California Resources (CRC) files for Chapter 11 bankruptcy

California Resources Corporation (NYSE: CRC) announced it has entered into a Restructuring Support Agreement (“RSA”) with holders of approximately 84% of the Company’s 2017 term loans, 51% of the Company’s 2016 term loans and its Elk Hills midstream joint venture partner, Ares Management L.P. (“Ares”). To implement the terms of the RSA, the Company and certain of its subsidiaries have filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas. Upon plan confirmation, the implementation of the RSA would reduce CRC’s debt substantially, enabling the Company to operate safely through the current downturn in commodity prices and establishing a solid financial foundation to enhance future value creation.

“We have consistently operated within cash flow, significantly reducing the outsized debt burden we inherited from Occidental Petroleum at our December 2014 spin-off. However, today’s unprecedented market conditions, including oversupply and reduced demand due to COVID-19, require that we further reduce our debt through a Chapter 11 process,” said Todd A. Stevens, President and Chief Executive Officer of CRC. “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. We take this role very seriously, and our commitment to ensuring a safe, diverse and resilient supply of energy from California resources will not change.”

Stevens continued: “CRC’s portfolio of world-class, low-decline assets and our integrated infrastructure provide us significant operational flexibility which, coupled with our commitment to displace imported energy with our oil and natural gas production under the most stringent regulations, continues to distinguish us from many oil and gas operators. We have a track record of disciplined financial and operational decisions and, with our strong balance sheet, we won’t need to rely on higher commodity prices to be successful.“

Stevens concluded: “I want to thank our talented and dedicated employees who have continued to go above and beyond, safely producing essential products that underpin our way of life despite COVID-19 and extreme and unprecedented economic and industry challenges.”

Ares has agreed to contribute its equity interests in Elk Hills Power, LLC, which is a joint venture between CRC and a portfolio company of Ares. At emergence, Ares would exchange its joint venture interests for equity and new CRC notes in the reorganized company subject to the terms and conditions of the RSA. The joint venture’s cryogenic gas plant, 500-megawatt power plant and related assets will continue to operate in the ordinary course and upon emergence will be wholly-owned by CRC.

The Company has received a commitment of over $1 billion in debtor-in-possession (“DIP”) financing from certain of its creditors to support its operations through the Chapter 11 process. When approved by the Court, the DIP financing would also be used to fully refinance the Company’s 2014 Revolving Credit Facility. The new DIP financing, combined with CRC’s long-standing strategy to operate within cash flow and existing cash on the balance sheet, will enable CRC to continue operating safely and in the ordinary course during the restructuring process.

CRC has filed customary motions seeking Court approval to pay owner royalties, employee wages and benefits, and certain vendors and suppliers and to meet its obligations in the ordinary course of business.

The Company’s Chapter 11 cases have been filed in the Southern District of Texas (Houston Division). All of the transactions described above are subject to Court approval.

Additional Information

The Company has set up a toll-free hotline to answer questions about this corporate restructuring. The hotline can be accessed by calling (855) 917-3506. The Company has also posted FAQs on its restructuring website at https://dm.epiq11.com/CaliforniaResources.

In connection with the restructuring, Sullivan & Cromwell LLP is serving as legal advisor, Alvarez & Marsal is serving as CRC’s financial advisor and Perella Weinberg Partners is serving as investment banker.

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