highlights

• Declared a quarterly dividend of $0.2825 per share of common stock, totaling ~$20 million payable on December 16, 2022 to shareholders of record on December 1, 2022, with subsequent quarterly dividends subject to final determination and Board approval
• Increased the Share Repurchase Program by $200 million to $850 million from $650 million and extended the term of the program through December 31, 2023
• Repurchased 1,921,181 common shares for $80 million during the third quarter of 2022; repurchased an aggregate 10,617,862 shares for $424 million since the inception of the Share Repurchase Program through October 31, 2022
• Returned $286 million to shareholders throughout the first three quarters of 2022, ~5% more than the free cash flow¹ generated during the same period
• Presented three new reservoirs to Carbon TerraVault JV
• Favorable ruling in Kern County EIR Litigation
• Shifted a rig to the Huntington Beach field for a 6 to 8 well program prioritizing available permits on hand

Third Quarter 2022 Highlights

Financial

• Reported net income of $426 million, or $5.58 per diluted share. When adjusted for items analysts typically exclude from estimates including mark-to-market adjustments and gains on asset divestitures, the Company’s adjusted net income¹ was $111 million, or $1.45 per diluted share
• Generated net cash provided by operating activities of $235 million, adjusted EBITDAX¹ of $234 million and free cash flow¹ of $128 million
• Ended the quarter with $358 million of cash on hand, an undrawn credit facility and $819 million of liquidity²
• Increased available credit under our Reserve Based Lending Credit Facility by $50 million in the quarter and $110 million year to date, bringing our aggregate commitments to over $600 million

Operations

• Produced an average of 92,000 net barrels of oil equivalent per day (Boe/d), including 55,000 barrels of oil per day (Bo/d), with E&P capital expenditures of $100 million during the quarter
• Operated three drilling rigs in the San Joaquin Basin and two drilling rigs in the Los Angeles Basin; drilled 36 wells (42 online in 3Q22)
• Operated 33 maintenance rigs

2022 Guidance and Capital Program Update³

CRC’s capital program is dynamic in response to oil market volatility while focusing on oil production and strong liquidity and maximizing free cash flow. During the third quarter of 2022, CRC successfully managed the current market inflationary pressures and is narrowing its 2022 total capital program to the range of $380 to $400 million. CRC entered the fourth quarter of 2022 with four drilling rigs and expects to average three drilling rigs for the remainder of the year in its Elk Hills, Buena Vista, Wilmington and Huntington Beach fields as CRC repositions for its 2023 program.

This level of expected spending is consistent with CRC’s strategy of investing up to 50% of its operating cash flow back into CRC’s oil and gas operations. Following entry into the Carbon TerraVault JV with Brookfield, CRC anticipates that a portion of the operating cash flow previously designated for advancing decarbonization and other emission reducing projects may become available for other corporate purposes, such as shareholder returns and other strategic opportunities (see the summary of our Business Strategy in Part I, Item 1 & 2 – Business and Properties in CRC’s 2021 Annual Report and see Part I, Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations, Carbon TerraVault Joint Venture in the Form 10-Q for the quarter ended September 30, 2022 for additional details on Carbon TerraVault JV).

The delay in the Kern County EIR litigation (see Part I, Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations, Regulatory Update in the Form 10-Q for the quarter ended September 30, 2022 for additional details on Kern County EIR) led to a change in CRC’s drilling program which favors a higher natural gas to oil ratio. Therefore, CRC’s 2022 oil production guidance is expected to be negatively impacted by approximately 1 MBo/d from this change. CRC’s 2022 total production guidance remains consistent with previous expectations in the range of 91 to 94 MBoe/d.

CRC is raising its operating cost guidance to $760 to $790 million from $725 to $755 million primarily due to higher natural gas and electricity prices as well as some inflation and the change in well mix.

Supply Chain and Cost Inflation

Operating and capital costs in the oil and natural gas industry are heavily influenced by commodity prices which are typically cyclical in nature. Typically, suppliers will negotiate increases for drilling and completion, oilfield services, equipment and materials as prices for energy-related commodities and raw materials (such as steel, metals and chemicals) increase. Recent worldwide and U.S. supply chain issues, together with rising commodity prices and tight labor markets in the U.S., have created cost inflation during 2022. Cost inflation may continue into 2023 if rising energy prices result in factory constraints, placing certain items such as directional drilling components and materials that have a high energy input intensity in short supply. CRC has taken measures to limit the effects of the inflationary market by entering into contracts for materials and services with terms of one to three years. CRC has also taken steps to build its on-hand supply stock for items frequently used in its operations to address possible supply chain disruptions. Despite these efforts, CRC has experienced significant increased costs thus far in 2022 and anticipates additional increases in the cost of goods and services and wages in the company’s operations during the remainder of 2022. These increases will factor into CRC’s operating and capital costs and could also negatively impact its results of operations and cash flows in 2023 and beyond.

Third Quarter 2022 E&P Operational Results

In November 2020, the SEC amended Regulation S-K to, among other things, provide companies with the option to discuss material changes to results of operations between the current and immediately preceding quarter. CRC has elected to discuss its results of operations on a sequential-quarter basis. CRC believes this approach provides more meaningful and useful information to measure its performance from the immediately preceding quarter. In accordance with this final rule, CRC is not required to include a comparison of the current quarter and the same prior-year quarter.

Total daily net production for the three months ended September 30, 2022, compared to the three months ended June 30, 2022 increased by approximately 1 MBoe/d, or 1%. This increase is predominately a result of CRC’s production-sharing contracts (PSCs), which positively impacted its net oil production in the three months ended September 30, 2022 by approximately 2 MBoe/d, compared to the three months ended June 30, 2022. This increase was partially offset by natural decline.

During the third quarter of 2022, CRC operated an average of three drilling rigs in the San Joaquin Basin and two drilling rigs in the Los Angeles Basin. During the quarter, CRC drilled 36 net wells and brought online 42 wells. See Attachment 3 for further information on CRC’s production results by basin and Attachment 5 for further information on CRC’s drilling activity.

Third Quarter 2022 Financial Results

Review of Third Quarter 2022 Financial Results

Realized oil prices, excluding the effects of cash settlements on CRC’s commodity derivative contracts, decreased by $14.36 per barrel from $112.32 per barrel in the second quarter of 2022 to $97.96 per barrel in the third quarter of 2022. Realized oil prices were lower in the third quarter of 2022 compared to the second quarter of 2022 due to slowing global economic activity and ongoing releases from the U.S. Strategic Petroleum Reserve.

Realized oil prices, including the effects of cash settlements on CRC’s commodity derivative contracts, decreased by $0.72 from $63.17 in the second quarter of 2022 to $62.45 in the third quarter of 2022. See Attachment 4 for further information on prices.

Adjusted EBITDAX¹ for the third quarter of 2022 was $234 million. See table below for the Company’s net cash provided by operating activities, capital investments and free cash flow¹ during the same periods.

The following table presents key operating data for CRC’s oil and gas operations, on a per BOE basis, for the periods presented below. Energy operating costs consist of purchased natural gas used to generate electricity for CRC’s operations and steam for its steamfloods, purchased electricity and internal costs to generate electricity used in CRC’s operations. Gas processing costs include costs associated with compression, maintenance and other activities needed to run CRC’s gas processing facilities at Elk Hills. Non-energy operating costs equal total operating costs less energy operating costs and gas processing costs. Purchased natural gas used to generate steam in CRC’s steamfloods was reclassified from non-energy operating costs to energy operating costs beginning in the third quarter of 2022. All prior periods have been updated to conform to this presentation.

Energy operating costs for the third quarter of 2022 were $93 million, or $10.96 per Boe, which was an increase of $16 million or 21% from $77 million, or $9.33 per Boe, for the second quarter of 2022. This increase was primarily a result of higher electricity and natural gas prices.

Non-energy operating costs for the third quarter of 2022 were $117 million, or $13.82 per Boe, which was an increase of $8 million or 7% from $109 million, or $13.05 per Boe, for the second quarter of 2022. This increase was primarily a result of increased downhole maintenance activity.

Kern County Environmental Impact Report

CalGEM is California’s primary regulator of the oil and natural gas industry on private and state lands, with additional oversight from the State Lands Commission’s administration of state surface and mineral interests. CalGEM currently requires an operator to identify the manner in which the California Environmental Quality Act (CEQA) has been satisfied prior to issuing various state permits, typically through either an environmental review or an exemption by a state or local agency. In Kern County, this requirement has typically been satisfied by complying with the local oil and gas ordinance which was supported by an Environmental Impact Report (EIR) certified by the Kern County Board of Supervisors in 2015.

A group of petitioners challenged the EIR and on February 25, 2020, a California Appellate Court (the Court) issued a ruling that required Kern County to decertify the EIR and set aside the amended Zoning Ordinance. In response, Kern County prepared, circulated and certified a supplementary recirculated EIR (Supplemental EIR) to address the ruling from the Court and, in April 2021, resumed issuing local permits relying on the Supplemental EIR. However, on October 22, 2021, Kern County was ordered to cease reviewing and approving oil and gas permits until the trial court determined that the Zoning Ordinance complies with CEQA requirements. On May 26, 2022, a hearing was held in Kern County and the Court ruled that Kern County’s local permitting system must cease until the trial court verified that the noted deficiencies had been remedied and that the remedies satisfied the concerns raised by the Court. In October 2022, the trial court ruled that the Supplemental EIR was not decertified but ordered Kern County to address four discrete issues before suspension of the local permitting could be lifted, which, once resolved, would bring the Supplemental EIR into compliance with applicable laws. The four discrete issues included requirements for the removal of offsite legacy equipment to mitigate agricultural land use impacts, revising emission reduction requirements to address particulate matter, the establishment of a drinking water grant fund for disadvantaged communities in Kern County, and updating the local oil and gas ordinance to reflect these requirements. The Kern County Board of Supervisors approved these changes in August 2022. On October 12, 2022, Kern County submitted notice with the trial court of these changes and on November 2, 2022 the trial court lifted the order preventing reliance on the local permitting system. This ruling is subject to further appeal by the petitioners and there is still some potential for future disruptions to obtaining permits in Kern County until any such appeals are resolved.

Sustainability Update

In August 2022, CRC published its 2021 Sustainability Report. The report provides an overview of CRC’s continuous progress on its sustainability efforts in environmental, social and governance (ESG) performance as the company advances its commitment to the energy transition and decarbonization of local economies. Building off its 2020 Sustainability Update and 2021 Leadership Level Ranking of A- by CDP, CRC’s 2021 Sustainability Report references Sustainability Accounting Standards Board (SASB), Global Reporting Initiative (GRI) and International Petroleum Industry Environmental Conservation Association (IPIECA) standards.

Highlights and achievements from CRC’s 2021 Sustainability Report include:

• Announced 2045 Full-Scope Net Zero Goal and updated and expanded ESG goals on methane emissions, freshwater usage, community giving, diversity in leadership and linked ESG performance to executive pay
• Hired first Chief Sustainability Officer
• Established Project Management Office of Asset Retirement Obligations (ARO)
• Advanced CRC’s Carbon Management Business including its Carbon TerraVault carbon capture and storage (CCS) projects, and CalCapture CCS+ project
• Continued to be a net supplier of both fresh water and electricity
• Continued to rank among the safest companies in the United States; workforce achieved a better safety performance rating than many non-industrial sectors in 2021
• Earned 26 National Safety Achievement Awards in each of its operating areas and company wide in 2021 for its performance

For more information about CRC’s sustainability efforts and to download the full length and summary versions of the 2021 Sustainability Report, please visit crc.com/esg.

Balance Sheet and Liquidity Update

CRC’s aggregate commitment under the Revolving Credit Facility was $602 million as of September 30, 2022. The borrowing base for the Revolving Credit Facility is redetermined semi-annually and was reaffirmed at $1.2 billion on October 25, 2022.

As of September 30, 2022, CRC had liquidity of $819 million, which consisted of $358 million in unrestricted cash and $461 million of available borrowing capacity under its Revolving Credit Facility which is net of $141 million of letters of credit.

Acquisitions and Divestitures

During the three and nine months ended September 30, 2022, CRC recorded a net gain of $2 million and $60 million, respectively, related to the sale of certain Ventura basin assets and its Lost Hills transaction. The amount recognized in the three and nine months ended September 30, 2022 included $2 million and $6 million, respectively, of additional earn-out consideration on Ventura basin divestitures that occurred in the second half of 2021 and the first half of 2022. In addition, CRC also received $2 million to secure the performance of well abandonment obligations on divested properties which it expects to return to the purchaser once the work has been completed. As a result, CRC recorded a liability of $2 million included as accrued liabilities on its condensed consolidated balance sheet as of September 30, 2022. See Part II, Item 8 – Financial Statements and Supplementary Data, Note 3 Divestitures and Acquisitions in CRC’s 2021 Annual Report for additional information on the Ventura basin transactions.

The closing of the sale of CRC’s remaining assets in the Ventura basin is subject to final approval from the State Lands Commission, which CRC expects to receive prior to the end of the first quarter of 2023. These remaining assets, consisting of property, plant and equipment and associated asset retirement obligations, are classified as held for sale on CRC’s condensed consolidated balance sheet as of September 30, 2022.

Shareholder Return Strategy

CRC continues to prioritize shareholder returns and dedicates a portion of its operating cash flow to shareholders. In light of this strategy, CRC’s Board of Directors has increased its Share Repurchase Program by $200 million to $850 million and extended the program through December 31, 2023. Adjusting for this increase, there was approximately $426 million of capacity under CRC’s Share Repurchase Program as of October 31, 2022.

During the third quarter of 2022, CRC repurchased 1.9 million shares of its common stock for $80 million. Since the inception of Share Repurchase Program through October 31, 2022, CRC has repurchased 10.6 million shares for $424 million at an average price of $39.89 per share, resulting in the repurchase of approximately 13% of the shares that CRC had at its emergence from bankruptcy.

On November 2, 2022, CRC’s Board of Directors declared a quarterly cash dividend of $0.2825 per share of common stock. The dividend is payable to shareholders of record on December 1, 2022, and will be paid on December 16, 2022.

Through October 31, 2022, CRC has returned $476 million of cash to shareholders, including $52 million through quarterly dividends and $424 million through share repurchases.

Upcoming Investor Conference Participation

CRC’s executives will be participating in the following events in November and December of 2022:

• Furey Research Hidden Gems Conference on November 7 – 8, 2022, Virtual
• Bank of America Securities Global Energy Conference on November 16 – 17 in Miami, FL
• Goldman Sachs Carbonomics Conference on November 29 in London, UK
• Capital One Securities Energy Conference on December 7 in Houston, TX
• StoneX Financial Natural Resources Day on December 8 in New York, NY

CRC’s presentation materials will be available the day of the events on the Events and Presentations page in the Investor Relations section on www.crc.com.

Conference Call Details

To participate in the conference call scheduled for November 3, 2022, at 1:00 p.m. Eastern Time, please dial (877) 328-5505 (International calls please dial +1 (412) 317-5421) or access via webcast at www.crc.com 15 minutes prior to the scheduled start time to register. Participants may also pre-register for the conference call at to https://dpregister.com/sreg/10171364/f48809c260. A digital replay of the conference call will be archived for approximately 90 days and supplemental slides for the conference call will be available online in the Investor Relations section of www.crc.com.

Contacts

Joanna Park (Investor Relations)

818-661-3731

Joanna.Park@crc.com

Richard Venn (Media)

818-661-6014

Richard.Venn@crc.com

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