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A Look At The Investment Opportunity In California Resources Corporation Across Its Capital Structure

The Beauty Contest profile picture
The Beauty Contest


  • CRC presents interesting investment opportunities across its capital structure (equities and 2nd lien bonds).
  • CRC has a huge asset base, with 618Mboe of proved reserves, most of them (71%) already developed – so the full costs per barrel to extract them are lower.
  • CRC has also a collection of midstream assets that the company has just started monetizing. This value  can be further unlocked if needed if market conditions deteriorate.
  • Inexpensive valuation through the 2nd lien tranche: at a price of 77 for the bonds, the company is created at an EV of $4.0bn, 4x of what I consider a mid-cycle EBITDA and 6.47$/boe of 2P reserves.
  • Recent Elk Hills transaction provides additional leverage to the equity story.

Investment thesis

California Resources Corporation (CRC) is a US oil and natural gas producer that operates in California, being the largest producer in this region on a gross-operated basis. Since its spin-off from Occidental Petroleum (OXY) in 2014, CRC has had a tough time navigating the tough oil environment, but so far, it has been able to survive adapting its cost base and using the flexibility of its massive asset base.

CRC is a well-known story among Seeking Alpha readers, because it has been extensively covered in the past by many contributors. The purpose of this article is to review CRC's capital structure after its transactions with Ares (ARCC) and Chevron (CVX) and to assess the investment opportunity both for shareholders and bondholders. This article will also analyse CRC's prospects under three oil price scenarios, so the readers can decide whether the investment is attractive given an oil price outlook. My conclusion is that CRC's 2nd lien bonds maturing in '22 (CUSIP: 13057QAG2) are a very attractive investment opportunity for risk averse investors with huge downside protection, and that CRC equity is the best vehicle available in the oil space if one thinks oil price will continue to march higher - although the upside is not as huge as many commentators have assumed here, mainly due to the fact that CRC barrel of oil equivalent sells at a huge discount vs. Brent (around 30%) and that management capital allocation decisions have been, in general, quite mediocre.

Brief history of the company and description of the assets

CRC was spun off from OXY in 2014, which was put into CRC under a single roof all its Californian assets. Because of the transaction, OXY received $6bn in dividends and CRC assumed a massive amount of debt to finance the payment. Within a $100 oil price environment, the debt at

This article was written by

The Beauty Contest profile picture
Ph.D., CFA. Experience in asset management, corporate finance and macroeconomics. Areas of expertise: macroeconomics, economic modelling, finance, high yield, equity valuation, value investing and commodities.

Analyst’s Disclosure: I am/we are long CRC 2ND LIEN BONDS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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