California Resources Corp., a major local employer and one of the state's largest oil producers, filed Chapter 11 bankruptcy protection Wednesday after reaching a series of creditor agreements it said will restructure $5 billion in debt and allow it to emerge a financially healthier company.
The bankruptcy filing is expected to allow Santa Clarita-based CRC to continue operating while it puts behind it the financial struggles that caused it to miss multiple deadlines recently for making $30 million in interest payments.
“CRC will emerge from Chapter 11 as a strong, healthy company committed to providing Californians with safe, affordable, reliable and locally produced energy, good-paying jobs and millions of dollars in annual government revenues for vital public services for many years to come," President and CEO Todd A. Stevens said in a statement issued shortly after 6 p.m.
While the announcement was not entirely unexpected — it had been reported CRC was planning a bankruptcy filing and the company warned in May it might not survive — word that it would seek to restructure its debts rather than liquidate its assets was good news for the 730 employees and 1,700 contractors it reported having in Kern County in May.
It was also a positive outcome for state regulators who had been monitoring news out of CRC lately because of concern the company's deteriorating financial condition could jeopardize its ability to fulfill environmental protection obligations.
Officials with California's Geologic Energy Management Division said a Chapter 11 filing offers reassurance the company will remain in existence to continue protecting oilfields it operates from groundwater contamination and unchecked methane emissions from abandoned wells.
The agency's leader, State Oil and Gas Supervisor Uduak-Joe Ntuk, said in a written statement the filing doesn't reduce CRC's obligation to comply with California regulations and pay its annual assessments.
"CalGEM has taken steps to prepare for developments like this and will continue its oversight of CRC’s facilities and operations to ensure ongoing protection of public health, safety and the environment," Ntuk stated.
CRC's outlook has only worsened in recent months after a sharp decline in oil prices dashed hopes the company would be able to come to an agreement in March with its debtors to restructure the $5 billion in debts, much of which was scheduled to mature in late 2021.
Earlier this year, low oil prices and heavy debt forced the company to shut in oil production, slash capital projects and cut its workers' hours.
Then, on July 7, Moody's Investors Service downgraded CRC's debt and rated its outlook negative, saying the oil producer has "weak liquidity."
But, presciently, Moody's held out hope, saying that although an upgrade appears unlikely in the near term, one would be considered "if CRC satisfactorily addresses 2021 debt maturities and shores up its liquidity."
CRC's news release said the arrangement it made with its largest lenders, called a restructuring support agreement, would not only eliminate the company's looming debt burden but would also consolidate its ownership of its Elk Hills power plant and cryogenic plant in western Kern.
The deal, which would have to be approved in federal bankruptcy court, calls for $1.1 billion in financing expected to help it exit Chapter 11 in good financial shape. The arrangement also fully refinances the company's 2014 revolving loan facility, used to cover various expenses.
Its Wednesday evening news release also stated the company has filed for permission to pay owner royalties, employee wages and benefits "and certain vendors and suppliers and to meet its obligations in the ordinary course of business."
For regulators and environmentalists, a primary concern in recent months has been the ability of financially faltering oil producers such as CRC to live up to their statutory obligations.
CalGEM officials have emphasized CRC remains in compliance with state requirements for posting bonds covering the cost of plugging abandoned wells. In fact, they noted two organizations controlled by the company paid $3.6 million in idle well fees in May and June.
A state law that took effect July 1 allows CalGEM to collect up to $30 million per company to ensure there are sufficient financial resources available for plugging so-called orphaned wells if their owners fold and lack the money to fulfill their cleanup obligations.
Agency officials said that, by their count, CRC has seven companies, each of which might be tapped to contribute cleanup money if necessary.
But if for some reason CRC were unable to cover its costs of taking care of idle wells, or if those wells were sold to a smaller company that couldn't pay such expenses, then they said the state could try collecting the money from Occidental Petroleum Corp., the Texas-based company that spun off CRC in 2014.
They added the state has $14 million in a last-resort account set up to properly plug and abandon idle wells deserted by their owners. CalGEM said it can spend up to $3 million per year from the fund to pay oilfield service companies to plug orphaned wells.
As an alternative to paying into the orphaned well fund, oil producers can put together a multi-year plan for eliminating their idle wells. Any pursuing that option must plug 5 percent of the wells in the first year of the plan, 15 percent the next year and so on until, over six years, all idle wells have been properly abandoned.
CalGEM said two of CRC's seven companies, CRC Elk Hills and CRC Corp., are paying into the orphan well fund. The agency said the other five — including Tidelands Production Co., THUMS Long Beach, and CRC Long Beach — have opted to produce and abide by idle well management plans.