UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended JuneSeptember 30, 2020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ___________ to ___________
 
Commission file number 001-36478
California Resources Corporation
(Exact name of registrant as specified in its charter)
Delaware46-5670947
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
 
27200 Tourney Road, Suite 200
Santa Clarita, California 91355
(Address of principal executive offices) (Zip Code)

(888) 848-4754
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common StockCRCQQ*CRCN/A*New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☑ Yes   ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☑ Yes   ☐ No   
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer☑Accelerated Filer☐Non-Accelerated Filer☐
Smaller Reporting Company☐Emerging Growth Company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     ☐ Yes    ☑ No
Shares of common stock outstanding as of June 30, 202049,453,297


* On July 16, 2020, CRC's common stock trading underIndicate by check mark whether the symbol "CRC" was delisted from the New York Stock Exchange (NYSE). Effective July 17, 2020, CRC’s common stock was quoted on the OTC Pink Market under the symbol “CRCQQ”. The delisting of the common stock from the NYSE underregistrant has filed all documents and reports required to be filed by Section 12(b)12, 13 or 15(d) of the Securities Exchange Act of 1934 (Exchange Act) will be effective atsubsequent to the openingdistribution of business on August 11, 2020. Upon deregistrationsecurities under a plan confirmed by a court.    ☑ Yes   ☐ No   

Indicate the number of shares outstanding for each of the issuer's classes of common stock, under Section 12(b)as of the Exchange Act, thelast practicable date.
The number of shares of common stock will remain registered under Section 12(g)outstanding, prior to CRC's emergence from bankruptcy as of October 27, 2020 was 49,498,227. Following CRC's emergence from bankruptcy, the Exchange Act.number of shares of CRC's common stock outstanding as of October 27, 2020 was 83,319,721.


California Resources Corporation and Subsidiaries

Table of Contents
Page
Part I 
Item 1Financial Statements (unaudited)
2
Condensed Consolidated Balance Sheets
2
Condensed Consolidated Statements of Operations
3
Condensed Consolidated Statements of Comprehensive Income (Loss)
4
Condensed Consolidated Statements of Equity
5
Condensed Consolidated Statements of Cash Flows
7
Notes to the Condensed Consolidated Financial Statements
8
Item 2Management’s Discussion and Analysis of Financial Condition and Results of Operations
2634
General
2634
Business Environment and Industry Outlook
2636
Operations
2937
Development Joint Ventures
3140
Fixed and Variable Costs
3242
Production and Prices
3343
Balance Sheet Analysis
3545
Statements of Operations Analysis
3647
Liquidity and Capital Resources
4357
2020 Capital Program
4761
Regulation of the Oil and Natural Gas Industry
61
Seasonality
4761
Lawsuits, Claims, Commitments and Contingencies
4762
Significant Accounting and Disclosure Changes
4862
Forward-Looking Statements
4963
Item 3Quantitative and Qualitative Disclosures About Market Risk
5165
Item 4Controls and Procedures
5266
Part II
Item 1Legal Proceedings
5367
Item 1ARisk Factors
5367
Item 5Other Disclosures
5973
Item 6Exhibits
6074




1

PART I    FINANCIAL INFORMATION
 

Item 1Financial Statements (unaudited)

CALIFORNIA RESOURCES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
As of JuneSeptember 30, 2020 and December 31, 2019
(dollars in millions, except share data)
June 30,December 31,
 20202019
CURRENT ASSETS  
Cash$126  $17  
Trade receivables132  277  
Inventories61  67  
Other current assets, net84  130  
Total current assets403  491  
PROPERTY, PLANT AND EQUIPMENT22,914  22,889  
Accumulated depreciation, depletion and amortization(18,465) (16,537) 
Total property, plant and equipment, net4,449  6,352  
OTHER ASSETS78  115  
TOTAL ASSETS$4,930  $6,958  

CURRENT LIABILITIES  
Current portion of long-term debt5,083  100  
Current portion of deferred gain and issuance costs, net125  —  
Accounts payable196  296  
Accrued liabilities355  313  
Total current liabilities5,759  709  
LONG-TERM DEBT—  4,877  
DEFERRED GAIN AND ISSUANCE COSTS, NET—  146  
OTHER LONG-TERM LIABILITIES719  720  
MEZZANINE EQUITY
Redeemable noncontrolling interests828  802  
EQUITY  
Preferred stock (20 million shares authorized at $0.01 par value) 0 shares outstanding at June 30, 2020 and December 31, 2019—  —  
Common stock (200 million shares authorized at $0.01 par value) outstanding shares (June 30, 2020 - 49,453,297 and December 31, 2019 - 49,175,843)—  —  
Additional paid-in capital5,008  5,004  
Accumulated deficit(7,437) (5,370) 
Accumulated other comprehensive loss(23) (23) 
Total equity attributable to common stock(2,452) (389) 
Equity attributable to noncontrolling interests76  93  
Total equity(2,376) (296) 
TOTAL LIABILITIES AND EQUITY$4,930  $6,958  
(DEBTOR-IN-POSSESSION: Entity Operating Under Chapter 11)

September 30,December 31,
 20202019
CURRENT ASSETS  
Cash$122 $17 
Trade receivables155 277 
Inventories61 67 
Other current assets, net82 130 
Total current assets420 491 
PROPERTY, PLANT AND EQUIPMENT22,915 22,889 
Accumulated depreciation, depletion and amortization(18,555)(16,537)
Total property, plant and equipment, net4,360 6,352 
OTHER ASSETS76 115 
TOTAL ASSETS$4,856 $6,958 
CURRENT LIABILITIES  
Current portion of long-term debt0 100 
Debtor-in-possession financing733 0 
Accounts payable221 296 
Accrued liabilities240 313 
Total current liabilities1,194 709 
LONG-TERM DEBT0 4,877 
DEFERRED GAIN AND ISSUANCE COSTS, NET0 146 
OTHER LONG-TERM LIABILITIES727 720 
LIABILITIES SUBJECT TO COMPROMISE4,516 0 
MEZZANINE EQUITY
Redeemable noncontrolling interests692 802 
EQUITY  
Preferred stock (20 million shares authorized at $0.01 par value) 0 shares outstanding at September 30, 2020 and December 31, 20190 0 
Common stock (200 million shares authorized at $0.01 par value) outstanding shares (September 30, 2020 - 49,498,227 and December 31, 2019 - 49,175,843)0 0 
Additional paid-in capital5,148 5,004 
Accumulated deficit(7,466)(5,370)
Accumulated other comprehensive loss(23)(23)
Total equity attributable to common stock(2,341)(389)
Equity attributable to noncontrolling interests68 93 
Total equity(2,273)(296)
TOTAL LIABILITIES AND EQUITY$4,856 $6,958 



The accompanying notes are an integral part of these condensed consolidated financial statements.


2

CALIFORNIA RESOURCES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the three and sixnine months ended JuneSeptember 30, 2020 and 2019
(dollars in millions, except share data)
Three months ended
June 30,		Six months ended
June 30,
 2020201920202019
REVENUES    
Oil and natural gas sales$245  $578  $675  $1,179  
Net derivative (loss) gain from commodity contracts(4) 21  75  (68) 
Other revenue35  54  99  232  
Total revenues276  653  849  1,343  
COSTS    
Production costs127  230  319  463  
General and administrative expenses69  79  129  162  
Depreciation, depletion and amortization88  121  207  239  
Asset impairments—  —  1,736  —  
Taxes other than on income38  36  79  77  
Exploration expense2  10  7  20  
Other expenses, net67  55  136  203  
Total costs391  531  2,613  1,164  
OPERATING (LOSS) INCOME(115) 122  (1,764) 179  
NON-OPERATING (LOSS) INCOME
Interest and debt expense, net(85) (98) (172) (198) 
Net gain on early extinguishment of debt—  20  5  26  
Other non-operating expenses(47) (3) (61) (10) 
(LOSS) INCOME BEFORE INCOME TAXES(247) 41  (1,992) (3) 
Income tax—  —  —  —  
NET (LOSS) INCOME(247) 41  (1,992) (3) 
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
Mezzanine equity(30) (29) (60) (57) 
Equity6  —  (15) 5  
Net income attributable to noncontrolling interests(24) (29) (75) (52) 
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCK$(271) $12  $(2,067) $(55) 
Net (loss) income attributable to common stock per share
Basic$(5.47) $0.25  $(41.84) $(1.13) 
Diluted$(5.47) $0.24  $(41.84) $(1.13) 

(DEBTOR-IN-POSSESSION: Entity Operating Under Chapter 11)

Three months ended
September 30,		Nine months ended
September 30,
 2020201920202019
REVENUES    
Oil and natural gas sales$312 $541 $987 $1,720 
Net derivative gain (loss) from commodity contracts0 37 75 (31)
Marketing and trading revenue50 62 109 230 
Electricity sales43 38 75 88 
Other revenue4 3 12 17 
Total revenues409 681 1,258 2,024 
COSTS    
Production costs141 221 460 684 
General and administrative expenses64 66 193 228 
Depreciation, depletion and amortization89 118 296 357 
Asset impairments0 0 1,736 0 
Taxes other than on income42 42 121 119 
Exploration expense2 5 9 25 
Marketing and trading costs35 45 67 170 
Electricity cost of sales17 18 47 51 
Transportation costs10 10 31 30 
Other expenses, net22 8 75 33 
Total costs422 533 3,035 1,697 
OPERATING (LOSS) INCOME(13)148 (1,777)327 
NON-OPERATING (LOSS) INCOME
Reorganization items, net66 0 66 0 
Interest and debt expense, net(28)(95)(200)(293)
Net gain on early extinguishment of debt0 82 5 108 
Other non-operating expenses(32)(8)(93)(18)
(LOSS) INCOME BEFORE INCOME TAXES(7)127 (1,999)124 
Income tax0 0 0 0 
NET (LOSS) INCOME(7)127 (1,999)124 
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
Mezzanine equity(25)(30)(85)(87)
Equity3 (3)(12)2 
Net income attributable to noncontrolling interests(22)(33)(97)(85)
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCK$(29)$94 $(2,096)$39 
Net (loss) income attributable to common stock per share
Basic (includes return from noncontrolling interest)$2.20 $1.89 $(39.64)$0.78 
Diluted (includes return from noncontrolling interest)$2.20 $1.89 $(39.64)$0.77 
The accompanying notes are an integral part of these condensed consolidated financial statements.


3


CALIFORNIA RESOURCES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss)
For the three and sixnine months ended JuneSeptember 30, 2020 and 2019
(dollars in millions)
Three months ended
June 30,		Six months ended
June 30,
 2020201920202019
Net (loss) income$(247) $41  $(1,992) $(3) 
Net income attributable to noncontrolling interests(24) (29) (75) (52) 
Other comprehensive income:
Reclassification of realized losses on pension and postretirement benefits to income(a)
—  1  —  1  
Comprehensive (loss) income attributable to common stock$(271) $13  $(2,067) $(54) 

(DEBTOR-IN-POSSESSION: Entity Operating Under Chapter 11)

Three months ended
September 30,		Nine months ended
September 30,
 2020201920202019
Net (loss) income$(7)$127 $(1,999)$124 
Net income attributable to noncontrolling interests(22)(33)(97)(85)
Other comprehensive income:
Reclassification of realized losses on pension and postretirement benefits to income(a)
0 0 0 1 
Comprehensive (loss) income attributable to common stock$(29)$94 $(2,096)$40 
(a) NaN associated tax for the three and sixnine months ended JuneSeptember 30, 2020 and 2019. See Note 1011 Pension and Postretirement Benefit Plans for additional information.

The accompanying notes are an integral part of these condensed consolidated financial statements.


4


CALIFORNIA RESOURCES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Equity
For the three and sixnine months ended JuneSeptember 30, 2020
(dollars in millions)
Three months ended June 30, 2020
 Additional Paid-in CapitalAccumulated DeficitAccumulated Other
Comprehensive
Loss		Equity Attributable to Common StockEquity Attributable to Noncontrolling InterestsTotal
Equity
Balance, March 31, 2020$5,006  $(7,166) $(23) $(2,183) $88  $(2,095) 
Net loss—  (271) —  (271) (6) (277) 
Distributions to noncontrolling interest holders—  —  —  —  (6) (6) 
Share-based compensation, net2  —  —  2  —  2  
Balance, June 30, 2020$5,008  $(7,437) $(23) $(2,452) $76  $(2,376) 

Six months ended June 30, 2020
 Additional Paid-in CapitalAccumulated DeficitAccumulated Other
Comprehensive
Loss		Equity Attributable to Common StockEquity Attributable to Noncontrolling InterestsTotal
Equity
Balance, December 31, 2019$5,004  $(5,370) $(23) $(389) $93  $(296) 
Net (loss) income—  (2,067) —  (2,067) 15  (2,052) 
Distributions to noncontrolling interest holders—  —  —  —  (32) (32) 
Share-based compensation, net4  —  —  4  —  4  
Balance, June 30, 2020$5,008  $(7,437) $(23) $(2,452) $76  $(2,376) 
(DEBTOR-IN-POSSESSION: Entity Operating Under Chapter 11)

Three months ended September 30, 2020
 Additional Paid-in CapitalAccumulated DeficitAccumulated Other
Comprehensive
Loss		Equity Attributable to Common StockEquity Attributable to Noncontrolling InterestsTotal
Equity
Balance, June 30, 2020$5,008 $(7,437)$(23)$(2,452)$76 $(2,376)
Net loss— (29)— (29)(3)(32)
Distributions to noncontrolling interest holders— — — — (5)(5)
Share-based compensation, net2 — — 2 — 2 
Return from noncontrolling interest holders138 — — 138 — 138 
Balance, September 30, 2020$5,148 $(7,466)$(23)$(2,341)$68 $(2,273)
Nine months ended September 30, 2020
 Additional Paid-in CapitalAccumulated DeficitAccumulated Other
Comprehensive
Loss		Equity Attributable to Common StockEquity Attributable to Noncontrolling InterestsTotal
Equity
Balance, December 31, 2019$5,004 $(5,370)$(23)$(389)$93 $(296)
Net (loss) income— (2,096)— (2,096)12 (2,084)
Distributions to noncontrolling interest holders— — — — (37)(37)
Share-based compensation, net6 — — 6 — 6 
Return from noncontrolling interest holders138 — — 138 — 138 
Balance, September 30, 2020$5,148 $(7,466)$(23)$(2,341)$68 $(2,273)
Note:     The above tables exclude amounts related to redeemable noncontrolling interests reported in mezzanine equity. See Note 67 Joint Ventures for more information.information about our noncontrolling interests and a settlement agreement entered into with one of our noncontrolling interest holders in the third quarter of 2020 where the modification of terms was treated as a return from noncontrolling interest holders.

The accompanying notes are an integral part of these condensed consolidated financial statements.


5


CALIFORNIA RESOURCES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Equity
For the three and sixnine months ended JuneSeptember 30, 2019
(dollars in millions)
Three months ended June 30, 2019
 Additional Paid-in CapitalAccumulated DeficitAccumulated Other
Comprehensive
Loss		Equity Attributable to Common StockEquity Attributable to Noncontrolling InterestsTotal
Equity
Balance, March 31, 2019$4,989  $(5,409) $(6) $(426) $137  $(289) 
Net loss—  12  —  12  —  12  
Contributions from noncontrolling interest holders, net—  —  —  —  —  —  
Distributions to noncontrolling interest holders—  —  —  —  (8) (8) 
Issuance of common stock—  —  —  —  —  —  
Other comprehensive income—  1  1  —  1  
Share-based compensation, net5  —  —  5  —  5  
Balance, June 30, 2019$4,994  $(5,397) $(5) $(408) $129  $(279) 

Six months ended June 30, 2019
 Additional Paid-in CapitalAccumulated DeficitAccumulated Other
Comprehensive
Loss		Equity Attributable to Common StockEquity Attributable to Noncontrolling InterestsTotal
Equity
Balance, December 31, 2018$4,987  $(5,342) $(6) $(361) $114  $(247) 
Net loss—  (55) —  (55) (5) (60) 
Contributions from noncontrolling interest holders, net—  —  —  —  49  49  
Distributions to noncontrolling interest holders—  —  —  —  (29) (29) 
Other comprehensive income—  —  1  1  —  1  
Share-based compensation, net7  —  —  7  —  7  
Balance, June 30, 2019$4,994  $(5,397) $(5) $(408) $129  $(279) 
(DEBTOR-IN-POSSESSION: Entity Operating Under Chapter 11)

Three months ended September 30, 2019
 Additional Paid-in CapitalAccumulated DeficitAccumulated Other
Comprehensive
Loss		Equity Attributable to Common StockEquity Attributable to Noncontrolling InterestsTotal
Equity
Balance, June 30, 2019$4,994 $(5,397)$(5)$(408)$129 $(279)
Net income— 94 — 94 3 97 
Distributions to noncontrolling interest holders— — — — (32)(32)
Warrant2 — — 2 — 2 
Share-based compensation, net4 — — 4 — 4 
Balance, September 30, 2019$5,000 $(5,303)$(5)$(308)$100 $(208)

Nine months ended September 30, 2019
 Additional Paid-in CapitalAccumulated DeficitAccumulated Other
Comprehensive
Loss		Equity Attributable to Common StockEquity Attributable to Noncontrolling InterestsTotal
Equity
Balance, December 31, 2018$4,987 $(5,342)$(6)$(361)$114 $(247)
Net income (loss)— 39 — 39 (2)37 
Contributions from noncontrolling interest holders, net— — — — 49 49 
Distributions to noncontrolling interest holders— — — — (61)(61)
Other comprehensive income— — 1 1 — 1 
Warrant2 — — 2 — 2 
Share-based compensation, net11 — — 11 — 11 
Balance, September 30, 2019$5,000 $(5,303)$(5)$(308)$100 $(208)
Note:     The above tables exclude amounts related to redeemable noncontrolling interests reported in mezzanine equity. See Note 67 Joint Ventures for more information.

The accompanying notes are an integral part of these condensed consolidated financial statements.


6


CALIFORNIA RESOURCES CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the sixnine months ended JuneSeptember 30, 2020 and 2019
(dollars in millions)
Six months ended
June 30,
 20202019
CASH FLOW FROM OPERATING ACTIVITIES
Net loss$(1,992) $(3) 
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation, depletion and amortization207  239  
Asset impairments1,736  —  
Net derivative (gain) loss from commodity contracts(75) 68  
Net proceeds from settled commodity derivatives103  28  
Net gain on early extinguishment of debt(5) (26) 
Amortization of deferred gain(33) (36) 
Dry hole expenses—  7  
Other non-cash charges to income, net22  47  
Changes in operating assets and liabilities, net130  (52) 
Net cash provided by operating activities93  272  
CASH FLOW FROM INVESTING ACTIVITIES
Capital investments(33) (271) 
Changes in capital investment accruals(28) (57) 
Asset divestitures41  165  
Acquisitions—  (2) 
Other(7) (5) 
Net cash used in investing activities(27) (170) 
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from 2014 Revolving Credit Facility795  1,274  
Repayments of 2014 Revolving Credit Facility(582) (1,289) 
Debt repurchases(3) (59) 
2020 Senior Notes payment(100) —  
Contributions from noncontrolling interest holders, net2  49  
Distributions paid to noncontrolling interest holders(68) (65) 
Issuance of common stock—  1  
Shares canceled for taxes(1) (3) 
Net cash provided by (used in) financing activities43  (92) 
Increase in cash109  10  
Cash—beginning of period17  17  
Cash—end of period$126  $27  

(DEBTOR-IN-POSSESSION: Entity Operating Under Chapter 11)

Nine months ended
September 30,
 20202019
CASH FLOW FROM OPERATING ACTIVITIES
Net (loss) income$(1,999)$124 
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Depreciation, depletion and amortization296 357 
Asset impairments1,736 0 
Net derivative (gain) loss from commodity contracts(75)31 
Net proceeds from settled commodity derivatives105 68 
Net gain on early extinguishment of debt(5)(108)
Amortization of deferred gain(39)(54)
Reorganization items, net (non-cash)(125)0 
Reorganization items, net (debtor-in-possession financing costs)25 0 
Dry hole expenses0 7 
Other non-cash charges to income, net69 60 
Changes in operating assets and liabilities, net153 55 
Net cash provided by operating activities141 540 
CASH FLOW FROM INVESTING ACTIVITIES
Capital investments(37)(393)
Decreases in accrued capital investments(25)(49)
Asset divestitures41 164 
Acquisitions0 (6)
Other(7)(7)
Net cash used in investing activities(28)(291)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from 2014 Revolving Credit Facility797 1,749 
Repayments of 2014 Revolving Credit Facility(1,315)(1,776)
Proceeds from debtor-in-possession facilities782 0 
Repayments of debtor-in-possession facilities(49)0 
Debtor-in-possession financing costs(25)0 
Debt repurchases(3)(149)
Debt transaction costs0 (2)
2020 Senior Notes payment(100)0 
Contributions from noncontrolling interest holders, net1 49 
Distributions paid to noncontrolling interest holders(95)(115)
Issuance of common stock0 3 
Shares cancelled for taxes(1)(3)
Net cash used in financing activities(8)(244)
Increase in cash105 5 
Cash—beginning of period17 17 
Cash—end of period$122 $22 
The accompanying notes are an integral part of these condensed consolidated financial statements.


7


CALIFORNIA RESOURCES CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
JuneSeptember 30, 2020

(DEBTOR-IN-POSSESSION: Entity Operating Under Chapter 11)

NOTE 1    CHAPTER 11 PROCEEDINGS

Except when the context otherwise requires or where otherwise indicated, all references to ‘‘CRC,’’ the ‘‘Company,’’ ‘‘we,’’ ‘‘us’’ and ‘‘our’’ refer to California Resources Corporation and its subsidiaries.

Our spin–off from Occidental Petroleum Corporation (Occidental) on November 30, 2014 burdened us with significant debt which was used to pay a $6.0 billion cash dividend to Occidental. Together with the activity level and payables that we assumed from Occidental and due to Occidental's retention of the vast majority of our receivables, our debt peaked at approximately $6.8 billion in May 2015. Since then, we have engaged in a series of asset sales, joint ventures, debt exchanges, tenders, debt repurchases and other financing transactions to reduce our overall level of debt and improve our balance sheet prior to filing for bankruptcy. As of September 30, 2020, we had outstanding net long-term debt of approximately $5.1 billion, of which $4.4 billion is presented as liabilities subject to compromise on our condensed consolidated balance sheet.

On July 15, 2020, we filed voluntary petitions for relief under Chapter 11 of Title 11 of the Bankruptcy Code (Chapter 11 Cases) in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (Bankruptcy Court). The Chapter 11 Cases were jointly administered under the caption In re California Resources Corporation, et al., Case No. 20-33568 (DRJ). We filed with the Bankruptcy Court, on July 24, 2020, the Debtors’ Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code and, on October 8, 2020, the Amended Debtors’ Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code (as amended, supplemented or modified, the Plan). On October 13, 2020, the Bankruptcy Court confirmed the Plan, which was conditioned on certain items such as obtaining exit financing. The conditions to effectiveness of the Plan were satisfied and we emerged from Chapter 11 on October 27, 2020 (Effective Date).

During the course of the Chapter 11 Cases, the Bankruptcy Court granted the relief requested in certain motions, authorizing payments of pre-petition liabilities with respect to certain employee compensation and benefits, taxes, royalties, certain essential vendor payments and insurance and surety obligations, which allowed our business operations to continue uninterrupted during the pendency of the Chapter 11 Cases. All transactions outside the ordinary course of business required the prior approval of the Bankruptcy Court.

On July 15, 2020, immediately prior to the commencement of the Chapter 11 Cases, we and certain affiliates of Ares Management L.P. (Ares), including ECR Corporate Holdings L.P., a portfolio company of Ares (ECR), entered into a Settlement and Assumption Agreement (Settlement Agreement) related to our midstream joint venture, Elk Hills Power, LLC (Ares JV or Elk Hills Power), which holds our Elk Hills power plant and a cryogenic gas processing plant. On August 25, 2020, the Bankruptcy Court entered an order approving the Settlement Agreement on a final basis. Among other things, the Settlement Agreement included a conversion right, which would be deemed exercised upon our emergence from bankruptcy, allowing us to acquire all (but not less than all) of the equity interests in the Ares JV held by ECR in exchange for secured notes (EHP Notes), approximately 20.8% of our new common stock (Ares Settlement Stock) and $2.5 million in cash. For more information on the Settlement Agreement, see Note 7 Joint Ventures.

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The commencement of the Chapter 11 Cases constituted an event of default that accelerated our obligations under the following agreements: (i) Credit Agreement, dated as of September 24, 2014, among JPMorgan Chase Bank, N.A., as administrative agent, and the lenders that are party thereto (2014 Revolving Credit Facility), (ii) Credit Agreement, dated as of August 12, 2016, among The Bank of New York Mellon Trust Company, N.A., as collateral and administrative agent, and the lenders that are party thereto (2016 Credit Agreement), (iii) Credit Agreement, dated as of November 17, 2017, among The Bank of New York Mellon Trust Company, N.A., as administrative agent, and the lenders that are party thereto (2017 Credit Agreement), and (iv) the indentures governing our 8% Senior Secured Second Lien Notes due 2022 (Second Lien Notes), 5.5% Senior Notes due 2021 (2021 Notes) and 6% Senior Notes due 2024 (2024 Notes and together with the 5% Senior Notes due 2020 and 2021 Notes, the Senior Notes). Additionally, other events of default, including cross-defaults, are present under these debt agreements. Under the Bankruptcy Code, the creditors under these debt agreements were stayed from taking any action against us, including exercising remedies as a result of any event of default. See Note 6 Debt for additional details about our debt.

Joint Plan of Reorganization Under Chapter 11

Pursuant to the Plan, the following transactions occurred on the Effective Date:

•We issued an aggregate of 83.3 million shares of new common stock and reserved 4.4 million shares for issuance upon exercise of the warrants described below;
•We acquired all of the member interests in the Ares JV held by ECR in exchange for the EHP Notes, 17.3 million shares of new common stock and $2.5 million in cash (see Note 6 Debt and Note 7 Joint Ventures for additional information);
•Holders of secured claims under the 2017 Credit Agreement received 22.7 million shares of new common stock in exchange for those claims, and holders of deficiency claims under the 2017 Credit Agreement and all outstanding obligations under the 2016 Credit Agreement, Second Lien Notes, 2021 Notes and 2024 Notes received 4.4 million shares of new common stock in exchange for those claims;
•In connection with the Subscription Rights offering and Backstop Commitment Agreement, 34.6 million shares of new common stock were issued in exchange for $446 million (net of a $4 million fee), the proceeds of which were used to pay down our debtor-in-possession financing;
•Our Subscription Rights offering was backstopped by certain creditors who received 3.5 million shares of new common stock as a backstop commitment premium (refer to Note 16 Equity for additional information on the backstop commitment premium);
•The holders of Unsecured Debt Claims (as defined in the Plan) under the 2016 Credit Agreement, Second Lien Notes, 2021 Notes and 2024 Notes received Tier 1 Warrants and Tier 2 Warrants (each as defined in the Plan and collectively, Warrants) to purchase up to 2% and 3%, respectively, of our outstanding shares (on a fully diluted basis calculated immediately after the Effective Date), with an initial exercise price of $36.00 per share, which expire on October 27, 2024 and have customary anti-dilution protections (refer to Note 16 Equity for additional information on the Warrants);
•All other general unsecured claims will be paid or disputed in the ordinary course of business; and
•All existing equity interests were cancelled and their holders received no distributions.

As a condition to our emergence, we repaid the outstanding balance of our debtor-in-possession financing with proceeds from our Subscription Rights offering, Backstop Commitment Agreement and a new senior secured revolving credit facility led by Citibank, N.A. We also issued approximately 821,000 shares of new common stock for a debtor-in-possession exit fee. For more information on our debtor-in-possession credit agreements and our post-emergence indebtedness, see Note 6 Debt.

One of the conditions of the Plan was to establish a new Board of Directors, which occurred on October 27, 2020.

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Changes to our Stock-Based Compensation Programs

As a result of our bankruptcy, the outstanding stock-based awards under our Amended and Restated California Resources Corporation Long-Term Incentive Plan were cancelled on our Effective Date. Any new stock-based awards or compensation plans will be reviewed and approved by our Board of Directors, which includes 7 new directors appointed on October 27, 2020.

The cancellation of these stock-based compensation awards resulted in the recognition of all previously unrecognized compensation expense for equity-settled awards and the liability related to our cash-settled awards was eliminated as the participants received no consideration. The net effect of these adjustments was not material to our financial statements.

Changes to the 2020 Compensation Programs in Second Quarter 2020

In the second quarter of 2020, resulting from the unprecedented circumstances affecting the industry and market volatility, we reviewed our incentive programs for the entire workforce to determine whether those programs appropriately aligned compensation opportunities with our 2020 goals and ensured the stability of our workforce. Following this review, effective May 19, 2020, our then Board of Directors approved changes in the variable compensation programs for all participating employees. The previously established target amounts of 2020 variable compensation programs did not change; however, all amounts that vest are being settled in cash. As a condition to receiving any award, participants waived participation in our 2020 annual incentive program and forfeited all stock-based compensation awards previously granted in 2020. At that time, there were no changes to stock-based compensation awards granted prior to February 2020; however, these pre-2020 awards were subsequently cancelled as part of the Plan. Changes to the variable compensation programs had the effect of accelerating the associated payments into 2020 from future periods. However, the total amount of compensation to be paid under the variable compensation programs at target for 2020 remained largely the same as the amounts that would have been paid at target prior to the changes. Our future compensation programs will be determined by our new Board of Directors.

Organizational Changes

During the course of the Chapter 11 Cases, we evaluated the structure of our workforce and, in August 2020, we implemented organizational changes that resulted in a reduction of our headcount from 1,250 to approximately 1,100 employees. We believe the steps taken improved and strengthened our business as we emerge from bankruptcy. We recorded a one-time $10 million restructuring charge in the third quarter of 2020. We will continue to evaluate resource levels depending on commodity prices.

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NOTE 12    BASIS OF PRESENTATION

We are an independent oil and natural gas exploration and production company operating properties exclusively within California. We were incorporated in Delaware and became a publicly traded company on December 1, 2014.Except when the context otherwise requires or where otherwise indicated, all references to ‘‘CRC,’’ the ‘‘Company,’’ ‘‘we,’’ ‘‘us’’ and ‘‘our’’ refer to California Resources Corporation and its subsidiaries.

Voluntary Petitions for Relief Under Chapter 11 of the Bankruptcy Code

On July 15, 2020, we filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code (Bankruptcy Code) in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (Bankruptcy Court). The Chapter 11 cases filed by us (Chapter 11 Cases) are being jointly administered under the caption In re California Resources Corporation, et al., Case No. 20-33568 (DRJ). On July 24, 2020, we filed a Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code with the Bankruptcy Court.

We continuehave applied Financial Accounting Standards Board Accounting Standards Codification 852, Reorganizations (ASC 852), in preparing these unaudited condensed consolidated financial statements. ASC 852 requires that the financial statements, for periods subsequent to operatethe petition date (July 15, 2020), distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. As a result, we have segregated liabilities and obligations whose treatment and satisfaction are dependent on the outcome of the Chapter 11 Cases and classified these items as liabilities subject to compromise (LSTC) on our businesscondensed consolidated balance sheet as “debtors-in-possession” (DIP) underof September 30, 2020. In addition, we have classified all income, expenses, gains or losses that were incurred or realized as a result of the jurisdictionChapter 11 Cases subsequent to the petition date as reorganization items, net in our condensed consolidated statements of operations for the period ended September 30, 2020.

Fresh Start Accounting

We believe that we are required to adopt fresh start accounting upon emergence from bankruptcy because (1) the holders of existing voting shares prior to emergence received less than 50% of our new voting shares following our emergence from bankruptcy and (2) the reorganization value of our assets immediately prior to the confirmation of the Plan was less than the post-petition liabilities and allowed claims, which are included in LSTC. Fresh start accounting will be applied as of October 27, 2020, the date we emerged from bankruptcy. Under the principles of fresh start accounting, a new reporting entity is considered to have been created, and, as a result, the reorganization value of the emerging entity is assigned to individual assets and liabilities based on their estimated relative fair values. The process of estimating the fair value of our assets, liabilities and equity upon emergence is currently ongoing. In support of the Plan, the enterprise value of the successor company was estimated and approved by the Bankruptcy Court to be in the range of $2.2 billion to $2.8 billion. As a result of the application of fresh start accounting and the effects of the implementation of the Plan, the financial statements of the successor entity will not be comparable to the financial statements, including this statement, prepared prior to our Effective Date.

Liabilities Subject to Compromise – Pre-petition Debt

LSTC include our long-term debt and related accrued interest up to the petition date, which represents all of the known or potential obligations resolved in accordanceconnection with the Bankruptcy Code. To ensure our ability to continue operatingPlan. Contractual interest on these obligations through September 30, 2020 was $289 million, of which $72 million was not recognized in our financial statements. Upon emergence, all general unsecured claims, other than debt, will be paid or disputed in the ordinary course of business andpursuant to minimize the effectPlan. As of the Chapter 11 CasesSeptember 30, 2020, LSTC on our employees, vendors and customers, we filed motions for customary “first day” relief withcondensed consolidated balance sheet included the Bankruptcy Court. On July 17, 2020, the Bankruptcy Court entered interim or final orders that included authorizing payments of pre-petition liabilities with respect to certain employee compensation and benefits, taxes, royalties, certain essential vendor payments and insurance and surety obligations. On July 21, 2020, the Bankruptcy Court approved on a final basis an order designed to assist us in preserving certain tax attributes. This order established the procedures that certain stockholders and potential stockholders will be required to comply with regarding transfers of, or declarations of worthlessness with respect to, our common stock as well as certain notice obligations. On July 22, 2020, the Bankruptcy Court approved on an interim basis a motion authorizing us to enter into DIP financing.following:

The commencement of the Chapter 11 Cases constitutes an event of default that accelerated our obligations under the following agreements: (i) Credit Agreement, dated as of September 24, 2014, among JPMorgan Chase Bank, N.A., as administrative agent, and the lenders that are party thereto (2014 Revolving Credit Facility), (ii) Credit Agreement, dated as of August 12, 2016, among The Bank of New York Mellon Trust Company, N.A., as collateral and administrative agent, and the lenders that are party thereto (2016 Credit Agreement), (iii) Credit Agreement, dated as of November 17, 2017, among The Bank of America Mellon Trust Company, N.A., as administrative agent, and the lenders that are party thereto (2017 Credit Agreement), and (iv) the indentures governing our 8% Senior Secured Second Lien Notes due 2022 (Second Lien Notes), 5.5% Senior Notes due 2021 (2021 Notes) and 6% Senior Notes due 2024 (2024 Notes). Additionally, other events of default, including cross-defaults, are present under these debt agreements. Under the Bankruptcy Code, the creditors under these debt agreements are stayed from taking any action against us, including exercising remedies as a result of any event of default. See Note 5 Debt for additional details about our debt.
September 30,
2020
(in millions)
Long-term debt (principal amount):
2017 Credit Agreement$1,300 
2016 Credit Agreement1,000 
Second Lien Notes1,808 
5.5% Senior Notes due 2021100 
6% Senior Notes due 2024144 
Accrued interest on long-term debt164 
Total liabilities subject to compromise$4,516

Restructuring Support Agreement

On July 15, 2020, we entered into a Restructuring Support Agreement which was subsequently amended on July 24, 2020 (RSA). This RSA contemplates a restructuring plan that establishes a reorganized company with a new capital structure. The transactions contemplated by the RSA plan include (i) entering into a senior secured superpriority DIP credit facility (Senior DIP Facility) in an aggregate principal amount of up to approximately $483 million, (ii) entering into a junior secured superpriority DIP term loan facility in an aggregate amount of $650 million, (iii) the implementation of financing upon emergence from bankruptcy, (iv) the issuance of new common stock, and (v) a $450 million equity rights offering, backstopped by certain parties to the RSA.

The following creditors have entered into the RSA: (i) lenders holding approximately 85% of the outstanding principal amount of loans under the 2017 Credit Agreement, (ii) creditors holding approximately 68% of the aggregate claims arising under the 2016 Credit Agreement, the Second Lien Notes, the 2021 Notes and the 2024 Notes, and (iii) one or more funds, investment vehicles and/or accounts managed or advised by Ares Management LLC (Ares) or its affiliates, including ECR Corporate Holdings L.P. (ECR).
811


The transactions contemplated by the RSA, if approved, will result in current holders ofReorganization Items Related to our common stock receiving no distribution on account of their claims or interests. No assurance can be given that the Bankruptcy Court will approve the terms proposed under the RSA.Chapter 11 Cases

Debtor-in-Possession Credit Agreements

On July 23, 2020, we entered into (1) a Senior Secured Superpriority DIP Credit AgreementReorganization items, net represent the one-time costs related to our reorganization, including the non-cash write-off of unamortized deferred gain, original issue discounts and deferred issuance costs associated with JP Morgan, as administrative agent, and certain other lenders (Senior DIP Credit Agreement) and (2) a Junior Secured Superpriority DIP Credit Agreement with Alter Domus, as administrative agent, and certain lenders (Junior DIP Credit Agreement). For more information on our debtor-in-possession credit agreements, see Note 5 Debt.

Ares JV Settlement Agreement

On July 15, 2020, prior to the commencement of the Chapter 11 Cases, we and certain affiliates of Ares, including ECR, entered into a settlement and assumption agreement (Settlement Agreement). On July 17, 2020, the Bankruptcy Court entered an order approving the Settlement Agreement on an interim basis pending a final hearing. Upon entry of a final orderlong-term debt impacted by the Bankruptcy Court, we will be granted the right to acquire all of the equity interests of the Ares JV owned by ECR in exchange for secured notes, cash and common stock upon emergence from bankruptcy. We have also agreed to certain covenants and amendments to the Ares JV limited liability company agreement. The Settlement Agreement may be terminated in certain limited circumstances. For more information on the Ares JV, see Note 6 Joint Ventures.

Ability to Continue as a Going Concern

Our spin–off from Occidental Petroleum Corporation (Occidental) on November 30, 2014 burdened us with significant debt which was used to pay a $6.0 billion cash dividend to Occidental. Together with the activity level and payables that we assumed from Occidental and due to Occidental's retention of the vast majority of our receivables, our debt peaked at approximately $6.8 billion in May 2015. Since then, we have engaged in a series of assets sales, joint ventures, debt exchanges, tenders and repurchases and other financing transactions to reduce our overall debt and improve our balance sheet. As of June 30, 2020, we had reduced our outstanding debt to approximately $5.1 billion, a substantial portion of which would have matured in 2021.

We currently expect that our cash flows, cash on hand and financing available through our DIP credit agreements should provide sufficient liquidity during the pendency of the Chapter 11 Cases. However,Legal, professional and other fees incurred subsequent to our petition date through September 30, 2020, including success-based fees, are also included in reorganization items, net as these fees were incurred as a result of the restructuring process. Reorganization items, net consisted of the following for the duration of the Chapter 11 Cases, our operationsthree and our ability to develop and execute our business plan are subject to a high degree of risks and uncertainty associated with the Chapter 11 proceedings. The outcome of the Chapter 11 Cases is also subject to a high degree of uncertainty and is dependent upon factors that are outside of our control, including actions of the Bankruptcy Court, our creditors, and Ares. There can be no assurance that we will confirm and consummate the plan under the RSA or complete another plan of reorganization with respect to the Chapter 11 proceedings. There is substantial doubt that we can continue as a going concern if we are not able to complete the plan of reorganization contemplated by the RSA or another plan of reorganization as part of the Chapter 11 Cases.nine months ended September 30, 2020 (in millions):

Unamortized deferred gain and issuance costs, net(a)
$125 
Legal, professional and other, net(b)
(34)
Debtor-in-possession financing costs(25)
Total reorganization items, net$66
For the duration of the Chapter 11 Cases, our operations and ability to develop and execute our business plan are subject(a)Reflects non-cash adjustments necessary to the riskscarrying amount of our long-term debt to state such amounts at face value.
(b)Includes $27 million of unpaid items included in changes in operating assets and uncertainties associated with the Chapter 11 Cases. See Part II, Item 1A – Risk Factors, below for further discussionliabilities, net on our condensed consolidated statement of these risks and risks related to our ability to continue as a going concern.cash flows at September 30, 2020.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared assuming we will continue as a going concern. These financial statements do not include any adjustments that might result from the outcome of our going concern uncertainty or the Chapter 11 Cases. Further, the Chapter 11 Cases could result in a change in the basis of our accounting, which may have a material effect on the carrying value of certain assets and liabilities.

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In the opinion of our management, the accompanying unaudited financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to fairly present our financial position as of JuneSeptember 30, 2020 and December 31, 2019 and the statements of operations, comprehensive income (loss), equity and cash flows for the three and sixnine months ended JuneSeptember 30, 2020 and 2019, as applicable. We have eliminated all significant intercompany transactions and accounts. We account for our share of oil and natural gas exploration and development ventures, in which we have a direct working interest, by reporting our proportionate share of assets, liabilities, revenues, costs and cash flows within the relevant lines on our condensed consolidated balance sheets, statements of operations, equity and cash flows.

We have prepared this report in accordance with generally accepted accounting principles (GAAP) in the United States and the rules and regulations of the U.S. Securities and Exchange Commission applicable to interim financial information, which permit the omission of certain disclosures to the extent they have not changed materially since the latest annual financial statements. We believe our disclosures are adequate to make the information not misleading. This Form 10-Q should be read in conjunction with the condensed consolidated financial statements and the notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2019.

NOTE 23    ACCOUNTING AND DISCLOSURE CHANGES

Recently Adopted Accounting and Disclosure Changes

We adopted the Financial Accounting Standards Board'sFASB's new rules on current expected credit losses on January 1, 2020, using a modified retrospective approach to the first period in which the guidance is effective. The new rules change the measurement of credit losses for financial assets and certain other instruments, including trade and other receivables with a right to receive cash, and require the use of a new forward-looking expected loss model that will result in the earlier recognition of an allowance for losses. The adoption of these new rules did not have a significant impact to our condensed consolidated financial statements.

These rules apply to our trade receivables and joint interest billings to third-party customers. Credit exposure for each customer is monitored for outstanding balances and current activity. We actively manage our credit risk by selecting counterparties that we believe to be financially sound and continue to monitor their financial health. Concentration of credit risk is regularly reviewed to ensure that counterparty credit risk is adequately diversified. We believe exposure to counterparty credit-related losses at JuneSeptember 30, 2020 was not material and losses associated with counterparty credit risk have been insignificant for all periods presented.

NOTE 34    OTHER INFORMATION

Restricted cash — Cash at JuneSeptember 30, 2020 included $21$24 million which was restricted under agreements to fund operating expenses at one of our joint ventures and hold for distributions to a joint venture (JV) partner. Cash at December 31, 2019 included $3 million, which was restricted for distributions to a JV partner.

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Other current assets, net — Other current assets, net as of JuneSeptember 30, 2020 and December 31, 2019 consisted of the following:
June 30,December 31,September 30,December 31,
2020201920202019
(in millions)(in millions)
Net amounts due from joint interest partners(a)
$50  $70  
Amounts due from joint interest partners, net(a)
Amounts due from joint interest partners, net(a)
$41 $70 
Derivative assets(b)
Derivative assets(b)
7  39  
Derivative assets(b)
17 39 
Prepaid expensesPrepaid expenses27  19  Prepaid expenses24 19 
OtherOther—  2  Other0 2 
Other current assets, netOther current assets, net$84  $130  Other current assets, net$82 $130 
(a)Both JuneSeptember 30, 2020 and December 31, 2019 balances included a $19 million in an allowance for credit losses against the receivablesamounts due from our joint interest partners.
(b)Derivative assets at June 30, 2020 included only commodity contracts held by the Benefit Street Partners joint venture (BSP JV). Derivative assets at December 31, 2019 included commodity contracts for our hedge positions and those held by the BSP JV.

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Accrued liabilities — Accrued liabilities as of JuneSeptember 30, 2020 and December 31, 2019 consisted of the following:
June 30,December 31,September 30,December 31,
2020201920202019
(in millions)(in millions)
Accrued employee-related costs(a)
Accrued employee-related costs(a)
$48  $116  
Accrued employee-related costs(a)
$81 $116 
Accrued taxes other than on income(b)
Accrued taxes other than on income(b)
94  57  
Accrued taxes other than on income(b)
64 57 
Accrued interest(c)
Accrued interest(c)
154  13  
Accrued interest(c)
1 13 
Lease liabilityLease liability15  28  Lease liability11 28 
Asset retirement obligationsAsset retirement obligations28  28  Asset retirement obligations28 28 
Other(d)(b)
Other(d)(b)
16  71  
Other(d)(b)
55 71 
Accrued liabilities Accrued liabilities$355  $313   Accrued liabilities$240 $313 
(a)As of June 30, 2020, accruedAccrued employee-related costs declined $68$35 million primarily due to bonus, long term incentive, retention, and severance payments made to employees and former employees.
(b)Accrued taxes other than income increased $37 million as of June 30, 2020 primarily due to missed property tax payments in April 2020 as a result of the economic impact of Coronavirus Disease 2019 (COVID-19).
(c)Accrued interest increased $141 million as of June 30, 2020 primarily due to missed interest payments as described in Note 5 Debt.
(d)Other accrued liabilities declined $55$16 million as of June 30, 2020 primarily due to the timing of payments withto joint interest partners and legal settlement payments. These decreases were partially offset by an increase in accrued legal and professional fees.

Other long-term liabilities — Other long-term liabilities included asset retirement obligations of $499$507 million and $489 million at JuneSeptember 30, 2020 and December 31, 2019, respectively. The remainder of the balance for each year consisted primarily of postretirement and pension benefit obligations, liabilities related to deferred compensation arrangements and lease liabilities.

Supplemental Cash Flow Information

We did 0t make U.S. federal and state income tax payments during the sixnine months ended JuneSeptember 30, 2020 and 2019. Interest paid, net of capitalized amounts, totaled $51$72 million and $219$290 million for the sixnine months ended JuneSeptember 30, 2020 and 2019, respectively. Cash paid for legal and professional fees, which is included in reorganization items, net on our condensed consolidated statement of operations for the nine months ended September 30, 2020, totaled $7 million. Non-cash financing activities in 2020 included a $138 million downward adjustment to mezzanine equity related to a Settlement Agreement with one of our joint venture partners. See Note 7 Joint Ventures for more on the Settlement Agreement.

Fair Value of Financial Instruments

The carrying amounts of cash and other on-balance sheet financial instruments, other than debt, approximate fair value. Refer to Note 6 Debt for the fair value of our debt.

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NOTE 45    INVENTORIES

Materials and supplies areInventory is valued at weighted-averagethe lower of cost and are reviewed periodically for obsolescence.net realizable value. Finished goods predominantly comprise oil and natural gas liquids (NGLs), which are valued at the lower of cost and net realizable value.. Inventories as of JuneSeptember 30, 2020 and December 31, 2019 consisted of the following:
June 30,December 31,September 30,December 31,
2020201920202019
(in millions)(in millions)
Materials and suppliesMaterials and supplies$59  $64  Materials and supplies$58 $64 
Finished goodsFinished goods2  3  Finished goods3 3 
Total Total$61  $67   Total$61 $67 


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NOTE 56     DEBT

We have classified all our long-term debt as current due to events of default that occurred prior to June 30, 2020 and the commencement of the Chapter 11 Cases on July 15, 2020 as described below.Pre-Emergence Indebtedness

As of JuneSeptember 30, 2020 and December 31, 2019, our short-term debtor-in-possession (DIP) financing and current portion of long-term debt consisted of the following:

Outstanding PrincipalInterest RateSecurity
September 30, 2020December 31, 2019
($ in millions)
Senior DIP Facility$83 $0 
LIBOR plus 4.5%
ABR plus 3.5%
Secured Superpriority
Junior DIP Facility650 0 
LIBOR plus 9.0%
ABR plus 8.0%
Secured Superpriority
Current portion of long-term debt0 100 
Total short-term borrowings and current maturities$733 $100 

As of September 30, 2020 and December 31, 2019, our long-term debt consisted of the following credit agreements, Second Lien Notes and Senior Notes:
Outstanding PrincipalInterest RateSecurity
Outstanding PrincipalInterest RateSecuritySeptember 30, 2020December 31, 2019
June 30, 2020December 31, 2019($ in millions)
Credit AgreementsCredit Agreements($ in millions)Credit Agreements
2014 Revolving Credit Facility$731  $518  
LIBOR plus 3.25%-4.00%
ABR plus 2.25%-3.00%
Shared First-Priority Lien
2014 Revolving Credit Facility(a)
2014 Revolving Credit Facility(a)
0 518 
LIBOR plus 3.25%-4.00%
ABR plus 2.25%-3.00%
Shared First-Priority Lien
2017 Credit Agreement2017 Credit Agreement1,300  1,300  
LIBOR plus 4.75%
ABR plus 3.75%
Shared First-Priority Lien2017 Credit Agreement1,300 1,300 
LIBOR plus 4.75%
ABR plus 3.75%
Shared First-Priority Lien
2016 Credit Agreement2016 Credit Agreement1,000  1,000  
LIBOR plus 10.375%
ABR plus 9.375%
First-Priority Lien2016 Credit Agreement1,000 1,000 
LIBOR plus 10.375%
ABR plus 9.375%
First-Priority Lien
Second Lien NotesSecond Lien NotesSecond Lien Notes
Second Lien NotesSecond Lien Notes1,808  1,815  8%Second-Priority LienSecond Lien Notes1,808 1,815 8%Second-Priority Lien
Senior NotesSenior NotesSenior Notes
5% Senior Notes due 20205% Senior Notes due 2020—  100  5%Unsecured5% Senior Notes due 20200 100 5%Unsecured
5.5% Senior Notes due 20215.5% Senior Notes due 2021100  100  5.5%Unsecured5.5% Senior Notes due 2021100 100 5.5%Unsecured
6% Senior Notes due 20246% Senior Notes due 2024144  144  6%Unsecured6% Senior Notes due 2024144 144 6%Unsecured
Total Debt$5,083  $4,977  
Less: Current Portion of Long-Term Debt(5,083) (100) 
Total Long-Term Debt$—  $4,877  
Outstanding long-term debtOutstanding long-term debt$4,352 $4,977 
Less: Current portion of long-term debtLess: Current portion of long-term debt0 (100)
Less: Amounts reclassified to LSTCLess: Amounts reclassified to LSTC(4,352)0 
Total long-term debtTotal long-term debt$0 $4,877 
Note:     For a detailed description of our credit agreements, Second Lien Notes and Senior Notes, please see our most recent Form 10-K for the year ended December 31, 2019.
(a)The proceeds from our debtor-in-possession credit agreements were used to repay the balance of our 2014 Revolving Credit Facility. Borrowings under our debtor-in-possession credit agreements are classified as a current liability on our condensed consolidated balance sheet at September 30, 2020.

As of September 30, 2020, we had letters of credit outstanding of $151 million under the Senior DIP Facility. As of December 31, 2019, we had letters of credit outstanding under the 2014 Revolving Credit Facility of $165 million. These letters of credit were issued to support ordinary course marketing, insurance, regulatory and other items.

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Related to the Chapter 11 Cases, we recorded a non-cash gain of $125 million to write off all of the related unamortized deferred gain, discount and debt issuance costs as a reorganization item, net in our condensed consolidated statements of operations for the three and nine months ended September 30, 2020. As of December 31, 2019, net deferred gain and issuance costs were $146 million, consisting of deferred gain and issuance costs of $211 million and $65 million, respectively.

Note Repurchases

In the first quarter of 2020, we repurchased $7 million in face value of our Second Lien Notes for $3 million in cash resulting in a pre-tax gain of $5 million, including the effect of unamortized deferred gain and issuance costs. We did not repurchase any notes in the second or third quarters of 2020. In the nine months ended September 30, 2019, we repurchased approximately $229 million in face value of our Second Lien Notes for $149 million in cash resulting in a pre-tax gain of $108 million, including the effect of unamortized deferred gain and issuance costs.

Missed Interest Payments and Forbearance

On May 15, 2020, we did not make an interest payment of approximately $4 million on our 2024 Notes. The indenture governing the 2024 Notes provides for a 30-day grace period and the payment was made on June 12, 2020.

On May 29, 2020, we did not pay approximately $51 million in the aggregate of interest due under our 2017 Credit Agreement and 2016 Credit Agreement. Our failure to make those interest payments constituted events of default under the 2017 Credit Agreement, 2016 Credit Agreement and, as a result of cross default, under the 2014 Revolving Credit Facility.

On June 2, 2020, we entered into forbearance agreements (Forbearance Agreements) with (i) certain lenders of a majority of the outstanding principal amount of the loans under the 2014 Revolving Credit Facility, (ii) certain lenders of a majority of the outstanding principal amount of the loans under the 2016 Credit Agreement, and (iii) certain lenders of a majority of the outstanding principal amount of the loans under the 2017 Credit Agreement. Pursuant to the Forbearance Agreements, the lenders who were parties to the Forbearance Agreements agreed to forbear from exercising any remedies under the 2014 Revolving Credit Facility, 2016 Credit Agreement and 2017 Credit Agreement with respect to our failure to make the aforementioned interest payments, initially through June 14, 2020 and subsequently through July 15, 2020.

On June 15, 2020, we did not make an interest payment of approximately $72 million on our Second Lien Notes. The indenture governing the Second Lien Notes provides for a 30-day grace period, which expired on July 15, 2020. We did not make the July 15, 2020 interest payment and commenced bankruptcy proceedings.

Commencement of Bankruptcy Proceedings

The commencement of a voluntary proceeding in bankruptcy constituted an immediate event of default under the 2014 Revolving Credit Facility, 2016 Credit Agreement, 2017 Credit Agreement, and the indentures governing the Second Lien Notes, 2021 Notes and 2024 Notes, resulting in the automatic and immediate acceleration of all of our outstanding pre-petition long-term debt. Any efforts to enforce payment obligations related to the acceleration of our long-term debt were automatically stayed immediately uponby the filingcommencement of the Chapter 11 Cases, and the creditors’ rights of enforcement arewere subject to the applicable provisions of the Bankruptcy Code. See Note 1 Basis of PresentationChapter 11 Proceedings for more information on theour Chapter 11 Cases.

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Pursuant to the Plan, on the Effective Date, the obligations of the Debtors under each of the following debt instruments were cancelled and the applicable agreements governing such obligations were terminated: (a) the Credit Agreement, dated as of November 17, 2017, among The Bank of New York Mellon Trust Company, N.A., as administrative agent, as amended, restated, supplemented or otherwise modified (the “2017 Term Loan Agreement”); (b) the Credit Agreement, dated as of August 12, 2016, among The Bank of New York Mellon Trust Company, N.A., as administrative agent and collateral agent, as amended, restated, supplemented or otherwise modified (the “2016 Term Loan Agreement”); (c) the Indenture dated as of December 15, 2015, among The Bank of New York Mellon Trust Company, N.A., as trustee, pursuant to which the 8% Senior Secured Second Lien Notes due 2022 were issued, as amended, supplemented or otherwise modified (the “Second Lien Notes Indenture”); and (d) the Indenture dated as of October 1, 2014, among Wilmington Trust, National Association, as successor to Wells Fargo Bank, National Association, as trustee, pursuant to which the 5% Senior Notes due 2020, 5.5% Senior Notes due 2021 and 6% Senior Notes due 2024 were issued, as amended, supplemented or otherwise modified (the “Unsecured Notes Indenture”).

Debtor-in-Possession Credit Agreements

On July 23, 2020, we entered into thea Senior Secured Superpriority DIP Credit Agreement with JP Morgan, as administrative agent, and certain other lenders (Senior DIP Credit Agreement), which providesprovided for the senior DIP facility in an aggregate principal amount of up to $483 million (Senior DIP Facility). The Senior DIP Facility includesincluded a $250 million revolving facility which will bewas primarily used by us to (i) fund working capital needs, and capital expenditures and additional letters of credit during the pendency of the Chapter 11 Cases and (ii) pay certain costs, fees and expenses related to the Chapter 11 Cases and the Senior DIP Facility. UntilFollowing a hearing, the Bankruptcy Court entersentered a final order with respect to our DIP credit agreements, only $85 million of revolving borrowings are available. If the Bankruptcy Court enters a final order approvingon August 14, 2020, which approved the Senior DIP Facility in its current form followingon a hearing on August 14, 2020, we expect the full remaining amount of the $250 million revolving facility to become available.final basis. The Senior DIP Facility also includes (a)included (i) a $150 million letter of credit facility which was used to deemredeem letters of credit outstanding under the 2014 Revolving Credit Facility as issued under the Senior DIP Facility, and (b)(ii) $83 million of term loan borrowings which were used to repay a portion of the 2014 Revolving Credit Facility. The Senior DIP Facility allowed for the issuance of an additional $35 million of letters of credit.

On July 23, 2020, we entered into thea Junior Secured Superpriority DIP Credit Agreement with Alter Domus, as administrative agent, and certain lenders (Junior DIP Credit Agreement), which providesprovided for a junior DIP facility in an aggregate principal amount of $650 million (Junior DIP Facility)Facility and together with the Senior DIP Facility, the DIP Facilities). The proceeds of the Junior DIP Facility were used to (i) refinance in full all remaining obligations under the 2014 Revolving Credit Facility and (ii) pay certain costs, fees and expenses related to the Chapter 11 Cases and the Junior DIP Facility.
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The Senior DIP Credit Agreement and Junior DIP Credit Agreement both contain representations, warranties, and covenants that are customary for DIP facilities of their type, including certain milestones applicable to the Chapter 11 Cases, compliance with an agreed budget, hedging on not less than 25% of our share of expected crude oil production for a specified period, and other customary limitations on additional indebtedness, liens, asset dispositions, investments, restricted payments and other negative covenants, in each case subject to exceptions. Additionally, the Senior DIP Credit Agreement and Junior DIP Credit Agreement require us to maintain (i) minimum liquidity over a rolling four-week period of not less than $50 million, and (ii) minimum liquidity at all times of not less than $35 million. The Senior DIP Credit Agreement and Junior DIP Credit Agreement also contain customary events of default for facilities of their type, including failure to achieve the milestones and the occurrence of certain events in the Chapter 11 Cases.Cases, which would constitute an event of default. If an event of default occurs or is continuing, the applicable administrative agent may accelerate repayment of the indebtedness outstanding and/or pursue other remedies authorized under the Senior DIP Facility or the Junior DIP Facility.

Borrowings under the Senior DIP Facility bear interest at athe London interbank offered rate of LIBOR(LIBOR) plus 4.5% for LIBOR loans and ABRthe alternative base rate (ABR) plus 3.5% for alternative base rate loans. We also agreed to pay an upfront fee equal to 1.0% on the commitment amount of the Senior DIP Facility and quarterly commitment fees of 0.5% on the undrawn portion of the Senior DIP Facility.

Borrowings under the Junior DIP Facility bear interest at a rate of LIBOR plus 9.0% for LIBOR loans and ABR plus 8.0% for alternate base rate loans. We also agreed to pay an upfront fee equal to 1.0% of the commitment amount funded on the closing date and a fronting fee to a fronting lender.

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Certain of our subsidiaries, including each of the debtors in the Chapter 11 Cases, have guaranteed all obligations under the Senior DIP Credit Agreement and Junior DIP Credit Agreement. To secure the obligations under the Senior DIP Credit Agreement and Junior DIP Credit Agreement, we have granted liens on substantially all of our assets, whether now owned or hereafter acquired.

The Senior DIP Facility was repaid in full and terminated on the Effective Date using proceeds borrowed under our new Revolving Credit Facility discussed below. The Junior DIP Facility both maturewas also repaid in full and terminated on January 15, 2021.

Net Deferred Gainthe Effective Date using (i) $200 million from the Second Lien Term Loan discussed below and Issuance Costs

As of June 30, 2020 and December 31, 2019, net deferred gain and issuance costs consisted of(ii) $450 million from the following:
June 30, 2020(a)
December 31, 2019
(in millions)
Deferred gain$176  $211  
Issuance costs and original issue discounts(51) (65) 
Net deferred gain and issuance costs$125  $146  
(a)Due to uncertainties at June 30, 2020 regarding default and the commencement of the Chapter 11 Cases on July 15, 2020, we have classified all our outstanding debt and associated deferred gain, unamortized debt issue costs and discounts as a current liability as of June 30, 2020. Refer tosubscription rights offering discussed in Note 1 Basis of Presentation for more information on the Chapter 11 Cases.Proceedings.

Missed Interest Payments and ForbearancePost-Emergence Indebtedness

Revolving Credit Facility

On May 15,October 27, 2020, we didentered into a Credit Agreement with Citibank, N.A., as administrative agent, and certain other lenders. This credit agreement currently consists of a $540 million senior revolving loan facility (Revolving Credit Facility), which we are permitted to increase if we obtain additional commitments from new or existing lenders. Our Revolving Credit Facility also includes a sub-limit of $200 million for the issuance of letters of credit. The revolving commitments are subject to an automatic reduction if certain conditions are not make an interest payment of approximately $4 million on our 2024 Notes. The indenture governing the 2024 Notes provides for a 30-day grace period and the payment was made on June 12, 2020.met by April 2021.

On May 29, 2020,the Effective Date, we did notborrowed $225 million under the Revolving Credit Facility to refinance our DIP Facilities, replace our existing letters of credit and pay approximately $51certain costs, fees and expenses related to the other transactions consummated on the Effective Date. Our initial borrowings included $118 million used to cash collateralize on an interim basis certain letters of credit that were outstanding under our Senior DIP Facility. We expect that these letters of credit will be transitioned into our new Revolving Credit Facility and will no longer be cash collateralized. In addition, we had unrestricted cash of $72 million on the Effective Date. The proceeds of all or a portion of the Revolving Credit Facility may be used for our working capital needs and for other purposes subject to meeting certain criteria.

Security – The lenders have a first-priority lien on a substantial majority of our assets, except assets securing the EHP Notes as discussed below.

Interest Rate – We can elect to borrow at either an adjusted LIBOR rate or an ABR rate, subject to a 1% floor and 2% floor, respectively, plus an applicable margin. The ABR is equal to the highest of (i) the federal funds effective rate plus 0.50%, (ii) the administrative agent prime rate and (iii) the one-month adjusted LIBOR rate plus 1%. The applicable margin is adjusted based on the borrowing base utilization percentage and will vary from (i) in the aggregatecase of interest due under our 2017LIBOR loans, 3% to 4% and (ii) in the case of ABR loans, 2% to 3%; provided that in the event that the EHP Notes are not paid in full on or prior to December 31, 2021, the applicable margin will be increased by 0.25% effective as of January 1, 2022 and will be increased by an additional 0.25% at the beginning of each subsequent fiscal quarter until such date on which the EHP Notes are paid in full. The unused portion of the facility is subject to a commitment fee of 0.5% per annum. We also pay customary fees and expenses. Interest on ABR loans is payable quarterly in arrears. Interest on LIBOR loans is payable at the end of each LIBOR period, but not less than quarterly.

Maturity Date – Our Revolving Credit Agreement and 2016Facility matures 42 months after closing.

Amortization Payments – The Revolving Credit Agreement. Our failureFacility does not include any obligation to make those interest payments constituted events of default under the 2017 Credit Agreement, 2016 Credit Agreementamortizing payments.

Borrowing Base – The borrowing base, currently $1.2 billion, will be redetermined semi-annually in April and as a result of cross default, under the 2014 Revolving Credit Facility.October.

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Financial Covenants – Our Revolving Credit Facility includes the following financial covenants:

RatioComponentsRequired LevelsTested
Consolidated Total Net Leverage Ratio
Ratio of consolidated total secured debt to consolidated EBITDAX(a)
Not greater than 3.00 to 1.00(c)
Quarterly
Current Ratio
Ratio of consolidated current assets to consolidated current liabilities(b)
Not less than 1.00 to 1.00Quarterly
(a)EBITDAX is calculated as defined in the credit agreement.
(b)The available credit under our Revolving Credit Facility is included in consolidated current assets as part of the calculation of the current ratio.
(c)In the event that the EHP Notes are not paid in full prior to December 31, 2021 (and until the EHP Notes are repaid in full), the Consolidated Total Net Leverage Ratio for the Test Period ending on December 31, 2021 and as of the last day of any Test Period ending thereafter may not exceed 2.50 to 1.00.

Liquidity – We will become subject to a monthly minimum liquidity requirement of $200 million if, as of the date of our scheduled spring 2021 borrowing base redetermination, (a) our liquidity is less than $290 million and (b) we are not able to obtain at least $60 million in additional commitments under our Revolving Credit Facility or through capital markets or other junior financing transactions, for so long as the conditions in (a) and (b) remain unmet.

Other Covenants – Our Revolving Credit Facility includes covenants that, among other things, restrict our ability to incur additional indebtedness, grant liens, make asset sales and investments, repay existing indebtedness, make subsidiary distributions and enter into transactions that would result in fundamental changes. We are also restricted in the amount of cash dividends we can pay on our common stock unless we meet certain covenants included in the credit agreement.

Our Revolving Credit Facility also requires us to maintain hedges on a minimum amount of crude oil production, determined semi-annually, of no less than (i) 75% of our reasonably anticipated oil production from our proved reserves for the first 24 months after the closing of the Revolving Credit Facility, which occurred on the Effective Date, and (ii) 50% of our reasonably anticipated oil production from our proved reserves for a period from the 25th month through the 36th month after the same date. The Revolving Credit Facility specifies the forms of hedges and prices (which can be prevailing prices) that must be used. In addition, for the first 24 months after closing an additional 25% of production from proved reserves needs to be hedged, which may take any form.

We must also maintain acceptable commodity hedges for no less than 50% of the reasonably anticipated oil production from our proved reserves for at least 24 months following the date of delivery of each reserve report. We may not hedge more than 80% of reasonably anticipated total forecasted production of crude oil, natural gas and natural gas liquids from our oil and gas properties for a 48-month period following the date of entry into any commodity hedging contract.

Events of Default and Change of Control – Our Revolving Credit Facility provides for certain events of default, including upon a change of control, as defined in the credit agreement, that entitles our lenders to declare the outstanding loans immediately due and payable, subject to certain limitations and conditions.

Second Lien Term Loan

On June 2,October 27, 2020, we entered into forbearance agreements (Forbearance Agreements)a $200 million credit agreement with (i)Alter Domus Products Corp., as administrative agent, and certain other lenders of(Second Lien Term Loan). The proceeds were used to refinance our Junior DIP Facility and to pay certain costs, fees and expenses related to the other transactions consummated on the Effective Date.

Security – The lenders have a second-priority lien (junior to the Revolving Credit Facility) on a substantial majority of our assets, except assets securing the outstandingEHP Notes as discussed below.

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Interest Rate – We can elect to pay interest at either an adjusted LIBOR rate or ABR rate, subject to a 1% floor and 2% floor, respectively, plus an applicable margin. The ABR rate is equal to the highest of (i) the prime rate, (ii) the federal funds rate effective rate plus 0.5%, and (iii) the one-month adjusted LIBOR rate plus 1%. In the case of an adjusted LIBOR rate election, the applicable margin is 9% per annum if interest is paid in cash and 10.5% per annum if interest is paid-in-kind. Prior to the second anniversary of the closing date of the Second Lien Term Loan, the applicable margin in the case of an ABR rate election is 8% per annum if paid in cash and 9.5% per annum if paid-in-kind, and the applicable margin in the case of an adjusted LIBOR rate election is 9% if paid in cash and 10.5% if paid-in-kind. After the second anniversary of the closing date, the applicable margin is 8% with respect to any ABR loan and 9% with respect to an adjusted LIBOR loan. Interest on ABR loans is paid quarterly in arrears and interest based on the adjusted LIBOR rate is due at the end of each LIBOR period, which can be one, two, three or six months but not less than quarterly. We also pay customary fees and expenses.

Maturity Date – Our Second Lien Term Loan matures five years after the closing date, subject to extension.

Amortization Payments – We are required to make scheduled amortization payments only with respect to extended loans, the terms of such extension to be agreed with the extending lender at the time of such extension.

Repurchases – We are permitted to repurchase our Second Lien Term Loan in open market purchases or tender offers on a non-pro rata basis.

Redemption – We may redeem all or part of our Second Lien Term Loan, at any time prior to the maturity date, at redemption price equal to (i) 100% of the principal amount if redeemed prior to 90 days after closing, (ii) 105% of the loansprincipal amount if redeemed after 90 days and before the first anniversary date, (iii) 103% of the principal amount if redeemed on or after the first anniversary date and before the second anniversary date, (iv) 102% of the principal amount if redeemed on or after the second anniversary date and before the third anniversary date, (v) 101% of the principal amount if redeemed on or after the third anniversary date and before the fourth anniversary date, and (vi) at 100% of the principal amount if redeemed in the fifth year.

Financial Covenants – Our Second Lien Term Loan includes the following financial covenants:

RatioComponentsRequired LevelsTested
Consolidated Total Net Leverage Ratio
Ratio of consolidated total debt to consolidated EBITDAX(a)
Not greater than 3.45 to 1.00(c)
Quarterly
Current Ratio
Ratio of consolidated current assets to consolidated current liabilities(b)
Not less than 0.85 to 1.00Quarterly
(a)EBITDAX is calculated as defined in the credit agreement.
(b)The available credit under the 2014our Revolving Credit Facility (ii) certain lenders of a majorityis included in consolidated current assets as part of the outstanding principal amountcalculation of the loans undercurrent ratio.
(c)In the 2016 Credit Agreement,event that the EHP Notes are not paid in full prior to December 31, 2021 (and until the EHP Notes are repaid in full), the Consolidated Total Net Leverage Ratio for the Test Period ending on December 31, 2021 and (iii) certain lenders of a majorityas of the outstanding principal amountlast day of any Test Period ending thereafter may not exceed 2.875 to 1.00.

Liquidity – We will become subject to a monthly minimum liquidity requirement of $170 million if, as of the loansSpring 2021 Scheduled Redetermination (as defined in the Revolving Credit Facility), (a) our liquidity is less than $247 million and (b) we are not able to obtain at least $51 million in additional commitments under the 2017 Credit Agreement. Pursuant to the Forbearance Agreements, the lenders who are parties to the Forbearance Agreements agreed to forbear from exercising any remedies under the 2014our Revolving Credit Facility 2016or through capital markets or other junior financing transactions, for so long as the conditions in (a) and (b) remain unmet.

Other Covenants – Our Second Lien Term Loan includes covenants that, among other things, restrict our ability to incur additional indebtedness, grant liens, make asset sales and investments, repay existing indebtedness, make subsidiary distributions and enter into transactions that would result in fundamental changes. We are also restricted in the amount of cash dividends we can pay on our common stock unless we meet certain covenants included in the credit agreement.

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Our Second Lien Term Loan also requires us to maintain hedges on a minimum amount of crude oil production, determined semi-annually, of no less than (i) 75% of our reasonably anticipated oil production from our proved reserves for the first 24 months after the closing of the Revolving Credit AgreementFacility, which occurred on the Effective Date, and 2017(ii) 50% of our reasonably anticipated oil production from our proved reserves for a period from the 25th month through the 36th month after the same date. The Second Lien Term Loan specifies the forms of hedges and prices (which can be prevailing prices) that must be used. In addition, for the first 24 months after closing an additional 25% of production from proved reserves needs to be hedged, which may take any form.

We must also maintain acceptable commodity hedges hedging no less than 50% of the reasonably anticipated oil production from our proved reserves for at least 24 months following the date of delivery of each reserve report. We may not hedge more than 80% of reasonably anticipated total forecasted production of crude oil, natural gas and natural gas liquids from our oil and gas properties for a 48-month period following the date of entry into any commodity hedging contract.

Events of Default and Change of Control – Our Second Lien Term Loan provides for certain events of default, including upon a change of control, as defined in the credit agreement, that entitles our lenders to declare the outstanding loans immediately due and payable, subject to certain limitations and conditions. We are subject to a cross-default provision that causes a default under this facility if certain defaults occur under the Revolving Credit Agreement with respect to our failure to makeFacility or the aforementioned interest payments, initially through June 14, 2020 and subsequently through July 15, 2020.EHP Notes.

EHP Notes

On June 15, 2020, we did not make an interest paymentthe Effective Date, our wholly-owned subsidiary, EHP Midco Holding Company, LLC (Elk Hills Issuer) entered into a Note Purchase Agreement (Note Purchase Agreement) with certain subsidiaries of approximately $72Ares and Wilmington Trust, N.A. as collateral agent. The $300 million on our Second Lien Notes. The indenture governingNotes were issued as partial consideration for the Second Lien Notes (Second Lien Notes Indenture) provides for a 30-day grace period, which expired on July 15, 2020.Class B Preferred Units, Class A failure to payCommon Units and Class C Common Units in the interest within the 30-day grace period would constitute an event of default under the Second Lien Notes Indenture and cross defaults under our other debt instruments and agreements. We did not make the July 15, 2020 interest payment and commenced bankruptcy proceedings.Ares JV previously held by ECR (EHP Notes).

2014 Revolving Credit Facility

AsThe EHP Notes are senior notes due in 2027, and are secured by a first-priority security interest in all of June 30, 2020, we had no abilitythe assets of Elk Hills Power, any third-party offtake contracts for power generated by Elk Hills Power, all of the equity interests of Elk Hills Power held by Elk Hills Issuer and all of the equity interests of Elk Hills Issuer held by its direct parent, EHP Topco Holding Company, LLC, our wholly-owned subsidiary. We and Elk Hills Power have guaranteed, on a joint and several basis, all of the obligations of Elk Hills Issuer under the EHP Notes. The EHP Notes bear an interest rate of 6.0% per annum through the fourth anniversary of issuance, increasing to borrow under our 2014 Revolving Credit Facility due7.0% per annum after the fourth anniversary of issuance and to 8.0% per annum after the Forbearance Agreements described above. Asfifth anniversary of June 30, 2020 and December 31, 2019, we had lettersissuance. The EHP Notes may be redeemed at any time prior to their maturity date without payment of credit outstanding of $152 million and $165 million, respectively. These letters of credit were issued to support ordinary course marketing, insurance, regulatory and other matters.

Note Repurchases

In the six months ended June 30, 2020, we repurchased $7 million in face value of our Second Lien Notes for $3 million in cash resulting in a pre-tax gain of $5 million, including the effect of unamortized deferred gain and issuance costs. In the six months ended June 30, 2019, we repurchased approximately $76 million in face value of our Second Lien Notes for $59 million in cash resulting in a pre-tax gain of $26 million, including the effect of unamortized deferred gain and issuance costs.premium or penalty.

Fair Value

At JuneSeptember 30, 2020, we estimateestimated the fair value of our debt,DIP Facilities, which isare classified as Level 1,2 in the fair value hierarchy, to approximate their carrying value of $733 million due to their short-term maturities. Our long-term debt at September 30, 2020 was presented as LSTC and will be impaired under the Plan. As of September 30, 2020, we estimated the fair value of our long-term debt to approximate $500 million based on observable inputs in less active markets (Level 2) compared to a carrying value of $4.4 billion. The estimated fair value of our long-term debt, at December 31, 2019, based on prices from known market transactions or quoted market prices for our instruments. At December 31, 2019, the fair value of the variable rate portion of our debt(Level 1), was based on other observable (Level 2) inputs. The estimated fair value of our debt at June 30, 2020 and December 31, 2019, including the fair value of the variable-rate portion, was $1.2 billion andapproximately $3.8 billion respectively, compared to a carrying value of $5.1 billion and $5.0 billion, respectively.billion.

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NOTE 67    JOINT VENTURES

Noncontrolling Interests

The following table presents the changes in noncontrolling interests for our consolidated JVs, prior to our emergence, which are reported in equity and mezzanine equity on the condensed consolidated balance sheets for the sixnine months ended JuneSeptember 30, 2020 and 2019:
Equity Attributable to
Noncontrolling Interest
Mezzanine Equity - Redeemable Noncontrolling Interests
Equity Attributable to
Noncontrolling Interest
Mezzanine Equity - Redeemable Noncontrolling Interests
Ares JVBSP JVTotalAres JVElk Hills Carbon JVTotalAres JVBSP JVTotalAres JVElk Hills Carbon JVTotal
(in millions)(in millions)
Balance, December 31, 2019Balance, December 31, 2019$—  $93  $93  $802  $—  $802  Balance, December 31, 2019$0 $93 $93 $802 $0 $802 
Net income (loss) attributable to noncontrolling interestsNet income (loss) attributable to noncontrolling interests3  12  15  61  (1) 60  Net income (loss) attributable to noncontrolling interests3 9 12 86 (1)85 
Return from noncontrolling interestReturn from noncontrolling interest0 0 0 (138)0 (138)
Contributions from noncontrolling interest holders, netContributions from noncontrolling interest holders, net—  —  —  —  2  2  Contributions from noncontrolling interest holders, net0 0 0 0 1 1 
Distributions to noncontrolling interest holdersDistributions to noncontrolling interest holders(3) (29) (32) (36) —  (36) Distributions to noncontrolling interest holders(3)(34)(37)(58)0 (58)
Balance, June 30, 2020$—  $76  $76  $827  $1  $828  
Balance, September 30, 2020Balance, September 30, 2020$0 $68 $68 $692 $0 $692 
Balance, December 31, 2018Balance, December 31, 2018$15  $99  $114  $756  $—  $756  Balance, December 31, 2018$15 $99 $114 $756 $0 $756 
Net (loss) income attributable to noncontrolling interestsNet (loss) income attributable to noncontrolling interests(6) 1  (5) 57  —  57  Net (loss) income attributable to noncontrolling interests(9)7 (2)87 0 87 
Contributions from noncontrolling interest holders, netContributions from noncontrolling interest holders, net—  49  49  —  —  —  Contributions from noncontrolling interest holders, net0 49 49 0 0 0 
Distributions to noncontrolling interest holdersDistributions to noncontrolling interest holders(4) (25) (29) (36) —  (36) Distributions to noncontrolling interest holders(6)(55)(61)(54)0 (54)
Balance, June 30, 2019$5  $124  $129  $777  $—  $777  
Balance, September 30, 2019Balance, September 30, 2019$0 $100 $100 $789 $0 $789 

Ares JV

In February 2018, our wholly ownedwholly-owned subsidiary California Resources Elk Hills, LLC (CREH) entered into a midstream JV with ECR, a portfolio company of Ares. The Ares JV holds the Elk Hills power plant (a 550-megawatt natural gas fired power plant) and a 200 MMcf/d cryogenic gas processing plant. We holdOn the Effective Date, as required by the Note Purchase Agreement, CREH transferred its ownership of 2 low temperature separation plants located at the Elk Hills field to Elk Hills Power.

Prior to our Effective Date, we held 50% of the Class A common interest and 95.25% of the Class C common interest in the Ares JV. ECR holdsheld 50% of the Class A common interest, 100% of the Class B preferred interest and 4.75% of the Class C common interest. The Ares JV iswas required to distribute each month its excess cash flow over its working capital requirements first to the Class B holders and then to the Class C common interests, on a pro-rata basis. As contemplated by the terms of the JV, CREH purchasespurchased electricity steam and gas processing services from the Ares JV (subject to certain limitations, including certain geographical limitations) in exchange for monthly capacity payments pursuant to the terms of a Commercial Agreement, the proceeds of which will bewere used by the Ares JV to make distributions as contemplated by the Second Amended and Restated Limited Liability Company Agreement of Elk Hills Power, LLC. CREH also servesserved as the operator of the Ares JV and providesprovided operational and support services in exchange for a monthly fee pursuant to a Master Services Agreement. These agreements became intercompany agreements on the Effective Date and were cancelled as described below.

We can cause
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As described in Note 1 Chapter 11 Proceedings, we entered into the Settlement Agreement with ECR and Ares JV to redeem ECR's Class A and Class B interests, in whole, but not in part, at any time by paying $750 millionwhich, among other things, changed the liquidation preference for the Class B member interest and $60to $835 million, decreased the preferred return from 13.5% per annum to 9.5% per annum payable at the end of each month, removed the liquidation premium for the Class A common interest plusand removed the payment of any previously accrued but unpaid preferred distributions andplus a make-whole payment ifthat ECR, as the redemption happens prior to five years from inception. We have the option to extend the redemption period for up to an additional two and one-half years, in which case the interests can be redeemed for $750 million forholder of the Class B interest and $80 millionpreferred interests, would otherwise have been entitled to in the event of a redemption transaction. The Settlement Agreement granted us the right (Conversion Right) to acquire all (but not less than all) of the equity interests of Elk Hills Power owned by ECR in exchange for the Class A interest, plus any previously accrued but unpaid preferred distributionsEHP Notes, Ares Settlement Stock and a make-whole payment if$2.5 million in cash. The Conversion Right was deemed to have been exercised on the redemption happens prior to seven and one-half years from inception.

Effective Date.
15

ECR can sell its Class A and Class B interest or cause a sale of the Ares JV assets in certain circumstances, which include but are not limited to the following: (i) we do not cause the Ares JV to exercise its option to redeem the Class A and Class B interest held by ECR by the end of the seven and one-half year redemption period, (ii) we fail to make payment for purchases of power or gas processing services followed by the failure to make a preferred distribution payment within 60 days, (iii) we default on indebtedness in excess of $100 million and such indebtedness is declared due and payable or (iv) we commence bankruptcy proceedings.

See Note 1 Basis of Presentation regarding our Chapter 11 Cases andAlthough certain provisions in the Settlement Agreement were not effective until certain conditions were met, such as the Bankruptcy Court entering a final order, we determined that the amended terms were substantively different such that the existing Class A common, Class B preferred and Class C common member interests held by ECR were treated as redeemed in exchange for new member interests issued at fair value. The estimated fair value of the new member interests was lower than the carrying value of the existing member interests by $138 million. In accordance with GAAP, the return from noncontrolling interest holders was recorded to additional paid-in capital on our condensed consolidated balance sheet as of September 30, 2020. However, as required by GAAP, the return is included in our earnings per share calculations. See Note 10 Earnings Per Share for adjustments to net income (loss) attributable to common stock which includes a return from noncontrolling interest holders.

We were deemed to have exercised the Conversion Right on the Effective Date and we issued the EHP Notes in the aggregate principal amount of $300 million, Ares Settlement Stock comprising approximately 20.8% (subject to dilution) of the new common stock (Conversion) and $2.5 million in cash. Upon the Conversion, Elk Hills Power became an indirect wholly-owned subsidiary, and Ares and its affiliates ceased to have any direct or indirect interest in Elk Hills Power, other than any interest Ares may have indirectly through its interests in the EHP Notes and Ares Settlement Stock. In connection with the Conversion, Elk Hills Power’s limited liability company agreement was amended and restated.

In connection with the Conversion, on the Effective Date, we entered into relatinga Sponsor Support Agreement dated the Effective Date (Support Agreement) pursuant to which, among other things, the Ares JV.parties agreed that Elk Hills Power will be our primary provider of electricity to, and will be the primary processor of our natural gas produced from, the Elk Hills field, which is already consistent with our current practice.

On the Effective Date, in connection with the Conversion, we terminated: (a) the Commercial Agreement, dated as of February 7, 2018, by and between Elk Hills Power and CREH and (b) the Master Services Agreement, dated as of February 7, 2018, by and between Elk Hills Power and CREH.

Our condensed consolidated statements of operations for all periods presented reflect the operations of the Ares JV, with ECR's share of net income (loss) reported in net income attributable to noncontrolling interests. ECR's redeemable noncontrolling interests are reported in mezzanine equity due to an embedded optional redemption feature.

Benefit Street Partners (BSP) JV

Our condensed consolidated results reflect the operations of our development JV with BSP, with BSP's preferred interest reported in equity on our condensed consolidated balance sheets and BSP’s share of net income (loss) reported in net income attributable to noncontrolling interests in our condensed consolidated statements of operations.operations for all periods presented.

Elk Hills Carbon JV

In January 2020, we entered into an agreement with OGCI Climate Investments Elk Hills Carbon Inc.LLP (OGCI) to determine the technical and economic feasibility of retrofitting the Elk Hills power plant with a post-combustion, carbon-capture system, which includes a Front-End Engineering Designfront-end engineering design scope and study. The project received financial assistance from the U.S. Department of Energy and project participants include us, Electric Power Research Institute, and Fluor Corporation. We formed Elk Hills Carbon LLC (Elk Hills Carbon JV) with OGCI to assist with the initial funding obligation. OGCI contributed approximately $2 million to the Elk Hills Carbon JV in February 2020.

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Our condensed consolidated statements of operations reflect the operations of the Elk Hills Carbon JV, with OGCI's share of net income (loss) reported in net income attributable to noncontrolling interests.interests for all periods presented. OGCI's redeemable noncontrolling interests are reported in mezzanine equity due to an optional redemption feature.

Other

In July 2019, we entered into a development joint venture with Alpine Energy Capital, LLC (Alpine) to develop portions of our Elk Hills field (Alpine JV). Alpine made an initial commitment to invest $320 million over a period of up to three years in accordance with a 275-well development plan. On March 27, 2020, Alpine elected to suspend its funding obligations pursuant to a contractual right that iswas triggered ifwhen the average NYMEX 12-month forward strip price for Brent crude oil fallsfell below $45 per barrel over a 30-trading day period. The suspension is automaticallymay be lifted and Alpine is obligated to renewby mutual consent. As of September 30, 2020, funding at such time asfor the average price exceeds that threshold over any 30-trading day period. If prices remain below the threshold for over 100 consecutive trading days, theinitial development phase may be terminated by us, subject to agreement by Alpine.has not re-started.

For more information on our other joint ventures that are unconsolidated joint ventures, including the Alpine JV, the JV with Macquarie Infrastructure and Real Assets Inc. (MIRA JV), and the JV with Royale Energy, Inc. (Royale JV), please see our most recent Form 10-K for the year ended December 31, 2019.

NOTE 78    LAWSUITS, CLAIMS, COMMITMENTS AND CONTINGENCIES

We, or certain of our subsidiaries, are involved, in the normal course of business, in lawsuits, environmental and other claims and other contingencies that seek, among other things, compensation for alleged personal injury, breach of contract, property damage or other losses, punitive damages, civil penalties, or injunctive or declaratory relief.

16

We accrue reserves for currently outstanding lawsuits, claims and proceedings when it is probable that a liability has been incurred and the liability can be reasonably estimated. Reserve balances at JuneSeptember 30, 2020 and December 31, 2019 were not material to our condensed consolidated balance sheets as of such dates. We also evaluate the amount of reasonably possible losses that we could incur as a result of these matters. We believe that reasonably possible losses that we could incur in excess of reserves accrued would not be material to our condensed consolidated financial statements taken as a whole.

Subject to certain exceptions under the Bankruptcy Code, the filing of the Chapter 11 Cases on July 15, 2020 automatically stayed, among other things, the continuation of most judicial or administrative proceedings or the filing of other actions against or on behalf of us or our property to recover on, collect or secure a claim arising prior to July 15, 2020 or to exercise control over property of our bankruptcy estates, unless and until the Bankruptcy Court modifies or lifts the automatic stay as to any such action or judicial or administrative proceeding. Notwithstanding the general application of the automatic stay described above, governmentalgovernment authorities may determine to continue actions brought under regulatory powers.

On October 13, 2020, the Bankruptcy Court confirmed our Amended Debtors’ Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, which was conditioned on certain items such as obtaining exit financing. On October 27, 2020 the conditions to effectiveness of the Plan were satisfied and we emerged from Chapter 11 on the Effective Date. Upon effectiveness of the Plan, the automatic stay discussed above no longer applies to ongoing judicial or administrative proceedings.

NOTE 89    DERIVATIVES

We use a variety of derivative instruments in implementing our hedging program to protect our cash flow, operating margin and capital program from the cyclical nature of commodity prices and interest-rate movements. These derivatives are intended to help us maintain adequate liquidity and improve our ability to comply with the covenants of our credit facilities in case of price deterioration.

We did not have any derivative instruments designated as accounting hedges as of and during the three and sixnine months ended JuneSeptember 30, 2020 and 2019. Unless otherwise indicated, we use the term "hedge" to describe derivative instruments that are designed to achieve our hedging program goals, even though they are not accounted for as accounting hedges.

The Senior DIP Credit Agreement requires us to enter into hedging arrangements covering at least 25% of our share of expected crude oil production for the next twelve months. On July 17, 2020, the Bankruptcy Court authorized us to engage in hedging activities. On July
24 2020, we entered into various derivative instruments through July 2021 to satisfy this requirement.

Commodity-price risk — In March 2020, we monetized all of our crude oil hedges in place for April 2020 forward with our counterparties, except for certain hedges held by our BSP JV, for approximately $63 million. We recognized the proceeds received in net derivative gain (loss) from commodity contracts on our condensed consolidated statements of operations in the first quarter of 2020. We did not

The Senior DIP Credit Agreement required us to enter into any new hedges duringhedging arrangements covering at least 25% of our share of expected crude oil production for the second quarternext twelve months. On July 17, 2020, the Bankruptcy Court authorized us to engage in hedging activities. We entered into various derivative instruments, as shown in the table below, to satisfy this requirement.

We held the following Brent-based crude oil contracts as of 2020.September 30, 2020:

Q4
2020		Q1
2021		Q2
2021		July 2021
Sold Calls:
Barrels per day4,800 4,500 4,500 4,200 
Weighted-average price per barrel$48.05 $48.05 $48.05 $48.05 
Purchased Puts:
Barrels per day18,600 18,000 9,000 8,400 
Weighted-average price per barrel$44.84 $45.00 $40.00 $40.00 
Sold Puts:
Barrels per day13,800 13,500 4,500 4,200 
Weighted-average price per barrel$36.52 $36.67 $30.00 $30.00 
Swaps:
Barrels per day6,400 6,000 6,000 5,600 
Weighted-average price per barrel$44.75 $44.75 $44.75 $44.75 

The outcomes of the derivative positions are as follows:

•Sold calls – we make settlement payments for prices above the indicated weighted-average price per barrel.
•Purchased puts – we receive settlement payments for prices below the indicated weighted-average price per barrel.
•Sold puts – we make settlement payments for prices below the indicated weighted-average price per barrel.

The BSP JV holds crude oil derivatives and natural gas swaps for insignificant volumes through 2021 that are included in our consolidated results. The hedges entered into by the BSP JV could affect the timing of the redemption of BSP's preferred interest.

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The following table presentstables present the fair values on a recurring basis (at gross and net) of our outstanding commodity derivatives as of JuneSeptember 30, 2020 and December 31, 2019:
June 30, 2020
September 30, 2020September 30, 2020
Balance Sheet ClassificationBalance Sheet ClassificationGross Amounts Recognized at Fair ValueGross Amounts Offset in the Balance SheetNet Fair Value Presented in the Balance SheetBalance Sheet ClassificationGross Amounts Recognized at Fair ValueGross Amounts Offset in the Balance SheetNet Fair Value Presented in the Balance Sheet
Assets:Assets:(in millions)Assets:(in millions)
Other current assets, net Other current assets, net$7  $—  $7   Other current assets, net$24 $(7)$17 
Other assets Other assets—  —  —   Other assets0 0 0 
Liabilities:Liabilities:Liabilities:
Accrued liabilities Accrued liabilities—  —  —   Accrued liabilities(9)7 (2)
Total derivativesTotal derivatives$7  $—  $7  Total derivatives$15 $0 $15 
December 31, 2019December 31, 2019December 31, 2019
Balance Sheet ClassificationBalance Sheet ClassificationGross Amounts Recognized at Fair ValueGross Amounts Offset in the Balance SheetNet Fair Value Presented in the Balance SheetBalance Sheet ClassificationGross Amounts Recognized at Fair ValueGross Amounts Offset in the Balance SheetNet Fair Value Presented in the Balance Sheet
Assets:Assets:(in millions)Assets:(in millions)
Other current assets, net Other current assets, net$49  $(10) $39   Other current assets, net$49 $(10)$39 
Other assets Other assets1  —  1   Other assets1 0 1 
Liabilities:Liabilities:Liabilities:
Accrued liabilities Accrued liabilities(15) 10  (5)  Accrued liabilities(15)10 (5)
Total derivativesTotal derivatives$35  $—  $35  Total derivatives$35 $0 $35 

Interest-rate risk —We hold derivative contracts that limit our interest-rate exposure with respect to $1.3 billion of our variable-rate indebtedness. These interest-rate contracts reset monthly and require the counterparties to pay any excess interest owed on such amount in the event the one-month LIBOR exceeds 2.75% for any monthly period prior to May 2021. For the quartersthree months ended JuneSeptember 30, 2020 and 2019, we reported 0 change in fair value on these contracts in other non-operating expenses on our consolidated statements of operations. For the nine months ended September 30, 2020 and 2019, we reported 0 change in fair value and a loss of $4 million, respectively, on these contracts in other non-operating expenses on our condensed consolidated statements of operations.

Fair value of derivatives — Our derivative contracts are measured at fair value using industry-standard models with various inputs, including quoted forward prices, and are classified as Level 2 in the required fair value hierarchy for the periods presented. We recognizerecognized fair value changes on derivative instruments in each reporting period.period in net derivative gain (loss) from commodity contracts on our condensed consolidated statements of operations for the three and nine months ended September 30, 2020 and 2019. The changes in fair value result from the relationship between our existing positions, volatility, time to expiration, contract prices or interest rates and the associated forward curves.

NOTE 910    EARNINGS PER SHARE

Upon our emergence from bankruptcy on October 27, 2020, as discussed in Note 1 Chapter 11 Proceedings, our then common and preferred stock, including contracts on our equity, were cancelled and new common stock and Warrants were issued. The per share amounts disclosed below would be materially different if our emergence from bankruptcy had occurred on or before September 30, 2020.

We compute basic and diluted earnings per share (EPS) using the two-class method required for participating securities. Certain of our restricted and performance stock awards are considered participating securities because they have non-forfeitable dividend rights at the same rate as our common stock.

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Under the two-class method, undistributed earnings allocated to participating securities are subtracted from net income attributable to common stock in determining net income available to common stockholders. In loss periods, no allocation is made to participating securities because participating securities do not share in losses. For basic EPS, the weighted-average number of common shares outstanding excludes outstanding shares related to unvested restricted stock awards. For diluted EPS, the basic shares outstanding are adjusted by adding all potentially dilutive securities.

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The following table presents the calculation of basic and diluted EPS, prior to our emergence, for the three and sixnine months ended JuneSeptember 30, 2020 and 2019:
Three months ended
June 30,		Six months ended
June 30,		Three months ended
September 30,		Nine months ended
September 30,
20202019202020192020201920202019
Basic EPS calculationBasic EPS calculation(in millions, except per-share amounts)Basic EPS calculation(in millions, except per-share amounts)
Net (loss) incomeNet (loss) income$(247) $41  $(1,992) $(3) Net (loss) income$(7)$127 $(1,999)$124 
Net income attributable to noncontrolling interests(24) (29) (75) (52) 
Net loss (income) attributable to common stock(271) 12  (2,067) (55) 
Less: net income attributable to noncontrolling interestsLess: net income attributable to noncontrolling interests(22)(33)(97)(85)
Net (loss) income attributable to common stockNet (loss) income attributable to common stock(29)94 (2,096)39 
Adjustments:Adjustments:
Net income allocated to participating securitiesNet income allocated to participating securities0 (1)0 (1)
Return from noncontrolling interest holders(a)
Return from noncontrolling interest holders(a)
138 0 138 0 
Net income (loss) available to common sharesNet income (loss) available to common shares109 93 (1,958)38 
Weighted-average common shares outstanding — basic
Weighted-average common shares outstanding — basic
49.5  48.9  49.4  48.8  
Weighted-average common shares outstanding — basic
49.5 49.1 49.4 48.9 
Basic EPSBasic EPS$(5.47) $0.25  $(41.84) $(1.13) Basic EPS$2.20 $1.89 $(39.64)$0.78 
Diluted EPS calculationDiluted EPS calculationDiluted EPS calculation
Net (loss) incomeNet (loss) income$(247) $41  $(1,992) $(3) Net (loss) income$(7)$127 $(1,999)$124 
Net income attributable to noncontrolling interests(24) (29) (75) (52) 
Net loss (income) attributable to common stock(271) 12  (2,067) (55) 
Less: net income attributable to noncontrolling interestsLess: net income attributable to noncontrolling interests(22)(33)(97)(85)
Net (loss) income attributable to common stockNet (loss) income attributable to common stock(29)94 (2,096)39 
Adjustments:Adjustments:
Net income allocated to participating securitiesNet income allocated to participating securities0 (1)0 (1)
Return from noncontrolling interest holders(a)
Return from noncontrolling interest holders(a)
138 0 138 0 
Net income (loss) available to common sharesNet income (loss) available to common shares109 93 (1,958)38 
Weighted-average common shares outstanding — basic
Weighted-average common shares outstanding — basic
49.5  48.9  49.4  48.8  
Weighted-average common shares outstanding — basic
49.5 49.1 49.4 48.9 
Dilutive effect of potentially dilutive securitiesDilutive effect of potentially dilutive securities—  0.3  —  —  Dilutive effect of potentially dilutive securities0 0.1 0 0.3 
Weighted-average common shares outstanding — diluted
Weighted-average common shares outstanding — diluted
49.5  49.2  49.4  48.8  
Weighted-average common shares outstanding — diluted
49.5 49.2 49.4 49.2 
Diluted EPSDiluted EPS$(5.47) $0.24  $(41.84) $(1.13) Diluted EPS$2.20 $1.89 $(39.64)$0.77 
Weighted-average anti-dilutive sharesWeighted-average anti-dilutive shares5.2  1.9  4.9  2.6  Weighted-average anti-dilutive shares3.3 3.2 4.4 2.3 
(a)Return from noncontrolling interest holders relates to the deemed redemption of the noncontrolling interests in the Ares JV. For more information on the Ares JV and the Settlement Agreement, see Note 7 Joint Ventures.

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NOTE 1011    PENSION AND POSTRETIREMENT BENEFIT PLANS

The following table sets forth the components of the net periodic benefit costs for our defined benefit pension and postretirement benefit plans for the three and sixnine months ended JuneSeptember 30, 2020 and 2019:
Three months ended June 30,Three months ended September 30,
2020201920202019
Pension
Benefit		Postretirement
Benefit		Pension
Benefit		Postretirement
Benefit		Pension
Benefit		Postretirement
Benefit		Pension
Benefit		Postretirement
Benefit
(in millions)(in millions)
Service costService cost$1  $1  $—  $1  Service cost$0 $1 $0 $1 
Interest costInterest cost—  1  —  2  Interest cost0 1 0 1 
Expected return on plan assetsExpected return on plan assets—  —  —  (1) Expected return on plan assets0 0 (1)0 
Recognized actuarial lossRecognized actuarial loss—  —  —  1  Recognized actuarial loss0 0 1 0 
Settlement lossSettlement loss—  —  1  —  Settlement loss0 0 0 0 
TotalTotal$1  $2  $1  $3  Total$0 $2 $0 $2 

Six months ended June 30,
20202019
Pension
Benefit		Postretirement
Benefit		Pension
Benefit		Postretirement
Benefit
(in millions)
Service cost$1  $2  $—  $2  
Interest cost1  2  1  3  
Expected return on plan assets—  —  (1) (1) 
Recognized actuarial loss—  —  1  1  
Settlement loss—  —  1  —  
Total$2  $4  $2  $5  
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Nine months ended September 30,
20202019
Pension
Benefit		Postretirement
Benefit		Pension
Benefit		Postretirement
Benefit
(in millions)
Service cost$1 $3 $1 $3 
Interest cost1 3 2 3 
Expected return on plan assets(1)0 (2)0 
Recognized actuarial loss1 0 1 0 
Settlement loss0 0 1 0 
Total$2 $6 $3 $6 

We did 0t make any significant contributions to our defined benefit pension plans for the three and sixnine months ended JuneSeptember 30, 2020. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) became lawwas enacted on March 27, 2020 and allowsallowed for the deferral of contributions to a single employer pension plan otherwise due during 2020 to January 1, 2021. We deferred contributions to our defined benefit pension plans of approximately $5 million for the first sixnine months of 2020 until December 2020. We made contributions of $1 million and $2 million, respectively for the three months and sixnine months ended JuneSeptember 30, 2019. The post-retirement benefit cost associated with our August 2020 workforce reduction was not significant. The 2019 settlement losses,loss, which werewas reclassified from accumulated other comprehensive income, werewas associated with early retirements.retirements and workforce reductions.

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NOTE 1112    REVENUE RECOGNITION

We derive substantially allmost of our revenue from sales of oil, natural gas and NGLs, with the remaining revenue generated from sales of electricity and marketing activities related to storage and managing excess pipeline capacity.

The following table provides disaggregated revenue for the three and sixnine months ended JuneSeptember 30, 2020 and 2019:
Three months ended
June 30,		Six months ended
June 30,		Three months ended
September 30,		Nine months ended
September 30,
20202019202020192020201920202019
(in millions)(in millions)
Oil and natural gas sales:Oil and natural gas sales:Oil and natural gas sales:
OilOil$193  $496  $549  $976  Oil$246 $457 $795 $1,433 
Natural gasNatural gas26  43  64  105  Natural gas34 50 98 155 
NGLsNGLs26  39  62  98  NGLs32 34 94 132 
245  578  675  1,179  312 541 987 1,720 
Other revenue:Other revenue:Other revenue:
Electricity19  16  32  50  
Marketing, trading and other16  38  67  182  
Electricity salesElectricity sales43 38 75 88 
Marketing and trading revenueMarketing and trading revenue50 62 109 230 
Other revenueOther revenue4 3 12 17 
35  54  99  232  97 103 196 335 
Net derivative gain (loss) from commodity contractsNet derivative gain (loss) from commodity contracts(4) 21  75  (68) Net derivative gain (loss) from commodity contracts0 37 75 (31)
Total revenuesTotal revenues$276  $653  $849  $1,343  Total revenues$409 $681 $1,258 $2,024 

NOTE 1213    LEASES

Balance sheet information related to our operating and finance leases as of JuneSeptember 30, 2020 and December 31, 2019 was as follows:
Balance Sheet LocationJune 30, 2020December 31, 2019Balance Sheet LocationSeptember 30, 2020December 31, 2019
(in millions)(in millions)(in millions)(in millions)
Right-of-Use Assets
Right-of-use assets:Right-of-use assets:
Operating lease, netOperating lease, netOther assets$45  $59  Operating lease, netOther assets$43 $59 
Finance lease, netFinance lease, netPP&E1  2  Finance lease, netPP&E1 2 
Total right-of-use assetsTotal right-of-use assets$46  $61  Total right-of-use assets$44 $61 
Lease Liabilities
Lease liabilities:Lease liabilities:
CurrentCurrentCurrent
Operating lease Operating leaseAccrued liabilities$14  $27   Operating leaseAccrued liabilities$10 $27 
Finance lease Finance leaseAccrued liabilities1  1   Finance leaseAccrued liabilities1 1 
Long-termLong-termLong-term
Operating lease Operating leaseOther long-term liabilities33  37   Operating leaseOther long-term liabilities31 37 
Finance lease Finance leaseOther long-term liabilities—  1   Finance leaseOther long-term liabilities0 1 
Total lease liabilitiesTotal lease liabilities$48  $66  Total lease liabilities$42 $66 

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Our operating lease assets and liabilities decreased from year end 2019 primarily due to releasing 5 of our leased drilling rigs in the first quarter of 2020 in response to the industry downturn and economic environment. Our remaining 2 leased drilling rigs have been cold stacked and were included with our proved properties in our impairment assessment as discussed in Note 1415 Asset Impairments. These right-of-use assets were not impaired.

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NOTE 1314    INCOME TAXES

We estimate our annual effective income tax rate to record our quarterly provision in the jurisdictions in which we operate. Statutory tax rate changes and other significant or unusual items are recognized as discrete items in the quarter in which they occur. We maintained a full valuation allowance against our net deferred tax assets after considering cumulative losses, including oil and natural gas asset impairments.

For the sixnine months ended JuneSeptember 30, 2020 and 2019, we did not provide any current or deferred tax provision or benefit. The difference between our statutory tax rate and our effective tax rate of 0 for theall periods presented includes changes to maintain our full valuation allowance against our net deferred tax assets given our recent and anticipated future earnings trends. We believe that there is a reasonable possibility that some or all of this allowance could be released in the foreseeable future. However, the amount of the net deferred tax assets considered realizable depends on the level of profitability that we can achieve.

The CARES Act increased the limitation on the deductibility of business interest expense from 30% to 50% of adjusted taxable income in 2019 and 2020 along with other provisions intended to provide relief to corporate taxpayers. There was no impact on our income tax provision due to our full valuation allowance.

On July 28, 2020 the Internal Revenue Service (IRS) issued final and new proposed regulations related to the limitation on the deduction for business interest. We areThe final regulations in the processregulation package were published in the Federal Register on September 14, 2020 and are effective for tax years beginning on or after November 13, 2020. Although not yet effective, the publication of evaluating the final and new proposed regulations which may change the composition of our deferred tax assets, specificallyclarified the amount reportedof allowed addback for net operating lossdepreciation, depletion and amortization in the calculation of the limitation on the deduction of business interest expense carryforwards. Dueexpense. Based on our evaluation, these final regulations did not have a significant impact on our financial statements taken as a whole due to our full valuation allowance position, these regulations are not expected toallowance.

Certain of the transactions occurring upon our emergence from bankruptcy, and application of fresh start accounting, may have a material impact on our deferred tax balances, the full extent of which is currently unknown. Cancellation of debt income resulting from these transactions will primarily reduce our tax attributes, including but not limited to our financial statements.net operating loss carryforwards, and our tax basis in property, plant and equipment. Further, as discussed in Note 1 Chapter 11 Proceedings, our pre-emergence common stock was cancelled and new common stock was issued on the Effective Date. This resulted in a change in ownership and, under IRC Section 382, may limit the deduction of our pre-emergence tax attributes, if any, and interest expense carryforwards. Additionally, we have incurred a significant amount of legal and professional fees related to the reorganization, a substantial portion of which may not be deductible for income tax purposes.

NOTE 1415    ASSET IMPAIRMENTS

We did 0t impair any of our long-lived assets duringDuring the three-month periodquarter ended June 30,March 31, 2020, butwe recorded a $1.7 billion impairment during the three-month period ended March 31, 2020. Our impairments of long-lived assets were triggered by the sharp drop in commodity prices at the end of the first quarter of 2020 due to decreased demand for oil and natural gas products as a result of the Coronavirus Disease 2019 (COVID-19) pandemic coupled with the over-supply resulting from a price war between members of the Organization of the Petroleum Exporting Countries (OPEC) and Russia and other allied producing countries. The following table presents a summary of our asset impairments:impairments as of our March 31, 2020 assessment date (in millions):

Six months ended
June 30, 2020
(in millions)
 Proved oil and natural gas properties$1,487 
 Unproved properties228 
 Unrecovered capital costs11 
 Inventory7 
 Other321 
Total$1,736 

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Proved oil and natural gas properties — The fair values of our proved oil and natural gas properties were determined as of the date of the assessment using discounted cash flow models incorporating a number of fair value inputs which are categorized as Level 3 on the fair value hierarchy. These inputs were based on management's expectations for the future considering the currentthen-current environment and included index prices based on forward curves until the market became illiquid and internally generated price forecasts thereafter, pricing adjustments for differentials, estimates of future oil and natural gas production, estimated future operating costs and capital development plans based on the embedded price assumptions. We used a market-based weighted average cost of capital to discount the future net cash flows. The impairment charge primarily related to a steamflood property located in the San Joaquin basin.

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Unproved properties — WeIn the first quarter of 2020, we determined our ability to develop our unproved properties was constrained for the foreseeable future. Accordingly, we do not intend to develop these assets and impaired all of our unproved properties in the first quarter of 2020, which primarily consist of leases held by production in the San Joaquin basin.

Unrecovered capital costs — Net amounts due from joint interest partners, which are included in other current assets on our condensed consolidated balance sheet, include amounts for capital and operating costs incurred by us that are recoverable solely from our partners' share of future production from associated fields. The dramatic commodity price decline during the first quarter of 2020 resulted in changes to our cash flow forecasts and we impaired the carrying value of these assets.

NOTE 15 COMPENSATION PLANS16    EQUITY

Changes to the 2020 Compensation ProgramsChapter 11 Proceedings

In connection withOn the unprecedented circumstances affectingEffective Date, as discussed in Note 1 Chapter 11 Proceedings, our pre-emergence authorized common and preferred stock were cancelled, pursuant to the industry and market volatility resulting from the recent industry downturn, we reviewed our incentive programs for the entire workforce to determine whether those programs appropriately align compensation opportunities with our 2020 goals and ensure the stabilityPlan. Holders of our workforce. Following this review, effective May 19, 2020,pre-emergence issued and outstanding common stock, including holders of contracts on our Board of Directors approved changes in the variable compensation programs for all participating employees. The previously established target amounts of 2020 variable compensation programsequity, did not change; however, all amounts that vest will be settled in cash and the replacement awards are no longer stock-based compensation. As a condition to receivingreceive any award, participants waived participation in our 2020 annual incentive program and forfeited all stock-based compensation awards previously granted in 2020. There were no changes to stock-based compensation awards granted prior to February 2020. Changes to the variable compensation programs will have the effect of accelerating the associated payments into 2020 from future periods. However, the total amount of compensation to be paid under the variable compensation programs at target for 2020 remains largely the same as the amounts that would have been paid at target prior to the changes.recovery.

Employee Stock Purchase Plan

On May 26, 2020, our then Board of Directors approved the termination of the California Resources Corporation 2014 Employee Stock Purchase Plan. NoNaN additional shares were issued under the plan after March 31, 2020.

Post-Emergence Equity

On the Effective Date, we issued an aggregate 83.3 million shares of new common stock, par value $0.01 per share, to the holders of allowed claims and ECR, as defined in the Plan. We reserved an aggregate 4.4 million shares of new common stock for future issuances in connection with the exercise of Warrants. In accordance with the Plan, our new common stock was issued as follows:

•17.3 million shares to Ares as partial consideration for its member interests in the Ares JV;
•27.1 million shares to our pre-petition creditor group in cancellation of their outstanding debt plus accrued interest up to the petition date;
•33 million shares in our Subscription Rights offering and 1.6 million shares to backstop parties in exchange for $446 million (net of a $4 million fee);
•3.5 million shares to backstop parties for the backstop commitment premium; and
•Approximately 821,000 shares for a Junior DIP Facility exit fee.

Before we emerged from the Chapter 11 Cases, our new common stock was approved for trading on the NYSE. On the Effective Date, we filed a Form 8-A to register the new common stock under Section 12(b) of the Exchange Act. Trading in the new common stock commenced on the NYSE on October 28, 2020 under the ticker "CRC".

31

Warrants

As discussed in Note 1 Chapter 11 Proceedings, on the Effective Date, we reserved an aggregate 4.4 million shares for Warrants. The Tier 1 Warrants and Tier 2 Warrants are exercisable for 2% of the outstanding shares of new common stock and 3% of the outstanding new common stock (on a fully diluted basis calculated immediately after the Effective Date), respectively, both at an initial exercise price of $36 per share. The Warrants are exercisable from the Effective Date for a period of four years. The Warrant Agreement contains customary anti-dilution adjustments in the event of any stock split, reverse stock split, stock dividend, equity awards under a management incentive plan that our Board of Directors may establish pursuant to the Plan (if any) or other distributions. The warrant holder may elect, in its sole discretion, to pay cash or to exercise on a cashless basis, pursuant to which the holder will not be required to pay cash for shares of common stock upon exercise of the warrant but will instead receive fewer shares.

Unregistered Issuance of Equity Securities

Other than the shares issued in reliance of Section 4(a)(2) of the Securities Act as described below, we relied on Section 1145(a)(1) of the Bankruptcy Code as an exemption from the registration requirements of the Securities Act for the issuance of our new common stock and warrants. Section 1145(a)(1) of the Bankruptcy Code exempts the offer and sale of securities under a plan of reorganization from registration under Section 5 of the Securities Act and state laws if three principal requirements are satisfied:

•The securities must be issued under a plan of reorganization by the debtor, its successor under a plan, or an affiliate participating in a joint plan of reorganization with the debtor;
•The recipients of the securities must hold a claim against, an interest in, or a claim for administrative expense in the case concerning the debtor or such affiliate; and
•The securities must be issued either (a) in exchange for the recipient’s claim against, interest in or claim for administrative expense in the case concerning the debtor or such affiliate or (b) principally in such exchange and partly for cash or property.

The (a) shares of new common stock issued pursuant to the Backstop Commitment Agreement, (b) shares of new common stock issued in connection with the payment of the backstop commitment premium and the exit fee for the Junior DIP Facility, and (c) Ares Settlement Stock issued to Ares pursuant to the Settlement Agreement were issued in each case without registration in reliance upon the exemption set forth in Section 4(a)(2) of the Securities Act and are therefore “restricted securities.”

On the Effective Date, we entered into a registration rights agreement with the backstop parties under the Backstop Commitment Agreement and each holder of at least 1% of the new common stock outstanding on the Effective Date, granting such parties customary registration rights with respect to their new common stock.

NOTE 1617    CONDENSED CONSOLIDATINGCOMBINED DEBTOR-IN-POSSESSION FINANCIAL INFORMATION

Our Credit Facilities, Second Lien Notes and Senior NotesThe financial statements below represent the unaudited condensed combined financial statements of the Debtors. Effective July 1, 2020, the results of the non-filing entities, which are guaranteed both fully and unconditionally and jointly and severally by our material wholly owned subsidiaries (Guarantor Subsidiaries). Certaincomprised primarily of our subsidiaries do not guarantee our Credit Facilities, Second Lien Notes and Senior Notes (Non-Guarantor Subsidiaries) either because they hold assets that are less than 1% of our total consolidated assets or because theyjoint ventures (see Note 7 Joint Ventures), are not considered a "subsidiary" underincluded in these condensed combined financial statements. Intercompany transactions among the applicable financing agreement. The following condensed consolidating balance sheets as of June 30, 2020 and December 31, 2019Debtors have been eliminated in the financial statements. Intercompany transactions among the Debtors and the condensed consolidating statements of operations and statements of cash flows for the three and six months ended June 30, 2020 and 2019, as applicable, reflect the condensed consolidatingnon-Debtors have not been eliminated in these financial information of our parent company, CRC (Parent), our combined Guarantor Subsidiaries, our combined Non-Guarantor Subsidiaries and the elimination entries necessary to arrive at the information for the Company on a consolidated basis.statements.

The financial information may not necessarily be indicative of results of operations, cash flows or financial position had the Guarantor SubsidiariesDebtors operated as independent entities.
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Condensed Consolidating Balance Sheets
As of June 30, 2020 and December 31, 2019
(in millions)
June 30, 2020
ParentCombined Guarantor SubsidiariesCombined Non-Guarantor SubsidiariesEliminationsConsolidated
Total current assets$22  $341  $68  $(28) $403  
Investments in consolidated subsidiaries3,156  (53) —  (3,103) —  
Total property, plant and equipment, net24  3,972  453  —  4,449  
Other assets1  64  13  —  78  
TOTAL ASSETS$3,203  $4,324  $534  $(3,131) $4,930  
Total current liabilities5,409  371  7  (28) 5,759  
Other long-term liabilities159  557  3  —  719  
Amounts due to (from) affiliates87  (88) 1  —  —  
Mezzanine equity—  —  828  —  828  
Total equity(2,452) 3,484  (305) (3,103) (2,376) 
TOTAL LIABILITIES AND EQUITY$3,203  $4,324  $534  $(3,131) $4,930  
December 31, 2019
ParentCombined Guarantor SubsidiariesCombined Non-Guarantor SubsidiariesEliminationsConsolidated
Total current assets$8  $436  $60  $(13) $491  
Investments in consolidated subsidiaries5,956  223  —  (6,179) —  
Total property, plant and equipment, net35  5,846  471  —  6,352  
Other assets1  82  32  —  115  
TOTAL ASSETS$6,000  $6,587  $563  $(6,192) $6,958  
Total current liabilities248  469  5  (13) 709  
Long-term debt4,877  —  —  —  4,877  
Deferred gain and issuance costs, net146  —  —  —  146  
Other long-term liabilities167  549  4  —  720  
Amounts due to (from) affiliates951  (953) 2  —  —  
Mezzanine equity—  —  802  —  802  
Total equity(389) 6,522  (250) (6,179) (296) 
TOTAL LIABILITIES AND EQUITY$6,000  $6,587  $563  $(6,192) $6,958  
23

Condensed Consolidating Statements of Operations
For the three and six months ended June 30, 2020 and 2019
(in millions)
Three months ended June 30, 2020
ParentCombined Guarantor SubsidiariesCombined Non-Guarantor SubsidiariesEliminationsConsolidated
Total revenues$—  $253  $94  $(71) $276  
Total costs55  357  50  (71) 391  
Non-operating (loss) income(135) 3  —  —  (132) 
NET (LOSS) INCOME(190) (101) 44  —  (247) 
Net income attributable to noncontrolling interests—  —  (24) —  (24) 
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCK$(190) $(101) $20  $—  $(271) 
Three months ended June 30, 2019
ParentCombined Guarantor SubsidiariesCombined Non-Guarantor SubsidiariesEliminationsConsolidated
Total revenues$—  $610  $113  $(70) $653  
Total costs52  490  59  (70) 531  
Non-operating (loss) income(83) 2  —  —  (81) 
NET (LOSS) INCOME(135) 122  54  —  41  
Net income attributable to noncontrolling interest—  —  (29) —  (29) 
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCK$(135) $122  $25  $—  $12  
Six months ended June 30, 2020
ParentCombined Guarantor SubsidiariesCombined Non-Guarantor SubsidiariesEliminationsConsolidated
Total revenues$—  $779  $210  $(140) $849  
Total costs102  2,546  105  (140) 2,613  
Non-operating (loss) income(230) 2  —  —  (228) 
NET (LOSS) INCOME(332) (1,765) 105  —  (1,992) 
Net income attributable to noncontrolling interest—  —  (75) —  (75) 
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCK$(332) $(1,765) $30  $—  $(2,067) 
Condensed Consolidating Debtors' Balance Sheet
As of September 30, 2020
(in millions)
(DEBTOR-IN-POSSESSION: Entity Operating Under Chapter 11)
September 30, 2020
Total current assets$379 
Investments in subsidiaries(261)
Total property, plant and equipment, net3,937 
Other assets61 
TOTAL ASSETS$4,116 
Total current liabilities1,217 
Other long-term liabilities724 
Liabilities subject to compromise4,516 
Total equity(2,341)
TOTAL LIABILITIES AND EQUITY$4,116 

Six months ended June 30, 2019
ParentCombined Guarantor SubsidiariesCombined Non-Guarantor SubsidiariesEliminationsConsolidated
Total revenues$—  $1,255  $235  $(147) $1,343  
Total costs106  1,074  131  (147) 1,164  
Non-operating (loss) income(187) 5  —  —  (182) 
NET (LOSS) INCOME(293) 186  104  —  (3) 
Net income attributable to noncontrolling interest—  —  (52) —  (52) 
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCK$(293) $186  $52  $—  $(55) 
Condensed Consolidating Debtors' Statement of Operations
For the three months ended September 30, 2020
(in millions)
(DEBTOR-IN-POSSESSION: Entity Operating Under Chapter 11)
Three months ended September 30, 2020
Total revenues$357 
Total costs436 
Non-operating income6 
NET LOSS$(73)
24
 Condensed Consolidating Debtors' Statement of Cash Flows
For the three months ended September 30, 2020
(in millions)
(DEBTOR-IN-POSSESSION: Entity Operating Under Chapter 11)
Three months ended September 30, 2020
Net cash used in operating activities$(38)
Net cash used in investing activities(1)
Net cash provided by financing activities31 
Decrease in cash(8)
Cash—beginning of period105 
Cash—end of period$97 

 Condensed Consolidating Statements of Cash Flows
For the six months ended June 30, 2020 and 2019
(in millions)
Six months ended June 30, 2020
ParentCombined Guarantor SubsidiariesCombined Non-Guarantor SubsidiariesEliminationsConsolidated
Net cash (used in) provided by operating activities$(338) $277  $154  $—  $93  
Net cash provided by (used in) investing activities1  (28) —  —  (27) 
Net cash provided by (used in) financing activities340  (153) (144) —  43  
Increase in cash3  96  10  —  109  
Cash—beginning of period—  6  11  —  17  
Cash—end of period$3  $102  $21  $—  $126  
Six months ended June 30, 2019
ParentCombined Guarantor SubsidiariesCombined Non-Guarantor SubsidiariesEliminationsConsolidated
Net cash (used in) provided by operating activities$(348) $303  $317  $—  $272  
Net cash used in investing activities(5) (154) (11) —  (170) 
Net cash provided by (used in) financing activities353  (149) (296) —  (92) 
Increase in cash—  —  10  —  10  
Cash—beginning of period—  7  10  —  17  
Cash—end of period$—  $7  $20  $—  $27  

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Item 2Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

Except when the context otherwise requires or where otherwise indicated, all references to ‘‘CRC,’’ the ‘‘company,’’ ‘‘we,’’ ‘‘us’’ and ‘‘our’’ refer to California Resources Corporation and its subsidiaries.

We are an independent oil and natural gas exploration and production company operating properties exclusively within California. We are incorporated in Delaware and became a publicly traded company on December 1, 2014. On July 15, 2020, we filed voluntary petitions in the United States Bankruptcy Court for the Southern District of Texas seeking relief under Chapter 11 of Title 11 of the United States Bankruptcy Code and on October 27, 2020 we emerged from the Chapter 11 proceedings as further described below.

Our condensed consolidated financial statements, including the Notes thereto, included in Part I, Item – Financial Statements have been prepared assuming we will continue as a going concern. TheseWe have applied Financial Accounting Standards Board Accounting Standards Codification 852, Reorganizations (ASC 852), in preparing these unaudited condensed consolidated financial statements. ASC 852 requires that the financial statements, do not include any adjustmentsfor periods subsequent to the petition date (July 15, 2020), distinguish transactions and events that might resultare directly associated with the reorganization from the outcomeongoing operations of our going concern uncertainty or the Chapter 11 Cases (as defined below). There is substantial doubt thatbusiness. As a result, we can continue as a going concern if wehave segregated liabilities and obligations whose treatment and satisfaction are not able to completedependent on the plan of reorganization contemplated by the RSA or another plan of reorganization as partoutcome of the Chapter 11 Cases and classified these items as discussed below. Further,liabilities subject to compromise (LSTC) on our condensed consolidated balance sheet as of September 30, 2020. In addition, we have classified all income, expenses, gains or losses that were incurred or realized as a result of the Chapter 11 Cases could resultsubsequent to the petition date as reorganization items, net in a change inour condensed consolidated statement of operations for the basis of our accounting, which may have a material effect on the carrying value of certain assets and liabilities.period ended September 30, 2020.

Business EnvironmentFurther, we believe that we are required to adopt fresh start accounting upon emergence from bankruptcy because (1) the holders of existing voting shares prior to emergence received less than 50% of our new voting shares following our emergence from bankruptcy and Industry Outlook
Our operating results and those(2) the reorganization value of our assets immediately prior to the confirmation of the oilPlan was less than the post-petition liabilities and gas industryallowed claims, which are included in liabilities subject to compromise. Fresh start accounting will be applied as of October 27, 2020, the date we emerged from bankruptcy. Under the principles of fresh start accounting, a whole are heavily influenced by commodity prices. Oilnew reporting entity is considered to have been created, and, gas prices and differentials may fluctuate significantly as a result, the reorganization value of numerous market-related variables, especially given current global geopoliticalthe emerging entity is assigned to individual assets and economic conditions. Theseliabilities based on their estimated relative fair values. The process of estimating the fair value of our assets, liabilities and equity upon emergence is currently ongoing. In support of the Plan, the enterprise value of the successor company was estimated and approved by the Bankruptcy Court to be in the range of $2.2 billion to $2.8 billion. As a result of the application of fresh start accounting and the effects of the implementation of the Plan, the financial statements of the successor entity will not be comparable to the financial statements, including this statement, prepared prior to our Effective Date.

Chapter 11 Proceedings

Our spin–off from Occidental Petroleum Corporation (Occidental) on November 30, 2014 burdened us with significant debt which was used to pay a $6.0 billion cash dividend to Occidental. Together with the activity level and payables that we assumed from Occidental and due to Occidental's retention of the vast majority of our receivables, our debt peaked at approximately $6.8 billion in May 2015. Since then, we have engaged in a series of asset sales, joint ventures, debt exchanges, tenders, debt repurchases and other factors make it impossiblefinancing transactions to predict realized prices reliably.reduce our overall level of debt and improve our balance sheet prior to filing for bankruptcy. As of September 30, 2020, we had outstanding net long-term debt of approximately $5.1 billion, of which $4.4 billion is presented as liabilities subject to compromise on our condensed consolidated balance sheet.

Prices for oil and gas products in the first half ofOn July 15, 2020, have been strongly influenced by the Coronavirus Disease 2019 (COVID-19) pandemic and by the actions of foreign producers. The COVID-19 pandemic caused an unprecedented demand collapse due to the shelter-in-place orders, travel restrictions and general economic uncertainty, which negatively impacted crude oil prices. In addition, members of the Organization of the Petroleum Exporting Countries (OPEC) and Russia did not extend existing oil production cuts expiring on April 1, 2020, and Saudi Arabia and Russia announced significant increases in crude oil production. The unprecedented dual impact of a severe global oil demand decline due to the COVID-19 pandemic repercussions coupled with a substantial increase in supply from Saudi Arabia and Russia resulted in a collapse in crude oil prices.
Reduced demand caused shortages in available storage facilities globally and required many oil and gas producers to shut in wells or curtail production. In April 2020, oil prices continued to decline precipitously temporarily reaching negative values for spot WTI crude. In May 2020 and June 2020, oil prices began to recover as producers across the world, including OPEC, Russia, the United States and others started cutting their production levels sharply and announced significant capital reductions, and an easing of shelter-in-place restrictions created partial demand recovery. However, demand and pricing may again decline due to the resurgence of the outbreak across parts of the United States and related re-imposition of certain restrictions. The current futures forward curve for Brent crude indicates that prices may continue at close to current levels but lower than pre-pandemic levels for an extended period of time.
We continue to closely monitor the impact of COVID-19, which negatively impacted our business and results of operations beginning in the first quarter of 2020. The lower commodity prices have continued into the second quarter and are currently expected to remain depressed for an extended period of time based on current futures curves. The extent to which our total year operating results will be impacted by the pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning potential vaccines, the severity of the pandemic and actions taken to contain it or actions taken by government authorities or other producers in response to commodity price movements, among other things. See Part II, Item 1A – Risk Factors, below for further discussion regarding the impact of the pandemic and declines in commodity prices.

26

The following table presents the average daily Brent, WTI and NYMEX prices for the three and six months ended June 30, 2020 and 2019:
Three months ended
June 30,		Six months ended
June 30,
2020201920202019
Brent oil ($/Bbl)$33.27  $68.32  $42.12  $66.11  
WTI oil ($/Bbl)$27.85  $59.82  $37.01  $57.36  
NYMEX gas ($/MMBtu)$1.77  $2.66  $1.91  $2.95  
Note:  Bbl refers to a barrel; MMBtu refers to one million British Thermal Units.

Voluntary Petitions for Relief Under Chapter 11 of the Bankruptcy Code

In light of our significant indebtedness and the unprecedented impact to our financial position resulting from the commodity price environment and the COVID-19 pandemic, combined with continued challenging conditions in the credit and capital markets, we filed voluntary petitions for relief under Chapter 11 of Title 11 of the United StatesBankruptcy Code (Bankruptcy Code)(Chapter 11 Cases) in the United States Bankruptcy Court for the Southern District of Texas, Houston Division (Bankruptcy Court) on July 15, 2020.. The Chapter 11 cases filed by us (Chapter 11 Cases) are beingCases were jointly administered under the captionIn re California Resources Corporation, et al., Case No. 20-33568 (DRJ). OnWe filed with the Bankruptcy Court, on July 24, 2020, we filed athe Debtors’ Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code and, on October 8, 2020, the Amended Debtors’ Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code with(as amended, supplemented or modified, the Plan). On October 13, 2020, the Bankruptcy Court.Court confirmed the Plan, which was conditioned on certain items such as obtaining exit financing. The conditions to effectiveness of the Plan were satisfied and we emerged from Chapter 11 on October 27, 2020 (Effective Date).
34


We continue to operate our business as “debtors-in-possession” (DIP) underDuring the jurisdiction of the Bankruptcy Court and in accordance with the Bankruptcy Code. To ensure our ability to continue operating in the ordinary course of business and to minimize the effect of the Chapter 11 Cases, on our employees, vendors and customers, we filed motions for customary “first day” relief with the Bankruptcy Court. On July 17, 2020, the Bankruptcy Court entered interim or final orders that includedgranted the relief requested in certain motions, authorizing payments of pre-petition liabilities with respect to certain employee compensation and benefits, taxes, royalties, certain essential vendor payments and insurance and surety obligations. obligations, which allowed our business operations to continue uninterrupted during the pendency of the Chapter 11 Cases. All transactions outside the ordinary course of business required the prior approval of the Bankruptcy Court.

On July 21,15, 2020, immediately prior to the commencement of the Chapter 11 Cases, we and certain affiliates of Ares Management L.P. (Ares), including ECR Corporate Holdings L.P., a portfolio company of Ares (ECR), entered into a Settlement and Assumption Agreement (Settlement Agreement) related to our midstream joint venture, Elk Hills Power, LLC (Ares JV or Elk Hills Power), which holds our Elk Hills power plant and a cryogenic gas processing plant. On August 25, 2020, the Bankruptcy Court approvedentered an order approving the Settlement Agreement on a final basis an order designedbasis. Among other things, the Settlement Agreement included a conversion right, which would be deemed exercised upon our emergence from bankruptcy, allowing us to assist usacquire all (but not less than all) of the equity interests in preserving certain tax attributes. This order established the procedures that certain stockholders and potential stockholders will be required to comply with regarding transfersAres JV held by ECR in exchange for secured notes (EHP Notes), approximately 20.8% of or declarations of worthlessness with respect to, our new common stock as well as certain notice obligations. On July 22, 2020,(Ares Settlement Stock) and $2.5 million in cash. For more information on the Bankruptcy Court approved on an interim basis a motion authorizing us to enter into DIP financing.Settlement Agreement, see Part I, Item 1 – Financial Statements, Note 7 Joint Ventures.

The commencement of the Chapter 11 Cases constitutesconstituted an event of default that accelerated our obligations under the following agreements: (i) Credit Agreement, dated as of September 24, 2014, among JPMorgan Chase Bank, N.A., as administrative agent, and the lenders that are party thereto (2014 Revolving Credit Facility), (ii) Credit Agreement, dated as of August 12, 2016, among The Bank of New York Mellon Trust Company, N.A., as collateral and administrative agent, and the lenders that are party thereto (2016 Credit Agreement), (iii) Credit Agreement, dated as of November 17, 2017, among The Bank of AmericaNew York Mellon Trust Company, N.A., as administrative agent, and the lenders that are party thereto (2017 Credit Agreement), and (iv) the indentures governing our 8% Senior Secured Second Lien Notes due 2022 (Second Lien Notes), 5.5% Senior Notes due 2021 (2021 Notes) and 6% Senior Notes due 2024 (2024 Notes and together with the 5% Senior Notes due 2020 and 2021 Notes, the Senior Notes). Additionally, other events of default, including cross-defaults, are present under these debt agreements. Under the Bankruptcy Code, the creditors under these debt agreements arewere stayed from taking any action against us, including exercising remedies as a result of any event of default. See Part I, Item 1 – Financial Statements,Note 56 Debt for additional details about our debt.

Restructuring Support AgreementJoint Plan of Reorganization Under Chapter 11

Pursuant to the Plan, the following transactions occurred on the Effective Date:

On July 15, 2020, we entered into a Restructuring Support Agreement which was subsequently amended on July 24, 2020 (RSA).•This RSA contemplates a restructuring plan that establishes a reorganized company with a new capital structure. The transactions contemplated by the RSA plan include (i) entering into a senior secured superpriority DIP credit facility (Senior DIP Facility) inWe issued an aggregate principal amount of up to approximately $48383.3 million (ii) entering into a junior secured superpriority DIP term loan facility in an aggregate amount of $650 million (Junior DIP Facility), (iii) the implementation of financing upon emergence from bankruptcy, (iv) the issuanceshares of new common stock and (v)reserved 4.4 million shares for issuance upon exercise of the warrants described below;
•We acquired all of the member interests in the Ares JV held by ECR in exchange for the EHP Notes, 17.3 million shares of new common stock and $2.5 million in cash (see Part I, Item 1 – Financial Statements, Note 6 Debt and Part I, Item 1 – Financial Statements, Note 7 Joint Ventures for additional information);
•Holders of secured claims under the 2017 Credit Agreement received 22.7 million shares of new common stock in exchange for those claims, and holders of deficiency claims under the 2017 Credit Agreement and all outstanding obligations under the 2016 Credit Agreement, Second Lien Notes, 2021 Notes and 2024 Notes received 4.4 million shares of new common stock in exchange for those claims;
•In connection with the Subscription Rights offering and Backstop Commitment Agreement, 34.6 million shares of new common stock were issued in exchange for $446 million (net of a $450$4 million equity rightsfee), the proceeds of which were used to pay down our debtor-in-possession financing;
•Our Subscription Rights offering was backstopped by certain partiescreditors who received 3.5 million shares of new common stock as a backstop commitment premium (refer to Part I, Item 1 – Financial Statements, Note 16 Equity for additional information on the RSA.backstop commitment premium);

•The holders of Unsecured Debt Claims (as defined in the Plan) under the 2016 Credit Agreement, Second Lien Notes, 2021 Notes and 2024 Notes received Tier 1 Warrants and Tier 2 Warrants (each as defined in the Plan and collectively, Warrants) to purchase up to 2% and 3%, respectively, of our outstanding shares (on a fully diluted basis calculated immediately after the Effective Date), with an initial exercise price of $36.00 per share, which expire on October 27, 2024 and have customary anti-dilution protections (refer to Note 16 Equity for additional information on the Warrants);
•All other general unsecured claims will be paid or disputed in the ordinary course of business; and
•All existing equity interests were cancelled and their holders received no distributions.
2735

The following creditors have entered into the RSA: (i) lenders holding approximately 85% of the outstanding principal amount of loans under the 2017 Credit Agreement, (ii) creditors holding approximately 68% of the aggregate claims arising under the 2016 Credit Agreement, the Second Lien Notes, the 2021 Notes and the 2024 Notes, and (iii) one or more funds, investment vehicles and/or accounts managed or advised by Ares Management LLC (Ares) or its affiliates, including ECR Corporate Holdings L.P. (ECR).

The transactions contemplated by the RSA, if approved, will result in current holders of our common stock receiving no distribution on account of their claims or interests. No assurance can be given that the Bankruptcy Court will approve the terms proposed under the RSA.

Debtor-in-Possession Credit Agreements

On July 23, 2020,As a condition to our emergence, we entered into (1)repaid the outstanding balance of our debtor-in-possession financing with proceeds from our Subscription Rights offering, Backstop Commitment Agreement and a Senior Secured Superpriority DIP Credit Agreement with JPMorgan, as administrative agent, and certain other lenders (Senior DIP Credit Agreement) and (2)new senior secured revolving credit facility led by Citibank, N.A. We also issued approximately 821,000 shares of new common stock for a Junior Secured Superpriority DIP Credit Agreement with Alter Domus, as administrative agent, and certain lenders (Junior DIP Credit Agreement).junior debtor-in-possession exit fee. For more information on our debtor-in-possession credit agreements and our post-emergence indebtedness, see Part I, Item 1 – Financial Statements, Note 56 Debtand Liquidity and Capital Resources below..

Ares JV Settlement AgreementAdditionally, pursuant to our Plan, our post-emergence Board of Directors consists of nine directors as follows: (i) our President and Chief Executive Officer, Todd A. Stevens, (ii) seven non-employee directors, including Douglas E. Brooks, Tiffany (TJ) Thom Cepak, James N. Chapman, Mark A. McFarland, Julio M. Quintana, William B. Roby and Brian Steck, and (iii) one vacancy which will be filled by our post-emergence Board of Directors in accordance with our charter and bylaws. The seven non-employee directors were all appointed to the Board of Directors on October 27, 2020.

Our Board of Directors has determined that Ms. Cepak and Messrs. Brooks, Chapman, McFarland, Quintana, Roby and Steck are independent directors as that term is defined in the listing standards of the New York Stock Exchange (NYSE). Mr. Stevens is not considered by our Board of Directors to be independent because of his current employment with CRC.
On July 15,
Changes to our Stock-Based Compensation Programs

As a result of our bankruptcy, the outstanding stock-based awards under our Amended and Restated California Resources Corporation Long-Term Incentive Plan were cancelled on our Effective Date. Any new stock-based awards or compensation plans will be reviewed and approved by our Board of Directors, which includes seven new directors appointed on October 27, 2020.

The cancellation of these stock-based compensation awards resulted in the recognition of all previously unrecognized compensation expense for equity-settled awards and the liability related to our cash-settled awards was eliminated as the participants received no consideration. The net effect of these adjustments was not material to our financial statements.

Changes to the 2020 Compensation Programs in Second Quarter 2020

In the second quarter of 2020, resulting from the unprecedented circumstances affecting the industry and market volatility, we reviewed our incentive programs for the entire workforce to determine whether those programs appropriately aligned compensation opportunities with our 2020 goals and ensured the stability of our workforce. Following this review, effective May 19, 2020, our then Board of Directors approved changes in the variable compensation programs for all participating employees. The previously established target amounts of 2020 variable compensation programs did not change; however, all amounts that vest are being settled in cash. As a condition to receiving any award, participants waived participation in our 2020 annual incentive program and forfeited all stock-based compensation awards previously granted in 2020. At that time, there were no changes to stock-based compensation awards granted prior to February 2020; however, these pre-2020 awards were subsequently cancelled as part of the Plan. Changes to the variable compensation programs had the effect of accelerating the associated payments into 2020 from future periods. However, the total amount of compensation to be paid under the variable compensation programs at target for 2020 remained largely the same as the amounts that would have been paid at target prior to the commencementchanges. Our future compensation programs will be determined by our new Board of Directors.

Organizational Changes

During the course of the Chapter 11 Cases, we evaluated the structure of our workforce and, certain affiliatesin August 2020, we implemented organizational changes that resulted in a reduction of Ares, including ECR, entered into a settlementour headcount from 1,250 to approximately 1,100 employees. We believe the steps taken improved and assumption agreement (Settlement Agreement). On July 17, 2020, the Bankruptcy Court entered an order approving the Settlement Agreement on an interim basis pending a final hearing. Upon entry of a final order by the Bankruptcy Court,strengthened our business as we will be granted the right to acquire all of the equity interests of the Ares JV owned by ECR in exchange for secured notes, cash and common stock upon emergenceemerge from bankruptcy. We have also agreedrecorded a one-time $10 million restructuring charge in the third quarter of 2020. We will continue to certain covenantsevaluate resource levels depending on commodity prices.

Business Environment and amendmentsIndustry Outlook
36

Our operating results and those of the oil and gas industry as a whole are heavily influenced by commodity prices. Oil and gas prices and differentials may fluctuate significantly as a result of numerous market-related variables, especially given current global geopolitical and economic conditions. These and other factors make it impossible to the Ares JV limited liability company agreement. The Settlement Agreement may be terminated in certain limited circumstances. For more information on the Ares JV, see Part I, Item 1 – Financial Statements, Note 6 Joint Ventures.predict realized prices reliably.

Going Concern AnalysisPrices for oil and Recent Developments
gas products in 2020 have been strongly influenced by the Coronavirus Disease 2019 (COVID-19) pandemic and by the actions of foreign producers. The COVID-19 pandemic caused an unprecedented demand collapse due to global shelter-in-place orders, travel restrictions and general economic uncertainty, which negatively impacted crude oil prices. In addition
,
Our spin–off from Occidental members of the Organization of the Petroleum Corporation (Occidental) on November 30, 2014 burdened us with significant debt which was usedExporting Countries (OPEC) and Russia agreed to pay a $6.0 billion cash dividendcarry out record oil production cuts in April 2020 to Occidental. Togetherbe followed by gradual incremental increases in multiple steps. In the summer of 2020, OPEC and Russia moved ahead with the activity levelfirst hike in crude oil output. The next hike in crude oil output is currently scheduled for January 2021. As a result of these conditions, the Brent oil price has been trading in a narrow range around $40 per barrel for several months.
Reduced demand initially caused shortages in available storage facilities globally and payables that we assumed from Occidentalrequired many oil and gas producers to shut-in wells or curtail production. In April 2020, oil prices declined precipitously, temporarily reaching negative values for spot West Texas Intermediate (WTI) crude. From May 2020 through August 2020, oil prices began to recover as inventory levels stabilized and an easing of shelter-in-place restrictions created partial demand recovery. Prices declined again slightly in September 2020 as demand for oil dropped due to Occidental's retentionan increase in COVID-19 cases around the world. Demand and pricing may decline again due to a resurgence in the number of cases globally and across parts of the vast majorityUnited States, which could result in the re-imposition of our receivables, our debt peakedcertain restrictions. The current futures forward curve for Brent crude indicates that prices may continue at approximately $6.8 billion in May 2015. Since then, we have engaged in a seriesclose to current levels, which are significantly lower than pre-pandemic levels, for an extended period of assets sales, joint ventures, debt exchanges, tenders and repurchases and other financing transactions to reduce our overall debt and improve our balance sheet. As of June 30, 2020, we had reduced our outstanding debt to approximately $5.1 billion, a substantial portion of which would have matured in 2021.time.

We currently expectcontinue to closely monitor the impact of COVID-19, which negatively impacted our business and results of operations beginning in the first quarter of 2020. The extent to which our total year operating results will be impacted by the pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information that our cash flows, cash on hand and financing available through our DIP credit agreements should provide sufficient liquidity during the pendencymay emerge concerning potential vaccines, a resurgence of the Chapter 11 Cases. However, for the duration of the Chapter 11 Cases, our operationspandemic and our abilityactions taken to develop and execute our business plan are subjectcontain it or actions taken by government authorities or other producers in response to a high degree of risks and uncertainty associated with the Chapter 11 proceedings. The outcome of the Chapter 11 Cases is also subject to a high degree of uncertainty and is dependent upon factors that are outside of our control, including actions of the Bankruptcy Court, our creditors, and Ares. There can be no assurance that we will confirm and consummate the plan under the RSA or complete another plan of reorganization with respect to the Chapter 11 proceedings. There is substantial doubt that we can continue as a going concern if we are not able to complete the plan of reorganization contemplated by the RSA or another plan of reorganization as part of the Chapter 11 Cases.
For the duration of the Chapter 11 Cases, our operations and ability to develop and execute our business plan are subject to the risks and uncertainties associated with the Chapter 11 Cases.commodity price movements, among other things. See Part II, Item 1A – Risk Factors, below for further discussion regarding the impact of these risksthe pandemic and risks related to our ability to continue as a going concern.declines in commodity prices.
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The following table presents the average daily Brent, WTI and NYMEX prices for the three and nine months ended September 30, 2020 and 2019:
Three months ended
September 30,		Nine months ended
September 30,
2020201920202019
Brent oil ($/Bbl)$43.37 $62.00 $42.53 $64.74 
WTI oil ($/Bbl)$40.93 $56.45 $38.32 $57.06 
NYMEX gas ($/MMBtu)$1.93 $2.27 $1.92 $2.72 
Note:     Bbl refers to a barrel; MMBtu refers to one million British Thermal Units.
Operations

Response to COVID-19 Pandemic and Industry Downturn

We have taken several steps and continue to actively work to mitigate the effects of the COVID-19 pandemic and the industry downturn on our operations, financial condition and liquidity.
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In response to the rapid fall in commodity prices in March 2020, we reduced our 2020 capital budget to a level that maintains the mechanical integrity of our facilities to operate them in a safe and environmentally responsible manner and ceased all field development and growth projects. As a result, our internally funded capital was $3$7 million in the second quarterand third quarters of 2020. We also monetized all of our crude oil hedges for Aprilin March 2020, forward with our counterparties, except for certain hedges held by our joint venture with Benefit Street Partners (BSP JV), for approximately $63 million to enhance our liquidity. We shutbegan shutting in certainhigh cost, negative margin wells in March 2020 to reduce operating costs and enhance cash flow which curtailed average gross production volumes by approximately 6 MBoe/d and average net production volumes by approximately 5 MBoe/d duringand 3 MBoe/d for the second quarterand third quarters of 2020.2020, respectively. As part of our operational efficiency measures, we evaluated our diverse portfolio and our various production mechanisms with a focus on wells with higher operating costs. Our teams utilized our extensive automation controls, monitored weekly well margins, and made temporary adjustments to our producing wells to ensure our operations aligned with the price environment. As a result of these actions, as well as further cost rationalization and streamlining efforts coupled with lower activity levels, our currentthird quarter 2020 average operating expense run rate is below $45$50 million per month compared to the first quarter of 2020 average of $64 million per month. At our current level of capital investment we anticipateand surface activity levels, production willcould continue to decline at a moderate pace through the remainder of the year.

We have also implemented various measures to protect the health of our workforce and to support the prevention of COVID-19 at our plants, rigs, fields and administrative offices. These initiatives were in accordance with the orders and guidance of federal, state and local authorities to mitigate the risks of the disease and included temporarily closing all our administrative offices and implementing remote working for most office employees. As a result, our management team and substantially all of our office personnel including finance and accounting teams, worked remotely beginning in March 2020. In June 2020, we began a phased return to the office, focused on those employees for whom remote work was not feasible. In addition, onin April 6, 2020, we implemented reduced work hours for nearly all of our office employees and reduced salaries for our management team, in each case on a temporary basis that ended in May 2020. In August 2020, we implemented organizational and operational efficiencies that resulted in a reduction of our headcount to approximately 1,100 employees. These reductionsactions were made in an effort to preserve liquidity after the further deterioration of commodity prices following the outbreak of COVID-19. Our operational employees and contractors and certain support personnel have been classified as an essential critical infrastructure workforce by government authoritiesauthorities. Accordingly, they worked through the shutdowns and continue to work in their plant, rig, field and office locations under our COVID-19 Health and Safety Plan that includes protocols for reporting of illness, self-quarantine, hygiene, applying social distancing to minimize close contact between workers, cleaning or disinfection of workspaces and protection of emergency response personnel. We have not experienced any operational slowdowns due to COVID-19 among our workforce.

Our Operations

We conduct our operations on properties that we hold through fee interests, mineral leases and other contractual arrangements. We are the largest privatenon-governmental oil and natural gas mineral acreage holder in California, with interests in 2.22.1 million net mineral acres, approximately 60% of which is held in fee and 17% is held by production. Our oil and gas leases have primary terms ranging from one to ten years. Once production commences, the leases are typically extended on the producing acreage through the end of their producing life. As a result of our large mineral acre position held in fee, we generally have the flexibility to shut inshut-in wells while retaining our oil and gas leases which are held by production.

We also own or control a network of integrated infrastructure that complements our operations including gas processing plants, oil and gas gathering systems, power plants and other related assets. Our strategically located infrastructure helps us maximize the value generated from our production.

We respond to economic conditions by adjusting the amount and allocation of our capital program while continuing to identify efficiencies and cost savings. Volatility in oil prices may materially affect the quantities of oil and gas reserves we can economically produce over the longer term. With our significant land holdings in California, we have undertaken initiatives to obtain additional value from our surface acreage, including pursuing carbon capture and sequestration, renewable energy opportunities, agricultural activities and other commercial uses.

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Our share of production and reserves from operations in the Wilmington field is subject to contractual arrangements similar to production-sharing contracts (PSCs) that are in effect through the economic life of the assets. Under such contracts we are obligated to fund all capital and production costs. We record a share of production and reserves to recover a portion of such capital and production costs and an additional share for profit. Our portion of the production represents volumes: (i) to recover our partners’ share of capital and production costs that we incur on their behalf, (ii) for our share of contractually defined base production and (iii) for our share of remaining production thereafter. We generate returns through our defined share of production from (ii) and (iii) above. These contracts do not transfer any right of ownership to us and reserves reported from these arrangements are based on our economic interest as defined in the contracts. Our share of production and reserves from these contracts decreases when product prices rise and increases when prices decline, assuming comparable capital investment and production costs. However, our net economic benefit is greater when product prices are higher. These contracts represented approximately 20%17% of our net production for the quarterthree months ended JuneSeptember 30, 2020.

In line with industry practice for reporting PSC-type contracts, we report 100% of operating costs under such contracts in our condensed consolidated statements of operations as opposed to reporting only our share of those costs. We report the proceeds from production designed to recover our partners' share of such costs (cost recovery) in our revenues. Our reported production volumes reflect only our share of the total volumes produced, including cost recovery, which is less than the total volumes produced under the PSC-type contracts. This difference in reporting full operating and general and administrative costs but only our net share of production equally inflates our revenue, general and administrative and operating costs and has no effect on our net results.

We own a large and geographically diverse portfolio of assets that generate the following revenue streams:

Crude Oil — We sell nearly all of our crude oil into the California refining markets, which offer relatively favorable pricing for comparable grades relative to other U.S. regions. Substantially all of our crude oil production is connected, via our gathering systems, to third-party pipelines and California refining markets and we have not encountered any significant issues with storage or reaching these markets during the industry downturn. We do not refine or process the crude oil we produce and do not have any significant long-term transportation arrangements.

California is heavily reliant on imported sources of energy, with approximately 72% of oil and 90% of natural gas consumed in 2019 imported from outside the state. Nearly all of the imported oil arrives via supertanker, mostly from foreign locations. As a result, California refiners have typically purchased crude oil at international waterborne-based Brent prices. We continue to receive a premium in comparison to other comparable grades due to the demand for our product in the state of California. We believe that the limited crude transportation infrastructure from other parts of the U.S. into California will continue to contribute to higher realizations than most other U.S. oil markets for comparable grades.

Natural Gas — We sell all of our natural gas not used in our operations into the California markets on a monthly basis at market-based index pricing. Natural gas prices and differentials are strongly affected by local market fundamentals, such as storage capacity and the availability of transportation capacity from producing areas. Transportation capacity influences prices because California imports approximately 90% of its natural gas from other states and Canada. As a result, we typically enjoy favorable pricing relative to out-of-state producers due to lower transportation costs on the delivery of our natural gas. Changes in natural gas prices have a smaller impact on our operating results than changes in oil prices as only approximately 25% of our total equivalent production volume and even a smaller percentage of our revenue is from natural gas.

In addition to selling natural gas, we also use natural gas for our steamfloods and power generation. As a result, the positive impact of higher natural gas prices is partially offset by higher operating costs of our steamflood projects and power generation, but higher prices still have a net positive effect on our operating results due to higher revenue. Conversely, lower natural gas prices lower the operating costs but have a net negative effect on our financial results.

We currently have sufficient firm transportation capacity contracts to transport our natural gas, where some capacity volumes vary by month. We sell virtually all of our natural gas production under individually negotiated contracts using market-based pricing on a monthly or shorter basis.

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Natural Gas Liquid (NGL) — NGL price realizations are related to the supply and demand for the products making up these liquids. Some of them more typically correlate to the price of oil while others are affected by natural gas prices as well as the demand for certain chemical products for which they are used as feedstock. In addition, infrastructure constraints and seasonality can magnify pricing volatility.

Our earnings are also affected by the performance of our complementary processing and power-generation assets. We process our wet gas to extract NGLs and other natural gas byproducts. We then deliver dry gas to pipelines and separately sell the NGLs. The efficiency with which we extract liquids from the wet gas stream affects our operating results. Our natural gas processing plants also facilitate access to third-party delivery points near the Elk Hills field.

We currently have a pipeline delivery contract to transport 6,500 barrels per day of NGLs to market. Our contract to deliver NGLs requires us to cash settle any shortfall between the committed quantities and volumes actually delivered. In connection with another pipeline delivery contract that we assumed from Occidental, we made a one-time deficiency payment of $20 million in April 2020 when the contract expired. We sell virtually all of our NGLs using index-based pricing. Our NGLs are generally sold pursuant to contracts that are renewed annually. Approximately 28%33% of our NGLs are sold to export markets.

Electricity — Part of the electrical output from the Elk Hills power plant is used by Elk Hills and other nearby fields, which reduces operating costs and increases reliability. We sell the excess electricity generated to the grid and a local utility.utility, other third parties and the grid. The power sold to the utility is subject to agreements through the end of 2023, which include a monthly capacity payment plus a variable payment based on the quantity of power purchased each month. Any excess capacity not sold to other third parties is sold to the grid. The prices obtained for excess power impact our earnings but generally by an insignificant amount.

Derivatives and Hedging Activities

We opportunistically seek strategic hedging transactions to help protect our cash flow, operating margin and capital program from both the cyclical nature of commodity prices and interest rate movements while maintaining adequate liquidity and improving our ability to comply with our debt covenants. We can give no assurance that our hedging programs will be adequate to accomplish our objectives. In early March 2020, in response to the rapid fall in commodity prices, we monetized all of our crude oil hedges in place for April 2020 forward with our counterparties, except for certain hedges held by our BSP JV, for approximately $63 million to enhance our liquidity. As of June 30, 2020, we did not have any commodity hedges covering our share of production.

The Senior DIP Credit Agreement requiresrequired us to enter into hedging arrangements covering at least 25% of our share of expected crude oil production for the next twelve months. On July 24, 2020, we entered into various derivative instruments through July 2021 to satisfy this requirement. Our post-emergence Revolving Credit Facility and Second Lien Term Loan require us to maintain hedges on a higher amount of crude oil production as described in Part I, Item 1 – Financial Statements, Note 6 Debt.

Unless otherwise indicated, we use the term "hedge" to describe derivative instruments that are designed to achieve our hedging program goals, even though they are not accounted for as cash-flow or fair-value hedges.

Development Joint Ventures

We have a number of joint ventures that have allowed us to accelerate the development of our assets, which provided us with operational and financial flexibility as well as near-term production benefits. The following table summarizes the cumulative investment through JuneSeptember 30, 2020 by our development joint venture partners, before transaction costs:
Cumulative Investment through
JuneSeptember 30, 2020
(in millions)
Alpine$231227 
Royale17 
MIRA139 
BSP200 
   Total Capital Investment$587583 

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For more information on our development joint ventures, please see our most recent Form 10-K for the year ended December 31, 2019.

Alpine JV

In July 2019, we entered into a development agreement with Alpine Energy Capital, LLC (Alpine). Alpine has committed to invest $320 million, which may be increased to a total investment of $500 million subject to the mutual agreement of the parties. The initial $320 million commitment covers multiple development opportunities and is intended to be invested over a period of up to three years in accordance with a 275-well development plan.

On March 27, 2020, Alpine elected to suspend its funding obligations pursuant to a contractual right that is triggered if the average NYMEX 12-month forward strip price for Brent crude oil falls below $45 per barrel over a 30-trading day period. The suspension is automaticallymay be lifted and Alpine is obligated to renewby mutual consent. As of September 30, 2020, funding at such time asfor the average price exceeds that threshold over any 30-trading day period. If prices remain below the threshold for over 100 consecutive trading days, theinitial development phase may be terminated by us, subject to agreement by Alpine.has not re-started.

Midstream Joint Venture

Ares JV

In February 2018, our wholly ownedwholly-owned subsidiary California Resources Elk Hills, LLC (CREH) entered into a midstream joint ventureJV with ECR, a portfolio company of Ares. The Ares JV holds the Elk Hills power plant (a 550-megawatt natural gas fired power plant) and a 200 MMcf/d cryogenic gas processing plant. We holdOn the Effective Date, as required by the Note Purchase Agreement, CREH transferred its ownership of two low temperature separation plants located at the Elk Hills field to Elk Hills Power.

Prior to our Effective Date, we held 50% of the Class A common interestsinterest and 95.25% of the Class C common interestsinterest in the Ares JV. ECR holdsheld 50% of the Class A common interests,interest, 100% of the Class B preferred interestsinterest and 4.75% of the Class C common interests.interest. The Ares JV was required to distribute each month its excess cash flow over its working capital requirements first to the Class B holders and then to the Class C common interests, on a pro-rata basis. As contemplated by the terms of the joint venture,JV, CREH purchasespurchased electricity steam and gas processing services from the Ares JV (subject to certain limitations, including certain geographical limitations) in exchange for monthly capacity payments pursuant to the terms of a Commercial Agreement, the proceeds of which will bewere used by the Ares JV to make distributions as contemplated by the Second Amended and Restated Limited Liability Company Agreement of Elk Hills Power, LLC. CREH also servesserved as the operator of the Ares JV and providesprovided operational and support services in exchange for a monthly fee pursuant to a Master Services Agreement. These agreements became intercompany agreements on the Effective Date and were cancelled as described below.

As described above in Business Environment and Outlook and Part I, Item 1 – Financial Statements, Note 1 Chapter 11 Proceedings, we entered into the Settlement Agreement with ECR and Ares which, among other things, changed the liquidation preference for the Class B member interest to $835 million, decreased the preferred return from 13.5% per annum to 9.5% per annum payable at the end of each month, removed the liquidation premium for the Class A common interest and removed the payment of any previously accrued but unpaid preferred distributions plus a make-whole payment that ECR, as the holder of the Class B preferred interests, would otherwise have been entitled to in the event of a redemption transaction. The Settlement Agreement granted us the right (Conversion Right) to acquire all (but not less than all) of the equity interests of Elk Hills Power owned by ECR in exchange for the EHP Notes, Ares Settlement Stock and $2.5 million in cash. The Conversion right was deemed to have been exercised on the Effective Date.

Although certain provisions in the Settlement Agreement were not effective until certain conditions were met, such as the Bankruptcy Court entering a final order, we determined that the amended terms were substantively different such that the existing Class A common, Class B preferred and Class C common member interests held by ECR were treated as redeemed in exchange for new member interests issued at fair value. The estimated fair value of the new member interests was lower than the carrying value of the existing member interests by $138 million. In accordance with GAAP, the return from noncontrolling interest holders was recorded to additional paid-in capital on our condensed consolidated balance sheet as of September 30, 2020. However as required by GAAP, the return is included in our earnings per share calculations. See Part I, Item 1 – Financial Statements, Note 10 Earnings per Share for adjustments to net income (loss) attributable to common stock which include a return from noncontrolling interests.

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We were deemed to have exercised the Conversion Right on the Effective Date and we issued the EHP Notes in the aggregate principal amount of $300 million, Ares Settlement Stock comprising approximately 20.8% (subject to dilution) of the new common stock (Conversion) and $2.5 million in cash. Upon the Conversion, Elk Hills Power became an indirect wholly-owned subsidiary, and Ares and its affiliates ceased to have any direct or indirect interest in Elk Hills Power, other than any interest Ares may have indirectly through its interests in the EHP Notes and Ares Settlement Stock. In connection with the Conversion, Elk Hills Power’s limited liability company agreement was amended and restated.

In connection with the Conversion, on the Effective Date, we entered into a Sponsor Support Agreement dated the Effective Date (Support Agreement) pursuant to which, among other things, the parties agreed that Elk Hills Power will be our primary provider of electricity to, and will be the primary processor of our natural gas produced from, the Elk Hills field, which is already consistent with our current practice.

On the Effective Date, in connection with the Conversion, we terminated: (a) the Commercial Agreement, dated as of February 7, 2018, by and between Elk Hills Power and CREH and (b) the Master Services Agreement, dated as of February 7, 2018, by and between Elk Hills Power and CREH.

For more information on the Ares JV, see Part I, Item 1 – Financial Statements, Note 67 Joint Ventures. For more information on the Settlement Agreement, see Part I, Item 1 – Financial Statements, Note 1 Basis of Presentation.Chapter 11 Proceedings.

Fixed and Variable Costs
Our production costs include (1) variable costs that fluctuate with production levels and (2) fixed costs that typically do not vary with changes in production levels or well counts, especially in the short term. The substantial majority of our near-term fixed costs become variable over the longer term because we manage them based on the field’s stage of life and operating characteristics. For example, portions of labor and material costs, energy, workovers and maintenance expenditures correlate to well count, production and activity levels. Portions of these same costs can be relatively fixed over the near term; however, they are managed down as fields mature in a manner that correlates to production and commodity price levels. A certain amount of costs for facilities, surface support, surveillance and related maintenance can be regarded as fixed in the early phases of a program. However, as the production from a certain area matures, well count increases and daily per well production drops, such support costs can be reduced and consolidated over a larger number of wells, reducing costs per operating well. Further, many of our other costs, such as property taxes and oilfield services, are variable and will respond to activity levels and tend to correlate with commodity prices. As a result of the measures taken to address the recent industry downturn, we have demonstrated that we can significantly reduce our operating costs in response to prevailing market conditions. As a result, we continue to believe approximately one-thirdthat a significant portion of our operating costs are fixedvariable over the life cyclelifecycle of our fields and the remaining two-thirds costs are variable.fields. We actively manage our fields to optimize production and minimize costs. When we see growth in a field, we increase capacities and, similarly, when a field nears the end of its economic life, we manage the costs while it remains economically viable to produce.

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Production and Prices

The following table sets forth our average net production volumes of oil, NGLs and natural gas per day for the three and sixnine months ended JuneSeptember 30, 2020 and 2019:
Three months ended
June 30,		Six months ended
June 30,		Three months ended
September 30,		Nine months ended
September 30,
20202019202020192020201920202019
Oil (MBbl/d)Oil (MBbl/d)Oil (MBbl/d)
San Joaquin Basin San Joaquin Basin41  52  44  54   San Joaquin Basin40 51 42 53 
Los Angeles Basin Los Angeles Basin27  23  26  24   Los Angeles Basin22 24 25 24 
Ventura Basin Ventura Basin2  4  3  4   Ventura Basin2 4 3 4 
Total Total70  79  73  82   Total64 79 70 81 
NGLs (MBbl/d)NGLs (MBbl/d)NGLs (MBbl/d)
San Joaquin Basin San Joaquin Basin13  15  14  14   San Joaquin Basin14 16 14 15 
Ventura Basin Ventura Basin—  1  —  1   Ventura Basin— — — 1 
Total Total13  16  14  15   Total14 16 14 16 
Natural gas (MMcf/d)Natural gas (MMcf/d)Natural gas (MMcf/d)
San Joaquin Basin San Joaquin Basin148  164  151  164   San Joaquin Basin142 162 148 163 
Los Angeles Basin Los Angeles Basin2  3  2  3   Los Angeles Basin2 2 2 2 
Ventura Basin Ventura Basin3  6  4  6   Ventura Basin4 4 4 6 
Sacramento Basin Sacramento Basin21  30  22  29   Sacramento Basin20 28 21 29 
Total Total174  203  179  202   Total168 196 175 200 
Total Net Production (MBoe/d)Total Net Production (MBoe/d)112  129  117  131  Total Net Production (MBoe/d)106 128 113 130 
Note:     MBbl/d refers to thousands of barrels per day; MMcf/d refers to millions of cubic feet per day; MBoe/d refers to thousands of barrels of oil equivalent (Boe) per day. Natural gas volumes have been converted to Boe based on the equivalence of energy content of six thousand cubic feet of natural gas to one barrel of oil. Barrels of oil equivalence does not necessarily result in price equivalence.
For the three months ended JuneSeptember 30, 2020 compared to the same period in 2019, total daily production decreased by approximately 22 MBoe/d or 17%. The decrease in production related to higher downtime caused by significantly reduced well repair work, as well as the temporary shut-in of certain wells beginning in March 2020, which negatively impacted our net production for the three months ended September 30, 2020 by 3 MBoe/d compared to the same prior-year period. Due to the lower price environment, our PSC-type contracts positively impacted our oil production in the third quarter of 2020 by approximately 1 MBoe/d compared to the same period in 2019. Excluding the effects of shut-in production and PSC-type contracts, our base decline was still in line with our previously disclosed rate of low to mid-teens, which largely resulted from low internal capital investment and well repair work.

For the nine months ended September 30, 2020 compared to the same period in 2019, total daily production decreased by approximately 17 MBoe/d or 13%. The decrease in production largely represented base decline resulting from low internal capital investment,related to higher downtime caused by significantly reduced well repair work, as well as the temporary shut inshut-in of certain wells beginning in March 2020, and the effect of the May 2019 partial divestiture of the Lost Hills field. The shut in wells and the Lost Hills divestiture reducedfield, which negatively impacted our second quarter 2020 net production for the nine months ended September 30, 2020 by 73 MBoe/d.d compared to the same prior-year period. Due to the lower price environment, our PSC-type contracts positively impacted our oil production in the second quarternine months of 2020 by over 53 MBoe/d compared to the same period in 2019. Excluding the effecteffects of the Lost Hills transaction, the shut in wellsshut-in production and the PSC effects,PSC-type contracts, our base decline was below 12%, which isstill in line with our rangepreviously disclosed rate of stated base decline rates.

For the six months ended June 30,2020 comparedlow to the same period in 2019, total daily production decreased by approximately 14 MBoe/d or 11%. The decrease in productionmid-teens, which largely represented base decline resultingresulted from low internal capital investment shut in production and the effectwell repair work.

With an ongoing gradual increase of the May 2019 partial divestiture of the Lost Hills field. The shut in wells and the Lost Hills divestiture reduced our net production for the six months ended June 30, 2020 by 7 MBoe/d. Due to the lower price environment, our PSC-type contracts positively impacted our oil production in the first half of 2020 by over 4 MBoe/d compared to the same period in 2019. Excluding the effect of the Lost Hills transaction, the shut in wells and the PSC effects,well repair work, we believe our base decline was approximately 8%.rate going forward will gradually return to the low to mid-teens.

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The following tables set forth the average realized prices and price realizations as a percentage of average Brent, WTI and NYMEX for our products for the three and sixnine months ended JuneSeptember 30, 2020 and 2019:
Three months ended June 30,Three months ended September 30,
2020201920202019
PriceRealizationPriceRealizationPriceRealizationPriceRealization
Oil ($ per Bbl)Oil ($ per Bbl)Oil ($ per Bbl)
BrentBrent$33.27  $68.32  Brent$43.37 $62.00 
Realized price without hedgeRealized price without hedge$30.27  91%$68.77  101%Realized price without hedge$41.83 96%$62.85 101%
Settled hedgesSettled hedges0.55  1.89  Settled hedges0.32 5.56 
Realized price with hedgeRealized price with hedge$30.82  93%$70.66  103%Realized price with hedge$42.15 97%$68.41 110%
WTIWTI$27.85  $59.82  WTI$40.93 $56.45 
Realized price without hedgeRealized price without hedge$30.27  109%$68.77  115%Realized price without hedge$41.83 102%$62.85 111%
Realized price with hedgeRealized price with hedge$30.82  111%$70.66  118%Realized price with hedge$42.15 103%$68.41 121%
NGLs ($ per Bbl)NGLs ($ per Bbl)NGLs ($ per Bbl)
Realized price (% of Brent)Realized price (% of Brent)$21.05  63%$27.82  41%Realized price (% of Brent)$25.16 58%$23.55 38%
Realized price (% of WTI)Realized price (% of WTI)$21.05  76%$27.82  47%Realized price (% of WTI)$25.16 61%$23.55 42%
Natural gasNatural gasNatural gas
NYMEX ($/MMBtu)NYMEX ($/MMBtu)$1.77  $2.66  NYMEX ($/MMBtu)$1.93 $2.27 
Realized price without hedge ($/Mcf)Realized price without hedge ($/Mcf)$1.65  93%$2.33  88%Realized price without hedge ($/Mcf)$2.22 115%$2.73 120%
Settled hedgesSettled hedges0.08  0.03  Settled hedges0.02 (0.01)
Realized price with hedge ($/Mcf)Realized price with hedge ($/Mcf)$1.73  98%$2.36  89%Realized price with hedge ($/Mcf)$2.24 116%$2.72 120%

Six months ended June 30, 2020Nine months ended September 30,
2020201920202019
PriceRealizationPriceRealizationPriceRealizationPriceRealization
Oil ($ per Bbl)Oil ($ per Bbl)Oil ($ per Bbl)
BrentBrent$42.12  $66.11  Brent$42.53 $64.74 
Realized price without hedgeRealized price without hedge$41.02  97%$65.97  100%Realized price without hedge$41.27 97%$65.03 100%
Settled hedgesSettled hedges2.74  1.93  Settled hedges2.00 3.13 
Realized price with hedge(a)
$43.76  104%$67.90  103%
Realized price with hedgeRealized price with hedge$43.27 102%$68.16 105%
WTIWTI$37.01  $57.36  WTI$38.32 $57.06 
Realized price without hedgeRealized price without hedge$41.02  111%$65.97  115%Realized price without hedge$41.27 108%$65.03 114%
Realized price with hedgeRealized price with hedge$43.76  118%$67.90  118%Realized price with hedge$43.27 113%$68.16 119%
NGLs ($ per Bbl)NGLs ($ per Bbl)NGLs ($ per Bbl)
Realized price (% of Brent)Realized price (% of Brent)$25.18  60%$34.97  53%Realized price (% of Brent)$25.17 59%$31.04 48%
Realized price (% of WTI)Realized price (% of WTI)$25.18  68%$34.97  61%Realized price (% of WTI)$25.17 66%$31.04 54%
Natural gasNatural gasNatural gas
NYMEX ($/MMBtu)NYMEX ($/MMBtu)$1.91  $2.95  NYMEX ($/MMBtu)$1.92 $2.72 
Realized price without hedge ($/Mcf)Realized price without hedge ($/Mcf)$1.96  103%$2.87  97%Realized price without hedge ($/Mcf)$2.05 107%$2.82 104%
Settled hedgesSettled hedges0.09  (0.01) Settled hedges0.06 (0.01)
Realized price with hedge ($/Mcf)Realized price with hedge ($/Mcf)$2.05  107%$2.86  97%Realized price with hedge ($/Mcf)$2.11 110%$2.81 103%
(a) Prices for the first six months of 2020 exclude the effect of $63 million of proceeds received in the first quarter of 2020 from settling derivative contracts with counterparties prior to maturity.

3444

Oil — Brent index and realized prices were lower in both the three and sixnine months ended JuneSeptember 30, 2020 compared to the same prior-year periodperiods due to the combination of the supply increase caused by the Saudi-Russia price war and the severe demand decline caused by COVID-19. Further, our realizations without hedge were significantly affectedPrices collapsed in the three months ended June 30,March 2020 and gradually improved to around the current levels in June 2020 as a lesser extent inresult of the six months ended June 30, 2020, primarily due to the unprecedented global oversupply of oil and Saudi Arabia's price cuts for oil to the U.S.significant production curtailments OPEC and other marketsnations implemented in April 2020. These two events ledresponse to lower crude realizations for foreign oil imported into California and depressed prices for native California crude.COVID-19.

NGLs — Prices for NGLs decreased fromincreased slightly for the three months ended September 30, 2020 compared to the same period in 2019 due to improvements in negotiated sales differentials along with stronger NGL values relative to crude. NGL prices declined for the nine months ended September 30, 2020 compared to the same prior-year period as supply associated with high gas-producing basins outpaced steady U.S. production exceeded the COVID-19 related decline in demand, causing lower domestic NGL prices in the three and six months ended June 30, 2020.prices. We continuecontinued to receive premium prices for NGLs relative to national hub prices.

Natural Gas — Our natural gas realized prices were lower in both the three and sixnine months ended JuneSeptember 30, 2020 than the comparable periods of 2019. The decrease was due to increased nationwide natural gas production and higher inventories across the U.S. primarily due to lower demand resulting from the shelter-in-place orders related to COVID-19 that began in March 2020. Prices were also negatively impacted by lower supply constraints on the SoCalGas system in 2020 compared to the same period in the prior year. Prices began to increase in September 2020 anticipating lower future production as a result of reduced capital investment by producers.

Balance Sheet Analysis

The following table sets forthBalance sheet accounts and changes in our balance sheet between Junethese accounts, as of September 30, 2020 and December 31, 2019:2019, are discussed below:
June 30,December 31,September 30,December 31,
20202019
(Debtor-in-Possession: Entity Operating Under Chapter 11)(Debtor-in-Possession: Entity Operating Under Chapter 11)20202019
(in millions)(in millions)
CashCash$126  $17  Cash$122 $17 
Trade receivablesTrade receivables$132  $277  Trade receivables$155 $277 
InventoriesInventories$61  $67  Inventories$61 $67 
Other current assets, netOther current assets, net$84  $130  Other current assets, net$82 $130 
Property, plant and equipment, netProperty, plant and equipment, net$4,449  $6,352  Property, plant and equipment, net$4,360 $6,352 
Other assetsOther assets$78  $115  Other assets$76 $115 
Current portion of long-term debtCurrent portion of long-term debt$5,083  $100  Current portion of long-term debt$— $100 
Current deferred gain and issuance costs, net$125  $—  
Debtor-in-possession financingDebtor-in-possession financing$733 $— 
Accounts payableAccounts payable$196  $296  Accounts payable$221 $296 
Accrued liabilitiesAccrued liabilities$355  $313  Accrued liabilities$240 $313 
Long-term debtLong-term debt$—  $4,877  Long-term debt$— $4,877 
Deferred gain and issuance costs, netDeferred gain and issuance costs, net$—  $146  Deferred gain and issuance costs, net$— $146 
Other long-term liabilitiesOther long-term liabilities$719  $720  Other long-term liabilities$727 $720 
Liabilities subject to compromiseLiabilities subject to compromise$4,516 $— 
Mezzanine equityMezzanine equity$828  $802  Mezzanine equity$692 $802 
Equity attributable to common stockEquity attributable to common stock$(2,452) $(389) Equity attributable to common stock$(2,341)$(389)
Equity attributable to noncontrolling interestsEquity attributable to noncontrolling interests$76  $93  Equity attributable to noncontrolling interests$68 $93 

Cash — Cash at JuneSeptember 30, 2020 and December 31, 2019 included restricted cash of $21$24 million and $3 million, respectively. See Liquidity and Capital Resources for our cash flow analysis.

Trade receivables — The decrease in trade receivables was largely driven by lower realized product prices and lower production volumes in JuneSeptember 2020 compared to December 2019.

Other current assets, net — The decrease in other current assets, net was primarily due to the salecollections from our joint interest partners, an impairment in March 2020 of our crude oil hedge positions resulting inunrecovered capital investments and a decrease in the fair value of the current portion of our derivative assets. Additionally,contracts. The decrease in March 2020, we recorded an $11 million impairment on capital investmentsfair value of our derivative contracts primarily related to be recovered froma lower percentage of our joint interest partners solely from production.oil production hedged between comparative periods.

3545

Property, plant and equipment, net — The decrease in property, plant and equipment, net primarily reflected the $1.7 billionresulted from an impairment of certain of our proved and unproved properties recorded in the first quarter of 2020, depreciation, depletion, and amortization (DD&A) and to a lesser extent sales of certain royalty interests and non-core assets in the first quarter ofJanuary 2020. The decrease was partially offset by capital investments including the planned major maintenance at our Elk Hills power plant. For further detail about theour asset impairment, see Part I, Item 1 – Financial Statements, Note 1415 Asset Impairments.

Other assets — Other assets decreased primarily due to utilizingthe utilization of parts for the planned major maintenance ofa scheduled turnaround at our Elk Hills power plant as well as a decrease in operating lease assets due to releasing drilling rigs, both of which occurred in the first quarter of 2020.

Current portion of long-term debt — The increase in the current portionCurrent maturities of long-term debt wasdecreased by $100 million reflecting
the payoff of our 2020 Senior Notes in January 2020.

Debtor-in-possession financing — As a result of our Chapter 11 Cases, we obtained debtor-in-possession financing to allow us to continue operating our business during the reclassificationpendency of the bankruptcy proceedings. Proceeds from the debtor-in-possession financing were used to pay off our long-term debt to current as described in2014 Revolving Credit Facility. See Part I, Item 1 – Financial Statements, Note 56 Debt.

Current portion of deferred gain and issuance costs, net — The increase in the current portion of deferred gain and issuance costs, net was primarily a result of reclassifying capitalized costs associated withfor additional information on our long-term debt to current.debtor-in-possession credit agreements.

Accounts payable — The decrease in accounts payable wasamount due to lower amounts payable toour vendors following the reductiondecreased as a result of our reduced capital planprogram and lower activity levels in the secondthird quarter of 2020 as compared to the fourth quarter of 2019.

Accrued liabilities — The increasedecrease in accrued liabilities primarily related to an increase in accrued interest as a result of our failure to make certain interest payments and property tax payments during the second quarter of 2020 compared to balances due as of the fourth quarter of 2019. These amounts were partially offset by the bonus payments made to employees made in the first quarter of 2020, with respectreleasing drilling rigs, and lower drilling and completion activity related to 2019 performance as well as a decrease in activities of the Alpine JV following theirdue to the suspension of further capital funding due toas a result of low commodity prices. These decreases were partially offset by accrued legal, professional and other fees related to our Chapter 11 Cases and an increase in our liability for property taxes due to the timing of payments. As of September 30, 2020, accrued interest on our long-term debt impaired by our Chapter 11 Cases was presented as LSTC on our condensed combined balance sheet. See Part I, Item 1 – Financial Statements, Note 2 Basis of Presentation for additional information about liabilities subject to compromise.

Long-term debt — The decrease in long-term debt resulted fromrelated to the reclassification of long-term debt to currentLSTC on our condensed combined balance sheet as of JuneSeptember 30, 2020. See Part I, Item 1 – Financial Statements, Note 2 Basis of Presentation for additional information.

Deferred gain and issuance costs, net — The decrease in deferred gain and issuance costs, net resulted from the reclassificationelimination of costsunamortized amounts associated with our pre-petition long-term debt as a result of Chapter 11 Cases.

Liabilities subject to currentcompromise — The increase resulted from the reclassification of our long-term debt along with related accrued interest as of Junethe petition date as liabilities subject to compromise on our condensed consolidated balance sheet as of September 30, 2020.

Mezzanine equity — The increasedecrease in mezzanine equity primarily resulted from the preferred return todeemed redemption of the Class Bequity interests in our Ares JV held by ECR for less than their carrying amount. See Part I, Item 1 – Financial Statements, Note 7 Joint Ventures and Development Joint Ventures above for additional information on the noncontrolling interest partner in ourSettlement Agreement and the Ares JV.

Equity attributable to common stock — Equity attributable to common stock decreased primarily as a result of the net loss in the sixnine months ended JuneSeptember 30, 2020.

Equity attributable to noncontrolling interests — Equity attributable to noncontrolling interests includes BSP's preferred interest in the BSP JV. The decrease primarily related to distributions to our joint venture partner.

46

Statements of Operations Analysis

Results of Oil and Gas Operations

The following representstable includes key operating data for our oil and gas operations, excluding certain corporate items,expenses, on a per Boe basis for the three and sixnine months ended JuneSeptember 30, 2020 and 2019:
Three months ended
June 30,		Six months ended
June 30,		Three months ended
September 30,		Nine months ended
September 30,
20202019202020192020201920202019
Production costsProduction costs$12.42  $19.62  $14.99  $19.54  Production costs$14.52 $18.82 $14.85 $19.32 
Production costs, excluding effects of PSC-type contracts(a)
Production costs, excluding effects of PSC-type contracts(a)
$12.00  $17.98  $14.33  $17.99  
Production costs, excluding effects of PSC-type contracts(a)
$13.37 $17.44 $14.03 $17.82 
Field general and administrative expenses(b)
Field general and administrative expenses(b)
$1.17  $1.28  $1.08  $1.27  
Field general and administrative expenses(b)
$1.34 $1.19 $1.16 $1.24 
Field depreciation, depletion and amortization(b)
Field depreciation, depletion and amortization(b)
$7.82  $9.55  $8.98  $9.47  
Field depreciation, depletion and amortization(b)
$8.03 $9.28 $8.68 $9.38 
Field taxes other than on income(b)
Field taxes other than on income(b)
$2.84  $2.39  $2.96  $2.53  
Field taxes other than on income(b)
$3.40 $2.73 $3.10 $2.60 
(a)As described in the Operations section, the reporting of our PSC-type contracts creates a difference between reported production costs, which are for the full field, and reported volumes, which are only our net share, inflating the per barrel production costs. These amounts represent our production costs after adjusting for this difference.
(b)Excludes corporate expenses.

3647

Consolidated Results of Operations

The following represents key operating data fortable presents our consolidated results of operations and key financial measures for the three and sixnine months ended JuneSeptember 30, 2020 and 2019:
Three months ended
June 30,		Six months ended
June 30,		Three months ended
September 30,		Nine months ended
September 30,
20202019202020192020201920202019
(in millions)(in millions)
Oil and natural gas salesOil and natural gas sales$245  $578  $675  $1,179  Oil and natural gas sales$312 $541 $987 $1,720 
Net derivative (loss) gain from commodity contracts(4) 21  75  (68) 
Net derivative gain (loss) from commodity contractsNet derivative gain (loss) from commodity contracts— 37 75 (31)
Marketing and trading revenueMarketing and trading revenue50 62 109 230 
Electricity salesElectricity sales43 38 75 88 
Other revenueOther revenue35  54  99  232  Other revenue4 3 12 17 
Production costsProduction costs(127) (230) (319) (463) Production costs(141)(221)(460)(684)
General and administrative expensesGeneral and administrative expenses(69) (79) (129) (162) General and administrative expenses(64)(66)(193)(228)
Depreciation, depletion and amortizationDepreciation, depletion and amortization(88) (121) (207) (239) Depreciation, depletion and amortization(89)(118)(296)(357)
Asset impairmentsAsset impairments—  —  (1,736) —  Asset impairments— — (1,736)— 
Taxes other than on incomeTaxes other than on income(38) (36) (79) (77) Taxes other than on income(42)(42)(121)(119)
Exploration expenseExploration expense(2) (10) (7) (20) Exploration expense(2)(5)(9)(25)
Marketing and trading costsMarketing and trading costs(35)(45)(67)(170)
Electricity cost of salesElectricity cost of sales(17)(18)(47)(51)
Transportation costsTransportation costs(10)(10)(31)(30)
Other expenses, netOther expenses, net(67) (55) (136) (203) Other expenses, net(22)(8)(75)(33)
Reorganization items, netReorganization items, net66 — 66 — 
Interest and debt expense, netInterest and debt expense, net(85) (98) (172) (198) Interest and debt expense, net(28)(95)(200)(293)
Net gain on early extinguishment of debtNet gain on early extinguishment of debt—  20  5  26  Net gain on early extinguishment of debt— 82 5 108 
Other non-operating expensesOther non-operating expenses(47) (3) (61) (10) Other non-operating expenses(32)(8)(93)(18)
(Loss) income before income taxes(Loss) income before income taxes(247) 41  (1,992) (3) (Loss) income before income taxes(7)127 (1,999)124 
Income taxIncome tax—  —  —  —  Income tax— — — — 
Net (loss) incomeNet (loss) income(247) 41  (1,992) (3) Net (loss) income(7)127 (1,999)124 
Net income attributable to noncontrolling interestsNet income attributable to noncontrolling interests(24) (29) (75) (52) Net income attributable to noncontrolling interests(22)(33)(97)(85)
Net (loss) income attributable to common stockNet (loss) income attributable to common stock$(271) $12  $(2,067) $(55) Net (loss) income attributable to common stock$(29)$94 $(2,096)$39 
Adjusted net (loss) income(a)
Adjusted net (loss) income(a)
$(202) $(14) $(210) $17  
Adjusted net (loss) income(a)
$(55)$17 $(265)$34 
Adjusted EBITDAX(a)
Adjusted EBITDAX(a)
$19  $255  $270  $556  
Adjusted EBITDAX(a)
$103 $278 $373 $834 
Effective tax rateEffective tax rate— %— %— %— %Effective tax rate— %— %— %— %
(a)Adjusted net (loss) income and adjusted EBITDAX are non-GAAP measures. See the Non-GAAP Financial Measures section below for reconciliations to their nearest U.S. GAAP equivalent.

Three months ended June 30, 2020 vs. 2019

Oil and natural gas sales — Oil and natural gas sales decreased 58%, or $333 million, for the three months ended June 30, 2020 compared to the same period of 2019 due to lower realized prices and production as reflected in the following table:
OilNGLsNatural GasTotal
(in millions)
Three months ended June 30, 2019$496  $39  $43  $578  
Changes in realized prices(279) (10) (13) (302) 
Changes in production(24) (3) (4) (31) 
Three months ended June 30, 2020$193  $26  $26  $245  
Note: See Production and Prices for index prices, realizations and production volumes for comparative periods.

The effect of settled hedges is not included in the table above. Net proceeds from settled hedges were $5 million for the three months ended June 30, 2020 compared to net proceeds of $14 million for the same period of 2019, which had a negative impact of $9 million on our total revenue between periods. Including the effect of settled hedges, our oil and natural gas revenue decreased by $342 million or 58% compared to the same prior-year period.

37

Net derivative (loss) gain from commodity contracts —Net derivative loss from commodity contracts was $4 million for the three months ended June 30, 2020 compared to a gain of $21 million in the same period of 2019, representing an overall change of $25 million as reflected in the following table. Non-cash changes in the fair value of our outstanding derivatives resulted from the positions held at the end of each period as well as the relationship between contract prices, volatility, time to expiration and the associated forward curves.
Three months ended
June 30,
20202019
(in millions)
Non-cash derivative (loss) gain, excluding noncontrolling interest$—  $4  
Non-cash derivative (loss) gain, noncontrolling interest(9) 3  
     Total non-cash changes(9) 7  
     Net proceeds on settled commodity derivatives5  14  
     Net derivative (loss) gain$(4) $21  

Other revenue — The decrease in other revenue of $19 million to $35 million for the three months ended June 30, 2020 compared to $54 million in the same period of 2019 was primarily due to lower natural gas trading activity.

Production costs — Production costs for the three months ended June 30, 2020 decreased $103 million to $127 million compared to $230 million for the same period of 2019, resulting in a 45% decrease. The decrease was primarily attributable to efficiencies and streamlining of our operations, along with our October 2019 workforce reduction and reduced work schedules during the months of April and May 2020. The operating costs of shut in wells, as well as lower activity levels in response to the current environment, such as downhole maintenance, also contributed to the decrease.

General and administrative expenses — Our general and administrative (G&A) expenses decreased $10 million to $69 million for the three months ended June 30, 2020 compared to $79 million for the same period of 2019, primarily due to lower cash-settled stock-based compensation expense resulting from a decline in our stock price between comparative periods. Additionally, G&A expenses were lower in 2020 as a result of cost savings attributable to our October 2019 workforce reduction and reduced work hours and reduced management salaries in response to the industry downturn and the COVID-19 pandemic in the second quarter of 2020 partially offset by additional compensation expense related to the modification of our 2020 variable compensation programs in May 2020. See Part I, Item 1 – Financial Statements, Note 15 Compensation Plans for more information.

Depreciation, depletion and amortization — The decrease in depreciation, depletion, and amortization of $33 million to $88 million in the second quarter of 2020 compared to $121 million in 2019 was predominately due to a decrease in our depletable basis as a result of our asset impairment recorded in the first quarter of 2020.

Other expenses, net — The increase in other expenses of $12 million to $67 million for the three months ended June 30, 2020 compared to $55 million for the same period of 2019 was largely the result of a one-time payment of $20 million made in April 2020 in connection with an expiring pipeline delivery contract partially offset by a decrease in natural gas trading purchases.

Interest and debt expense, net — Interest and debt expense, net decreased $13 million to $85 million in the second quarter of 2020 compared to $98 million in the same period of 2019 due to the repayment of the 2020 Senior Notes in January 2020, the 2019 repurchases of our Second Lien Notes and lower variable interest rates on our borrowings under the 2016 Credit Agreement and 2017 Credit Agreement.

Net gain on early extinguishment of debt — We did not have a net gain on early extinguishment of debt for the three months ended June 30, 2020, which is a decrease of $20 million from the same period in 2019. The decrease was due to a lack of open market purchases in the second quarter of 2020.

Other non-operating expense — Other non-operating expense increased $44 million to $47 million for the three months ended June 30, 2020 compared to $3 million in the same period for 2019. The increase was primarily a result of professional fees and costs associated with the preparation of the Chapter 11 Cases.

38

Six months ended June 30, 2020 vs 2019

Oil and natural gas sales — Oil and natural gas sales decreased 43%, or $504 million, for the six months ended June 30, 2020 compared to the same period of 2019 due to lower realized prices and production as reflected in the following table:
OilNGLsNatural GasTotal
(in millions)
Six months ended June 30, 2019$976  $98  $105  $1,179  
Changes in realized prices(371) (27) (33) (431) 
Changes in production(56) (9) (8) (73) 
Six months ended June 30, 2020$549  $62  $64  $675  
Note: See Production and Prices for index prices, realizations and production volumes for comparative periods.

The effect of settled hedges is not included in the table above. Net proceeds from settled hedges were $40 million for the six months ended June 30, 2020, excluding the effect of our derivative contracts sold prior to maturity in the first quarter of 2020, compared to net proceeds of $28 million for the same period of 2019, which had a positive impact of $12 million on our total revenue between periods. Including the effect of settled hedges and proceeds from derivative contracts sold in the first quarter of 2020, our oil and natural gas revenue decreased by $429 million or 36% compared to the same prior-year period.

Net derivative gain (loss) from commodity contracts —Net derivative gain from commodity contracts was $75 million for the six months ended June 30, 2020 compared to a loss of $68 million in the same period of 2019, representing an overall change of $143 million as reflected in the following table. Non-cash changes in the fair value of our outstanding derivatives resulted from the positions held at the end of each period as well as the relationship between contract prices, volatility, time to expiration and the associated forward curves.

Six months ended
June 30,
20202019
(in millions)
Non-cash derivative (loss) gain, excluding noncontrolling interest$(35) $(93) 
Non-cash derivative gain (loss), noncontrolling interest7  (3) 
Total non-cash changes(28) (96) 
Net proceeds on settled commodity derivatives40  28  
Net proceeds on derivative sales prior to maturity63  —  
Net derivative gain (loss)$75  $(68) 

Other revenue — The decrease in other revenue of $133 million to $99 million for the six months ended June 30, 2020 compared to $232 million in the same period of 2019 was due to lower natural gas trading activity and lower electricity sales due to a planned major maintenance at the Elk Hills power plant in 2020.

Production costs — Production costs for the six months ended June 30, 2020 decreased $144 million to $319 million compared to $463 million for the same period of 2019, resulting in a 31% decrease. The decrease was primarily attributable to efficiencies and streamlining of our operations, along with our October 2019 workforce reduction and reduced work schedules during the months of April and May 2020. The operating costs of shut in wells, as well as lower activity levels in response to the current environment, such as downhole maintenance, also contributed to the decrease.

General and administrative expenses — Our general and administrative (G&A) expenses decreased $33 million to $129 million for the six months ended June 30, 2020 compared to $162 million for the same period of 2019, primarily due to lower cash-settled stock-based compensation expense resulting from a decline in our stock price between comparative periods. Additionally, G&A expenses were lower in 2020 as a result of cost savings attributable to our October 2019 workforce reduction and reduced work hours and reduced management salaries in response to the industry downturn and the COVID-19 pandemic in the second quarter of 2020 partially offset by an increase in compensation expense due to changes to our 2020 compensation program.
39


Depreciation, depletion and amortization — The decrease in depreciation, depletion, and amortization of $32 million to $207 million in the first half of 2020 compared to $239 million in 2019 was predominately due to the asset impairment recorded in the first quarter of 2020.

Asset impairments — In the first quarter of 2020, we recorded an impairment charge of $1.7 billion, of which $1.5 billion related to certain of our proved properties and $228 million related to unproved acreage that we no longer intend to pursue. No asset impairments were recorded in the second quarter of 2020. For further detail about the asset impairment, see Part I, Item 1 – Financial Statements, Note 14 Asset Impairments.

Other expenses, net — The decrease in other expenses of $67 million to $136 million for the six months ended June 30, 2020 compared to $203 million for the same period of 2019 was largely the result of lower natural gas trading activity, partially offset by a one-time deficiency payment of $20 million made in April 2020 in connection with an expiring pipeline delivery contract.

Interest and debt expense, net — Interest and debt expense, net decreased $26 million to $172 million in the first half of 2020 compared to $198 million in the same period of 2019 due to the repayment of the 2020 Senior Notes in January 2020, reduction in the outstanding balance of the Second Lien Notes due to open market purchases and a reduction in the interest rates in our 2016 Credit Agreement and 2017 Credit Agreement.

Net gain on early extinguishment of debt — The net gain on early extinguishment of debt for the six months ended June 30, 2020 was $5 million, which is a decrease of $21 million from $26 million during the same period in 2019. The decrease was due to lower debt repurchase activity in 2020.

Other non-operating expense — Other non-operating expense increased $51 million to $61 million for the six months ended June 30, 2020 compared to $10 million in the same period for 2019. The increase was primarily a result of professional fees and costs associated with the preparation of the Chapter 11 Cases.

Stock-Based Compensation

Our consolidated results of operations for the three and sixnine months ended JuneSeptember 30, 2020 and 2019 include the effects of long-term stock-based compensation plans under which awards are granted annually to executives, non-executive employees and non-employee directors that are either settled with shares of our common stock or cash. Our pre-emergence equity-settled awards granted to executives includeincluded stock options, restricted stock units and performance stock units that either cliff vestvested at the end of a three-year period or vestvested ratably over a three-year period, some of which are partially settled in cash. Our pre-emergence equity-settled awards granted to non-employee directors areincluded stock grants that vestvested immediately or restricted stock units that cliff vestvested after one year. Our cash-settled awards granted to non-executive employees vestvested ratably over a three-year period. Unvested awards granted to employees and non-employee directors were cancelled at the Effective Date pursuant to the Plan.

48

Changes in our stock price introduce volatility in our results of operations because we pay cash-settled awards based on our stock price on the vesting date and accounting rules require that we adjust our obligation for unvested awards to the amount that would be paid using our stock price at the end of each reporting period. Cash-settled awards, including executive awards partially settled in cash, accountaccounted for approximately 40% of our total outstanding awards.awards at September 30, 2020. Our obligations for equity-settled awards are not similarly adjusted for changes in our stock price.

Three months ended September 30, 2020 vs. 2019

Oil and natural gas sales — Oil and natural gas sales decreased 42%, or $229 million, for the three months ended September 30, 2020 compared to the same period of 2019 due to lower realized prices and production as reflected in the following table:
OilNGLsNatural GasTotal
(in millions)
Three months ended September 30, 2019$457 $34 $50 $541 
Changes in realized prices(153)2 (12)(163)
Changes in production(58)(4)(4)(66)
Three months ended September 30, 2020$246 $32 $34 $312 
Note: See Production and Prices for index prices, realizations and production volumes for comparative periods.

The effect of settled hedges is not included in the table above. Net proceeds from settled hedges were $2 million for the three months ended September 30, 2020 compared to net proceeds of $40 million for the same period of 2019. Including the effect of settled hedges, our oil and natural gas revenue decreased by $424 million or 51% compared to the same prior-year period.

Net derivative gain (loss) from commodity contracts — We did not have a net derivative gain or loss from commodity contracts for the three months ended September 30, 2020 compared to a gain of $37 million in the same period of 2019. Non-cash changes in the fair value of our outstanding derivatives resulted from the positions held at the end of each period as well as the relationship between contract prices, volatility, time to expiration and the associated forward curves.
Three months ended
September 30,
20202019
(in millions)
Non-cash derivative gain (loss), excluding noncontrolling interest$4 $(6)
Non-cash derivative (loss) gain, noncontrolling interest(6)3 
     Total non-cash changes(2)(3)
     Net proceeds on settled commodity derivatives2 40 
     Net derivative gain from commodity contracts$— $37 

40
49

Stock-basedProduction costs — Production costs for the three months ended September 30, 2020 decreased $80 million to $141 million compared to $221 million for the same period of 2019, resulting in a 36% decrease. Excluding employee incentive compensation, is includedour production costs decreased $83 million to $134 million for the three months ended September 30, 2020 from $217 million during the same prior-year period. The decrease was primarily attributable to efficiencies and streamlining of our operations along with workforce reductions. Also contributing to the decrease were lower operating costs due to shut-in wells, as well as reduced activity levels, such as downhole maintenance, in bothresponse to the current economic environment.

Three months ended
September 30,
20202019
(in millions)
Production costs$141 $221 
Exclude: Stock-based compensation— 1 
Exclude: Other employee incentive awards(7)(5)
Production costs, excluding employee incentive compensation$134 $217 

General and administrative expenses — Our general and administrative (G&A) expenseexpenses were $64 million for the three months ended September 30, 2020 compared to $66 million for the three months ended September 30, 2019. Excluding employee incentive compensation and production costsseverance, our G&A expenses decreased $11 million to $44 million for the three months ended September 30, 2020 from $55 million for the same prior-year period. The decrease in G&A expenses, excluding employee incentive compensation and severance, resulted from our ongoing cost saving efforts, our August 2020 workforce reduction and a decline in spending across a number of cost categories. These savings were partially offset by obtaining additional insurance as shown in the table below:
Three months ended
June 30,		Six months ended
June 30,
20202019Variance20202019Variance
(in millions, except per Boe amounts)
G&A expense
Cash-settled awards$—  $3  $(3) $(2) $13  $(15) 
Equity-settled awards1  4  (3) 4  7  (3) 
   Total in G&A$1  $7  $(6) $2  $20  $(18) 
   Total in G&A per Boe$0.10  $0.60  $(0.50) $0.10  $0.84  $(0.74) 
Production costs
Cash-settled awards$—  $1  $(1) $(1) $4  $(5) 
Equity-settled awards—  1  (1) —  2  (2) 
 Total in production costs$—  $2  $(2) $(1) $6  $(7) 
   Total in production costs per Boe$—  $0.17  $(0.17) $(0.05) $0.25  $(0.30) 
Total stock-based compensation expense$1  $9  $(8) $1  $26  $(25) 
Total stock-based compensation expense per Boe$0.10  $0.77  $(0.67) $0.05  $1.09  $(1.04) 

a result of our Chapter 11 Cases.
Changes to the 2020 Compensation Program

In connectionThe $10 million increase in other employee incentive awards for the three months ended September 30, 2020 from the same period in 2019 was primarily the result of changes to the variable portion of our incentive compensation program in May 2020, which was approved by the Bankruptcy Court, and a higher payout approved on pre-established performance metrics. For additional information on the variable compensation program, see Part I, Item 1 – Financial Statements, Note 1 Chapter 11 Proceedings and General above.

Three months ended
September 30,
20202019
(in millions)
G&A expenses$64 $66 
Exclude: Stock-based compensation(1)(1)
Exclude: Other employee incentive awards(19)(9)
Exclude: Severance— (1)
G&A expenses, excluding employee incentive compensation and severance$44 $55 

Depreciation, depletion and amortization — The decrease in depreciation, depletion, and amortization of $29 million to $89 million in the third quarter of 2020 compared to $118 million in 2019 was predominately due to a decrease in our depletable basis as a result of our asset impairment recorded in March 2020. For further detail about our asset impairment, see Part I, Item 1 – Financial Statements, Note 15 Asset Impairments.

Reorganization items, net — We recognized a $66 million net gain in the third quarter of 2020 primarily due to the write-off of the unamortized balance of our deferred gain, original issue discounts and deferred issuance costs on our long-term debt partially offset by increased legal, professional and other fees, including debtor-in-possession financing costs, all of which related to our bankruptcy proceedings. See Part I, Item 1 – Financial Statements, Note 2 Basis of Presentation for additional information about reorganization items, net.
50


Interest and debt expense, net — Interest and debt expense, net decreased $67 million to $28 million in the third quarter of 2020 compared to $95 million in the same period of 2019 primarily due to suspending the accrual of interest on our pre-petition long-term debt obligations as of the petition date, a lower overall debt balance primarily resulting from repayment of our 2020 Senior Notes in January 2020 and repurchases of our Second Lien Notes in 2019, and lower variable interest rates on borrowings under our 2016 Credit Agreement and 2017 Credit Agreement. The decrease was partially offset by interest on our debtor-in-possession financing. See Part I, Item 1 – Financial Statements, Note 6 Debt for additional information on our debtor-in-possession financing.

Net gain on early extinguishment of debt — We did not repurchase any debt during the three months ended September 30, 2020, compared to recognizing a debt extinguishment gain of $82 million in the same period of 2019 related to repurchases of our Second Lien Notes.

Other non-operating expense — Other non-operating expense increased $24 million to $32 million for the three months ended September 30, 2020 compared to $8 million in the same period for 2019. The increase was primarily a result of legal, professional and other fees associated with the unprecedented circumstances affectingpreparation of the industry and market volatility resultingChapter 11 Cases, incurred prior to our petition date, as well as a one-time severance charge related to our August 2020 workforce reduction.

Net income attributable to noncontrolling interests — The decrease of $11 million in net income attributable to noncontrolling interests to $22 million for the quarter ended September 30, 2020 from $33 million for the same period in 2019 was primarily related to lower revenue from the recent industry downturn, we reviewed our incentive programsnet profits interest held by the BSP JV and changes in derivative gain (loss) due to a decline in commodity prices between periods. See Part I, Item 1 – Financial Statements, Note 7 Joint Ventures for additional information.

Nine months ended September 30, 2020 vs 2019

Oil and natural gas sales — Oil and natural gas sales decreased 43%, or $733 million, for the entire workforcenine months ended September 30, 2020 compared to determine whether those programs appropriately align compensation opportunities with ourthe same period of 2019 due to lower realized prices and production as reflected in the following table:
OilNGLsNatural GasTotal
(in millions)
Nine months ended September 30, 2019$1,433 $132 $155 $1,720 
Changes in realized prices(525)(24)(43)(592)
Changes in production(113)(14)(14)(141)
Nine months ended September 30, 2020$795 $94 $98 $987 
Note: See Production and Prices for index prices, realizations and production volumes for comparative periods.

The effect of settled hedges is not included in the table above. Net proceeds from settled hedges were $42 million for the nine months ended September 30, 2020, goals and ensureexcluding the stabilityeffect of our workforce. Following this review, effective May 19,derivative contracts sold prior to maturity in the first quarter of 2020, compared to net proceeds of $68 million for the same period of 2019, which had a negative impact of $26 million on our total revenue between periods. Including the effect of settled hedges and proceeds from derivative contracts sold in the first quarter of 2020, our Boardoil and natural gas revenue decreased by $696 million or 39% compared to the same prior-year period.

51

Net derivative gain (loss) from commodity contracts —Net derivative gain from commodity contracts was $75 million for the nine months ended September 30, 2020 compared to a loss of Directors approved$31 million in the same period of 2019, representing an overall change of $106 million as reflected in the following table. Non-cash changes in the variable compensation programs for all participating employees. The previously established target amountsfair value of 2020 variable compensation programs did not change; however, all amounts that vest will be settled in cashour outstanding derivatives resulted from the positions held at the end of each period as well as the relationship between contract prices, volatility, time to expiration and the replacementassociated forward curves.

Nine months ended
September 30,
20202019
(in millions)
Non-cash derivative loss, excluding noncontrolling interest$(31)$(99)
Non-cash derivative gain, noncontrolling interest1 — 
Total non-cash changes(30)(99)
Net proceeds on settled commodity derivatives42 68 
Net proceeds on derivative sales prior to maturity63 — 
Net derivative gain (loss)$75 $(31)

Marketing and tradingrevenue — The decrease in marketing and trading revenue of $121 million to $109 million for the nine months ended September 30, 2020 compared to $230 million in the same period of 2019 was due to lower volumes related to our natural gas trading activities.

Production costs — Production costs for the nine months ended September 30, 2020 decreased $224 million to $460 million compared to $684 million for the same period of 2019, resulting in a 33% decrease. Excluding employee incentive compensation, our production costs decreased $216 million to $443 million for the nine months ended September 30, 2020 from $659 million during the same prior-year period. The decrease was primarily attributable to efficiencies and streamlining of our operations, along with our workforce reductions and reduced work schedules during the months of April and May 2020. The operating costs of shut-in wells, as well as lower activity levels in response to the current environment, such as downhole maintenance, also contributed to the decrease.

Nine months ended
September 30,
20202019
(in millions)
Production costs$460 $684 
Exclude: Stock-based compensation— (7)
Exclude: Other employee incentive awards(17)(18)
Production costs, excluding employee incentive compensation$443 $659 
52


General and administrative expenses — Our G&A expenses were $193 million for the nine months ended September 30, 2020 and decreased $35 million from $228 million for the nine months ended September 30, 2019. Excluding employee incentive compensation and severance, our G&A expenses decreased $27 million to $148 million for the nine months ended September 30, 2020 from $175 million for the same prior-year period. The decrease in G&A expenses, excluding employee incentive compensation, resulted from cost saving efforts, workforce reductions, reduced work hours in April and May 2020 and a decline in spending across a number of cost categories. These savings were partially offset by the cost of obtaining additional insurance due to our Chapter 11 Cases and lower cost capitalization as a result of temporarily suspending our capital program.

The $12 million increase in other employee incentive awards are no longer stock-based compensation. As a condition to receiving any award, participants waived participationfor the nine months ended September 30, 2020 from the same period in our 2020 annual incentive program and forfeited all stock-based compensation awards previously granted in 2020. There were no2019 was primarily the result of changes to stock-based compensation awards granted prior to February 2020. Changes to the variable portion of our incentive compensation programs will haveprogram in May 2020, which was approved by the effect of accelerating the associated payments into 2020 from future periods. However, the total amount of compensation to be paid underBankruptcy Court, and a higher payout approved on pre-established performance metrics. For additional information on the variable compensation programs at target for 2020 remains largely the same as the amounts that would have been paid at target prior to the changes. Our second quarter 2020 results included an additional $4 million expense related to modifying our 2020 compensation program. Seeprogram, see Non-GAAPPart I, Item 1 – Financial MeasuresStatements, Note 1 Chapter 11 Proceedings below for a reconciliation of G&A to adjusted G&A.and General above.

Nine months ended
September 30,
20202019
(in millions)
G&A expenses$193 $228 
Exclude: Stock-based compensation(3)(21)
Exclude: Other employee incentive awards(42)(30)
Exclude: Severance— (2)
G&A expenses, excluding employee incentive compensation and severance$148 $175 

Depreciation, depletion and amortization — The decrease in depreciation, depletion, and amortization of $61 million to $296 million for the nine months ended September 30, 2020 from to $357 million for the same period in 2019 was predominately due to a decrease in our depletable basis as a result of our asset impairment recorded in the first quarter of 2020.

Asset impairments — In the first quarter of 2020, we recorded an impairment charge of $1.7 billion, of which $1.5 billion related to certain of our proved properties and approximately $228 million related to unproved acreage that we no longer intend to pursue. No asset impairments were recorded in the second or third quarters of 2020. For further detail about our first quarter 2020 asset impairment, see Part I, Item 1 – Financial Statements, Note 15 Asset Impairments.

Marketing and trading costs — Marketing and trading costs decreased $103 million to $67 million for the nine months ended September 30, 2020 compared to $170 million in the same prior-year period. The decrease was predominantly the result of lower volume related to our natural gas trading activities.

Other expenses, net — The increase in other expenses of $42 million to $75 million for the nine months ended September 30, 2020 compared to $33 million for the same period of 2019 was largely the result of a one-time deficiency payment of $20 million made in April 2020 in connection with an expiring pipeline delivery contract and a scheduled plant turnaround at the Elk Hills power plant in the first quarter of 2020.

53

Reorganization items, net — We recognized a $66 million net gain in the third quarter of 2020 primarily due to the write-off of the unamortized balance of deferred gain, original issue discounts and deferred issuance costs on our long-term debt partially offset by increased legal, professional and other fees, including debtor-in-possession financing costs, all of which related to our bankruptcy proceedings. See Part I, Item 1 – Financial Statements, Note 2 Basis of Presentation for additional information about reorganization items, net.

Interest and debt expense, net — Interest and debt expense, net decreased $93 million to $200 million in the nine months ended September 30, 2020 compared to $293 million in the same period of 2019 primarily due to suspending the accrual of interest on our pre-petition long-term debt obligations as of July 15, 2020, a lower overall debt balance primarily resulting from repayment of our 2020 Senior Notes in January 2020 and repurchases of our Second Lien Notes in 2019, and lower variable interest rates on borrowings under our 2016 Credit Agreement and 2017 Credit Agreement. This decrease was partially offset by interest on our debtor-in-possession financing. See Part I, Item 1 – Financial Statements, Note 6 Debt for additional information on our debtor-in-possession financing.

Net gain on early extinguishment of debt — The net gain on early extinguishment of debt for the nine months ended September 30, 2020 was $5 million, which is a decrease of $103 million from $108 million during the same period in 2019. The decrease was due to lower debt repurchase activity in 2020.

Other non-operating expense — Other non-operating expense increased $75 million to $93 million for the nine months ended September 30, 2020 compared to $18 million in the same period of 2019. The increase was primarily a result of legal, professional and other fees associated with the preparation of the Chapter 11 Cases, incurred prior to our petition date, as well as a one-time severance charge related to our August 2020 workforce reduction.

Net income attributable to noncontrolling interests — The increase of $12 million in net income attributable to noncontrolling interests to $97 million for the nine months ended September 30, 2020 from $85 million for the same period in 2019 was primarily a result of limitations on the amount of losses allocable to ECR's Class C member interest in 2020. See Part I, Item 1 – Financial Statements, Note 7 Joint Ventures for additional information on the Ares JV.

54

Non-GAAP Financial Measures

Adjusted net (loss) income — Our results of operations, which are presented in accordance with U.S. generally accepted accounting principles (GAAP),GAAP, can include the effects of unusual, out-of-period and infrequent transactions and events affecting earnings that vary widely and unpredictably (in particular certain non-cash items such as derivative gains and losses) in nature, timing, amount and frequency. Therefore, management uses a measure called adjusted net income (loss) that excludes those items. This measure is not meant to disassociate these items from management's performance but rather is meant to provide useful information to investors interested in comparing our performance between periods. Reported earnings are considered representative of management's performance over the long term. Adjusted net income (loss) is not considered to be an alternative to net income (loss) reported in accordance with GAAP.

41

The following table presents a reconciliation of the GAAP financial measure of net (loss) income to the non-GAAP financial measure of adjusted net (loss) income and presents the GAAP financial measure of net (loss) income attributable to common stock per diluted share and the non-GAAP financial measure of adjusted net (loss) income per diluted share:
Three months ended
June 30,		Six months ended
June 30,		Three months ended
September 30,		Nine months ended
September 30,
20202019202020192020201920202019
(in millions, except share data)(in millions, except share data)
Net (loss) incomeNet (loss) income$(247) $41  $(1,992) $(3) Net (loss) income$(7)$127 $(1,999)$124 
Net income attributable to noncontrolling interestsNet income attributable to noncontrolling interests(24) (29) (75) (52) Net income attributable to noncontrolling interests(22)(33)(97)(85)
Net (loss) income attributable to common stockNet (loss) income attributable to common stock(271) 12  (2,067) (55) Net (loss) income attributable to common stock(29)94 (2,096)39 
Unusual, infrequent and other items:Unusual, infrequent and other items:Unusual, infrequent and other items:
Asset impairmentAsset impairment—  —  1,736—  Asset impairment— — 1,736— 
Non-cash derivative (loss) gain from commodities, excluding noncontrolling interestNon-cash derivative (loss) gain from commodities, excluding noncontrolling interest—  (4) 35  93  Non-cash derivative (loss) gain from commodities, excluding noncontrolling interest(4)6 31 99 
Severance costs—  2  —  2  
Reorganization items, net:Reorganization items, net:(66)— (66)— 
Unamortized deferred gainUnamortized deferred gain(171)— (171)— 
Unamortized deferred issuance costs and original issue discountsUnamortized deferred issuance costs and original issue discounts46 — 46 — 
Legal, professional and other items during bankruptcy, netLegal, professional and other items during bankruptcy, net34 — 34 — 
Debtor-in-possession financing costsDebtor-in-possession financing costs25 — 25 — 
Severance and termination benefitsSeverance and termination benefits10 — 10 2 
Incentive and retention award modificationIncentive and retention award modification4  —  4  —  Incentive and retention award modification— — 4 — 
Net gain on early extinguishment of debtNet gain on early extinguishment of debt—  (20) (5) (26) Net gain on early extinguishment of debt— (82)(5)(108)
Professional fees and costs related to our Chapter 11 Cases42  —  49  —  
Legal, professional and other fees pre-bankruptcyLegal, professional and other fees pre-bankruptcy15 — 64 — 
Deficiency payment on a pipeline delivery contractDeficiency payment on a pipeline delivery contract20  —  20  —  Deficiency payment on a pipeline delivery contract— — 20 — 
Planned power plant maintenancePlanned power plant maintenance— — 7 — 
Write-off of deferred financing costsWrite-off of deferred financing costs4 — 4 — 
Other, netOther, net3  (4) 18  3  Other, net15 (1)26 2 
Total unusual, infrequent and other itemsTotal unusual, infrequent and other items69  (26) 1,857  72  Total unusual, infrequent and other items(26)(77)1,831 (5)
Adjusted net (loss) incomeAdjusted net (loss) income$(202) $(14) $(210) $17  Adjusted net (loss) income$(55)$17 $(265)$34 
Net (loss) income attributable to common stock per diluted share$(5.47) $0.24  $(41.84) $(1.13) 
Adjusted net (loss) income per diluted share$(4.08) $(0.29) $(4.25) $0.35  
Net income (loss) attributable to common stock per diluted share(a)
Net income (loss) attributable to common stock per diluted share(a)
2.20 1.89 (39.64)0.77 
Adjusted net income (loss) per diluted share(a)
Adjusted net income (loss) per diluted share(a)
1.68 0.35 (2.57)0.69 
(a) Net income (loss) and adjusted net income (loss) per diluted share for the three and nine months ended September 30, 2020 include a $138 million gain related to the deemed redemption of the noncontrolling interest in the Ares JV. See Part I, Item 1 – Financial Statements, Note 7 Joint Ventures for additional information about our Settlement Agreement and the Ares JV.

55

Adjusted EBITDAX — We define adjusted EBITDAX as earnings before interest expense; income taxes; depreciation, depletion and amortization; exploration expense; other unusual, out-of-period and infrequent items; and other non-cash items. We believe this measure provides useful information in assessing our financial condition, results of operations and cash flows and is widely used by the industry, the investment community and our lenders. Although this is a non-GAAP measure, the amounts included in the calculation were computed in accordance with GAAP. Certain items excluded from this non-GAAP measure are significant components in understanding and assessing our financial performance, such as our cost of capital and tax structure, as well as the historic cost of depreciable and depletable assets. This measure should be read in conjunction with the information contained in our financial statements prepared in accordance with GAAP. A version of adjusted EBITDAX is a material component of certain of our financial covenants under our 2014 Revolving Credit Facility and is provided in addition to, and not as an alternative for, income and liquidity measures calculated in accordance with GAAP.

The following table presents a reconciliation of the GAAP financial measure of net (loss) income to the non-GAAP financial measure of adjusted EBITDAX:
Three months ended
June 30,		Six months ended
June 30,		Three months ended
September 30,		Nine months ended
September 30,
20202019202020192020201920202019
(in millions)(in millions)
Net (loss) incomeNet (loss) income$(247) $41  $(1,992) $(3) Net (loss) income$(7)$127 $(1,999)$124 
Interest and debt expense, netInterest and debt expense, net85  98  172  198  Interest and debt expense, net28 95 200 293 
Depreciation, depletion and amortizationDepreciation, depletion and amortization88  121  207  239  Depreciation, depletion and amortization89 118 296 357 
Exploration expenseExploration expense2  10  7  20  Exploration expense2 5 9 25 
Unusual, infrequent and other itemsUnusual, infrequent and other items69  (26) 1,857  72  Unusual, infrequent and other items(26)(77)1,831 (5)
Other non-cash itemsOther non-cash items22  11  19  30  Other non-cash items17 10 36 40 
Adjusted EBITDAXAdjusted EBITDAX$19  $255  $270  $556  Adjusted EBITDAX$103 $278 $373 $834 

42

The following table sets forth a reconciliation of the GAAP measure of net cash provided by operating activities to the non-GAAP financial measure of adjusted EBITDAX:
Six months ended
June 30,		Nine months ended
September 30,
2020201920202019
(in millions)(in millions)
Net cash provided by operating activitiesNet cash provided by operating activities$93  $272  Net cash provided by operating activities$141 $540 
Cash interestCash interest59  225  Cash interest80 300 
Exploration expendituresExploration expenditures7  10  Exploration expenditures9 15 
Working capital changes111  49  
Working capital changes, excluding accrued interestWorking capital changes, excluding accrued interest143 (21)
Adjusted EBITDAXAdjusted EBITDAX$270  $556  Adjusted EBITDAX$373 $834 

Adjusted G&A — Management uses a measure called adjusted general and administrative (adjusted G&A) expense to provide useful information to investors interested in comparing our costs between periods and performance to our peers. We define adjusted G&A expenses as general and administrative expenses excluding severance and other non-recurring costs.

The following table presents the reconciliation of our consolidated general and administrative expenses to the non-GAAP measure of adjusted G&A:
Three months ended June 30,Six months ended
June 30,		Three months ended September 30,Nine months ended
September 30,
20202019202020192020201920202019
(in millions)(in millions)(in millions)(in millions)
General and administrative expensesGeneral and administrative expenses$69  $79  $129  $162  General and administrative expenses$64 $66 $193 $228 
Incentive and retention award modificationIncentive and retention award modification(4) —  (4) —  Incentive and retention award modification— — (4)— 
Severance costsSeverance costs—  (1) —  (1) Severance costs— (1)— (2)
Office consolidation—  (1) —  (1) 
Adjusted G&AAdjusted G&A$65  $77  $125  $160  Adjusted G&A$64 $65 $189 $226 


56

Liquidity and Capital Resources
 
Cash Flow Analysis – Pre-Emergence
Six months ended
June 30,		Nine months ended
September 30,
2020201920202019
(in millions)(in millions)
Cash flow from operating activitiesCash flow from operating activities$93  $272  Cash flow from operating activities$141 $540 
Cash flow from investing activities:Cash flow from investing activities:Cash flow from investing activities:
Capital investmentsCapital investments$(33) $(271) Capital investments$(37)$(393)
Changes in capital investment accruals$(28) $(57) 
Decreases in accrued capital investmentsDecreases in accrued capital investments$(25)$(49)
Acquisitions, divestitures and otherAcquisitions, divestitures and other$34  $158  Acquisitions, divestitures and other$34 $151 
Cash flow from financing activities:Cash flow from financing activities:Cash flow from financing activities:
Net debt transactions Net debt transactions$110  $(74)  Net debt transactions$87 $(178)
Net distributions to noncontrolling interest holders Net distributions to noncontrolling interest holders$(66) $(16)  Net distributions to noncontrolling interest holders$(94)$(66)
Issuance of common stock and other Issuance of common stock and other$(1) $(2)  Issuance of common stock and other$(1)$— 

43

Cash flows from operating activities — Our net cash provided by operating activities is sensitive to many variables, including changes in commodity prices. Commodity price movements may also lead to changes in other variables in our business, including adjustments to our capital program. Our operating cash flow decreased 66%74%, or $179$399 million, to $93$141 million for the sixnine months ended JuneSeptember 30, 2020 from $272$540 million in the same period of 2019. ChangesThe decrease in operating cash flow primarily reflected the significant drop in oil prices between periods. The decrease was partially offset by a positive $153 million change in operating assets and liabilities, net in the sixnine months ended JuneSeptember 30, 2020 increased our operating cash flow by $130 million compared to a reductionan increase of $52$55 million in the comparable sixnine months of 2019. This positive change primarilyThe changes in operating assets and liabilities resulted from a decrease in accounts receivable due to lower commodity prices between periods and an increase in accrued liabilities related to our legal and professional fees, partially offset by lower trade payables as a resultdecrease related to suspending the accrual of interest on our reduced capital plan and cost saving initiatives. Operating cash flow in the first six months of 2020 also reflected the positive contribution of the $63 million of proceeds from the early settlement of derivative contracts.long-term debt.

Cash flows from investing activities — Our net cash used in investing activities of $27$28 million for the sixnine months ended JuneSeptember 30, 2020 primarily reflected $33$37 million of capital investments (excluding $28a $25 million decrease in capital-related accrual changes). Investing activities also included proceeds of $41 million related to a sale of royalty interests and a non-core asset in the first half ofnine months ended September 30, 2020. For the sixnine months ended JuneSeptember 30, 2019, our net cash used in investing activities of $170$291 million primarily included approximately $271$393 million of capital investments (excluding $57a $49 million decrease in capital-related accrual changes), of which $43$48 million was funded by BSP, partially offset by $165$164 million of proceeds related to our Lost Hills sale.

Cash flows from financing activities — Our net cash provided byused in financing activities of $43$8 million for the sixnine months ended JuneSeptember 30, 2020 primarily included $213$518 million in net proceedsrepayments on our 2014 Revolving Credit Facility partially offset byand net $733 million of proceeds from our debtor-in-possession financing. Financing activities also included $100 million for the repayment of the 2020 Senior Notes at maturity, $68$94 million of distributions to our noncontrolling interest holders, $25 million for our debtor-in-possession financing costs and $3 million for debt repurchases of our Second Lien Notes. We also had an additional $2 million in contributions from a noncontrolling interest holder. For the sixnine months ended JuneSeptember 30, 2019, our net cash used in financing activities of $92$244 million was primarily comprised of $59$149 million used for debt repurchases of our Senior Notes, $65$115 million of distributions paid to our non-controllingnoncontrolling interest holders, and $15$27 million of net repayments on our 2014 Revolving Credit Facility partially offset by $49 million in a net contribution from a noncontrolling interest holder.

57

Liquidity

During the pendency of the Chapter 11 Cases, our primary sources of liquidity were limited to cash flow from operations, cash on hand and available borrowing capacity under our Senior DIP Facility. After our emergence from Chapter 11, and repayment of the balances outstanding under our debtor-in-possession credit agreements, our primary sources of liquidity are comprised of cash flow from operations and availability under our new Revolving Credit Facility. We also may rely on other sources, such as non-core asset sales, to supplement our cash flow and fund other corporate purposes. We believe we have sufficient sources of cash to meet our obligations for the next twelve months.

Under our Revolving Credit Facility and Second Lien Term Loan, we will be subject to liquidity requirements under certain conditions. See Part I, Item 1 – Financial Statements, Note 6 Debt for additional information on the liquidity requirements under our credit agreements. As of the Effective Date (October 27, 2020), our liquidity was $350 million, which includes $72 million of unrestricted cash and approximately $278 million of availability on our Revolving Credit Facility.

Working Capital

Our spin–off from Occidental on November 30, 2014 burdened us with significantworking capital requirements are primarily driven by the level of activity in our business, commodity prices and debt which was used to pay a $6.0 billion cash dividend to Occidental. Together with the activity levelservice requirements.

Debt and payables that we assumed from Occidental and due to Occidental's retention of the vast majority of our receivables, our debt peaked at approximately $6.8 billion in May 2015. Since then, we have engaged in a series of assets sales, joint ventures, debt exchanges, tenders and repurchases and other financing transactions to reduce our overall debt and improve our balance sheet. As of June 30, 2020, we had reduced our outstanding debt to approximately $5.1 billion, a substantial portion of which would have matured in 2021.Post-Emergence Capitalization

The commencement of theour Chapter 11 Cases constituted an immediate event of default that automatically accelerated our obligations under the 2014 Revolving Credit Facility and our other debt agreements.long-term obligations. Any efforts to enforce payment obligations related to the acceleration of our obligations under theseour debt agreements were automatically stayed immediately upon filing the Chapter 11 Cases, and the creditors’ rights of enforcement are subject to the applicable provisions of the Bankruptcy Code.

As of JuneSeptember 30, 2020, we had available cashthe outstanding principal of $105our long-term debt was $5.1 billion, of which $4.4 billion related to obligations that existed prior to our bankruptcy filing and approximately$700 million related to debtor-in-possession financing. Our outstanding pre-petition debt was presented as liabilities subject to compromise and no ability to borrow under our 2014debtor-in-possession financing was presented in total current liabilities on our condensed consolidated balance sheet as of September 30, 2020.

In accordance with the Plan, confirmed by the Bankruptcy Court, significant transactions affecting our liquidity upon emergence from Chapter 11 included the following:

•Approximately $4.4 billion of pre-petition debt was exchanged for new common stock and Warrants;
•We borrowed $225 million on our Revolving Credit Facility, duea portion of which was used to repay our Senior DIP Facility;
•Repaid our Junior DIP Facility with $450 million of proceeds from new equity issued under our Subscription Rights offering and $200 million of proceeds from our Second Lien Term Loan;
•Acquired all of the missedmember interest paymentsin the Ares JV held by ECR in exchange for the EHP Notes, Ares Settlement Stock and forbearance described below. As of June 30, 2020 and December 31, 2019, we had$2.5 million in cash;
•Cash collateralized, on an interim basis, certain letters of credit outstandingfor $118 million; and
•Funded $18 million into a restricted account for payment of $152certain legal, professional and other fees associated with our restructuring.

Following the Effective Date, cash interest will approximate $50 million per year. Distributions to noncontrolling interest holders will approximate $18 million per year, which is our required minimum distribution to BSP.
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The following table presents our pro forma capitalization after giving effect to certain transactions in the Plan, assuming our Effective Date was on September 30, 2020(a):

Actual
September 30, 2020
Reorganization AdjustmentsPro Forma
($ in millions)
Senior DIP Facility$83 $(83)$— 
Junior DIP Facility650 (650)— 
Total short-term borrowings733 (733)— 
Revolving Credit Facility— 225225 
Second Lien Term Loan— 200200 
EHP Notes— 300 300 
2017 Credit Agreement1,300 (1,300)— 
2016 Credit Agreement1,000 (1,000)— 
Second Lien Notes1,808 (1,808)— 
5% Senior Notes due 2020— — — 
5.5% Senior Notes due 2021100 (100)— 
6% Senior Notes due 2024144 (144)— 
Total long-term debt(b)
4,352 (3,627)725 
Mezzanine Equity
Redeemable noncontrolling interests(c)
692 $(692)— 
Equity(2,273)$5,052 2,779 
Total Capitalization$3,504 $— $3,504 
(a)The above pro forma adjustments do not reflect all of the adjustments that would be required to present pro forma financial statements in accordance with Article 11 of Regulation S-X. For example, the effects of fresh start accounting have not been included.
(b)On the Effective Date, we had unrestricted cash of $72 million and $165an additional $118 million respectively. Theseof cash temporarily used to collateralize letters of credit were issued to support ordinary course marketing, insurance, regulatorycredit.
(c)See Part I, Item 1 – Financial Statements, Note 7 Joint Ventures for more information about our Settlement Agreement and other matters.the Ares JV.

For more information on our debt, see Part I, Item 1 – Financial Statements, Note 56 Debt and for more information on the Chapter 11 Cases,our confirmed Plan, see Part I, Item 1 – Financial Statements, Note 1 Basis of Presentation.

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Debtor-in-Possession Credit Agreements

On July 23, 2020, we entered into the Senior DIP Credit Agreement which provides for a Senior DIP Facility in an aggregate principal amount of up to approximately $483 million. The Senior DIP Facility includes a $250 million revolving facility which will be primarily used by us to (i) fund working capital needs and capital expenditures and additional letters of credit during the pendency of the Chapter 11 Cases and (ii) pay certain costs, fees and expenses related to the Chapter 11 Cases and the Senior DIP Facility. Until the Bankruptcy Court enters a final order with respect to our DIP credit agreements, only $85 million of revolving borrowings are available. If the Bankruptcy Court enters a final order approving the Senior DIP Facility in its current form following a hearing on August 14, 2020, we expect the full remaining amount of the $250 million revolving facility to become available.Proceedings.The Senior DIP Facility also includes (a) a $150 million letter of credit facility which was used to deem letters of credit outstanding under the 2014 Revolving Credit Facility as issued under the Senior DIP Facility, and (b) $83 million of term loans borrowings which were used to repay a portion of the 2014 Revolving Credit Facility.

On July 23, 2020, we also entered into a Junior DIP Credit Agreement which provides for a Junior DIP Facility in an aggregate principal amount of $650 million. The proceeds of the Junior DIP Facility were used to (i) refinance in full all remaining obligations under the 2014 Revolving Credit Facility and (ii) pay certain costs, fees and expenses related to the Chapter 11 Cases and the Junior DIP Facility.

The Senior DIP Credit Agreement and Junior DIP Credit Agreement include conditions precedent, representations and warranties, affirmative and negative covenants and events of default customary for financings of their type and size. The Senior DIP Facility and the Junior DIP Facility both mature on January 15, 2021. See Part I, Item 1 – Financial Statements,Note 5 Debt for additional details about our DIP credit agreements.

Missed Interest Payments and Forbearance

On May 15, 2020, we did not make an interest payment of approximately $4 million on our 2024 Notes. The indenture governing our 2024 Notes provides for a 30-day grace period and the payment was subsequently made on June 12, 2020.

On May 29, 2020, we did not pay approximately $51 million in the aggregate interest due under the 2017 Credit Agreement and the 2016 Credit Agreement. Our failure to make those interest payments constituted events of default under the 2017 Credit Agreement, 2016 Credit Agreement and, as a result of cross default, under the 2014 Revolving Credit Facility.

On June 2, 2020, we entered into Forbearance Agreements with (i) certain lenders of a majority of the outstanding principal amount of the loans under the 2014 Revolving Credit Facility, (ii) certain lenders of a majority of the outstanding principal amount of the loans under the 2016 Credit Agreement, and (iii) certain lenders of a majority of the outstanding principal amount of the loans under the 2017 Credit Agreement. Pursuant to the Forbearance Agreements, the lenders who are parties to the Forbearance Agreements agreed to forbear from exercising any remedies under the 2014 Revolving Credit Facility, 2016 Credit Agreement and 2017 Credit Agreement with respect to our failure to make the aforementioned interest payments, initially through June 14, 2020 and subsequently through July 15, 2020.

On June 15, 2020, we did not make an interest payment of approximately $72 million on our Second Lien Notes. The indenture governing the Second Lien Notes provides for a 30-day grace period, which expired on July 15, 2020.

Derivatives

Significant changes in oil and natural gas prices may have a material impact on our liquidity. Declining commodity prices negatively affect our operating cash flow, and the inverse applies during periods of rising commodity prices. To mitigate some of the risk inherent in the downward movement in oil prices, we may enter into various derivative instruments to hedge commodity price risk.

45

Commodity Contracts

In early March 2020, in response to the rapid fall in commodity prices, we monetized all of our crude oil hedges in place for April 2020 forward with our counterparties, except for certain hedges held by our BSP JV, for approximately $63 million to enhance our liquidity. As of June 30, 2020, we did not have any commodity hedges covering our share of production.

The Senior DIP Credit Agreement requiresrequired us to enter into hedging arrangements covering at least 25% of our share of expected crude oil production for the next twelve months. On July 24, 2020, we entered into various derivative instruments through July 2021, as shown in the table below, to satisfy this requirement. Our Revolving Credit Facility and our Second Lien Term Loan require us to maintain hedges on a notional amount of crude oil production as described in Part I, Item 1 – Financial Statements, Note 6 Debt. We are currently in the process of entering into additional oil hedges to meet the hedging requirement in our credit agreements.

Unless otherwise indicated, we use the term "hedge" to describe derivative instruments that are designed to achieve our hedging program goals, even though they are not accounted for as cash-flow or fair-value hedges.
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We currently haveAt October 31, 2020, we had the following Brent-based crude oil contracts:

August-September 2020Q4
2020		Q1
2021		Q2
2021		July 2021Q4
2020		Q1
2021		Q2
2021		July 2021
Sold Calls:Sold Calls:Sold Calls:
Barrels per dayBarrels per day4,950  4,800  4,500  4,500  4,200  Barrels per day4,800 4,500 4,500 4,200 
Weighted-average price per barrelWeighted-average price per barrel$48.05  $48.05  $48.05  $48.05  $48.05  Weighted-average price per barrel$48.05 $48.05 $48.05 $48.05 
Purchased Puts:Purchased Puts:Purchased Puts:
Barrels per dayBarrels per day9,900  9,600  9,000  9,000  8,400  Barrels per day18,600 18,000 9,000 8,400 
Weighted-average price per barrelWeighted-average price per barrel$40.00  $40.00  $40.00  $40.00  $40.00  Weighted-average price per barrel$44.84 $45.00 $40.00 $40.00 
Sold Puts:Sold Puts:Sold Puts:
Barrels per dayBarrels per day4,950  4,800  4,500  4,500  4,200  Barrels per day13,800 13,500 4,500 4,200 
Weighted-average price per barrelWeighted-average price per barrel$30.00  $30.00  $30.00  $30.00  $30.00  Weighted-average price per barrel$36.52 $36.67 $30.00 $30.00 
Swaps:Swaps:Swaps:
Barrels per dayBarrels per day6,600  6,400  6,000  6,000  5,600  Barrels per day6,400 6,000 6,000 5,600 
Weighted-average price per barrelWeighted-average price per barrel$44.75  $44.75  $44.75  $44.75  $44.75  Weighted-average price per barrel$44.75 $44.75 $44.75 $44.75 

The outcomes of the derivative positions are as follows:

•Sold calls – we make settlement payments for prices above the indicated weighted-average price per barrel.
•Purchased puts – we receive settlement payments for prices below the indicated weighted-average price per barrel.
•Sold puts – we make settlement payments for prices below the indicated weighted-average price per barrel.

We also currently have Brent-based crude oil contracts for insignificant volumes through May 2021 which were entered into by our BSP JV and are included in our consolidated results but not in the above table. The BSP JV also entered into natural gas swaps for insignificant volumes for periods through May 2021. The hedges entered into by the BSP JV could affect the timing of the redemption of the BSP preferred interest.

4660

2020 Capital Program

We entered 2020 with an internally funded capital program of $100 million to $300 million. In March 2020, we reduced our capital investment to a level that maintains the mechanical integrity of our facilities to operate in a safe and environmentally responsible manner in response to the collapse in crude oil prices. We made $33$37 million of internally funded capital investments in the first halfnine months of 2020 and we expect to invest up to an additional $20$10 million, primarily related to facilities, through the end of 2020. In order to meetAt this level of investment, we suspended all internally funded drilling and most capital workovers for the second quarter and significantly reduced other activities. The Board of Directors, which includes seven new directors appointed as of October 27, 2020, will review and determine our capital program for future periods.

Our JV partners invested $98$94 million in the first halfnine months of 2020. On March 27, 2020, Alpine elected to suspend its funding obligations under the Alpine JV. For further information, regarding the Alpine JV and its funding obligations, see the Development Joint Ventures section above.

The amounts in the table below reflect our consolidated capital investment, excluding changes in capital investment accruals, for the sixnine months ended JuneSeptember 30, 2020 and 2019:
Six months ended
June 30,		Nine months ended
September 30,
2020201920202019
(in millions)(in millions)
Oil and natural gasOil and natural gas$32  $212  Oil and natural gas$36 $325 
ExplorationExploration—  9  Exploration— 9 
Corporate and otherCorporate and other1  7  Corporate and other1 11 
Total internally funded capital Total internally funded capital33  228   Total internally funded capital37 345 
BSP funded capitalBSP funded capital—  43  BSP funded capital— 48 
Total consolidated capital investment Total consolidated capital investment$33  $271   Total consolidated capital investment$37 $393 

The curtailment of the development of our properties will lead to a decline in our production and may lower our reserves. A continued decline in our production and reserves would negatively impact our cash flow from operations and the value of our assets.

Regulation of the Oil and Natural Gas Industry

In September 2020, the Ventura County Board of Supervisors adopted an amended General Plan and approved an associated Environmental Impact Report (EIR) that impose significant restrictions on new discretionary development projects in Ventura County. With respect to new discretionary oil and gas development, the amended General Plan: requires setbacks of 1,500 feet and 2,500 feet from residences and schools, respectively; prohibits trucking of oil and produced water; restricts flaring; requires electrification of equipment; and requires additional reviews for projects involving well stimulation treatment or steam injection. Collectively, these restrictions would prevent or substantially reduce new development of at least five fields that we operate. The Board is also considering a proposed ordinance to unilaterally revoke or revise longstanding conditional use permits, thereby applying the amended General Plan to fields with existing permits. Multiple lawsuits have been filed challenging the amended General Plan and EIR, including by us, on numerous statutory and constitutional grounds.

Other government authorities have proposed or adopted new or more stringent requirements or restrictions on oil and gas operations and development, as described in the Regulatory section of our 2019 Form 10-K, and the Risk Factors in our 2019 Form 10-K and this Form 10-Q.

Seasonality
 
While certain aspects of our operations are affected by seasonal factors, such as energy costs, seasonality has not been a material driver of changes in our quarterly results.

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Lawsuits, Claims, Commitments and Contingencies

We are involved, in the normal course of business, in lawsuits, environmental and other claims and other contingencies that seek, among other things, compensation for alleged personal injury, breach of contract, property damage or other losses, punitive damages, civil penalties, or injunctive or declaratory relief.

We accrue reserves for currently outstanding lawsuits, claims and proceedings when it is probable that a liability has been incurred and the liability can be reasonably estimated. Reserve balances at JuneSeptember 30, 2020 and December 31, 2019 were not material to our condensed consolidated balance sheets as of such dates. We also evaluate the amount of reasonably possible losses that we could incur as a result of these matters. We believe that reasonably possible losses that we could incur in excess of reserves accrued would not be material to our consolidated financial position or results of operations.

Subject to certain exceptions under the Bankruptcy Code, the filing of the Chapter 11 Cases on July 15, 2020 automatically stayed, among other things, the continuation of most judicial or administrative proceedings or the filing of other actions against or on behalf of us or our property to recover on, collect or secure a claim arising prior to July 15, 2020 or to exercise control over property of our bankruptcy estates, unless and until the Bankruptcy Court modifies or lifts the automatic stay as to any such action or judicial or administrative proceeding. Notwithstanding the general application of the automatic stay described above, governmentalgovernment authorities may determine to continue actions brought under regulatory powers.

47On October 13, 2020, the Bankruptcy Court confirmed our Amended Debtors’ Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, which was conditioned on certain items such as obtaining exit financing. On October 27, 2020 the conditions to effectiveness of the Plan were satisfied and we emerged from Chapter 11 on the Effective Date. Upon effectiveness of the Plan, the automatic stay discussed above no longer applies to ongoing judicial or administrative proceedings.

Significant Accounting and Disclosure Changes

See Part I, Item 1, Note 23 Accounting and Disclosure Changes in the Notes to the Condensed Consolidated Financial Statements of this Form 10-Q for a discussion of new accounting matters.
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Forward-Looking Statements
The information included herein contains forward-looking statements that involve risks and uncertainties that could materially affect our expected results of operations, liquidity, cash flows and business prospects. Such statements include those regarding our expectations as to our future:
•financial position, liquidity, cash flows and results of operations including our ability to operate as a going concern
•business prospects
•transactions and projects
•operating costs
•Value Creation Index (VCI) metrics, which are based on certain estimates including future production rates, costs and commodity prices
•operations and operational results including production, hedging and capital investment
•budgets and maintenance capital requirements
•reserves
•type curves
•expected synergies from acquisitions and joint ventures
•ability to pay our creditors
•ability to comply with the covenants in our debt agreements and instruments
•credit ratings

Actual results may differ from anticipated results, sometimes materially, and reported results should not be considered an indication of future performance. While we believe assumptions or bases underlying our expectations are reasonable and make them in good faith, they almost always vary from actual results, sometimes materially. We also believe third-party statements we cite are accurate but have not independently verified them and do not warrant their accuracy or completeness. Factors (but not necessarily all the factors) that could cause results to differ include:
•risks and uncertainties relating to the Chapter 11 Cases filed in the Bankruptcy Court, including our ability to obtain the Bankruptcy Court’s approval with respect to our motions, our ability to develop, confirm and consummate a Chapter 11 plan or an alternative restructuring transaction, risks associated with third-party motions, Bankruptcy Court rulings and the outcome of the Chapter 11 Cases in general, and the length of time we will operate under the Chapter 11 Cases
•the potential adverse effects of disruption from the Chapter 11 Cases on us, our liquidity and/or results of operations, and on the interests of our various constituents making it more difficult to maintain business and operational relationships, retain key executives and maintain various licenses and approvals necessary for us to conduct our business
•our ability to obtain sufficient financing to allow us to emerge from bankruptcy and execute our business plan post-emergence;
•risk and uncertainties relating to our ability to obtain requisite support for our Chapter 11 plan from various stakeholders and confirm and consummate that plan
•increased advisory costs to execute a reorganization
•risks associated with our ability to continue as a going concern
•the impact of the NYSE’s delisting of our common stock on the liquidity and market price of our common stock and on our ability to access the public capital markets;
•risks related to the trading of our securities on the OTC Pink Marketpost-emergence
•the volatility of commodity prices and the potential for sustained low oil, natural gas and NGL prices
•commodity price changes, including extended periodsimpact of low oil, natural gas or NGL pricesour recent emergence from bankruptcy on our business and relationships
•debt limitations on our financial flexibility
•inability to reach an agreement with our creditors with respect to a restructuring of our debt
•insufficient cash flow to fund planned investments, debt repurchases or changes to our capital plan
•insufficient capital or liquidity, including as a result of lender restrictions, unavailability of capital markets or inability to attract potential investors
•limitations on transportation or storage capacity and the need to shut inshut-in wells
•inability to enter into desirable transactions, including acquisitions, asset sales and joint ventures
•our ability to utilize our net operating loss carryforwards to reduce our income tax obligations
49

•limitations on the liquidity of our new common stock and volatility of its market price
•legislative or regulatory changes, including those related to drilling, completion, well stimulation, operation, maintenance or abandonment of wells or facilities, managing energy, water, land, greenhouse gases or other emissions, protection of health, safety and the environment, or transportation, marketing and sale of our products
•joint ventures and acquisitions and our ability to achieve expected synergies
•the recoverability of resources
• and unexpected geologic conditions
•incorrect estimates of reserves and related future cash flows and the inability to replace reserves
•changes in business strategy
•PSC effects on production and unit production costs
•effect of stock price on costs associated with incentive compensation
•effects of hedging transactions
•equipment, service or labor price inflation or unavailability
•availability or timing of, or conditions imposed on, permits and approvals
•lower-than-expected production, reserves or resources from development projects, joint ventures or acquisitions, or higher-than-expected decline rates
•disruptions due to accidents, mechanical failures, power outages, transportation or storage constraints, natural disasters, labor difficulties, cyber-attacks or other catastrophic events
•pandemics, epidemics, outbreaks, or other public health events, such as the COVID-19 pandemiccoronavirus disease (COVID-19)
•factors discussed in Item 1A, Risk Factors in CRC'sour Annual Report on Form 10-K available at www.crc.com.

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Words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "goal," "intend," "likely," "may," "might," "plan," "potential," "project," "seek," "should," "target, "will" or "would" and similar words that reflect the prospective nature of events or outcomes typically identify forward-looking statements. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law.
5064

Item 3Quantitative and Qualitative Disclosures About Market Risk

For the three and sixnine months ended JuneSeptember 30, 2020, there were no material changes to commodity price risk, interest rate risk or counterparty credit risk from the information provided under Item 305 of Regulation S-K included under the caption Management's Discussion and Analysis of Financial Condition and Results of Operations (Incorporating Item 7A) – Quantitative and Qualitative Disclosures About Market Risk in the 2019 Form 10-K, except as discussed below.

Commodity Price Risk

In March 2020, we monetized crude oil hedge positions in place for April 2020 forward with our counterparties, except for certain hedges held by our BSP JV, for approximately $63 million. We recognized the proceeds received in net derivative gain (loss) from commodity contracts on our condensed consolidated statements of operations in the first quarter of 2020. As of June 30, 2020, we did not have any commodity hedges covering our share of production.

The Senior DIP Credit Agreement requiresrequired us to enter into hedging arrangements covering at least 25% of our share of expected crude oil production for the next twelve months. On July 24, 2020, we entered into various derivative instruments through July 2021 to satisfy this requirement. Unless otherwise indicated, we use the term "hedge" to describe derivative instruments that are designed to achieve our hedging program goals, even though they are not accounted for as cash-flow or fair-value hedges.

Our current oil hedge positions at October 31, 2020, as shown in the table below, provide for the following expected outcomes:

August-September 2020Q4
2020		Q1
2021		Q2
2021		July 2021Q4
2020		Q1
2021		Q2
2021		July 2021
Barrels per dayBarrels per day4,9504,8004,5004,5004,200Barrels per day13,80013,5004,5004,200
Receive Brent if Brent > $40Receive Brent if Brent > $40Receive Brent if Brent > $40Receive Brent if Brent > $40Receive Brent if Brent > $40Receive Brent if Brent > $46.52Receive Brent if Brent > $46.67Receive Brent if Brent > $40Receive Brent if Brent > $40
Receive $40 if Brent between $30 and $40Receive $40 if Brent between $30 and $40Receive $40 if Brent between $30 and $40Receive $40 if Brent between $30 and $40Receive $40 if Brent between $30 and $40Receive $46.52 if Brent between $46.52 and $36.52Receive $46.67 if Brent between $46.67 and $36.67Receive $40 if Brent between $30 and $40Receive $40 if Brent between $30 and $40
Receive Brent +$10 if Brent <$30Receive Brent +$10 if Brent <$30Receive Brent +$10 if Brent <$30Receive Brent +$10 if Brent <$30Receive Brent +$10 if Brent <$30Receive Brent +$10 if Brent <$36.52Receive Brent +$8.33 if Brent <$36.67Receive Brent +$10 if Brent <$30Receive Brent +$10 if Brent <$30
Barrels per dayBarrels per day4,9504,8004,5004,5004,200Barrels per day4,8004,5004,5004,200
Ceiling price of $48.05 BrentCeiling price of $48.05 BrentCeiling price of $48.05 BrentCeiling price of $48.05 BrentCeiling price of $48.05 BrentCeiling price of $48.05 BrentCeiling price of $48.05 BrentCeiling price of $48.05 BrentCeiling price of $48.05 Brent
Receive Brent between $40 and $48.05Receive Brent between $40 and $48.05Receive Brent between $40 and $48.05Receive Brent between $40 and $48.05Receive Brent between $40 and $48.05Receive Brent between $40 and $48.05Receive Brent between $40 and $48.05Receive Brent between $40 and $48.05Receive Brent between $40 and $48.05
Floor price of $40 BrentFloor price of $40 BrentFloor price of $40 BrentFloor price of $40 BrentFloor price of $40 BrentFloor price of $40 BrentFloor price of $40 BrentFloor price of $40 BrentFloor price of $40 Brent
Barrels per dayBarrels per day6,6006,4006,0006,0005,600Barrels per day6,4006,0006,0005,600
Receive $44.75 Brent at all pricesReceive $44.75 Brent at all pricesReceive $44.75 Brent at all pricesReceive $44.75 Brent at all pricesReceive $44.75 Brent at all pricesReceive $44.75 Brent at all pricesReceive $44.75 Brent at all pricesReceive $44.75 Brent at all pricesReceive $44.75 Brent at all prices

Our post-emergence Revolving Credit Facility and our Second Lien Term Loan require us to maintain hedges on part of our crude oil production as described in Part I, Item 1 – Financial Statements, Note 6 Debt. We are currently in the process of entering into additional oil hedges to meet the hedging requirement in our credit agreements.

We also currently have Brent-based crude oil contracts for insignificant volumes through May 2021 which were entered into by our BSP JV and are included in our consolidated results but not in the above table. The BSP JV also entered into natural gas swaps for insignificant volumes for periods through May 2021. The hedges entered into by the BSP JV could affect the timing of the redemption of the BSP preferred interest.
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Counterparty Credit Risk

Our credit risk relates primarily to trade receivables and derivative financial instruments. Credit exposure for each customer is monitored for outstanding balances and current activity. For derivative instruments entered into as part of our hedging program, we are subject to counterparty credit risk to the extent the counterparty is unable to meet its settlement commitments. We actively manage this credit risk by selecting counterparties that we believe to be financially strong and continuing to monitor their financial health. Concentration of credit risk is regularly reviewed to ensure that counterparty credit risk is adequately diversified.

As of JuneSeptember 30, 2020, the substantial majority of the credit exposures related to our business was with investment-grade counterparties. We believe exposure to counterparty credit-related losses related to our business at JuneSeptember 30, 2020 was not material and losses associated with counterparty credit risk have been insignificant for all periods presented.

Interest-Rate Risk

As of June 30, 2020, we had borrowings of $1.3 billion outstanding under our 2017 Credit Agreement, $1 billion outstanding under our 2016 Credit Agreement and $731 million outstanding under our 2014 Revolving Credit Facility, all of which carry variable interest rates. On July 15, 2020, we filed for relief under Chapter 11 of the Bankruptcy Code and as a result interest on our pre-petition debt is limited to what is determined by the Bankruptcy Court to be an allowed claim. On July 23, 2020, we entered into debtor-in-possession credit agreements, which carry variable interest rates. Our debtor-in-possession credit agreements were repaid subsequent to September 30, 2020 (on our Effective Date) and replaced with our new Revolving Credit Facility, Second Lien Term Loan and EHP Notes. Our Revolving Credit Facility and Second Lien Term Loan carry variable interest rates. A one-eighth percent change in the interest rates as furtheron the outstanding borrowings under these facilities at October 27, 2020, excluding $118 million of cash temporarily used to collateralize letters of credit, would result in an approximately $400,000 change in annual interest expense assuming no payments are received under our interest-rate cap agreements described inbelow. See Part I, Item 1 – Financial Statements, Note 56 Debt. for additional information on our debtor-in-possession financing and post-emergence indebtedness.

In March 2018, we entered into derivative contracts that limit our interest-rate exposure with respect to $1.3 billion of our variable-rate indebtedness. The interest-rate contracts reset monthly and require the counterparties to pay any excess interest owed on such amount in the event the one-month LIBOR exceeds 2.75% for any monthly period prior to May 4, 2021. We did not report any gains or losses on these contracts for the three months ended June 30, 2020 or the three months ended June 30, 2019 in other non-operating expense on our condensed consolidated statements of operations. No settlement payments were received in either 2020 or 2019.

Item 4 Controls and Procedures

Our President and Chief Executive Officer and our Senior Executive Vice President and Chief Financial Officer supervised and participated in our evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, our President and Chief Executive Officer and our Senior Executive Vice President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of JuneSeptember 30, 2020.
We have appropriately implemented Financial Accounting Standards Board Accounting Standards Codification 852, Reorganizations (ASC 852) during the quarter and have prepared the interim condensed consolidated financial statements and disclosures in accordance with ASC 852.
There were no changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the three months ended JuneSeptember 30, 2020 that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
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PART II    OTHER INFORMATION
 

Item 1Legal Proceedings

On the July 15, 2020, we filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The Chapter 11 Cases filed by us are beingwere jointly administered under the caption In re California Resources Corporation, et al., Case No. 20-33568 (DRJ). See Part I, Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations, Business Environment and Industry Outlook, Voluntary Petitions for Relief UnderGeneral, Chapter 11 of the Bankruptcy CodeProceedings for more information.

Subject to certain exceptions under the Bankruptcy Code, the filing of the Chapter 11 Cases automatically stayed, among other things, the continuation of most judicial or administrative proceedings or the filing of other actions against or on behalf of us or our property to recover on, collect or secure a claim arising prior to July 15, 2020 or to exercise control over property of our bankruptcy estates, unless and until the Bankruptcy Court modifies or lifts the automatic stay as to any such action or judicial or administrative proceeding. Notwithstanding the general application of the automatic stay described above, governmentalgovernment authorities may determine to continue actions brought under regulatory powers.

On October 13, 2020, the Bankruptcy Court confirmed our Amended Debtors’ Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, which was conditioned on certain items such as obtaining exit financing. On October 27, 2020 the conditions to effectiveness of the Plan were satisfied and we emerged from Chapter 11 on the Effective Date. Upon effectiveness of the Plan, the automatic stay discussed above no longer applies to ongoing judicial or administrative proceedings.

For additional information regarding legal proceedings, see Item 1 – Financial Statements, Note 78 Lawsuits, Claims, Commitments and Contingencies in the Notes to the Condensed Consolidated Financial Statements included in Part I of this Form 10-Q, Part I, Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations, Lawsuits, Claims, Commitments and Contingencies in this Form 10-Q, and Part I, Item 3, Legal Proceedings in our Form 10-K for the year ended December 31, 2019.

Item 1A     Risk Factors

We are subject to various risks and uncertainties in the course of our business. A discussion of such risks and uncertainties may be found under the heading Risk Factors in our Form 10-K for the year ended December 31, 2019. Other than as provided below, there were no material changes to those risk factors during the sixnine months ended JuneSeptember 30, 2020.

We are subjectRecent actions by the Governor of California could result in restrictions to the risks and uncertainties associated with the Chapter 11 Cases.

On July 15, 2020, we filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. For the duration of the Chapter 11 Cases, our operations and our ability to developresult in decreased demand for oil and execute our business plan, as well as our continuation as a going concern, are subject togas within the risks and uncertainties associated with bankruptcy. These risks include the following:state.

•Iour abilityn September 2020, Governor Gavin Newsom of California issued an executive order (Order) that seeks to confirmreduce both the demand for and consummatesupply of petroleum fuels in the plan of reorganization contemplated by the RSA (the RSA Plan), or develop, negotiate, confirmstate. The Order establishes several goals and consummate an alternative plan;
•our abilitydirects several state agencies to obtain court approvaltake certain actions with respect to motions filedreducing emissions of greenhouse gases, including, but not limited to: phasing out the sale of new emissions-producing passenger vehicles, drayage trucks and off-road vehicles by 2035 and medium and heavy duty trucks by 2045, where feasible; developing strategies for the closure and repurposing of oil and gas facilities in California; and proposing legislation to end the issuance of new hydraulic fracturing permits in the Chapter 11 Cases from timestate by 2024. The Order also directs the California Department of Conservation, Geologic Energy Management Division (CalGEM) to time;
•our abilitystrictly enforce bonding requirements for oil and gas operations and to maintain our relationships with our suppliers, service providers, customers, employeescomplete its ongoing public health and safety review of oil production and propose additional regulations, which may include expanded land use setbacks, by December 31, 2020. In October 2020, the Governor issued an executive order that establishes a state goal to conserve at least 30% of California’s land and coastal waters by 2030 and directs state agencies to implement other third parties;
•our abilitymeasures to maintain contracts that are critical to our operations;
•our ability to execute our business plan;
•the ability of third parties to seekmitigate climate change and obtain court approval to terminate contracts and other agreements with us;
•our ability to obtain Bankruptcy Court approvalstrengthen biodiversity. Any of the various motionsforegoing developments may materially and other requests, including with respect toadversely affect our Senior DIP Credit Agreementoperations and properties and the Junior DIP Credit Agreement (together, the DIP facilities);
•the ability of third parties to seek and obtain court approval to terminate or shorten the exclusivity perioddemand for us to propose and confirm a plan of reorganization, to appoint a Chapter 11 trustee, or to convert the Chapter 11 Cases to a Chapter 7 proceeding;
•the high costs of bankruptcy proceedings and related fees; and
•the actions and decisions of our creditors and other third parties who have interests in the Chapter 11 Cases that may be inconsistent with our plans.products.

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The COVID-19 pandemic has caused crude oil prices to decline significantly in 2020, which has materially and adversely affected our business, results of operation, financial condition and liquidity.

The COVID-19 pandemic has adversely affected the global economy, and has resulted in, among other things, travel restrictions, business closures and the institution of quarantining and other mandated and self-imposed restrictions on movement. As a result, there has been an unprecedented reduction in demand for crude oil. In March 2020, crude oil prices declined significantly as a result of market concerns about the economic impact from the COVID-19 pandemic, restrictions and other measures implemented in response to the pandemic as well as certain actions of OPEC, Russia and other foreign oil producers. In April 2020, oil prices continued to decline precipitously reaching negative prices for spot WTI crude. The severity, magnitude and duration of current or future COVID-19 outbreaks, the extent of actions that have been or may be taken to contain or treat their impact, and the impacts on the economy generally and oil prices in particular, are uncertain, rapidly changing and hard to predict. The current futures forward curve for Brent crude indicates that relatively lower prices may continue for an extended period of time. As a result, we reduced our operating expenses and planned capital expenditures to those necessary to maintain mechanical integrity of our facilities to operate them in a safe and environmentally responsible manner. In addition, we have shut-in wells which reduced our third quarter 2020 net production by 3 MBoe/d. These risksoperational decisions starting in March 2020 have negatively impacted our production and uncertaintiesmay materially and adversely affect the quantity of estimated proved reserves that may be attributed to our properties. Our operations also may be adversely affected if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions or other restrictions in connection with the pandemic. In addition, we are exposed to changes in commodity prices which have been and will likely remain volatile and relatively lower for the foreseeable future.

The ability or willingness of OPEC and other oil exporting nations to set and maintain production levels has a significant impact on oil and natural gas commodity prices.

OPEC is an intergovernmental organization that seeks to manage the price and supply of oil in the global energy market. Actions taken by OPEC members, including those taken alongside other oil exporting nations, have a significant impact on global oil supply and pricing. For example, OPEC and certain other oil exporting nations have previously agreed to take measures, including production cuts, to support crude oil prices. There can be no assurances that OPEC members and other oil exporting nations will agree to future production cuts or other actions to support and stabilize oil prices, nor can there be any assurances that they will not further reduce oil prices or increase production. Uncertainty regarding future actions to be taken by OPEC members or other oil exporting countries could lead to increased volatility in the price of oil and natural gas, which could adversely affect our business, financial condition, results of operations and cash flows.

We recently emerged from bankruptcy, which could adversely affect our business and operations in various ways. For example, negative events or publicity associated withrelationships.

It is possible that our having filed for bankruptcy and our recent emergence from the Chapter 11 Cases could adversely affect our business and relationships with our suppliers, service providers, customers, employees, suppliers and government authorities. Due to uncertainties, many risks exist, including the following:

•key suppliers could terminate their relationship or require financial assurances or enhanced performance;
•the ability to renew existing contracts and compete for new business may be adversely affected;
•the ability to attract, motivate and/or retain key executives and employees may be adversely affected;
•employees may be distracted from performance of their duties or more easily attracted to other third parties, which in turnemployment opportunities;
•competitors may take business away from us, and our ability to attract and retain customers may be negatively impacted; and
•the ability to obtain permits and approvals from government authorities for existing and new development projects may be affected, or may be subject to additional financial assurance or other conditions that may not be feasible.

The occurrence of one or more of these events could have a material and adverse effect on our operations, financial condition and reputation. We cannot assure you that having been subject to bankruptcy protection will not adversely affect our operations and financial condition. Also, prior approval ofin the Bankruptcy Court is required to enter into transactions outside the ordinary course of business, which may limit our ability to respond to certain events or take advantage of certain opportunities. In addition, certain of our creditors and other stakeholders may bring litigation against us during the course of the Chapter 11 Cases. Because of the risks and uncertainties associated with the Chapter 11 Cases, we cannot accurately predict or quantify the ultimate impact of events that will occur during the Chapter 11 Cases that may be inconsistent with our plans.future.

Operating during the Chapter 11 Cases for a long period of time may harm our business.

Our future results are dependent upon the successful confirmation and implementation of a plan of reorganization. A long period of operating under Chapter 11 of the Bankruptcy Code and subject to Bankruptcy Court supervision may have a material adverse effect on our business, financial condition, results of operations and liquidity. So long as the Chapter 11 Cases continue, our senior management may be required to spend a significant amount of time and effort dealing with the reorganization instead of focusing exclusively on our business operations. A prolonged period of operating under Chapter 11 of the Bankruptcy Code also may make it more difficult to retain management and other key personnel necessary to the success and growth of our business. In addition, the longer the Chapter 11 Cases continue, the more likely it is that our customers and suppliers may lose confidence in our ability to reorganize our business successfully and may seek to establish alternative commercial relationships.

Furthermore, we cannot predict the ultimate amount of all settlement terms for the liabilities that will be subject to a plan of reorganization. Even once a plan of reorganization is approved and implemented, our operating results may be adversely affected by the possible reluctance of prospective lenders and other counterparties to do business with a company that recently reorganized under Chapter 11 of the Bankruptcy Code.

The RSA is subject to significant conditions and milestones that may be beyond our control and may be difficult for us to satisfy. If the RSA is terminated, our ability to confirm a plan of reorganization and consummate a restructuring of our debt could be materially and adversely affected.

The RSA sets forth certain conditions we must satisfy during the Chapter 11 Cases, including the timely satisfaction of certain milestones to consummate a plan of reorganization (the RSA Plan). Our ability to timely satisfy such conditions and milestones is subject to risks and uncertainties that are beyond our control. The parties to the RSA may terminate the RSA under certain circumstances, such as our failure to fulfill certain conditions or reach certain milestones. A termination of the RSA may result in, among other things, the loss of support for the RSA Plan, which could adversely affect our ability to confirm and consummate the RSA Plan and our ability to emerge from Chapter 11. If the RSA Plan is not consummated, there can be no assurance that any new plan of reorganization would provide the same treatment to holders of claims or interests as those proposed under the RSA Plan, and our Chapter 11 proceedings may become protracted, which could significantly and detrimentally impact our relationships with regulators, government agencies, vendors, suppliers, employees and major customers.

There can be no assurance that the solicited classes of claims will vote to accept the RSA Plan.

There can be no assurance that the RSA Plan will receive the necessary level of support to be implemented or will be approved by the Bankruptcy Court. The success of the restructuring transactions will depend on the willingness of certain existing creditors to agree to the exchange or modification of their claims and approval by the Bankruptcy Court, and there can be no certainty of success with respect to those matters. Holders of certain claims that are impaired under the RSA Plan are entitled to vote to accept or reject the RSA Plan. Although certain parties are bound to vote for the RSA Plan, if the RSA is terminated they will not be so bound and any vote or consent given by such parties prior to such termination may be revoked.

We may receive objections to the terms of the RSA, including official objections to confirmation of the RSA Plan from the various stakeholders in the Chapter 11 Cases. We cannot predict the impact that any objection or third party motion may have on the Bankruptcy Court’s decision to confirm the RSA Plan or our ability to complete an in-court restructuring as contemplated by the RSA or otherwise. Any objection may cause us to devote significant resources in response which could materially and adversely affect our business, financial condition and results of operations.
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If we do not receive sufficient support forEven though the RSA Plan or if the RSA Plan is not confirmed by the Bankruptcy Court, it is unclear what, if any, distributions holders of claims against us may ultimately receive with respect to their claims and interests. There can be no assurance as to whether or when we will emerge from Chapter 11. If no plan of reorganization can be confirmed, or if the Bankruptcy Court otherwise finds that it would be in the best interest of holders of claims and interests, the Chapter 11 Cases may be converted to a case under Chapter 7 of the Bankruptcy Code, pursuant to which a trustee would be appointed or elected to liquidate our assets for distribution in accordance with the priorities established by the Bankruptcy Code.

We may not be able to obtain confirmation of the RSA Plan or another Chapter 11 plan of reorganization.

Even if the RSA Plan is approved by the creditors entitled to vote thereon, the Bankruptcy Court, as a court of equity, may exercise substantial discretion and may choose not to confirm the RSA Plan. Section 1129 of the Bankruptcy Code requires, among other things, a showing that confirmation of a plan of reorganization will not be followed by liquidation or the need for further financial reorganization, and that the value of distributions to dissenting holders of claims and interests will not be less than the value such holders would receive if we liquidated under Chapter 7. Although we believe that the RSA Plan will satisfy such tests, there can be no assurance that the Bankruptcy Court will reach the same conclusion.

Confirmation of the RSA Plan will also be subject to certain conditions. These conditions may not be met and there can be no assurance that a sufficient number of creditors will agree to modify or waive such conditions to the extent required by the RSA or RSA Plan, as applicable. Further, changed circumstances may necessitate changes to the RSA Plan. Any such modifications may result in less favorable treatment than the treatment currently anticipated to be included in the RSA Plan based upon the agreed terms of the RSA. Such less favorable treatment may include a distribution of property (including the new common stock that would be issued upon our emergence from bankruptcy) to the class affected by the modification of a lesser value than currently anticipated to be included in the RSA Plan or no distribution of property whatsoever under the RSA Plan. Changes to the RSA Plan may also delay the confirmation of the RSA Plan and our emergence from bankruptcy, which could result in, among other things, increased costs and expenses to the estates of the debtors and could prevent us from exercising our right to acquire ECR’s equity interests in the Ares JV. The conversion right granted to us under the Ares JV Settlement Agreement is only exercisable by us prior to December 31, 2021, and subject to confirmation of the RSA Plan and certain other conditions described in the Settlement Agreement. If these conditions are not met, we will not be able to exercise the conversion right and ECR will continue as our partner in the Ares JV.

The RSA Plan or other plan of reorganization that we may implement will be based in large part upon assumptions and analyses developed by us. If these assumptions and analyses prove to be incorrect, our plan may be unsuccessful in its execution. Even if the RSA Plan or other plan of reorganization ishas been consummated, we may not be able to achieve our stated goals and continue as a going concern.goals.

The RSA or other plan of reorganization thatEven though the Plan has been consummated, we may implement could affect both our capital structure and the ownership, structure and operation of our business and will reflect assumptions and analyses based on our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we consider appropriate under the circumstances. In addition, the RSA Plan or other plan of reorganization will rely upon financial projections, including with respect to revenues, capital expenditures, debt service and cash flow. Financial forecasts are necessarily speculative, and it is likely that one or more of the assumptions and estimates that are the basis of these financial forecasts may not be accurate. Whether actual future results and developments will be consistent with our expectations and assumptions depends on a number of factors, including but not limited to (i) our ability to substantially change our capital structure, (ii) our ability to obtain adequate liquidity and financing sources, (iii) our ability to maintain customers’ confidence in our viability as a continuing entity and to attract and retain sufficient business from them, (iv) our ability to retain key employees, and (v) the overall strength and stability of general economic conditions of the financial markets and oil and gas industry, both in the U.S. and in global markets. The failure of any of these factors could materially adversely affect the successful reorganization of our business. Consequently, there can be no assurance that the results or developments contemplated by the RSA Plan or any plan of reorganization we may implement will occur or, even if they do occur, that they will have the anticipated effects on us and our subsidiaries or our business or operations. The failure of any such results or developments to materialize as anticipated could materially adversely affect the successful execution of the RSA Plan or plan of reorganization.

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Even if the RSA Plan or other plan of reorganization is consummated, we will continue to face a number of risks, includingsuch as further deterioration in commodity prices or other changes in economic conditions, changes in our industry, changes in market demand for our products and services and increasing expenses. Accordingly, we cannot provide any assuranceguarantee that the RSA Plan or other plan of reorganization will achieve our stated goals.

Our ability to continue as a going concern is dependent uponFurthermore, even though our abilitydebts were reduced through the Plan, we may need to raise additional capital. As a result, we cannot give any assurance of our ability to continue as a going concern, even if the RSA Planfunds through public or private debt or equity financing or other plan of reorganization is confirmed.

We may have insufficient liquidity forvarious means to fund our business operations duringafter the Chapter 11 Cases.

Although we have been able to lower our cost structure and create efficiencies, our business remains capital intensive. In addition to the cash requirements necessary to fund ongoing operations, we have incurred significant professional fees and other costs in connection with the Chapter 11 Cases and expect that we will continue to incur significant professional fees and costs throughoutcompletion of the Chapter 11 Cases. Although we believe that we will have sufficient liquidityOur access to operate our business during the pendency of the Chapter 11 Cases, there can be no assurance that the cash made available to us under the DIP facilities or otherwise in our restructuring process and revenue generated by our business operations will be sufficient to fund our operations. In the event that revenue flows and other available cash are not sufficient to meet our liquidity requirements, weadditional financing may be required to seek additional financing. There can be no assurance that such additional financing wouldlimited, if it is available at all. Therefore, adequate funds may not be available when needed or ifmay not be available offered on terms that are acceptable.favorable terms.

Our liquidity, includinglenders could limit our borrowing capabilities and restrict our ability to meetuse or access capital.

Our Revolving Credit Facility is an important source of our ongoing operational obligations,liquidity. Our ability to borrow under our Revolving Credit Facility is dependent upon, among other things: (i)limited by our borrowing base, the size of our lenders' commitments and our ability to comply with covenants, including various leverage ratios, hedging requirements and reporting obligations.

The borrowing base under our Revolving Credit Facility is redetermined semi-annually on April 1 and October 1. Our lenders determine our borrowing base by reference to the termsvalue of our reserves and conditionsother factors that the administrative agent may deem appropriate in good faith in accordance with its usual and customary oil and gas lending criteria as they exist at the particular time. The lenders under our Revolving Credit Facility may also factor other liabilities, including our other indebtedness, into the determination of our borrowing base. Currently, our borrowing base is set at $1.2 billion. Availability under our Revolving Credit Facility is the DIP facilities,least of (i) the then-effective borrowing base, (ii) the then-effective aggregate commitments and (iii) the aggregate elected commitment amount, which is currently set at $540 million.

Any reduction in our borrowing base could materially and adversely affect our liquidity and may hinder our ability to complyexecute on our business strategy.

For a further description of our Revolving Credit Facility and our other credit agreements, see Part I, Item 1 – Financial Statements, Note 6 Debt and the documents governing our indebtedness that are filed with the termsSEC.

Restrictive covenants in our credit facilities may limit our financial and conditions of any order governing the use of our cash collateral that may be entered by the Bankruptcy Court in connection with the Chapter 11 Cases, (iii) our ability to maintain adequate cash on hand, (iv) our ability to generate cash flow from operations, (v) our ability to develop, confirm and consummate a plan of reorganization or other alternative restructuring transaction, and (vi) the cost, duration and outcomeoperating flexibility.

As of the Chapter 11 Cases.Effective Date, we had approximately $225 million of outstanding indebtedness under our Revolving Credit Facility, $200 million of outstanding indebtedness under our Second Lien Term Loan and $300 million under our EHP Notes. Our financing agreements permit us to incur significant additional indebtedness as well as certain other obligations. In addition, we may seek amendments or waivers from our existing lenders to the extent we need to incur indebtedness above amounts currently permitted by our financing agreements.

Our long-term liquidity requirements and the adequacycredit facilities contain certain restrictions, which may have adverse effects on our business, financial condition, cash flows or results of operations, limiting our capital resources are difficult to predict at this time.ability, among other things, to:

We face uncertainty regarding•incur additional indebtedness;
•incur additional liens;
•pay dividends or make other distributions;
•make investments, loans or advances;
•sell or discount receivables;
•enter into mergers;
•sell properties;
•terminate swap agreements;
•enter into transactions with affiliates;
•maintain gas imbalances;
•enter into take-or-pay contracts or make other prepayments;
•enter into swap agreements;
•enter into sale and leaseback agreements;
•amend our organizational documents; and
•make capital investments.
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The credit facilities also require us to comply with certain financial maintenance covenants as discussed above including a leverage ratio and current ratio. See Part I, Item 1 – Financial Statements, Note 6 Debt for additional information.

A breach of any of these restrictive covenants could result in a default under the adequacycredit facilities. If a default occurs, the lenders may elect to declare all borrowings thereunder outstanding, together with accrued interest and other fees, to be immediately due and payable. If we are unable to repay our indebtedness when due or declared due, the lenders thereunder will also have the right to proceed against the collateral pledged to them to secure the indebtedness.

There may be a limited trading market for our securities and the market price of our liquidity and capital resources and have extremely limited, if any, accesssecurities is subject to additional financing beyond the DIP facilities. In addition to the cash requirements necessary to fund ongoing operations, we have incurred significant professional fees and other costs in connection with our evaluation of strategic alternatives and preparation for the Chapter 11 Cases and expect that we will continue to incur significant professional fees and costs throughout the Chapter 11 Cases. We cannot assure you that cash on hand, cash flow from operations, the DIP facilities and any financing we are able to obtain in connection withvolatility.

Upon our emergence from bankruptcy, our old common stock was cancelled and we issued new common stock, which is listed on the Chapter 11 CasesNYSE under the ticker “CRC”. The market price of our common stock could be subject to wide fluctuations in response to, and the level of trading that develops with our common stock may be affected by, numerous factors, many of which are beyond our control. These factors include, among other things, our new capital structure as a result of the transactions contemplated by our Plan, our limited trading history subsequent to our emergence from bankruptcy, our limited trading volume, the concentration of holdings of our common stock, the lack of comparable historical financial information due to our adoption of fresh start accounting, actual or anticipated variations in our operating results and cash flow, the nature and content of our earnings releases, announcements or events that impact our products, customers, competitors or markets, business conditions in our markets and the general state of the securities markets and the market for energy-related stocks, as well as general economic and market conditions and other factors that may affect our future results. No assurances can be given that an active market will be sufficient to continue to fund our operations and allow us to satisfy our obligations relateddevelop for the common stock or as to the Chapter 11 Cases until we emerge fromliquidity of the Chapter 11 Cases.trading market for the common stock. Holders of our common stock may experience difficulty in reselling, or an inability to sell, their shares. In addition, if an active trading market does not develop or is not maintained, significant sales of our common stock, or the expectation of these sales, could materially and adversely affect the market price of our common stock.

Our business requires substantial capital investments, which may include acquisitions or JVs. We may be unable to fund these investments which could lead to a decline in our oil and natural gas reserves or production. Our capital investment program is also susceptible to risks that could materially affect its implementation.

Our exploration, development and acquisition activities require substantial capital investments. Following our emergence from Chapter 11 restructuring, our capital investments will mainly be funded through a combination of cash flow from operations, borrowings under our credit facilities and joint ventures. We seek to manage our internally funded capital investments to closely align with projected cash flow from operations. Accordingly, a reduction in projected operating cash flow could cause us to reduce our future capital investments. In general, the ability to execute our capital plan depends on a number of factors, including:

•the amount of oil, natural gas and NGLs we are able to produce;
•commodity prices;
•regulatory and third-party approvals;
•our ability to timely drill, complete and stimulate wells;
•our ability to secure equipment, services and personnel; and
•the availability of external sources of financing.

Access to future capital may be limited by our lenders, our JV partners, capital markets constraints, activist funds or investors, or poor stock price performance. Because of these and other potential variables, we may be unable to deploy capital in the manner planned, which may negatively impact our production levels and development activities and limit our ability to make acquisitions or enter into JVs.

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Unless we make sufficient capital investments and conduct successful development and exploration activities or acquire properties containing proved reserves, our proved reserves will decline as those reserves are produced. Our ability to make the necessary long-term capital investments or acquisitions needed to maintain or expand our reserves may be impaired to the extent we have insufficient cash flow from operations or liquidity to fund those activities. Over the long term, a continuing decline in our production and reserves would reduce our liquidity and ability to satisfy our debt obligations by reducing our cash flow from operations and the value of our assets.

Our commodity-price risk-management activities may prevent us from fully benefiting from price increases and may expose us to other risks.

Our commodity-price risk-management activities may prevent us from realizing the full benefits of price increases above any levels set in certain derivative instruments we may use to manage price risk. In addition, our commodity-price risk-management activities may expose us to the risk of financial loss in certain circumstances, including instances in which the counterparties to our hedging or other price-risk management contracts fail to perform under those arrangements.

Under our credit facilities, we are required to maintain acceptable commodity hedges hedging no less than (i) 75% of our reasonably anticipated oil production from our proved reserves for the first 24 months after the closing of the Revolving Credit Facility, which occurred on the Effective Date and (ii) 50% of our reasonably anticipated oil production from our proved reserves for a period from the 25th month through the 36th month after the same date. Our credit facilities specify the forms of hedges and prices (which can be prevailing prices) that must be used. In addition, for the first 24 months after closing an additional 25% of production from proved reserves needs to be hedged, which may take any form.

We must also maintain acceptable commodity hedges for no less than 50% of the reasonably anticipated total forecasted production of crude oil from our oil and gas properties for at least 24 months following the date of delivery of each reserve report. We may not hedge more than 80% of reasonably anticipated total forecasted production of crude oil, natural gas and natural gas liquids from our oil and gas properties for a 48-month period following the date of entry into any commodity hedging contract.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), enacted in 2010, established federal oversight and regulation of the over-the-counter (OTC) derivatives market and entities, like us, that participate in that market. Among other things, the Dodd-Frank Act required the U.S. Commodity Futures Trading Commission to promulgate a range of rules and regulations applicable to OTC derivatives transactions. These regulations may affect both the size of positions that we may enter and the ability or willingness of counterparties to trade opposite us, potentially increasing costs for transactions. Moreover, the effects of these regulations could reduce our hedging opportunities which could adversely affect our revenues and cash flow during periods of low commodity prices.

In addition, U.S. regulators adopted a final rule in November 2019 implementing a new approach for calculating the exposure amount of derivative contracts under the applicable agencies’ regulatory capital rules, referred to as the standardized approach for counterparty credit risk (SA-CCR). Certain financial institutions are required to comply with restrictions or with budget, liquidity, or other covenants imposed by the agreements governingnew SA-CCR rules beginning on January 1, 2022. The new rules could significantly increase the DIP facilities. Such non-compliancecapital requirements for certain participants in the over-the-counter derivatives market in which we participate. These increased capital requirements could result in an eventsignificant additional costs being passed through to end-users like us or reduce the number of default underparticipants or products available to us in the termsover-the-counter derivatives market. These regulations could result in a reduction in our hedging opportunities or substantially increase our cost of the DIP facilities that, if not cured or waived, may have a material adverse effect onhedging, which could adversely affect our business, financial condition and results of operations.

The DIP facilities requireEuropean Union and other non-U.S. jurisdictions may implement regulations with respect to the derivatives market. To the extent we transact with counterparties in foreign jurisdictions or counterparties with other businesses that subject them to regulation in foreign jurisdictions, we comply with general affirmativemay become subject to or otherwise impacted by such regulations, which could also adversely affect our hedging opportunities.

Our actual financial results after emergence from bankruptcy may not be comparable to our historical financial information as a result of the implementation of our Plan and negative covenants such as prohibiting us from incurring or permitting debt, investments, liens or dispositions unless specifically permitted. Our ability to comply with these provisions may be affected by events beyond our controlthe transactions contemplated thereby and our failure to comply, or obtain a waiver in the event we cannot comply with a covenant, may result in an eventadoption of default under the DIP facilities and permit the lenders thereunder to accelerate the loans and otherwise exercise remedies allowable by the agreements governing the DIP facilities.fresh start accounting.

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In connection with the disclosure statement we filed with the Bankruptcy Court, and the hearing to consider confirmation of our Plan, we prepared projected financial information to demonstrate to the Bankruptcy Court the feasibility of our Plan and our ability to continue operations upon our emergence from bankruptcy. Those projections were prepared solely for the purpose of the bankruptcy proceedings and have not been, and will not be, updated on an ongoing basis and should not be relied upon by investors. At the time they were prepared, the projections reflected numerous assumptions concerning our anticipated future performance with respect to prevailing and anticipated market and economic conditions that were and remain beyond our control and that may not materialize. Projections are inherently subject to substantial and numerous uncertainties and to a wide variety of significant business, economic and competitive risks and the assumptions underlying the projections and/or valuation estimates may prove to be wrong in material respects. Actual results will likely vary significantly from those contemplated by the projections. As a result, of the Chapter 11 Cases, our financial results may be volatile and mayinvestors should not reflect historical trends.rely on these projections.

During the pendency of the Chapter 11 Cases, we expect our financial results to continue to be volatile and restructuring activities and expenses, claims assessments and continued commodity price volatility to significantly impact our consolidated financial statements. As a result, our historical financial performance is likely not indicative of our financial performance after the date of the bankruptcy filing. In addition, ifupon our emergence from bankruptcy, we emerge from the Chapter 11 Cases, the amounts reported in subsequent consolidated financial statements may materially change relative to historical consolidated financial statements, including as a result of revisions to our operating plans pursuant to a plan of reorganization. We also may bebelieve that we are required to adopt fresh start accounting,accounting. Accordingly, our future financial statements may not be comparable to our historical financial statements. The lack of comparable historical financial information may discourage investors from purchasing our common stock.

Upon our emergence from bankruptcy, the composition of our Board of Directors changed significantly.

Pursuant to our Plan, the composition of our Board of Directors changed significantly. On October 27, 2020, seven new non-employee directors were appointed to our Board of Directors in which caseconnection with our assetsemergence from bankruptcy. The new directors have different backgrounds, experiences and liabilitiesperspectives from those individuals who previously served on the board and, thus, may have different views on the issues that will be recorded at fair value as ofdetermine our future. There is no guarantee that the fresh start reporting date, whichnew board will pursue, or will pursue in the same manner, our current strategic plans. As a result, the future strategy and our plans may differ materially from those of the recorded values of assets and liabilities on our consolidated balance sheets. Our financial results after the application of fresh start accounting also may be different from historical trends.past.

WeOur Board of Directors has not adopted a dividend policy.

Our Board of Directors, which includes seven new directors appointed as of October 27, 2020, has not adopted a dividend policy. There can be no assurances that it will adopt a policy that contemplates paying cash dividends or other distributions with respect to our common stock, or authorize share repurchases. In addition, restrictive covenants in certain debt instruments to which we are, or may be, subjecta party, may limit our ability to claims that will not be dischargedpay dividends or engage in the Chapter 11 Cases,share repurchases, which may have a material adverse effect onnegatively impact the trading price of our financial condition and results of operations.common stock.

The Bankruptcy Code provides thatexercise of all or any number of outstanding warrants and the confirmationgrant of aequity awards under our management incentive plan may dilute your holding of reorganization discharges a debtor from substantially all debts arising prior to confirmation. With few exceptions, all claims that arose prior to confirmationshares of our common stock.

As of the plandate of reorganizationfiling this Quarterly Report, we have outstanding (i) would be subjectTier 1 Warrants representing the right to compromise and/acquire in the aggregate up to 2% of shares of our common stock upon exercise, and (ii) Tier 2 Warrants representing the right to acquire in the aggregate up to 3% shares of our common stock upon exercise. The exercise of equity awards, including any stock options that we may grant in the future, and warrants, and the sale of shares of our common stock underlying any such options or treatment under the plan of reorganization and/or (ii) would be discharged in accordance with the terms of the plan of reorganization. Any claims not ultimately discharged through the plan of reorganizationwarrants, could be asserted against the reorganized entities and may have an adverse effect on the market for our financial conditioncommon stock, including the price that an investor could obtain for their shares. Investors may experience dilution in the net tangible book value of their investment upon the exercise of the warrants and results of operations on a post-reorganization basis. Certain claims against the debtor arising after July 15, 2020any stock options that may be entitledgranted or issued pursuant to priority under the Bankruptcy Code along with other claims which may not be subject to discharge bywarrants in the Bankruptcy Court. These claims may have an adverse effect on our results of operations and cash flow.future.

The pursuitFuture sales or the availability for sale of the restructuring transactions under the RSA will consume a substantial portion of the time and attentionamounts of our management, whichcommon stock, or the perception that these sales may have an adverse effect on our business and results of operations, and we may face increased levels of employee attrition.

Although the RSA and RSA Plan are designed to minimize the length of our Chapter 11 proceedings, it is impossible to predict with certainty the amount of time and resources necessary to successfully implement the restructuring transactions contemplated by the RSA. Compliance with the terms of the RSA will involve additional expense and our management will be required to spend a significant amount of time and effort focusing on the proposed transactions. This diversion of attention may materiallyoccur, could adversely affect the conducttrading price of our business,common stock and as a result, our financial condition and results of operations, particularly if the Chapter 11 proceedings are protracted.

As a result of the Chapter 11 Cases, we may experience increased levels of employee attrition, and our employees likely will face considerable distraction and uncertainty. A loss of key personnel or material erosion of our employee morale could adversely affect our business and results of operations.

The implementation of a plan of reorganization is expected to reduce or eliminate our federal and state income tax net operating loss carryforwards and may impair our ability to utilize any remaining net operating loss carryforwards and certain other tax attributes during the current year and inraise capital through future years. Moreover, subsequent transfers of our equity, or issuancessales of equity may further impair our ability to utilize our tax attributes.securities.

Under U.S. federal income tax law, a corporation is generally permittedOur Amended and Restated Certificate of Incorporation authorizes us to offset net taxable income in a given year with net operating losses (NOLs) carried forward from prior years. Asissue 200 million shares of December 31, 2019, we had U.S. federal NOL carryforwards and California NOL carryforwardscommon stock, of approximately $1 billion and $2 billion, respectively. In connection with the restructuring process, our NOL carryforwards and certain other tax attributes are expected to be reduced by the amount of discharge of indebtedness we recognize upon the implementation of a plan of reorganization under Section 108which 83.3 million shares were outstanding as of the Internal Revenue CodeEffective Date. In addition, the Warrants issued pursuant to the Plan are exercisable for up to 5% of 1986,our outstanding common stock on a fully diluted basis as amended (the Code). Further, our ability to utilize any remaining NOL carryforwards to offset future taxable income and to reduce U.S. federal and state income tax liabilities is subject to certain requirements and restrictions. If we experience an "ownership change" during or in connection with the restructuring process, as defined in Section 382 of the Code, then our abilityEffective Date. Shares issued upon exercise of these Warrants will generally be freely transferable without restriction or registration under the Securities Act pursuant to use our NOL carryforwards and certain other tax attributes may also be impaired.Section 1145 of the Bankruptcy Code.

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A corporation generally will experience an ownership change if one or more stockholders (or groupslarge percentage of stockholders) whoour shares of common stock are each deemed to own at least 5%held by a relatively small number of the corporation’s stock increase their ownership by more than 50 percentage points over their lowest ownership percentage withininvestors. We entered into a rolling three-year period. Under Section 382 and Section 383 of the Code, absent an applicable exception, if a corporation undergoes an ownership change, the amount of its NOLsregistration rights agreement with those and other tax attributes that may be used to reduce future U.S. federal and state income tax obligations generally is subject to an annual limitation.

The Bankruptcy Court approved restrictions on certain transfers of our stock to limit the risk of an ownership change prior toinvestors in connection with our emergence from the Chapter 11 Cases. However, we anticipate that the implementationrestructuring. Sales of a plansubstantial number of reorganization will resultshares of our common stock in an ownership change andthe public markets, or even the perception that these sales might occur, could impair our ability to utilizeraise capital through a future sale of, or pay for acquisitions using, our NOL carryforwards and certain other tax attributes may be materially restricted by the resulting annual limitation.

Although an exception to the imposition of an annual limitation can apply in certain Chapter 11 cases under Section 382(l)(5) of the Code, it is currently unknown if a plan of reorganization, once implemented, will meet the requirements of such section or if we will elect out of the application of such section. Moreover, if we apply Section 382(l)(5) of the Code and experience a subsequent ownership change within two years, any remaining net operating losses and certain other tax attributes may be subject to further and more severe limitations.equity securities.

We have concluded there is substantial doubt about our ability to continue as a going concern if we are not able to complete the planmay issue shares of reorganization contemplated by the RSA or another plan of reorganization as part of the Chapter 11 Cases. There can be no assurance that we will be able to successfully restructure our indebtedness and any restructuring could result in holders of certain liabilities and/or securities, including our common stock receiving no distributions on accountor other securities from time to time as consideration for future acquisitions and investments. If any such acquisition or investment is significant, the number of their claimsshares of our common stock, or interests.

Our significant indebtedness, the unprecedented impact tonumber or aggregate principal amount, as the case may be, of other securities that we may issue may in turn be substantial. We may also grant registration rights covering those shares of our financial position resulting from the sharp decreasecommon stock or other securities in commodity prices as a result of the COVID-19 pandemicconnection with any such acquisitions and the actions of foreign producers, and the continued challenging conditions in the credit and capital markets raise substantial doubt regarding our ability to continue as a going concern. As of June 30, 2020, we had approximately $5.1 billion of debt outstanding, and we had cash on hand of approximately $126 million, of which $21 million was restricted.investments.

We believecannot predict the Chapter 11 Cases provide the most expeditious manner in which to deleverage our current capital structure. However, the outcomeeffect that future sales of the Chapter 11 Cases is subject to uncertainty and is dependent upon factors that are outside of our control, including actions of the Bankruptcy Court and our creditors. There can be no assurance that we will be able to reorganize our capital structure on the terms set forth in the RSA or on other terms acceptable to us, our creditors or other stakeholders, or at all.

Priorities among various constituencies of creditors are dictated by the Bankruptcy Code. Unless creditors agree otherwise, pre-petition liabilities and post-petition liabilities must be satisfied in full before stockholders are entitled to receive any distribution or retain any property under a plan of reorganization. The RSA Plan, if approved, will result in holders of common stock receiving no distribution on account of their claims or interests. However, the ultimate recovery to creditors and/or stockholders, if any, will not be determined until the Bankruptcy Court confirms a plan of reorganization. No assurance can be given that the Bankruptcy Court will approve the RSA Plan or what values, if any, will be ascribed to each of our securities or what type or amounts of distributions, if any, our various stakeholders would receive in any restructuring.

Our common stock is quoted on the OTC Pink Market, and thus may have a limited market and lack of liquidity.

Effective July 17, 2020, our common stock began to be quoted on the OTC Pink Market under the ticker symbol "CRCQQ", which may have an unfavorable impact on our stock price and liquidity. The OTC Pink Marketplace is a significantly more limited market than the New York Stock Exchange or the Nasdaq Stock Market. There is no guarantee that active trading in our common stock will develophave on the OTC Pink Market. The quotationprice at which our common stock trades or the size of future issuances of our sharescommon stock or the effect, if any, that future issuances will have on the market price of our common stock. Sales of substantial amounts of our common stock, or the perception that such marketplacesales could occur, may result in a less liquid market availableadversely affect the trading price of our common stock.

Certain provisions of our Charter and our Bylaws may make it difficult for existing and potential stockholders to trade.change the composition of our Board and may discourage, delay or prevent a merger or acquisition that some stockholders may consider beneficial.

Certain provisions of our Amended and Restated Certificate of Incorporation (Charter) and our Amended and Restated Bylaws (Bylaws), both of which were adopted on our Effective Date, may have the effect of delaying or preventing changes in control if our Board determines that such changes in control are not in the best interests of us and our stockholders. The provisions in our Charter and Bylaws include, among other things, those that:


•authorize our Board to issue preferred stock and to determine the price and other terms, including preferences and voting rights, of those shares without stockholder approval;
58
•establish advance notice procedures for nominating directors or presenting matters at stockholder meetings;
•prohibit stockholders from taking actions by written consent and from calling special meetings;
•require a supermajority vote for stockholders to amend certain provisions of the Charter;
•prohibit cumulative voting;
•give the incumbent directors the exclusive power to fix the board size and fill vacancies on the board;
•require a supermajority vote for stockholders to remove any director without cause;
•elect to be subject to Section 203 of the General Corporation Law of the State of Delaware; and
•designate courts in Delaware as the exclusive forum for certain derivative actions and certain other actions against us or our directors and officers.

While these provisions have the effect of encouraging persons seeking to acquire control of CRC to negotiate with our board, they could enable the board to hinder or frustrate a transaction that some, or a majority, of the stockholders may believe to be in their best interests and, in that case, may prevent or discourage attempts to remove and replace incumbent directors. These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board, which is responsible for appointing the members of our management.

Item 5     Other Disclosures

None.

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Item 6 Exhibits
2.1
3.1
3.2
10.1
Second Amendment to Forbearance SeparationAgreement and GeneralRelease, dated as of June 30,August 18, 2020, by and among the Company, the subsidiary guarantors party thereto, certain Lenders identified therein, JPMorgan Chase Bank, N.A., as Administrative Agent, a LenderbetweenMarshallD.Smith and a Letter of Credit Issuer, and Bank of America, N.A., a Lender and a Letter of Credit IssuerCalifornia (filedResources Corporation (filed as Exhibit 10.1 to Registrant’sthe Registrant's Current Report on Form 8-K filed JulyAugust 218,, 2020 and incorporated herein by reference).
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.910.5
10.1010.6
10.7
10.8
10.9
10.11
31.1*
Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
Certifications of CEO and CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
60

99.1
101.INS*Inline XBRL Instance Document.
74

101.SCH*Inline XBRL Taxonomy Extension Schema Document.
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document.
104Cover Page Interactive Data File (formatted in inline XBRL and contained in Exhibits 101).
* - Filed herewith
6175

SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


 CALIFORNIA RESOURCES CORPORATION 

DATE:August 6,November 5, 2020/s/ Roy M. Pineci 
 Roy M. Pineci 
 ExecutiveSenior Vice President - Finance 
(Principal Accounting Officer)

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