All Kern oil companies are having a rough time with low prices lately, but one faces a particularly tough outlook as it tries to stretch lower revenues to cover a looming "wall" of debt payments left from its birth as a spinoff six years ago.
California Resources Corp., a major local employer and recently the state's largest oil producer, said it is weighing its options — a statement many have interpreted as including bankruptcy — following the cancellation of a deal that would have restructured its nearly $5 billion debt.
Market reactions have been harsh, with investors abandoning the company amid analysts' expectations that the company's earnings will worsen in the year ahead.
As far as immediate local implications, the company said last week it has had to slash its employees' work hours to save money after prices fell by a third in early March when a global supply glut coincided with declining demand for energy during the pandemic.
"This hours reduction does not reduce what employees are paid hourly and is designed to maintain our current workforce and avoid layoffs," the company said by email. "CRC’s operators at our plants and fields will continue to safely and reliably produce the energy that is critical to Californians as we weather these difficult times together."
CRC says it employs about 730 employees and 1,700 contractors in Kern County.
President and CEO Todd Stevens told analysts at a Feb. 26 earnings conference that one of the company's main priorities was addressing a "maturity wall" as a substantial amount in loans is scheduled to become due at the end of next year.
The debt largely originated with CRC's spinoff in April 2014 — shortly before the last big drop in oil prices — from Occidental Petroleum Corp. Oxy was headquartered in Los Angeles but moved to Texas after consolidating its California holdings to CRC.
Stevens said during the earnings call CRC was working with its lenders to "level-load our maturities and further strengthen our balance sheet and push (the payment deadlines) out."
Unnamed sources told business news service Bloomberg that an interest payment of $74 million will come due in June of next year.
CRC had pinned its hopes on a bond exchange deal that would have eased its debt pressure. But the transaction had to be canceled March 16 amid unfavorable market conditions.
One week prior to the cancellation, CRC said it was reducing its expenditures to maintain the structural integrity of its facilities.
The statement, basically a sign that investment by the company has all but stopped, was also a reference to the minimal spending necessary on projects such as steam-injection operations that can suffer long-term damage after a temporary shutdown.
Stevens said at that time the situation would not affect CRC's work on long-term projects such as an effort to build an emissions-based carbon capture project at its Elk Hills operation in western Kern.
The initiative, still in early planning stages, is one of the most technologically ambitious projects in the nation to curtail greenhouse gases emissions.
Speaking in the company's defense, Stevens has made the point as recently as the February earnings conference that the company has special value as an owner of oil field assets that decline relatively slowly and whose project portfolio requires little capital as compared with other oil companies.
Meanwhile, the company faces substantial exposure to recent low oil prices, having cashed in the hedges that would otherwise provide a buffer from low prices.
Stock analysts have sounded alarms — three recently lowered their estimates for CRC's future earnings — and shareholders have taken note.
A year ago, CRC's stock was worth $30. On Friday it closed at $1.24, a 12-month decline of about 96 percent.
During the same period, the price of Bakersfield-based oil producer Berry Corp. has fallen 82 percent, while Chevron's is down just 41 percent.
A company spokeswoman emphasized in an email late last week that the company has not decided to file for bankruptcy protection.
Even so, observers see that recourse as being on the table when CRC said last month it was considering all options as it "(fights) hard for the best outcome for our shareholders and other stakeholders."
Spokeswoman Margita Thompson said the company will look at all its options as it works through the downturn.
"We have significant operating flexibility and are focusing on controlling what we can control, including reducing our capital program and operating costs while maintaining our exemplary safety performance," she said by email.