Notes to Consolidated and Combined Financial Statements
NOTE 1 THE SPIN-OFF, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER
The Separation and Spin-off
We are an independent oil and natural gas exploration and production company operating properties within the state of California. We were incorporated in Delaware as a wholly owned subsidiary of Occidental Petroleum Corporation (Occidental) on April 23, 2014, and remained a wholly owned subsidiary of Occidental until November 30, 2014. Prior to November 30, 2014, all material existing assets, operations and liabilities of Occidental's California business were consolidated under us. On November 30, 2014, Occidental distributed shares of our common stock on a pro-rata basis to Occidental stockholders and we became an independent, publicly traded company (the Spin-off). Occidental initially retained approximately 18.5% of our outstanding shares of common stock, which it distributed to Occidental stockholders on March 24, 2016.
Except when the context otherwise requires or where otherwise indicated, (1) all references to ‘‘CRC,’’ the ‘‘Company,’’ ‘‘we,’’ ‘‘us’’ and ‘‘our’’ refer to California Resources Corporation and its subsidiaries or the California business, (2) all references to the ‘‘California business’’ refer to Occidental’s California oil and gas exploration and production operations and related assets, liabilities and obligations, which we have assumed in connection with the Spin-off, and (3) all references to ‘‘Occidental’’ refer to Occidental Petroleum Corporation, our former parent, and its subsidiaries.
Basis of Presentation
Until the Spin-off, the accompanying financial statements were derived from the consolidated financial statements and accounting records of Occidental and were presented on a combined basis for the pre-Spin-off periods. These financial statements reflect the historical results of operations, financial position and cash flows of the California business. All financial information presented after the Spin-off consists of our stand-alone consolidated results of operations, financial position and cash flows. We account for our share of oil and gas exploration and production 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 the balance sheets and statements of operations and cash flows.
The statements of operations for periods prior to the Spin-off include expense allocations for certain corporate functions and centrally-located activities historically performed by Occidental. These functions include executive oversight, accounting, treasury, tax, financial reporting, finance, internal audit, legal, risk management, information technology, government relations, public relations, investor relations, human resources, procurement, engineering, drilling, exploration, marketing, ethics and compliance, and certain other shared services. These allocations were based primarily on specific identification of time or activities associated with us, employee headcount or our relative size compared to Occidental. Our management believes the assumptions underlying the financial statements, including the assumptions regarding allocating expenses from Occidental, are reasonable. However, the financial statements for the pre-Spin-off periods may not include all of the actual expenses that would have been incurred, may include duplicative costs and may not reflect our results of operations, financial position and cash flows had we operated as a stand-alone public company during the periods presented. Actual costs that would have been incurred if we had been a stand-alone company prior to the Spin-off would depend on multiple factors, including organizational structure and strategic and operating decisions.
The assets and liabilities in the consolidated and combined financial statements are presented on a historical cost basis. We have eliminated all of our significant intercompany transactions and accounts. Prior to the Spin-off, we participated in Occidental’s centralized treasury management program and had not incurred any debt. Additionally, excess cash generated by our business was distributed to Occidental, and likewise our cash needs were provided by Occidental in the form of contributions.
All financial information represents our post Spin-off stand-alone consolidated financial position, results of operations and cash flows, except as follows:
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Our consolidated and combined statements of operations, comprehensive income and cash flows for the year ended December 31, 2014 consist of the consolidated results for the month ended December 31, 2014 and the combined results of the California business prior to the Spin-off.
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Our consolidated and combined statement of changes in equity for the year ended December 31, 2014 consists of both the California business prior to the Spin-off and our consolidated activity subsequent to the Spin-off.
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Had we been a stand-alone company for the full year 2014, and had the same level of debt throughout the year as we did on December 31, 2014, of approximately $6.4 billion, we would have incurred $314 million of interest expense, on a pro-forma basis, for the year ended December 31, 2014, compared to the $72 million pre-tax interest expense reported in our statement of operations for the year then ended.
Certain prior year amounts have been reclassified to conform to the 2016 presentation. In 2016, we reclassified net derivative gains (losses) out of other revenue to its own line item. Prior period gains (losses) on debt transactions were reclassified from other expenses, net, to gains on early extinguishment of debt. We also reclassified transaction costs related to our 2015 debt exchange from other expenses, net, to other non-operating income (expense). The current portion of deferred taxes of $59 million as of December 31, 2015 was also reclassified from other current assets to other assets in accordance with the retrospective application of recently adopted accounting rules.
Risks and Uncertainties
The process of preparing financial statements in conformity with United States generally accepted accounting principles requires management to make informed estimates and judgments regarding certain types of financial statement balances and disclosures. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements and judgments on expected outcomes as well as the materiality of transactions and balances. Changes in facts and circumstances or discovery of new information relating to such transactions and events may result in revised estimates and judgments and actual results may differ from estimates upon settlement. Management believes that these estimates and judgments provide a reasonable basis for the fair presentation of our financial statements.
Revenue Recognition
We recognize revenue from oil and natural gas production when title has passed from us to the transportation company or the customer, as applicable. We recognize our share of revenues net of any royalties and other third-party share.
Net Parent Company Investment
Prior to the Spin-off, our balance sheets included net parent company investment, which represented Occidental's historical investment in us, our accumulated net income and the net effect of transactions with, and allocations from, Occidental.
Inventories
Materials and supplies are valued at weighted-average cost and are reviewed periodically for obsolescence. Finished goods include oil and natural gas products, which are valued at the lower of cost or market.
Property, Plant and Equipment
The carrying value of our property, plant and equipment (PP&E) represents the cost incurred to acquire or develop the asset, including any asset retirement obligations and capitalized interest, net of accumulated depreciation, depletion and amortization (DD&A) and any impairment charges. For assets acquired, initial PP&E cost is based on fair values at the acquisition date. Asset retirement obligations are capitalized and amortized over the lives of the related assets.
We use the successful efforts method to account for our oil and gas properties. Under this method, we capitalize costs of acquiring properties, costs of drilling successful exploration wells and development costs. The costs of exploratory wells, including permitting, land preparation and drilling costs, are initially capitalized pending a determination of whether we find proved reserves. If we find proved reserves, the costs of exploratory wells remain capitalized. Otherwise, we charge the costs of the related wells to expense. In some cases, we cannot determine whether we have found proved reserves at the completion of exploration drilling, and must conduct additional testing and evaluation of the wells. We generally expense the costs of such exploratory wells if we do not determine we have found proved reserves within a 12-month period after drilling is complete.
The following table summarizes the activity of capitalized exploratory well costs for the years ended December 31:
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2016
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2015
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2014
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(in millions)
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Balance - beginning of year
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$
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6
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$
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4
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$
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18
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Additions to capitalized exploratory well costs pending the determination of proved reserves
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1
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16
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3
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Reclassification to property, plant and equipment based on the determination of proved reserves
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—
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(5
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)
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(8
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)
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Capitalized exploratory well costs charged to expense
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(3
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)
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(9
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)
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(9
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)
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Balance - end of year
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$
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4
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$
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6
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$
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4
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We expense annual lease rentals; the costs of injection used in production and exploration; and geological, geophysical and seismic costs as incurred. Costs of maintenance and repairs are expensed as incurred, except that the costs of replacements that expand capacity or add proven oil and gas reserves are capitalized.
We determine depreciation and depletion of oil and gas producing properties by the unit-of-production method. We amortize acquisition costs over total proved reserves, and capitalized development and successful exploration costs over proved developed reserves. Substantially all of our total depreciation, depletion and amortization expense relates to production costs.
Proved oil and gas reserves and production volumes are used as the basis for recording depreciation and depletion of oil and gas properties. Proved reserves are those quantities of oil and natural gas which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. We have no proved oil and gas reserves for which the determination of economic producibility is subject to the completion of major additional capital investments.
Our gas plant and power plant assets are depreciated over the estimated useful lives of the assets, using the straight-line method, with expected initial useful lives of the assets ranging from two to 30 years. Other non-producing property and equipment is depreciated using the straight-line method based on expected initial lives of the individual assets or group of assets ranging from two to 20 years.
We perform impairment tests with respect to proved properties when product prices decline other than temporarily, reserves estimates change significantly, other significant events occur or management's plans change with respect to these properties in a manner that may impact our ability to realize the recorded asset amounts. Impairment tests incorporate a number of assumptions involving expectations of undiscounted future cash flows, which can change significantly over time. These assumptions include estimates of future product prices, which we base on forward price curves and, when applicable, contractual prices, estimates of oil and gas reserves and estimates of future expected operating and development costs. Any impairment loss would be calculated as the excess of the asset's net book value over its estimated fair value. We recognize any impairment loss on proved properties by adjusting the carrying amount of the asset.
A portion of the carrying value of our oil and gas properties is attributable to unproved properties. We evaluate these properties, in part, based on year-end forward price curves as well as assessing projects we determined we would not pursue in the foreseeable future. At
December 31, 2016
, the net capitalized costs attributable to unproved properties were approximately $300 million. The unproved amounts are not subject to DD&A until they are classified as proved properties. As exploration and development work progresses, if reserves on these properties are proved, capitalized costs attributable to the properties become subject to DD&A. If the exploration and development work were to be unsuccessful, or management decided not to pursue development of these properties as a result of lower commodity prices, higher development and operating costs, contractual conditions or other factors, the capitalized costs of the related properties would be expensed. The timing of any write-downs of these unproved properties, if warranted, depends upon management's plans, the nature, timing and extent of future exploration and development activities and their results. We recognize any impairment loss on unproved properties by providing a valuation allowance.
At year-end 2015, we performed impairment tests with respect to our proved and unproved properties triggered by the sharp drop in oil prices in the fourth quarter of 2015. As a result, in the fourth quarter of 2015, we recorded pre-tax asset impairment charges of $4.9 billion on certain proved and unproved properties throughout our asset base. Approximately $100 million of the charge was related to unproved properties.
At year-end 2014, we performed impairment tests with respect to our proved and unproved properties as a result of significant declines in oil prices largely during the last half of 2014. As a result, in the fourth quarter of 2014, we recorded pre-tax asset impairment charges of $3.4 billion on certain proved and unproved properties throughout our asset base. Approximately $650 million of the charge was related to unproved properties.
Asset Retirement Obligations
We recognize the fair value of asset retirement obligations in the period in which a determination is made that a legal obligation exists to dismantle an asset and reclaim or remediate the property at the end of its useful life and the cost of the obligation can be reasonably estimated. The liability amounts are based on future retirement cost estimates and incorporate many assumptions such as time to abandonment, technological changes, future inflation rates and the risk-adjusted discount rate. When the liability is initially recorded, we capitalize the cost by increasing the related PP&E balances. If the estimated future cost of the asset retirement obligation changes, we record an adjustment to both the asset retirement obligation and PP&E. Over time, the liability is increased and expense is recognized for accretion, and the capitalized cost is depreciated over the useful life of the asset.
At certain of our facilities, we have identified asset retirement obligations that are related mainly to plant and field decommissioning, including plugging and abandonment of wells. In certain cases, we do not know or cannot estimate when we may settle these obligations and, therefore, we cannot reasonably estimate the fair value of these liabilities. We will recognize these asset retirement obligations in the periods in which sufficient information becomes available to reasonably estimate their fair values. Additionally, for certain plants, we do not have a legal obligation to decommission them and accordingly we have not recorded a liability.
The following table summarizes the activity of our asset retirement obligation, of which
$397 million
and
$343 million
is included in other long-term liabilities, with the remaining current portion in accrued liabilities at
December 31, 2016
and
2015
, respectively.
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For the years ended December 31,
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2016
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2015
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(in millions)
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Beginning balance
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$
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357
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$
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415
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Liabilities incurred - capitalized to PP&E
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2
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7
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Liabilities settled and paid
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(10
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)
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(18
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)
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Accretion expense
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22
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20
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Disposition and other - changes in PP&E
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(17
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)
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—
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Revisions to estimated cash flows - changes in PP&E
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57
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(67
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)
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Ending balance
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$
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411
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$
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357
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Derivative Instruments
Our derivatives are carried at fair value and on a net basis when a legal right of offset exists with the same counterparty. Fair value gains and losses from derivative instruments are recognized in earnings in the current period and are reported on a net basis in the statements of operations.
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 necessarily accounted for as cash-flow or fair-value hedges.
Stock-Based Incentive Plans
We have stockholder approved stock-based incentive plans for certain employees and directors that are more fully described in Note 10. A summary of our accounting policy for awards issued under our plans is as follows.
The fair value of stock options is measured on the grant date using the Black-Scholes option valuation model and expensed on a straight-line basis over the vesting period. The model uses various assumptions, based on management's estimates at the time of grant, which impact the calculation of fair value and ultimately the amount of expense recognized over the vesting period of the stock option award. The expected life of stock options is calculated based on the simplified method and represents the period of time that options granted are expected to be held prior to exercise. In the absence of adequate stock price history of our common stock, the volatility factor was based on the average volatilities of the stocks of a select group of peer companies. The risk-free interest rate is the implied yield available on zero-coupon United States (U.S.) Treasury notes at the grant date with a remaining term approximating the expected life. The dividend yield is the expected annual dividend yield over the expected life, expressed as a percentage of the stock price on the grant date. Of the required assumptions, the expected life of the stock option award and the expected volatility have the most significant impact on the fair value calculation. Estimates of fair value are not intended to, and may not, accurately predict the value ultimately realized by employees who receive the awards, and the ultimate value may not be indicative of the reasonableness of the original estimates of fair value made by us.
The performance targets under the 2015 Performance Stock Unit (PSU) awards are based 50% on achievement of specified Value Creation Index (VCI) results and 50% on total stockholder return (TSR) relative to a selected peer group of companies over specified multi-year performance periods, with payouts ranging from 0% to 200% of the target award. The awards were originally cash-settled awards accounted for as liability awards until they were modified in 2016 and became stock-settled awards accounted for as equity awards. Dividend equivalents, if any, declared during the vesting period are accumulated and paid upon certification, for the number of vested shares.
Prior to the modification, the fair value of the VCI-based portions of the PSU were initially determined on the grant date based on an estimated performance achievement at the target level. Additionally, the fair value of the TSR-based portions of the PSU were initially determined on the grant date using a Monte Carlo simulation model based on applicable assumptions. The volatility is derived from corresponding peer group companies, which we used in the absence of adequate stock price history for our common stock. The expected life is based on the vesting period of the award. The risk-free rate is the implied yield available on zero-coupon U.S. Treasury notes at the time of grant and subsequent measurement periods with a remaining term equal to the remaining term of the awards. The dividend yield is the expected annual dividend yield over the term, expressed as a percentage of the stock price on the valuation date. Estimates of fair value are not intended to, and may not, accurately predict the value ultimately realized by the employees who receive the awards, and the ultimate value may not be indicative of the reasonableness of the original estimates of fair value made by us. The fair values were then recognized on a straight-line basis over the requisite service period, adjusted for actual forfeitures. Compensation expense was adjusted quarterly, on a cumulative basis, for any changes in the number of share equivalents expected to be paid based on the relevant performance criteria. All such performance or stock-price-related changes were recognized in compensation expense.
On the modification date, the fair value of the PSUs was redetermined based on target-level VCI and TSR Monte Carlo results as of that date. The resulting fair value is being recognized as compensation expense on a straight-line basis over the remaining requisite service period, adjusted for actual forfeitures.
For cash-settled restricted stock units (RSU), compensation value is initially measured on the grant date using the quoted market price of our common stock, which is then recognized on a straight-line basis over the requisite service periods, adjusted for actual forfeitures. Compensation expense is adjusted on a quarterly basis for the cumulative changes in the value of the underlying stock.
For stock-settled RSU and restricted stock awards, compensation value is initially measured on the grant date using the quoted market price of our common stock, which is then recognized on a straight-line basis over the requisite service periods, adjusted for actual forfeitures.
For performance-based restricted stock awards, compensation value is initially measured on the grant date using the quoted market price of our common stock and estimated performance achievement based on a cumulative EBITDA target, which is then recognized on a straight-line basis over the requisite service period, adjusted for actual forfeitures.
For all of our awards with nonforfeitable dividend rights (except for PSU awards noted above), dividends or dividend equivalents declared during the vesting period are paid as declared.
Earnings Per Share
We compute basic earnings per share (EPS) by dividing net income available to common stockholders by the weighted-average common shares outstanding during the period and compute diluted EPS by dividing earnings available to common stockholders by the weighted-average shares outstanding during the period and the impact of securities that, if exercised, would have a dilutive effect on EPS.
We compute basic EPS under the two-class method, which is a method of computing EPS when an entity has both common stock and participating securities. We consider unvested restricted stock as a participating security if it contains rights to receive non-forfeitable dividends at the same rate as common stock. Under the two-class method, we exclude any income and distributions attributable to participating securities from the calculation of basic and diluted EPS and exclude the participating securities from the weighted-average shares outstanding.
Retirement and Postretirement Benefit Plans
Prior to the Spin-off, a majority of our employees participated in postretirement benefit plans sponsored by Occidental, which included participants from other Occidental subsidiaries. These plans had an insignificant amount of assets and were substantially funded as benefits were paid. We recognized a liability in the accompanying balance sheets for the employees of the California business. The related postretirement expenses were allocated to us from Occidental based on the employees of the California business. Following the Spin-off, all of our employees participate in postretirement benefit plans sponsored by us. These plans are funded as benefits are paid.
For defined benefit pension and postretirement plans that are sponsored by us, we recognize the net overfunded or underfunded amounts in the financial statements using a December 31 measurement date.
We determine our defined benefit pension and postretirement benefit plan obligations based on various assumptions and discount rates. The discount rate assumptions used are meant to reflect the interest rate at which the obligations could effectively be settled on the measurement date. We estimate the rate of return on assets with regard to current market factors but within the context of historical returns.
Pension plan assets are measured at fair value. Publicly registered mutual funds are valued using quoted market prices in active markets. Commingled funds are valued at the fund units’ net asset value (NAV) provided by the issuer, which represents the quoted price in a non-active market. Guaranteed deposit accounts are valued at the book value provided by the issuer.
Actuarial gains and losses that have not yet been recognized through income are recorded in accumulated other comprehensive income within equity, net of taxes, until they are amortized as a component of net periodic benefit cost.
Fair Value Measurements
We have categorized our assets and liabilities that are measured at fair value in a three-level fair value hierarchy, based on the inputs to the valuation techniques: Level 1—using quoted prices in active markets for the assets or liabilities; Level 2—using observable inputs other than quoted prices for the assets or liabilities; and Level 3—using unobservable inputs. Transfers between levels, if any, are recognized at the end of each reporting period. We apply the market approach for certain recurring fair value measurements, maximize our use of observable inputs and minimize use of unobservable inputs. We generally use an income approach to measure fair value when observable inputs are unavailable. This approach utilizes management's judgments regarding expectations of projected cash flows and discounts those cash flows using a risk-adjusted discount rate.
Commodity derivatives are carried at fair value. We utilize the mid-point between bid and ask prices for valuing these instruments. In addition to using market data in determining these fair values, we make assumptions about the risks inherent in the inputs to the valuation technique. Our commodity derivatives comprise over-the-counter (OTC) bilateral financial commodity contracts, which are generally valued using industry-standard models that consider various inputs, including quoted forward prices for commodities, time value, volatility factors, credit risk and current market and contracted prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these inputs are observable data or are supported by observable prices at which transactions are executed in the marketplace. We classify these measurements as Level 2.
Our property, plant and equipment is written down to fair value if we determine that there has been an impairment in its value. The fair value is determined as of the date of the assessment using discounted cash flow models based on management’s expectations for the future. Inputs include estimates of future production, prices based on commodity forward price curves as of the date of the estimate, estimated future operating and development costs and a risk-adjusted discount rate.
The carrying amounts of cash and other on-balance sheet financial instruments, other than fixed-rate debt, approximate fair value.
Income Taxes
Until the Spin-off, our taxable income was historically included in the consolidated U.S. federal income tax returns of Occidental and in a number of their consolidated state income tax returns. In the accompanying financial statements, our provision for income taxes through the Spin-off is computed as if we were a stand-alone tax-paying entity.
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their tax bases. Deferred tax assets are recorded when it is more likely than not that they will be realized. We periodically assess our deferred tax assets and reduce such assets by a valuation allowance if we deem it is more likely than not that some portion or all of the deferred tax assets will not be realized.
We recognize interest and penalties, if any, related to uncertain tax positions as a component of the income tax provision. No interest or penalties related to uncertain tax positions were recognized in the financial statements for the periods presented.
Other Current Assets
Other current assets at
December 31, 2016
and 2015 included net amounts due from joint interest partners of
$44 million
and
$42 million
, derivative assets from commodities contracts of
$39 million
and
$87 million
and prepaid expenses of
$14 million
and
$26 million
, respectively.
Accrued Liabilities
Accrued liabilities reflected derivative liabilities from commodities contracts of
$103 million
and
$1 million
at
December 31, 2016
and 2015, respectively; greenhouse gas obligations of
$89 million
and
$6 million
at
December 31, 2016
and 2015, respectively; accrued employee-related costs of
$91 million
and
$105 million
at
December 31, 2016
and 2015, respectively, and accrued interest of
$25 million
and
$39 million
at
December 31, 2016
and 2015, respectively.
Supplemental Cash Flow Information
We have not made United States federal and state income tax payments in 2016 and 2015 due to the taxable loss we incurred. Until the Spin-off, our share of Occidental's tax payments or refunds were paid or received, as applicable, by Occidental. During the year ended December 31, 2014, Occidental paid approximately $165 million on our behalf. We also paid taxes other than on income, consisting mostly of property taxes, of approximately $115 million, $154 million and $183 million during the years ended
December 31, 2016
, 2015 and 2014, respectively. Interest paid totaled approximately $384 million, $359 million and $3 million, respectively, for the years ended
December 31, 2016
, 2015 and 2014.
In 2014, Occidental transferred to us certain assets, liabilities and accruals, of which the most significant consisted of outstanding trade receivables of approximately $400 million. These non-cash transfers and the corresponding net contribution to us from Occidental were excluded from net cash provided by operating activities and cash flow from financing activities.
Major Customers
For the year ended
December 31, 2016
, Phillips 66 Company, Tesoro Refining & Marketing Company LLC, Valero Marketing & Supply Company and Shell Trading (US) Company each accounted for at least 10%, and, collectively,
67%
of our revenue. For the year ended December 31, 2015, Phillips 66 Company, Tesoro Refining & Marketing Company LLC and Valero Marketing & Supply Company each accounted for at least 10%, and collectively,
64%
of our revenue. For the year ended December 31,
2014
, ConocoPhillips/Phillips 66 Company and Tesoro Refining & Marketing Company LLC each accounted for at least 10%, and, collectively,
45%
of our revenue.
Reverse Stock Split
We completed a reverse stock split on May 31, 2016 using a ratio of one share of common stock for every ten shares then outstanding. Share and per share amounts included in this report have been restated to reflect this reverse stock split.
The split proportionally decreased the number of authorized shares of common stock from 2.0 billion shares to 200 million shares and preferred stock from 200 million to 20 million shares. The compensation committee of our board approved proportionate adjustments to the number of shares outstanding and available for issuance under our stock-based compensation plans and to the exercise price, grant price or purchase price relating to any award under the plans, using the same reverse-split ratio, pursuant to existing authority granted to the committee under the plans.
NOTE 2 ACCOUNTING AND DISCLOSURE CHANGES
Recently Issued Accounting and Disclosure Changes
During 2016, the Financial Accounting Standards Board (FASB) issued rules clarifying the new revenue recognition standard issued in 2014. Under the new standard, an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard also requires more detailed disclosures related to the nature, timing, amount and uncertainty of revenue and cash flows arising from contracts with its customers. We will adopt these rules when they become effective for interim and annual reporting periods beginning with our first quarter of 2018. We believe the implementation of these rules will not have a material impact on the timing or net amounts of our recurring commodity sales. However, we will enhance our disclosures to meet the new requirements.
In August 2016, the FASB issued rules that modify how certain cash receipts and cash payments are presented and classified in the statement of cash flows. These rules are effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years, with earlier adoption permitted. We are currently evaluating the impact of these rules on our financial statements.
In June 2016, the FASB issued rules that change how entities will measure credit losses for certain financial assets and other instruments that are not measured at fair value. These rules are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the impact of these rules on our financial statements.
In February 2016, the FASB issued rules requiring lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months and to include qualitative and quantitative disclosures with respect to the amount, timing, and uncertainty of cash flows arising from leases. These rules will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with earlier application permitted. We are currently evaluating the impact of these rules on our financial statements.
In January 2016, the FASB issued rules that modify how entities measure equity investments and present changes in the fair value of financial liabilities. Unless the investments qualify for a practicality exception, the new rules require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under the equity method of accounting or those that result in consolidation of the investee). Entities will have to record changes in instrument-specific credit risk for financial liabilities measured under the fair value option in other comprehensive income. These new rules become effective for fiscal years beginning after December 15, 2017 with no early adoption permitted. We do not expect the adoption of these rules to have a significant impact on our financial statements.
Recently Adopted Accounting and Disclosure Changes
In March 2016, the FASB simplified several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. We adopted these rules in 2016 with no material changes reflected in our financial statements.
In November 2015, the FASB issued rules requiring that deferred income tax liabilities and assets be classified as noncurrent in a classified balance sheet. We adopted the new rule in 2016 and reclassified the current portion of deferred tax assets of $59 million as of December 31, 2015 from other current assets to other assets.
In August 2014, the FASB issued rules relating to management's responsibility to evaluate and make disclosures, if applicable, regarding the entity's ability to continue as a going concern within one year after the date that the financial statements are issued. We adopted these rules in 2016 with no material changes reflected in our financial statements.
In June 2014, the FASB issued rules for employee share-based payment awards in which the terms of the awards provide that a performance target can be achieved after the requisite service period. A performance target that affects vesting and that could be achieved after the requisite service period will be treated as a performance condition. We adopted these rules in 2016 with no material changes reflected in our financial statements.
NOTE 3 ACQUISITIONS AND DIVESTITURES
In February 2017, we divested non-core assets resulting in $32 million of proceeds. Additionally, we entered into a joint venture with a third party that is committed to invest $50 million initially and up to an additional $200 million subject to agreement of the parties. The funds will be used to develop certain of our oil and gas properties in exchange for a contribution of a net profits interest in such properties. After the investor achieves its targeted rate of return, the interests revert back to us.
2016
During the year ended December 31, 2016, there were no acquisitions. However, we divested non-core assets resulting in $20 million of proceeds and a $30 million gain included in other non-operating income (expense).
2015
During the year ended December 31, 2015, we paid approximately $140 million to acquire certain producing and non-producing oil and gas properties, primarily in the San Joaquin basin.
2014
During the year ended December 31, 2014, we paid approximately $290 million to acquire certain producing and non-producing oil and gas properties, including oil and gas properties in the Ventura basin purchased for approximately $200 million in the fourth quarter of 2014.
NOTE 4 INVENTORIES
Inventories consisted of the following:
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|
|
|
|
|
|
|
Balance at December 31,
|
|
2016
|
|
2015
|
|
(in millions)
|
Materials and supplies
|
$
|
55
|
|
|
$
|
55
|
|
Finished goods
|
3
|
|
|
3
|
|
Total
|
$
|
58
|
|
|
$
|
58
|
|
NOTE 5 DEBT
Debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
|
(in millions)
|
2014 First-Out Credit Facilities (Secured First Lien)
|
|
|
|
Revolving Credit Facility
|
$
|
847
|
|
|
$
|
739
|
|
Term Loan Facility
|
650
|
|
|
1,000
|
|
2016 Second-Out Credit Agreement (Secured First Lien)
|
1,000
|
|
|
—
|
|
Senior Notes (Secured Second Lien)
|
|
|
|
8% Notes Due 2022
|
2,250
|
|
|
2,250
|
|
Senior Unsecured Notes
|
|
|
|
5% Notes Due 2020
|
193
|
|
|
433
|
|
5½% Notes Due 2021
|
135
|
|
|
829
|
|
6% Notes Due 2024
|
193
|
|
|
892
|
|
Total Debt - Principal Amount
|
5,268
|
|
|
6,143
|
|
Less Current Maturities of Long-Term Debt
|
(100
|
)
|
|
(100
|
)
|
Long-Term Debt - Principal Amount
|
$
|
5,168
|
|
|
$
|
6,043
|
|
At
December 31, 2016
, deferred gain and issuance costs were
$397 million
net, consisting of $489 million of deferred gains offset by $92 million of deferred issuance costs and original issue discounts. The December 31, 2015 deferred gain and issuance costs were $491 million net, consisting of $560 million of deferred gains offset by $69 million of deferred issuance costs.
Credit Facilities
2014 First-Out Credit Facilities
Our first-lien, first-out credit facilities (2014 First-Out Credit Facilities) comprise (i) a
$650 million
senior term loan facility (the Term Loan Facility) and (ii) a $1.4 billion senior revolving loan facility (the Revolving Credit Facility). We are permitted to increase the size of the Revolving Credit Facility by up to $250 million if we obtain additional commitments from new or existing lenders. The facilities mature at the earlier of November 2019 and the 182
nd
day prior to the maturity of our 5% senior unsecured notes due January 15, 2020 (2020 notes), to the extent more than $100 million of such notes remain outstanding at such date. The Revolving Credit Facility includes a sub-limit of $400 million for the issuance of letters of credit. Our credit limit under our 2014 First-Out Credit Facilities is $2.05 billion. Borrowings under these facilities are also subject to a borrowing base, which was reaffirmed at $2.3 billion as of November 1, 2016.
As of
December 31, 2016
and 2015, we had outstanding borrowings of
$847 million
and $739 million under our Revolving Credit Facility, and
$650 million
and
$1 billion
under the Term Loan Facility, respectively. At
December 31, 2016
, we had $1 billion outstanding under a new first-lien, second-out term loan credit facility (2016 Second-Out Credit Agreement). We made payments on the Term Loan Facility during each of the four quarters in 2016 totaling $100 million and a $250 million prepayment from proceeds of the 2016 Second-Out Credit Agreement.
As of February 2016, we amended the 2014 First-Out Credit Facilities to change certain of our financial and other covenants. We again amended this agreement in April 2016 to facilitate certain types of deleveraging transactions, in August 2016 to further change certain of the covenants, grant additional collateral to our lenders and permit the incurrence of debt under the 2016 Second-Out Credit Agreement and in February 2017 to facilitate additional joint venture transactions and note repurchases, eliminate our capital expenditure restriction and adopt a minimum liquidity covenant.
We have granted the lenders under the 2014 First-Out Credit Facilities a first-priority lien in a substantial majority of our assets, including our Elk Hills power plant and midstream assets. We also granted a lien in the same assets to the lenders under our 2016 Second-Out Credit Agreement and the holders of our 8% senior secured second lien notes due in 2022 (2022 notes).
Borrowings under the 2014 First-Out Credit Facilities bear interest, at our election, at either a LIBOR rate or an alternate base rate (ABR) (equal to the greatest of (i) the administrative agent’s prime rate, (ii) the one-month LIBOR rate plus 1.00% and (iii) the federal funds effective rate plus 0.50%), in each case plus an applicable margin. This applicable margin is based, while our total leverage ratio exceeds 3.00:1.00, on our borrowing base utilization and will vary from (a) in the case of LIBOR loans, 2.50% to 3.50% and (b) in the case of ABR loans, 1.50% to 2.50%. The unused portion of the Revolving Credit Facility commitments is subject to a commitment fee equal to 0.50% per annum. We also pay customary fees and expenses under the 2014 First-Out Credit Facilities. 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.
Our financial performance covenants under the 2014 First-Out Credit Facilities require that (i) the ratio of our first-lien, first-out secured debt to trailing four quarter EBITDAX (the First-Lien First-Out Leverage Ratio) not exceed 3.50 to 1.00 at any quarter end through the quarter ending June 30, 2017 and 3.25 to 1.00 for the quarters ending September 30 and December 31, 2017 and (ii) the total interest expense coverage ratio at each quarter end not be less than 1.20 to 1.00 at any quarter end through the quarter ending December 31, 2017. Beginning with the end of the first quarter of 2018, the First-Lien First-Out Leverage Ratio may not exceed 2.25 to 1.00 and the total interest expense coverage ratio may not be less than 2.00 to 1.00. The covenants also include a requirement that the first-lien asset coverage ratio of 1.20 to 1.00 as of any June 30 and December 31 beginning December 31, 2016 and a requirement that minimum monthly liquidity be not less than $250 million. As of January 31, 2017, we had approximately $486 million of liquidity, subject to the minimum liquidity requirement.
We must apply 100% of the proceeds from asset sales to repay loans outstanding under the 2014 First-Out Credit Facilities; except that we are permitted to (i) use up to 50% (or, if our leverage ratio is less than 4:00 to 1:00, 60%) of proceeds from non-borrowing base asset sales or monetizations to repurchase our notes to the extent available at a significant minimum discount to par, as specified in the facilities and (ii) purchase up to $140 million of certain of our unsecured notes at a discount. The 2014 First-Out Credit Facilities also permit us to incur up to an additional $50 million of non-facility indebtedness, which may be secured by non-borrowing base assets, subject to compliance with our financial covenants and indentures, the proceeds of which must be applied to repay the Term Loan Facility. We must apply cash on hand in excess of $150 million daily to repay amounts outstanding under our Revolving Credit Facility. Further, we are restricted from paying dividends or making other distributions to common stockholders.
Our borrowing base under the 2014 First-Out Credit Facilities is redetermined each May 1 and November 1. The borrowing base will be based upon a number of factors, including commodity prices and reserves. Increases in our borrowing base require approval of at least 80% of our revolving lenders, as measured by exposure, while decreases or affirmations require a two-thirds approval. We and the lenders (requiring a request from the lenders holding two-thirds of the revolving commitments and outstanding loans) each may request a special redetermination once in any period between three consecutive scheduled redeterminations. We will be permitted to have collateral released when both (i) our credit ratings are at least Baa3 from Moody's and BBB- from S&P, in each case with a stable or better outlook, and (ii) certain permitted liens securing other debt are released.
2016 Second-Out Credit Agreement
The net borrowings under the 2016 Second-Out Credit Agreement were used to (i) prepay $250 million of the Term Loan Facility and (ii) reduce our Revolving Credit Facility by $740 million. The proceeds received were net of a $10 million original issue discount. The loan under the 2016 Second-Out Credit Agreement bears interest at a floating rate per annum equal to 10.375% plus LIBOR, subject to a 1.00% LIBOR floor, determined for the applicable interest period (or ABR rates in certain circumstances). 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.
The 2016 Second-Out Credit Agreement is secured by a security interest in the same collateral used to secure the 2014 First-Out Credit Facilities, but, under intercreditor arrangements with our 2014 First-Out Credit Facilities lenders, are second in collateral recovery behind such lenders. Prepayment of the 2016 Second-Out Credit Agreement is subject to a make-whole premium prior to the third anniversary of closing and a premium to par equal
to 50% of coupon between the third anniversary and the fourth anniversary. Following the fourth anniversary, we may redeem at par. The 2016 Second-Out Credit Agreement matures on December 31, 2021, but if the aggregate principal amount outstanding of either our 2020 Notes or our 5½% senior unsecured notes due September 15, 2021 (2021 Notes) exceeds $100 million 91 days prior to their respective maturity dates, the maturity date of the term loans will accelerate to such prior 91st day. As of
December 31, 2016
, we had
$193 million
and
$135 million
in aggregate principal amount of outstanding 2020 notes and 2021 notes, respectively.
The 2016 Second-Out Credit Agreement provides for customary covenants and events of default consistent with, or generally less restrictive than, the covenants in our 2014 First-Out Credit Facilities, including limitations on additional indebtedness, liens, asset dispositions, investments, restricted payments and other negative covenants, in each case subject to certain limitations and exceptions. Additionally, the 2016 Second-Out Credit Agreement requires us to maintain a first-lien asset coverage ratio of 1.20 to 1.00 as of any June 30 and December 31 beginning December 31, 2016, consistent with the 2014 First-Out Credit Facilities.
Senior Notes
In October 2014, we issued $5.00 billion in aggregate principal amount of our senior unsecured notes, including $1.00 billion of 2020 notes, $1.75 billion of 2021 notes and $2.25 billion of 6% senior unsecured notes due November 15, 2024 (the 2024 notes, and together with the 2020 notes and the 2021 notes, the unsecured notes). We used the net proceeds from the issuance of the unsecured notes to make a $4.95 billion cash distribution to Occidental in October 2014.
In December 2015, we exchanged $534 million, $921 million and $1,358 million in aggregate principal amount of the 2020 notes, the 2021 notes, and the 2024 notes, respectively, for $2.25 billion in aggregate principal amount of the newly issued 2022 notes. We recorded a deferred gain of approximately $560 million on the debt exchange, which will be amortized using the effective interest rate method over the term of the 2022 notes. Our 2022 notes are secured on a second-priority basis, subject to the terms of an intercreditor agreement and collateral trust agreement, by a lien on the same collateral used to secure our obligations under our 2014 First-Out Credit Facilities and 2016 Second-Out Credit Agreement (the Credit Facilities).
In January and February 2016, we repurchased over $100 million in aggregate principal amount of our unsecured notes for under $13 million in cash, for a gain of $87 million, net of related expenses. In May 2016, we entered into privately negotiated exchange agreements with a holder of our 2024 notes and our 2021 notes to exchange a total of approximately 2.1 million shares of our common stock on a post-split basis for notes in the aggregate principal amount of $80 million, resulting in a $44 million pre-tax gain, net of related expenses.
In August 2016, we repurchased $197 million, $605 million and $613 million in aggregate principal amount of our 2020 notes, 2021 notes and 2024 notes, respectively, for $750 million using our Revolving Credit Facility, resulting in a $660 million pre-tax gain, net of related expenses.
In October 2016, we entered into privately negotiated exchange agreements with certain holders of our 2024 notes and 2021 notes to exchange a total of 1.3 million shares of our common stock for notes in the aggregate principal amount of $22 million, resulting in a $8 million pre-tax gain, net of related expenses.
In the fourth quarter of 2016, we repurchased $11 million in aggregate principal amount of our 2024 and 2021 notes for $6 million, resulting in a $4 million pre-tax gain, net of related expenses.
We will pay interest semiannually in cash in arrears on January 15 and July 15 for the 2020 notes, on March 15 and September 15 for the 2021 notes, on June 15 and December 15 for the 2022 notes and on May 15 and November 15 for the 2024 notes.
The indentures governing the unsecured notes and the 2022 notes each include covenants that, among other things, limit our and our subsidiaries’ ability to incur debt secured by liens. The indentures also restrict our ability to merge or consolidate with, or transfer all or substantially all of our assets to, another entity. These covenants are subject to a number of important qualifications and limitations that are set forth in the indenture. The covenants are not, however, directly linked to measures of our financial performance. In addition, if we experience a “change of control triggering event” (as defined in the indentures) with respect to a series of notes, we will be required, unless we have exercised our right to redeem the notes of such series, to offer to purchase the notes of such series at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest. The indenture governing
our second lien secured notes also restricts our ability to sell certain assets and to release collateral from liens securing the second lien secured notes, unless the collateral is released in compliance with our Credit Facilities.
All obligations under the Credit Facilities and the notes are guaranteed jointly and severally by all of our material wholly owned subsidiaries. The assets and liabilities of subsidiaries not guaranteeing the debt are de minimis.
At
December 31, 2016
, we were in compliance with all the financial and other covenants under our Credit Facilities.
Principal maturities of long-term debt outstanding at
December 31, 2016
are as follows (in millions):
|
|
|
|
|
2017
|
$
|
100
|
|
2018
|
100
|
|
2019
|
1,297
|
|
2020
|
193
|
|
2021
|
1,561
|
|
Thereafter
|
2,017
|
|
Total
(a)
|
$
|
5,268
|
|
|
|
(a)
|
For information on potential springing maturities, see the "Credit Facilities" and "Senior Notes" sections above.
|
We estimate the fair value of fixed-rate debt, which is classified as Level 1, based on prices from known market transactions for our instruments. The estimated fair value of our debt at
December 31, 2016
and December 31, 2015, including the fair value of the variable rate portion, was approximately $4.9 billion and $3.6 billion, respectively, compared to a carrying value of approximately $5.3 billion and $6.1 billion. A one-eighth percent change in the variable interest rates on the borrowings under our Credit Facilities on
December 31, 2016
, would result in a
$3 million
change in annual interest expense.
As of December 31, 2016, we had letters of credit of approximately
$130 million
under the Revolving Credit Facility. As of December 31, 2015, we had letters of credit in the aggregate amount of $70 million (including $49 million under the Revolving Credit Facility). These letters of credit were issued to support ordinary course marketing, insurance, regulatory and other matters.
NOTE 6 LEASE COMMITMENTS
We have entered into various operating lease agreements, mainly for office space, office equipment and field equipment. We lease assets when leasing offers greater operating flexibility. Lease payments are generally expensed as part of production costs or general and administrative expenses. At
December 31, 2016
, future net minimum lease payments for noncancelable operating leases (excluding oil and natural gas and other mineral leases, utilities, taxes, insurance and maintenance expense) totaled:
|
|
|
|
|
|
Amount
|
|
(in millions)
|
2017
|
$
|
16
|
|
2018
|
16
|
|
2019
|
14
|
|
2020
|
8
|
|
2021
|
8
|
|
Thereafter
|
50
|
|
Total minimum lease payments
|
$
|
112
|
|
Rental expense for operating leases was $13 million in 2016, $11 million in 2015 and $10 million in 2014. Minimum future lease payments and rental income from subleases was immaterial in 2016, 2015 and 2014.
NOTE 7 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.
On April 21, 2016, a purported class action was filed against us in the United States District Court for the Southern District of New York on behalf of all beneficial owners of our unsecured notes from November 12, 2015 to the present. The complaint alleges that our December 2015 debt exchange excluded non-qualified institutional holders in violation of the Trust Indenture Act of 1939 and related law and, thereby, impaired their rights to receive principal and interest payments. The purported class action seeks declaratory relief that the debt exchange and the liens securing the new notes are null and void and that the debt exchange resulted in a default. The plaintiff also seeks monetary damages and attorneys’ fees. We plan to vigorously defend against the claims made by the plaintiff.
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
December 31, 2016
and
2015
were not material to our 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 on our balance sheet would not be material to our consolidated financial position or results of operations.
We have certain commitments under contracts, including purchase commitments for goods and services. At
December 31, 2016
, total purchase obligations on a discounted basis were approximately
$340 million
, which included approximately $74 million, $189 million, $30 million, $12 million and $4 million that will be paid in
2017
,
2018
,
2019
,
2020
and
2021
, respectively. Included in these obligations is a commitment to invest approximately $170 million in evaluation and development activities for one of our oil and gas properties prior to the end of 2018. Any deficiency in meeting this capital investment obligation would need to be paid in cash. Our 2017 capital program includes development plans for these properties, and we expect to fulfill the minimum investment requirement.
We, our subsidiaries, or both, have indemnified various parties against specific liabilities those parties might incur in the future in connection with the Spin-off, purchases and other transactions that they have entered into with us. These indemnities include indemnities made to Occidental against certain tax-related liabilities that may be incurred by Occidental relating to the Spin-off and liabilities related to operation of our business while it was still owned by Occidental. As of
December 31, 2016
, we are not aware of material indemnity claims pending or threatened against the Company.
NOTE 8 DERIVATIVES
We use a variety of derivative instruments to protect our cash flows, margins and capital investment program from the cyclical nature of commodity prices and to improve our ability to comply with the covenants of our credit facilities in case of further price deterioration. We will continue to be strategic and opportunistic in implementing our hedging program as market conditions permit.
Derivatives are carried at fair value and on a net basis when a legal right of offset exists with the same counterparty. We apply hedge accounting when transactions meet specified criteria for cash-flow hedge treatment and management elects and documents such treatment. Otherwise, we recognize any fair value gains or losses, over the remaining term of the hedge instrument, in earnings in the current period.
As of
December 31, 2016
, we did not have any derivatives designated as hedges. 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 necessarily accounted for as cash-flow or fair-value hedges. As part of our hedging program, we entered into a number of derivative transactions that resulted in the following Brent-based crude oil contracts as of
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1 2017
|
|
Q2 2017
|
|
Q3 2017
|
|
Q4 2017
|
|
Q1 2018
|
|
Q2-Q4 2018
|
Crude Oil
|
|
|
|
|
|
|
|
|
|
|
|
Calls:
|
|
|
|
|
|
|
|
|
|
|
|
Barrels per day
|
12,100
|
|
|
5,000
|
|
|
10,000
|
|
|
15,000
|
|
|
15,600
|
|
|
15,000
|
|
Weighted-average price per barrel
|
$
|
56.37
|
|
|
$
|
55.05
|
|
|
$
|
56.15
|
|
|
$
|
56.12
|
|
|
$
|
58.77
|
|
|
$
|
58.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Puts:
|
|
|
|
|
|
|
|
|
|
|
|
Barrels per day
|
22,100
|
|
|
20,000
|
|
|
17,000
|
|
|
10,000
|
|
|
—
|
|
|
—
|
|
Weighted-average price per barrel
|
$
|
49.10
|
|
|
$
|
50.25
|
|
|
$
|
50.88
|
|
|
$
|
48.00
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps:
|
|
|
|
|
|
|
|
|
|
|
|
Barrels per day
|
20,000
|
|
|
20,000
|
|
|
20,000
|
|
|
20,000
|
|
|
—
|
|
|
—
|
|
Weighted-average price per barrel
|
$
|
53.98
|
|
|
$
|
53.98
|
|
|
$
|
53.98
|
|
|
$
|
53.98
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The second through fourth quarter 2017 crude oil swaps grant our counterparty a quarterly option to increase volumes by up to 10,000 barrels per day for that quarter at a weighted-average Brent price of $55.46. Our counterparty also has an option to increase volumes by up to 5,000 barrels per day for the second half of 2016 at a weighted-average Brent price of $61.43. During 2016, we purchased derivative assets that partially reduced our 2017 and 2018 call exposure for which we paid $86 million and deferred payment of $15 million.
The after-tax gains and losses recognized in, and reclassified to income from accumulated other comprehensive income (AOCI), for derivative instruments classified as cash-flow hedges for the years ended December 31,
2015
and
2014
, and the ending AOCI balances for each period were not material. We did not have any cash-flow hedges in 2016. The amount of the ineffective portion of cash-flow hedges was immaterial for the years ended December 31,
2015
and
2014
. For the years ended
December 31, 2016
and 2015, we recognized non-cash derivative (losses) gains of approximately $(283) million and $52 million, respectively, from marking these contracts to market, which were included in revenues.
We had no fair-value hedges as of and during the years ended
December 31, 2016
,
2015
and
2014
.
Fair Value of Derivatives
Our commodity derivatives are measured at fair value using industry-standard models with various inputs, including quoted forward prices, and are all classified as Level 2 in the required fair value hierarchy for the periods presented. The following table presents the fair values (at gross and net) of our outstanding derivatives as of
December 31, 2016
and 2015 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Balance Sheet Classification
|
|
Gross Amounts Recognized at Fair Value
|
|
Gross Amounts Offset in the Balance Sheet
|
|
Net Fair Value Presented in the Balance Sheet
|
Assets
|
|
|
|
|
|
|
|
Commodity Contracts
|
Other current assets
|
|
$
|
88
|
|
|
$
|
(49
|
)
|
|
$
|
39
|
|
Commodity Contracts
|
Other assets
|
|
25
|
|
|
(6
|
)
|
|
19
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Commodity Contracts
|
Accrued liabilities
|
|
(152
|
)
|
|
49
|
|
|
(103
|
)
|
Commodity Contracts
|
Other long-term liabilities
|
|
(58
|
)
|
|
6
|
|
|
(52
|
)
|
Total derivatives
|
|
|
$
|
(97
|
)
|
|
$
|
—
|
|
|
$
|
(97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Balance Sheet Classification
|
|
Gross Amounts Recognized at Fair Value
|
|
Gross Amounts Offset in the Balance Sheet
|
|
Net Fair Value Presented in the Balance Sheet
|
Assets
|
|
|
|
|
|
|
|
Commodity Contracts
|
Other current assets
|
|
$
|
87
|
|
|
$
|
—
|
|
|
$
|
87
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Commodity Contracts
|
Accrued liabilities
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
Total derivatives
|
|
|
$
|
86
|
|
|
$
|
—
|
|
|
$
|
86
|
|
NOTE 9 INCOME TAXES
Income (loss) before income taxes was
$201 million
,
$(5,476) million
and
$(2,421) million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively. The provision (benefit) for federal, state and local income taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31,
|
United States
Federal
|
|
State
and Local
|
|
Total
|
|
(in millions)
|
2016
|
|
|
|
|
|
|
|
|
Current
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Deferred
|
(66
|
)
|
|
(12
|
)
|
|
(78
|
)
|
|
$
|
(66
|
)
|
|
$
|
(12
|
)
|
|
$
|
(78
|
)
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
Current
|
$
|
255
|
|
|
$
|
81
|
|
|
$
|
336
|
|
Deferred
|
(1,961
|
)
|
|
(297
|
)
|
|
(2,258
|
)
|
|
$
|
(1,706
|
)
|
|
$
|
(216
|
)
|
|
$
|
(1,922
|
)
|
|
|
|
|
|
|
2014
|
|
|
|
|
|
|
|
|
Current
|
$
|
66
|
|
|
$
|
99
|
|
|
$
|
165
|
|
Deferred
|
(840
|
)
|
|
(312
|
)
|
|
(1,152
|
)
|
|
$
|
(774
|
)
|
|
$
|
(213
|
)
|
|
$
|
(987
|
)
|
The following reconciliation of the United States federal statutory income tax rate to our effective tax rate is stated as a percentage of pre-tax income or loss:
|
|
|
|
|
|
|
|
|
|
|
For the years ended
December 31,
|
|
2016
|
|
2015
|
|
2014
|
United States federal statutory tax rate
|
35
|
%
|
|
35
|
%
|
|
35
|
%
|
State income taxes, net of federal
|
6
|
|
|
5
|
|
|
6
|
|
Valuation allowance
|
199
|
|
|
(7
|
)
|
|
—
|
|
Cancellation of debt income
|
(288
|
)
|
|
—
|
|
|
—
|
|
Stock-based compensation
|
3
|
|
|
—
|
|
|
—
|
|
Federal effect of state taxes on the above items
|
5
|
|
|
2
|
|
|
—
|
|
Other
|
1
|
|
|
—
|
|
|
—
|
|
Effective tax rate
|
(39
|
)%
|
|
35
|
%
|
|
41
|
%
|
Federal and state valuation allowance
In the first quarter of 2016, we reduced our valuation allowance against net deferred tax assets by $82 million. During the course of the year, we also increased the valuation allowance by $480 million. The resulting $398 million increase in the valuation allowance had the effect of increasing our effective tax rate by 199%.
The first quarter 2016 reduction in the valuation allowance resulted from our evaluation in early 2016 of our assets and liabilities at the time of our fourth quarter 2015 debt exchange, which generated $1.4 billion of cancellation of debt income (CODI) for tax purposes. At that date, our evaluation indicated that our liabilities exceeded the value of our assets, both calculated in accordance with the tax rules, enabling us to move the liability related to CODI to deferred tax liabilities. The resulting increase of our deferred tax liabilities that could be offset against assets caused an $82 million reduction in the valuation allowance.
During the course of the year, based on prevailing product prices, we concluded that we could not realize, on a more-likely-than-not basis, any of the deferred tax assets being generated through operating losses. Accordingly, we provided full allowances against such assets generated during the year by the amount of $480 million.
We evaluate our deferred tax assets to determine if a valuation allowance is required to reduce our gross deferred tax assets to an amount expected to be realized. We expect to realize $375 million of our gross deferred tax assets through reversals of taxable temporary differences. We have maintained a full valuation allowance on our deferred tax assets above this amount as there is not sufficient evidence to support the reversal of any portion of this allowance. Given our recent and anticipated future earnings trends, we do not believe any of the valuation allowance will be released within the next 12 months. The amount of the deferred tax assets considered realizable could however be adjusted if estimates or amounts of deferred tax liabilities change.
Federal and state cancellation of debt income
As a result of our 2015 and 2016 debt transactions and modifications, we generated CODI of $1.4 billion and $1.3 billion, respectively ($2.7 billion in the aggregate), for both U.S. federal and California state tax purposes. These respective amounts were excluded from taxable income in those years because we determined that our liabilities exceeded the value of our assets for tax purposes immediately prior to each of the transactions. In exchange for this exclusion, tax rules require us to reduce the tax basis of our assets. Accordingly, we reduced our net operating losses and the basis of property, plant and equipment by $1.2 billion for U.S. federal and $1.9 billion for California. We were not required to make any further reductions in those assets because, beyond this point, our liabilities would have exceeded the tax basis of our assets. Accordingly, any tax liability attributable to the remaining approximately $1.5 billion of federal and $800 million of California CODI was relieved without any future tax liability. As a result, we recorded a benefit of $577 million for this permanent reduction of tax liability, which reduced our effective tax rate by 288%.
The tax effects of temporary differences resulting in deferred income taxes at December 31, 2016 and 2015 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Deferred Tax
Assets
|
|
Deferred Tax
Liabilities
|
|
Deferred Tax
Assets
|
|
Deferred Tax
Liabilities
|
|
(in millions)
|
Debt
|
$
|
693
|
|
|
$
|
—
|
|
|
$
|
608
|
|
|
$
|
—
|
|
Property, plant and equipment differences
|
60
|
|
|
(335
|
)
|
|
132
|
|
|
(427
|
)
|
Postretirement benefit accruals
|
45
|
|
|
—
|
|
|
41
|
|
|
—
|
|
Deferred compensation and benefits
|
74
|
|
|
—
|
|
|
75
|
|
|
—
|
|
Asset retirement obligations
|
183
|
|
|
—
|
|
|
156
|
|
|
—
|
|
Federal effect of state income taxes
|
—
|
|
|
—
|
|
|
28
|
|
|
(24
|
)
|
Net operating loss carryforward
|
61
|
|
|
—
|
|
|
7
|
|
|
—
|
|
All other
|
39
|
|
|
(40
|
)
|
|
47
|
|
|
(3
|
)
|
Subtotal
|
1,155
|
|
|
(375
|
)
|
|
1,094
|
|
|
(454
|
)
|
Valuation allowance
|
(780
|
)
|
|
—
|
|
|
(382
|
)
|
|
—
|
|
Total net deferred taxes
|
$
|
375
|
|
|
$
|
(375
|
)
|
|
$
|
712
|
|
|
$
|
(454
|
)
|
Our tax returns for the post-Spin off period in 2014 and calendar year 2015 are under examination by the Internal Revenue Service. No significant issues have been raised to date. The returns filed for these same periods remain subject to examination by the California tax authority. Prior to the Spin-off date, we were included in the Occidental income tax returns for all applicable years. Under the tax sharing agreement, Occidental controls tax examinations for the periods in which we were included in a consolidated or combined income tax return filed by Occidental. There were no amounts due to Occidental as of December 31, 2016 and 2015 under the tax sharing agreement. The income tax provision was calculated as if we filed separate tax returns for all periods presented prior to the Spin-off.
Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement. A liability for unrecognized tax benefits is recorded for any tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards. As of December 31, 2016, we recorded a $25 million liability for tax positions taken in prior periods which has been classified as a deferred tax liability. This amount of unrecognized tax benefits, if recognized, would affect the effective tax rate. We believe there will not be significant increases or decreases to our unrecognized tax benefits within the next 12 months.
As of December 31, 2016, we had a $777 million net operating loss carryforward in California. The California net operating loss carryforward begins expiring in 2026. A portion of the California net operating loss carryforward resulted from acquisitions in prior years and is subject to an annual limitation as a result of these acquisitions. Accordingly, no financial statement benefit has been recognized for $88 million of the California net operating loss carryforward.
NOTE 10 STOCK COMPENSATION
General
Prior to the Spin-off, our employees participated in Occidental's stock-based incentive plans under which, if they were eligible, they received Occidental stock awards. Effective on the Spin-off date of November 30, 2014, our employees and non-employee directors began participating in our long-term incentive plan. In connection with the Spin-off, unvested share-based compensation awards granted to our employees under Occidental's stock-based incentive plans and held by grantees as of November 30, 2014 were replaced with substitute awards based on CRC common shares. These substitute awards were intended to generally preserve the value of the original Occidental award determined as of November 30, 2014. Original and remaining vesting periods of Occidental awards were unaffected by the substitution. There were approximately 650 employees affected by the substitution of awards. The substitution of awards did not cause us to recognize incremental compensation expense. These substitute awards reduced the maximum number of shares of our common stock available for grant under our incentive plan.
In May 2016, our PSU and certain RSU awards that were originally granted as cash-settled awards were converted to stock-settled awards when our stockholders approved additional shares for grant under our long-term incentive plan at the 2016 annual stockholder meeting. Less than 50 people were impacted by this modification, which resulted in no incremental compensation cost.
Compensation expense for stock-based awards for the year ended
December 31, 2016
,
2015
and 2014 was approximately $33 million, $34 million and $27 million, respectively. Prior to the Spin-off, Occidental allocated certain costs to us that included compensation costs for stock-based awards of Occidental stock. Using the same allocation method for all allocated costs used by Occidental, we estimated the stock compensation expense allocated to us was approximately $26 million for January 1, 2014 through November 30, 2014.
For the years ended
December 31, 2016
and December 31, 2015, we recognized income tax expense of $0 and approximately $2 million and made cash payments of $5 million and $10 million for the cash-settled portion of our awards, respectively. As the stock compensation expenses prior to the Spin-off costs were allocated to us, it was not practical to calculate the tax expense/benefit or cash payments for those years.
As of
December 31, 2016
, unrecognized compensation expense for all our unvested stock-based incentive awards, based on the year-end value of our common stock, was $51 million. This expense is expected to be recognized over a weighted-average period of two years.
The maximum number of authorized shares of our common stock that may be issued pursuant to our long-term incentive plan is 4.7 million shares.
Restricted Stock
Certain employees are granted RSUs or restricted stock awards which are in the form of, or equivalent in value to, actual shares of our common stock. Depending on their terms, RSUs are service- or performance-based and are settled in cash or stock at the time of vesting. The service-based awards vest ratably over three years, or at the end of two or three years, following the date of grant. The performance-based awards vest after two or three years from the grant date if the performance targets are met.
During
2016
and
2015
, non-employee directors were granted RSUs representing approximately 76,788 shares and 15,375 shares, respectively, which fully vest and convert into shares one year from the date of grant.
The following summarizes our RSU activity for the year ended
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
Stock-Settled
|
|
Cash-Settled
|
|
Number of Shares
(in thousands)
|
|
Weighted-Average Grant-Date Fair Value
|
|
Number of Shares
(in thousands)
|
Unvested at January 1
|
132
|
|
|
$
|
79.39
|
|
|
904
|
|
Granted
|
453
|
|
|
$
|
15.40
|
|
|
1,273
|
|
Vested
|
(121
|
)
|
|
$
|
62.04
|
|
|
(344
|
)
|
Forfeited
|
(24
|
)
|
|
$
|
52.66
|
|
|
(88
|
)
|
Converted to stock-settled awards
|
165
|
|
|
$
|
18.50
|
|
|
(165
|
)
|
Unvested at December 31
|
605
|
|
|
$
|
22.08
|
|
|
1,580
|
|
Performance Stock Unit Awards
Certain executives were awarded PSU awards that vest at the end of a three-year period following the grant date if performance targets are met. A summary of our unvested PSU awards as of
December 31, 2016
, and changes during the year ended
December 31, 2016
, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
Stock-Settled
|
|
Cash-Settled
|
|
Number of Shares
(in thousands)
|
|
Weighted-Average Grant-Date Fair Value
|
|
Number of Shares
(in thousands)
|
Unvested at January 1
|
322
|
|
|
$
|
77.80
|
|
|
279
|
|
Granted
|
—
|
|
|
$
|
—
|
|
|
—
|
|
Vested
|
(118
|
)
|
|
$
|
77.26
|
|
|
—
|
|
Forfeited
|
(21
|
)
|
|
$
|
51.40
|
|
|
(3
|
)
|
Converted to stock-settled awards
|
276
|
|
|
$
|
18.50
|
|
|
(276
|
)
|
Unvested at December 31
|
459
|
|
|
$
|
44.34
|
|
|
—
|
|
The modification and grant date assumptions used in the Monte Carlo valuation for the TSR-based portion of the outstanding PSU awards are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Modification Date
|
|
Grant Date
|
Risk-free interest rate
|
|
0.77
|
%
|
|
1.06
|
%
|
Dividend yield
|
|
—
|
%
|
|
0.95
|
%
|
Volatility factor
|
|
69.69
|
%
|
|
43.63
|
%
|
Expected life (years)
|
|
2.16
|
|
|
2.9
|
|
Fair value of underlying common stock
|
|
$
|
18.50
|
|
|
$
|
42.00
|
|
Stock Options
We granted stock options to certain executives under our long-term incentive plan. The options permit purchase of our common stock at exercise prices no less than the fair market value of the stock on the date the options were granted. The options have terms of seven years and vest ratably over three years, with one third of the granted shares becoming exercisable on each anniversary date following the date of grant.
The following table summarizes our option activity during the year ended
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
(000's)
|
|
Weighted-Average Exercise Price
|
|
Weighted-Average Grant-Date Fair Value
|
|
Aggregate Intrinsic Value
|
Beginning balance, January 1
|
1,152
|
|
|
$
|
70.21
|
|
|
$
|
18.46
|
|
|
$
|
—
|
|
Granted
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Exercised
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Forfeited
|
(43
|
)
|
|
$
|
78.37
|
|
|
$
|
19.46
|
|
|
$
|
—
|
|
Expired or Canceled
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Ending balance, December 31
|
1,109
|
|
|
$
|
69.89
|
|
|
$
|
18.42
|
|
|
$
|
—
|
|
Exercisable at December 31
|
669
|
|
|
$
|
73.61
|
|
|
$
|
18.88
|
|
|
$
|
—
|
|
The grant date assumptions used in the Black-Scholes valuation for options granted during
2015
and 2014 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
2014
|
Exercise price per share
|
|
$
|
42.00
|
|
|
$
|
81.10
|
|
Expected life (in years)
|
|
4.5
|
|
|
4.5
|
|
Expected volatility
|
|
44.7
|
%
|
|
35.4
|
%
|
Risk-free interest rate
|
|
1.56
|
%
|
|
1.40
|
%
|
Dividend yield
|
|
0.95
|
%
|
|
0.50
|
%
|
Grant date fair value of stock option awards granted
|
|
$
|
15.00
|
|
|
$
|
19.80
|
|
Employee Stock Purchase Plan
Effective January 1, 2015, we adopted the California Resources Corporation 2014 Employee Stock Purchase Plan (ESPP). The ESPP provides our employees the ability to purchase shares of our common stock at a price equal to 85% of the closing price of a share of our common stock as of the first or last day of each offering period (a fiscal quarter), whichever amount is less.
The maximum number of shares of our common stock that may be issued pursuant to the ESPP is subject to certain annual limits and has a cumulative limit of one million shares, subject to adjustment pursuant to the terms of the ESPP. For the year ended
December 31, 2016
, we issued approximately 0.3 million shares of common stock in connection with the ESPP. As of January 1, 2017, over one quarter of our employees had elected to participate in the plan.
NOTE 11 EQUITY
The following is a summary of common stock issuances on a post-split basis:
|
|
|
|
|
Common Stock
|
|
(in thousands)
|
Balance, December 31, 2014
|
38,564
|
|
Issued
|
254
|
|
Balance, December 31, 2015
|
38,818
|
|
Issued
|
3,725
|
|
Balance, December 31, 2016
|
42,543
|
|
At
December 31, 2016
and
2015
, we had 200 million authorized common stock shares and 20 million authorized preferred stock shares, both with a $0.01 par value per share, and no outstanding preferred stock shares in either period.
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) consisted of pension and post-retirement losses of $14 million and $15 million, at
December 31, 2016
and
2015
, respectively.
NOTE 12 EARNINGS PER SHARE
On November 30, 2014, the Spin-off date, 38.1 million shares (on a split-adjusted basis) of our common stock were issued, of which approximately 18.5% was retained by Occidental and was divested on March 24, 2016. For comparative purposes, and to provide a more meaningful calculation of weighted-average shares outstanding, we have assumed this amount to be outstanding as of the beginning of each period prior to the Spin-off. In addition, we have assumed the stock awards granted in connection with the Spin-off were also outstanding for each of the periods presented prior to the Spin-off, resulting in a weighted-average basic share count of 38.2 million shares for those periods. Stock options, restricted stock awards and restricted stock units were not included in the computation of diluted EPS because to do so would have been anti-dilutive for the periods presented.
The following table presents the calculation of basic and diluted EPS for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(in millions, except per-share amounts)
|
Basic EPS calculation
|
|
|
|
|
|
Net income (loss)
|
$
|
279
|
|
|
$
|
(3,554
|
)
|
|
$
|
(1,434
|
)
|
Net loss allocated to participating securities
|
(6
|
)
|
|
—
|
|
|
—
|
|
Net income (loss) available to common stockholders
|
$
|
273
|
|
|
$
|
(3,554
|
)
|
|
$
|
(1,434
|
)
|
|
|
|
|
|
|
Weighted-average common shares outstanding - basic
|
40.4
|
|
|
38.3
|
|
|
38.2
|
|
Basic EPS
|
$
|
6.76
|
|
|
$
|
(92.79
|
)
|
|
$
|
(37.54
|
)
|
|
|
|
|
|
|
Diluted EPS calculation
|
|
|
|
|
|
Net income (loss)
|
$
|
279
|
|
|
$
|
(3,554
|
)
|
|
$
|
(1,434
|
)
|
Net loss allocated to participating securities
|
(6
|
)
|
|
—
|
|
|
—
|
|
Net income (loss) available to common stockholders
|
$
|
273
|
|
|
$
|
(3,554
|
)
|
|
$
|
(1,434
|
)
|
|
|
|
|
|
|
Weighted-average common shares outstanding - basic
|
40.4
|
|
|
38.3
|
|
|
38.2
|
|
Dilutive effect of potentially dilutive securities
|
—
|
|
|
—
|
|
|
—
|
|
Weighted-average common shares outstanding - diluted
|
40.4
|
|
|
38.3
|
|
|
38.2
|
|
Diluted EPS
|
$
|
6.76
|
|
|
$
|
(92.79
|
)
|
|
$
|
(37.54
|
)
|
NOTE 13 RETIREMENT AND POSTRETIREMENT BENEFIT PLANS
We have various benefit plans for our salaried and union and nonunion hourly employees.
Defined Contribution Plans
All of our employees are eligible to participate in one or more of the defined contribution retirement or savings plans that provide for periodic contributions by us or our subsidiaries based on plan-specific criteria, such as base pay, age, level and employee contributions. Certain salaried employees participate in supplemental plans that restore benefits lost due to governmental limitations on qualified plans. As of December 31, 2016 and 2015, we recognized $31 million and $32 million in other long-term liabilities for these supplemental plans. We expensed $32 million in 2016, $39 million in 2015 and $29 million in 2014 under the provisions of these defined contribution and savings plans.
Defined Benefit Plans
Participation in defined benefit pension plans sponsored by us is limited. During 2016, approximately 200 employees accrued benefits under these plans, including union and certain nonunion employees who joined us from acquired operations with grandfathered benefits. Effective December 31, 2015, the plans were amended such that participants other than union employees no longer earn benefits for service after December 31, 2015.
Pension costs for the defined benefit pension plans, determined by independent actuarial valuations, are generally funded by payments to trust funds, which are administered by independent trustees.
Postretirement and Other Benefit Plans
We provide postretirement medical and dental benefits for our former employees and their eligible dependents. The benefits are funded as they are paid during the year.
Obligations and Funded Status
The following tables show the amounts recognized in our balance sheets related to pension and postretirement benefit plans, as well as plans that we or our subsidiaries sponsor, and their funding status, obligations and plan asset fair values (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Benefits
|
|
As of December 31,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Amounts recognized in the balance sheet:
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
(1
|
)
|
Other long-term liabilities
|
(26
|
)
|
|
(27
|
)
|
|
(75
|
)
|
|
(70
|
)
|
|
$
|
(26
|
)
|
|
$
|
(27
|
)
|
|
$
|
(77
|
)
|
|
$
|
(71
|
)
|
Amounts recognized in accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(18
|
)
|
|
$
|
(19
|
)
|
|
$
|
4
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Benefits
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Changes in the benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation—beginning of year
|
$
|
83
|
|
|
$
|
108
|
|
|
$
|
71
|
|
|
$
|
68
|
|
Service cost—benefits earned during the period
|
1
|
|
|
4
|
|
|
3
|
|
|
5
|
|
Interest cost on projected benefit obligation
|
3
|
|
|
4
|
|
|
3
|
|
|
3
|
|
Curtailment (gain) loss
|
—
|
|
|
(12
|
)
|
|
—
|
|
|
5
|
|
Actuarial loss (gain)
|
7
|
|
|
24
|
|
|
1
|
|
|
(10
|
)
|
Benefits paid
|
(24
|
)
|
|
(45
|
)
|
|
(1
|
)
|
|
—
|
|
Benefit obligation—end of year
|
$
|
70
|
|
|
$
|
83
|
|
|
$
|
77
|
|
|
$
|
71
|
|
|
|
|
|
|
|
|
|
Changes in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets—beginning of year
|
$
|
56
|
|
|
$
|
87
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Actual return on plan assets
|
2
|
|
|
1
|
|
|
—
|
|
|
—
|
|
Employer contributions
|
10
|
|
|
13
|
|
|
1
|
|
|
—
|
|
Benefits paid
|
(24
|
)
|
|
(45
|
)
|
|
(1
|
)
|
|
—
|
|
Fair value of plan assets—end of year
|
$
|
44
|
|
|
$
|
56
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Unfunded status
|
$
|
(26
|
)
|
|
$
|
(27
|
)
|
|
$
|
(77
|
)
|
|
$
|
(71
|
)
|
The following table sets forth our defined-benefit pension plans with accumulated benefit obligations in excess of plan assets for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
(in millions)
|
Projected Benefit Obligation
|
$
|
70
|
|
|
$
|
83
|
|
Accumulated Benefit Obligation
|
$
|
67
|
|
|
$
|
81
|
|
Fair Value of Plan Assets
|
$
|
44
|
|
|
$
|
56
|
|
None of our defined-benefit pension plans had plan assets in excess of accumulated benefit obligations. We do not expect any plan assets to be returned during
2017
.
COMPONENTS OF NET PERIODIC BENEFIT COST
The following tables set forth our pension and postretirement benefit costs and amounts recognized in other comprehensive income (before tax) for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
Benefits
|
|
Postretirement
Benefits
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
|
(in millions)
|
Net periodic benefit costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost—benefits earned during the period
|
$
|
1
|
|
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
3
|
|
|
$
|
5
|
|
|
$
|
4
|
|
Interest cost on projected benefit obligation
|
3
|
|
|
4
|
|
|
4
|
|
|
3
|
|
|
3
|
|
|
2
|
|
Expected return on plan assets
|
(3
|
)
|
|
(5
|
)
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of net actuarial loss (gain)
|
2
|
|
|
3
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Settlement cost
|
8
|
|
|
18
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Curtailment loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
—
|
|
Net periodic benefit cost
|
$
|
11
|
|
|
$
|
24
|
|
|
$
|
6
|
|
|
$
|
6
|
|
|
$
|
13
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
Benefits
|
|
Postretirement
Benefits
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
|
(in millions)
|
Amounts recognized in other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial (loss) gain
|
$
|
(9
|
)
|
|
$
|
(28
|
)
|
|
$
|
(6
|
)
|
|
$
|
—
|
|
|
$
|
9
|
|
|
$
|
1
|
|
Net prior service (cost) credit
|
—
|
|
|
12
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Settlement cost
|
8
|
|
|
18
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Transfer adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Amortization of net actuarial gain/loss
|
2
|
|
|
3
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Total recognized in other comprehensive income (loss)
|
$
|
1
|
|
|
$
|
5
|
|
|
$
|
(2
|
)
|
|
$
|
—
|
|
|
$
|
9
|
|
|
$
|
4
|
|
The estimated net loss and prior service credit for the defined benefit pension plans that will be amortized from AOCI into net periodic benefit cost over the next fiscal year are $2 million and $0, respectively. We do not expect to have any estimated net loss or prior service cost for the defined benefit postretirement plans that will be amortized from AOCI into net periodic benefit cost over the next fiscal year.
The following table sets forth the weighted-average assumptions used to determine our benefit obligations and net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Benefits
|
|
For the years ended
December 31,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Benefit Obligation Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
3.88
|
%
|
|
3.99
|
%
|
|
4.58
|
%
|
|
4.81
|
%
|
Rate of compensation increase
|
4.00
|
%
|
|
4.00
|
%
|
|
—
|
|
|
—
|
|
Net Periodic Benefit Cost Assumptions:
|
|
|
|
|
|
|
|
Discount rate
|
3.99
|
%
|
|
3.82
|
%
|
|
4.81
|
%
|
|
4.44
|
%
|
Assumed long-term rate of return on assets
|
6.50
|
%
|
|
6.50
|
%
|
|
—
|
|
|
—
|
|
Rate of compensation increase
|
4.00
|
%
|
|
4.00
|
%
|
|
—
|
|
|
—
|
|
For pension plans and postretirement benefit plans that we or our subsidiaries sponsor, we based the discount rate on the Aon/Hewitt AA Above Median yield curve in both 2016 and 2015. The weighted-average rate of increase in future compensation levels is consistent with our past and anticipated future compensation increases for employees participating in retirement plans that determine benefits using compensation. The assumed long-term rate of return on assets is estimated with regard to current market factors but within the context of historical returns for the asset mix that exists at year end.
Effective in 2016, we adopted the Society of Actuaries MP-2016 Mortality Improvement Scale, which updated the Society of Actuaries Adjusted RP-2014 mortality assumptions that private defined benefit pension plans in the United States use in the actuarial valuations that determine a plan sponsor’s pension and postretirement obligations. In 2015, we utilized the Society of Actuaries Adjusted RP-2014 Mortality Table reflecting the MP-2015 Mortality Improvement Scale. At December 31, 2016, the changes in the mortality assumptions resulted in no significant change to the pension benefit obligations and a decrease of $1 million in the postretirement benefit obligations.
The postretirement benefit obligation was determined by application of the terms of medical and dental benefits, including the effect of established maximums on covered costs, together with relevant actuarial assumptions and healthcare cost trend rates projected at an assumed U.S. Consumer Price Index (CPI) increase of 1.97% and 1.60% as of December 31,
2016
and
2015
, respectively. Under the terms of our postretirement plans, participants other than certain union employees pay for all medical cost increases in excess of increases in the CPI. For those union employees, we projected that as of December 31, 2016, healthcare cost trend rates would decrease 0.25 percent per year from 6.25% in 2017 until they reach 4.5% in 2024, and remain at 4.5% thereafter. A 1-percent increase or a 1-percent decrease in these assumed healthcare cost trend rates would result in an increase of $4 million or a reduction of $3 million, respectively, in the postretirement benefit obligation as of December 31,
2016
. The annual service and interest costs would not be materially affected by these changes.
The actuarial assumptions used could change in the near term as a result of changes in expected future trends and other factors that, depending on the nature of the changes, could cause increases or decreases in the plan assets and liabilities.
Fair Value of Pension Plan Assets
We employ a total return investment approach that uses a diversified blend of equity and fixed-income investments to
optimize the long-term return of plan assets at a prudent level of risk. The investments were monitored by our Investment Committee. Equity investments were diversified across U.S. and non-U.S. stocks, as well as differing styles and market capitalizations. Other asset classes, such as private equity and real estate, may have been used with the goals of enhancing long-term returns and improving portfolio diversification. In 2016 and 2015, the target allocation of plan assets was 65% equity securities and 35% debt securities. Investment performance was measured and monitored on an ongoing basis through quarterly investment portfolio and manager guideline compliance reviews, annual liability measurements and periodic studies.
The fair values of our pension plan assets by asset category are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at
December 31, 2016 Using
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Asset Class:
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3
|
|
Commingled funds:
|
|
|
|
|
|
|
|
Fixed income
|
—
|
|
|
9
|
|
|
—
|
|
|
9
|
|
U.S. equity
|
—
|
|
|
10
|
|
|
—
|
|
|
10
|
|
International equity
|
—
|
|
|
6
|
|
|
—
|
|
|
6
|
|
Mutual funds:
|
|
|
|
|
|
|
|
|
|
Bond funds
|
4
|
|
|
—
|
|
|
—
|
|
|
4
|
|
Blend funds
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Value funds
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Growth funds
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Guaranteed deposit account
|
—
|
|
|
—
|
|
|
6
|
|
|
6
|
|
Total pension plan assets
|
$
|
13
|
|
|
$
|
25
|
|
|
$
|
6
|
|
|
$
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at
December 31, 2015 Using
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Asset Class:
|
|
|
|
|
|
|
|
|
|
|
|
Commingled funds:
|
|
|
|
|
|
|
|
Fixed income
|
$
|
—
|
|
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
15
|
|
U.S. equity
|
—
|
|
|
16
|
|
|
—
|
|
|
16
|
|
International equity
|
—
|
|
|
10
|
|
|
—
|
|
|
10
|
|
Mutual funds:
|
|
|
|
|
|
|
|
|
|
|
Bond funds
|
4
|
|
|
—
|
|
|
—
|
|
|
4
|
|
Blend funds
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Value funds
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Growth funds
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Guaranteed deposit account
|
—
|
|
|
—
|
|
|
6
|
|
|
6
|
|
Total pension plan assets
|
$
|
9
|
|
|
$
|
41
|
|
|
$
|
6
|
|
|
$
|
56
|
|
The activity during the years ended
December 31, 2016
and
2015
, for the assets using Level 3 fair value measurements was insignificant. We expect to contribute $9 million to our defined benefit pension plans during
2017
.
Estimated future benefit payments, which reflect expected future service, as appropriate, are as follows:
|
|
|
|
|
|
|
|
|
For the years ended December 31,
|
Pension
Benefits
|
|
Postretirement
Benefits
|
|
(in millions)
|
2017
|
$
|
18
|
|
|
$
|
3
|
|
2018
|
$
|
9
|
|
|
$
|
3
|
|
2019
|
$
|
5
|
|
|
$
|
3
|
|
2020
|
$
|
5
|
|
|
$
|
3
|
|
2021
|
$
|
5
|
|
|
$
|
4
|
|
2022 - 2026
|
$
|
20
|
|
|
$
|
21
|
|
NOTE 14 RELATED-PARTY TRANSACTIONS
During 2014, we entered into the following related-party transactions:
|
|
|
|
|
|
2014
|
|
(in millions)
|
Sales
(a)
|
$
|
2,706
|
|
Allocated costs for services provided by affiliates
|
$
|
126
|
|
Purchases
|
$
|
175
|
|
|
|
(a)
|
Amounts include related-party sales from our Elk Hills power plant of $89 million during 2014. These sales are included in other revenue in the statements of operations.
|
Through July 2014, substantially all of our products were sold through Occidental's marketing subsidiaries at market prices and were settled at the time of sale to those entities. Beginning August 2014, we began marketing our own products directly to third parties. For the year ended December 31, 2014, sales to Occidental subsidiaries accounted for approximately 65% of our net sales.
The statements of operations for the year ended December 31, 2014 includes expense allocations for certain corporate functions and centrally-located activities performed by Occidental prior to the Spin-off. These functions include executive oversight, accounting, treasury, tax, financial reporting, internal audit, legal, risk management, information technology, government relations, public relations, investor relations, human resources, procurement, engineering, drilling, exploration, finance, marketing, ethics and compliance, and certain other shared services. Charges from Occidental for these services were generally reflected in general and administrative expenses and also include employee-related costs such as salaries, bonuses and stock compensation costs.
Purchases from related parties reflected products purchased at market prices from Occidental's subsidiaries and used in our operations. These purchases are included in production costs. There are no remaining related-party receivable or payable balances related to these transactions at December 31, 2014.
Quarterly Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Quarter
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
(in millions, except per share amounts)
|
Revenues
(a)
|
|
$
|
322
|
|
|
$
|
317
|
|
|
$
|
456
|
|
|
$
|
452
|
|
|
$
|
577
|
|
|
$
|
634
|
|
|
$
|
626
|
|
|
$
|
566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(143
|
)
|
|
$
|
(141
|
)
|
|
$
|
(19
|
)
|
|
$
|
(3
|
)
|
|
$
|
(90
|
)
|
|
$
|
(31
|
)
|
|
$
|
(72
|
)
|
|
$
|
(4,949
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
(b)(c)
|
|
$
|
(50
|
)
|
|
$
|
(140
|
)
|
|
$
|
546
|
|
|
$
|
(77
|
)
|
|
$
|
(100
|
)
|
|
$
|
(68
|
)
|
|
$
|
(104
|
)
|
|
$
|
(3,282
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
(d)
|
|
$
|
(1.30
|
)
|
|
$
|
(3.51
|
)
|
|
$
|
13.04
|
|
|
$
|
(1.83
|
)
|
|
$
|
(2.62
|
)
|
|
$
|
(1.78
|
)
|
|
$
|
(2.72
|
)
|
|
$
|
(85.47
|
)
|
Diluted
(d)
|
|
$
|
(1.30
|
)
|
|
$
|
(3.51
|
)
|
|
$
|
13.04
|
|
|
$
|
(1.83
|
)
|
|
$
|
(2.62
|
)
|
|
$
|
(1.78
|
)
|
|
$
|
(2.72
|
)
|
|
$
|
(85.47
|
)
|
|
|
(a)
|
Revenues include net derivative gains (losses).
|
|
|
(b)
|
For the first quarter of 2016, amount included unusual and infrequent items consisting of
$81 million
of non-cash derivative losses on outstanding hedges,
$89 million
of net gains on early extinguishment of debt and
$21 million
of other non-recurring charges. The first quarter of 2016 also included a
$63 million
deferred tax valuation allowance. For the second quarter of 2016, amount included
$137 million
of non-cash derivative losses on outstanding hedges,
$44 million
of net gains on early extinguishment of debt,
$31 million
of gains from asset divestitures and
$6 million
of other non-recurring charges. For the third quarter of 2016, amount included
$660 million
of net gains on early extinguishment of debt,
$25 million
of non-cash derivative losses on outstanding hedges, a
$12 million
interest charge for the write-off of deferred debt issuance costs and
$6 million
of other non-recurring charges. For the fourth quarter of 2016, amount included
$40 million
of non-cash derivative losses on outstanding hedges,
$12 million
of net gains on early extinguishment of debt and
$26 million
of other non-recurring charges, net. There were no associated taxes for 2016.
|
|
|
(c)
|
For the first quarter of 2015, amount included after-tax unusual and infrequent items consisting of
$2 million
of non-cash derivative losses on outstanding hedges. For the second quarter of 2015, amount included after-tax items consisting of
$10 million
of derivative losses on outstanding hedges and
$6 million
in early retirement and severance costs. For the third quarter of 2015, amount included after-tax items consisting of
$36 million
of non-cash derivative gains on outstanding hedges, offset by
$42 million
in early retirement and severance costs. For the fourth quarter of 2015, amount included after-tax items consisting of $2.9 billion of asset impairments for proved and unproved properties, $42 million in write-down of certain other assets, $5 million in debt transaction costs and $3 million in rig termination and other costs, partially offset by $14 million in non-cash hedge-related gains and other. The fourth quarter of 2015 also included a $294 million deferred tax valuation allowance.
|
|
|
(d)
|
We changed our previously reported third quarter 2016 basic and diluted earnings per share from $13.45 to $13.04 and $13.06 to $13.04, respectively. These changes occurred because of the application of the two-class method of earnings allocation in a period with net income. Unlike other periods in the year, the third quarter of 2016 resulted in net income because of the non-recurring gain generated from the extinguishment of debt. This represents a 3% change from the previously reported basic earnings per share amount, which we believe is immaterial based on the absolute amount as well as the non-recurring nature of the third quarter gain, which did not affect any trends embedded in operating results.
|
Supplemental Oil and Gas Information (Unaudited)
The following tables set forth our net interests in quantities of proved developed and undeveloped reserves of oil (including condensate), natural gas liquids (NGLs) and natural gas and changes in such quantities. Reserves are stated net of applicable royalties. Estimated reserves include our economic interests under arrangements similar to production-sharing contracts (PSCs) relating to the Wilmington field in Long Beach. All of our proved reserves are located within the state of California.
TOTAL RESERVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Joaquin Basin
|
|
Los Angeles Basin
(b)
|
|
Ventura Basin
|
|
Sacramento Basin
|
|
Total
|
|
(in MMBoe
(a)
)
|
PROVED DEVELOPED AND UNDEVELOPED RESERVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013
|
511
|
|
|
158
|
|
|
55
|
|
|
20
|
|
|
744
|
|
Revisions of previous estimates
|
(48
|
)
|
|
8
|
|
|
(3
|
)
|
|
1
|
|
|
(42
|
)
|
Improved recovery
|
101
|
|
|
11
|
|
|
4
|
|
|
1
|
|
|
117
|
|
Extensions and discoveries
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Acquisitions
|
1
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
6
|
|
Sales of proved reserves
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Production
|
(41
|
)
|
|
(11
|
)
|
|
(3
|
)
|
|
(3
|
)
|
|
(58
|
)
|
Balance at December 31, 2014
|
525
|
|
|
166
|
|
|
58
|
|
|
19
|
|
|
768
|
|
Revisions of previous estimates
|
(58
|
)
|
|
(34
|
)
|
|
(13
|
)
|
|
(3
|
)
|
|
(108
|
)
|
Improved recovery
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
Extensions and discoveries
|
15
|
|
|
12
|
|
|
5
|
|
|
1
|
|
|
33
|
|
Acquisitions
|
6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6
|
|
Sales of proved reserves
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Production
|
(40
|
)
|
|
(12
|
)
|
|
(3
|
)
|
|
(3
|
)
|
|
(58
|
)
|
Balance at December 31, 2015
|
451
|
|
|
132
|
|
|
47
|
|
|
14
|
|
|
644
|
|
Revisions of previous estimates
|
(5
|
)
|
|
(23
|
)
|
|
(18
|
)
|
|
(1
|
)
|
|
(47
|
)
|
Improved recovery
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
Extensions and discoveries
|
16
|
|
|
1
|
|
|
3
|
|
|
—
|
|
|
20
|
|
Acquisitions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Sales of proved reserves
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
Production
|
(36
|
)
|
|
(10
|
)
|
|
(3
|
)
|
|
(2
|
)
|
|
(51
|
)
|
Balance at December 31, 2016
|
429
|
|
|
99
|
|
|
29
|
|
|
11
|
|
|
568
|
|
|
|
|
|
|
|
|
|
|
|
PROVED DEVELOPED RESERVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
349
|
|
|
110
|
|
|
35
|
|
|
20
|
|
|
514
|
|
December 31, 2014
|
367
|
|
|
126
|
|
|
41
|
|
|
18
|
|
|
552
|
|
December 31, 2015
|
326
|
|
|
105
|
|
|
36
|
|
|
14
|
|
|
481
|
|
December 31, 2016
(c)
|
287
|
|
|
83
|
|
|
25
|
|
|
11
|
|
|
406
|
|
|
|
|
|
|
|
|
|
|
|
PROVED UNDEVELOPED RESERVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
162
|
|
|
48
|
|
|
20
|
|
|
—
|
|
|
230
|
|
December 31, 2014
|
158
|
|
|
40
|
|
|
17
|
|
|
1
|
|
|
216
|
|
December 31, 2015
|
125
|
|
|
27
|
|
|
11
|
|
|
—
|
|
|
163
|
|
December 31, 2016
|
142
|
|
|
16
|
|
|
4
|
|
|
—
|
|
|
162
|
|
|
|
(a)
|
Natural gas volumes have been converted to Boe based on the equivalence of energy content between six Mcf of natural gas and one Bbl of oil. Barrels of oil equivalence does not necessarily result in price equivalence. The price of natural gas on a barrel of oil equivalent basis is currently substantially lower than the corresponding price for oil and has been similarly lower for a number of years. For example, in
2016
, the average prices of Brent oil and NYMEX natural gas were
$45.04
per Bbl and
$2.42
per Mcf, respectively, resulting in an oil-to-gas price ratio of approximately
19
to 1.
|
|
|
(b)
|
Includes proved reserves related to economic arrangements similar to PSCs of 85 MMBbl, 103 MMBbl, 116 MMBbl and 102 MMBbl at December 31,
2016
, 2015, 2014 and 2013, respectively.
|
|
|
(c)
|
Approximately
17%
of the proved developed reserves at December 31,
2016
are non-producing. A majority of our non-producing reserves relate to steamfloods and waterfloods where full peak production response has not yet occurred due to the nature of such projects.
|
OIL RESERVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Joaquin Basin
|
|
Los Angeles
Basin
(a)
|
|
Ventura
Basin
|
|
Sacramento
Basin
|
|
Total
|
|
(in millions of barrels (MMBbl))
|
PROVED DEVELOPED AND UNDEVELOPED RESERVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013
|
332
|
|
|
155
|
|
|
45
|
|
|
—
|
|
|
532
|
|
Revisions of previous estimates
|
(41
|
)
|
|
8
|
|
|
(4
|
)
|
|
—
|
|
|
(37
|
)
|
Improved recovery
|
70
|
|
|
11
|
|
|
4
|
|
|
—
|
|
|
85
|
|
Extensions and discoveries
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Acquisitions
|
1
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
6
|
|
Sales of proved reserves
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Production
|
(23
|
)
|
|
(11
|
)
|
|
(2
|
)
|
|
—
|
|
|
(36
|
)
|
Balance at December 31, 2014
|
340
|
|
|
163
|
|
|
48
|
|
|
—
|
|
|
551
|
|
Revisions of previous estimates
|
(35
|
)
|
|
(33
|
)
|
|
(12
|
)
|
|
—
|
|
|
(80
|
)
|
Improved recovery
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
Extensions and discoveries
|
8
|
|
|
12
|
|
|
5
|
|
|
—
|
|
|
25
|
|
Acquisitions
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
Sales of proved reserves
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Production
|
(23
|
)
|
|
(12
|
)
|
|
(2
|
)
|
|
—
|
|
|
(37
|
)
|
Balance at December 31, 2015
|
297
|
|
|
130
|
|
|
39
|
|
|
—
|
|
|
466
|
|
Revisions of previous estimates
|
(3
|
)
|
|
(22
|
)
|
|
(15
|
)
|
|
—
|
|
|
(40
|
)
|
Improved recovery
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
Extensions and discoveries
|
11
|
|
|
1
|
|
|
2
|
|
|
—
|
|
|
14
|
|
Acquisitions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Sales of proved reserves
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
Production
|
(21
|
)
|
|
(10
|
)
|
|
(2
|
)
|
|
—
|
|
|
(33
|
)
|
Balance at December 31, 2016
|
287
|
|
|
98
|
|
|
24
|
|
|
—
|
|
|
409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVED DEVELOPED RESERVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
226
|
|
|
109
|
|
|
28
|
|
|
—
|
|
|
363
|
|
December 31, 2014
|
229
|
|
|
124
|
|
|
34
|
|
|
—
|
|
|
387
|
|
December 31, 2015
|
205
|
|
|
103
|
|
|
30
|
|
|
—
|
|
|
338
|
|
December 31, 2016
(b)
|
177
|
|
|
82
|
|
|
20
|
|
|
—
|
|
|
279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVED UNDEVELOPED RESERVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
106
|
|
|
46
|
|
|
17
|
|
|
—
|
|
|
169
|
|
December 31, 2014
|
111
|
|
|
39
|
|
|
14
|
|
|
—
|
|
|
164
|
|
December 31, 2015
|
92
|
|
|
27
|
|
|
9
|
|
|
—
|
|
|
128
|
|
December 31, 2016
|
110
|
|
|
16
|
|
|
4
|
|
|
—
|
|
|
130
|
|
|
|
(a)
|
Includes proved reserves related to economic arrangements similar to PSCs of 85 MMBbl, 103 MMBbl, 116 MMBbl and 102 MMBbl at December 31, 2016, 2015, 2014 and 2013, respectively.
|
|
|
(b)
|
Approximately
20%
of the proved developed reserves at December 31, 2016 are non-producing. A majority of our non-producing reserves relate to steamfloods and waterfloods where full peak production response has not yet occurred due to the nature of such projects.
|
NGL RESERVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Joaquin
Basin
|
|
Los Angeles
Basin
|
|
Ventura
Basin
|
|
Sacramento
Basin
|
|
Total
|
|
(in MMBbl)
|
PROVED DEVELOPED AND UNDEVELOPED RESERVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013
|
68
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
71
|
|
Revisions of previous estimates
|
8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8
|
|
Improved recovery
|
13
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13
|
|
Extensions and discoveries
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Acquisitions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Sales of proved reserves
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Production
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7
|
)
|
Balance at December 31, 2014
|
82
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
85
|
|
Revisions of previous estimates
|
(23
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(23
|
)
|
Improved recovery
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Extensions and discoveries
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Acquisitions
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Sales of proved reserves
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Production
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
Balance at December 31, 2015
|
56
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
59
|
|
Revisions of previous estimates
|
1
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
Improved recovery
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Extensions and discoveries
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Acquisitions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Sales of proved reserves
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Production
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
Balance at December 31, 2016
|
53
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVED DEVELOPED RESERVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
47
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
48
|
|
December 31, 2014
|
62
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
64
|
|
December 31, 2015
|
45
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
47
|
|
December 31, 2016
(a)
|
42
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
PROVED UNDEVELOPED RESERVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
21
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
23
|
|
December 31, 2014
|
20
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
21
|
|
December 31, 2015
|
11
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
12
|
|
December 31, 2016
|
11
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11
|
|
|
|
(a)
|
Approximately
11%
of the proved developed reserves at December 31, 2016 are non-producing.
|
NATURAL GAS RESERVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Joaquin Basin
|
|
Los Angeles Basin
|
|
Ventura Basin
|
|
Sacramento Basin
|
|
Total
|
|
(in billions of cubic feet (Bcf))
|
PROVED DEVELOPED AND UNDEVELOPED RESERVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013
|
671
|
|
|
16
|
|
|
33
|
|
|
124
|
|
|
844
|
|
Revisions of previous estimates
|
(91
|
)
|
|
—
|
|
|
4
|
|
|
7
|
|
|
(80
|
)
|
Improved recovery
|
107
|
|
|
—
|
|
|
2
|
|
|
5
|
|
|
114
|
|
Extensions and discoveries
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Acquisitions
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
Sales of proved reserves
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Production
|
(66
|
)
|
|
—
|
|
|
(4
|
)
|
|
(20
|
)
|
|
(90
|
)
|
Balance at December 31, 2014
|
621
|
|
|
16
|
|
|
37
|
|
|
116
|
|
|
790
|
|
Revisions of previous estimates
|
(2
|
)
|
|
(5
|
)
|
|
(6
|
)
|
|
(20
|
)
|
|
(33
|
)
|
Improved recovery
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Extensions and discoveries
|
27
|
|
|
1
|
|
|
—
|
|
|
6
|
|
|
34
|
|
Acquisitions
|
8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8
|
|
Sales of proved reserves
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Production
|
(63
|
)
|
|
(1
|
)
|
|
(4
|
)
|
|
(16
|
)
|
|
(84
|
)
|
Balance at December 31, 2015
|
591
|
|
|
11
|
|
|
27
|
|
|
86
|
|
|
715
|
|
Revisions of previous estimates
|
(20
|
)
|
|
(3
|
)
|
|
(12
|
)
|
|
(7
|
)
|
|
(42
|
)
|
Improved recovery
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Extensions and discoveries
|
20
|
|
|
—
|
|
|
3
|
|
|
2
|
|
|
25
|
|
Acquisitions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Sales of proved reserves
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Production
|
(55
|
)
|
|
(1
|
)
|
|
(3
|
)
|
|
(13
|
)
|
|
(72
|
)
|
Balance at December 31, 2016
|
536
|
|
|
7
|
|
|
15
|
|
|
68
|
|
|
626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVED DEVELOPED RESERVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
455
|
|
|
9
|
|
|
22
|
|
|
117
|
|
|
603
|
|
December 31, 2014
|
458
|
|
|
11
|
|
|
28
|
|
|
110
|
|
|
607
|
|
December 31, 2015
|
456
|
|
|
9
|
|
|
24
|
|
|
86
|
|
|
575
|
|
December 31, 2016
(a)
|
410
|
|
|
7
|
|
|
15
|
|
|
68
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
PROVED UNDEVELOPED RESERVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
216
|
|
|
7
|
|
|
11
|
|
|
7
|
|
|
241
|
|
December 31, 2014
|
163
|
|
|
5
|
|
|
9
|
|
|
6
|
|
|
183
|
|
December 31, 2015
|
135
|
|
|
2
|
|
|
3
|
|
|
—
|
|
|
140
|
|
December 31, 2016
|
126
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
126
|
|
|
|
(a)
|
Approximately
14%
of the proved developed reserves at December 31, 2016 are non-producing.
|
CAPITALIZED COSTS
Capitalized costs relating to oil and gas producing activities and related accumulated depreciation, depletion and amortization (DD&A) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Joaquin
Basin
|
|
Los Angeles
Basin
|
|
Ventura
Basin
|
|
Sacramento
Basin
|
|
Total
|
|
(in millions)
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved properties
|
$
|
15,673
|
|
|
$
|
2,055
|
|
|
$
|
1,299
|
|
|
$
|
298
|
|
|
$
|
19,325
|
|
Unproved properties
|
544
|
|
|
106
|
|
|
172
|
|
|
289
|
|
|
1,111
|
|
Total capitalized costs
(a)
|
16,217
|
|
|
2,161
|
|
|
1,471
|
|
|
587
|
|
|
20,436
|
|
Accumulated depreciation, depletion and amortization
(b)
|
(11,671
|
)
|
|
(1,495
|
)
|
|
(1,168
|
)
|
|
(557
|
)
|
|
(14,891
|
)
|
Net capitalized costs
|
$
|
4,546
|
|
|
$
|
666
|
|
|
$
|
303
|
|
|
$
|
30
|
|
|
$
|
5,545
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved properties
|
$
|
15,549
|
|
|
$
|
2,071
|
|
|
$
|
1,352
|
|
|
$
|
374
|
|
|
$
|
19,346
|
|
Unproved properties
|
544
|
|
|
106
|
|
|
172
|
|
|
289
|
|
|
1,111
|
|
Total capitalized costs
(a)
|
16,093
|
|
|
2,177
|
|
|
1,524
|
|
|
663
|
|
|
20,457
|
|
Accumulated depreciation, depletion and amortization
(b)
|
(11,166
|
)
|
|
(1,491
|
)
|
|
(1,208
|
)
|
|
(603
|
)
|
|
(14,468
|
)
|
Net capitalized costs
|
$
|
4,927
|
|
|
$
|
686
|
|
|
$
|
316
|
|
|
$
|
60
|
|
|
$
|
5,989
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved properties
|
$
|
15,362
|
|
|
$
|
1,982
|
|
|
$
|
1,353
|
|
|
$
|
326
|
|
|
$
|
19,023
|
|
Unproved properties
|
469
|
|
|
106
|
|
|
113
|
|
|
323
|
|
|
1,011
|
|
Total capitalized costs
(a)
|
15,831
|
|
|
2,088
|
|
|
1,466
|
|
|
649
|
|
|
20,034
|
|
Accumulated depreciation, depletion and amortization
(b)
|
(6,846
|
)
|
|
(826
|
)
|
|
(495
|
)
|
|
(497
|
)
|
|
(8,664
|
)
|
Net capitalized costs
|
$
|
8,985
|
|
|
$
|
1,262
|
|
|
$
|
971
|
|
|
$
|
152
|
|
|
$
|
11,370
|
|
|
|
(a)
|
Includes acquisition costs, development costs and asset retirement obligations.
|
|
|
(b)
|
Includes accumulated valuation allowance for total unproved properties of $819 million, $819 million, and $715 million at December 31,
2016
, 2015 and 2014, respectively.
|
COSTS INCURRED
Costs incurred relating to oil and gas activities that included capital investments, exploration (whether expensed or capitalized), acquisitions, asset retirement obligations and excluded corporate items were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Joaquin
Basin
|
|
Los Angeles
Basin
|
|
Ventura
Basin
|
|
Sacramento
Basin
|
|
Total
|
|
(in millions)
|
FOR THE YEAR ENDED DECEMBER 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property acquisition costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved properties
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Unproved properties
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Exploration costs
|
17
|
|
|
—
|
|
|
2
|
|
|
2
|
|
|
21
|
|
Development costs
(a)
|
49
|
|
|
23
|
|
|
26
|
|
|
4
|
|
|
102
|
|
Costs incurred
|
$
|
66
|
|
|
$
|
23
|
|
|
$
|
28
|
|
|
$
|
6
|
|
|
$
|
123
|
|
|
|
|
|
|
|
|
|
|
|
FOR THE YEAR ENDED DECEMBER 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property acquisition costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved properties
|
$
|
73
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
77
|
|
Unproved properties
|
65
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
65
|
|
Exploration costs
|
36
|
|
|
—
|
|
|
4
|
|
|
3
|
|
|
43
|
|
Development costs
(a)
|
191
|
|
|
89
|
|
|
10
|
|
|
—
|
|
|
290
|
|
Costs incurred
|
$
|
365
|
|
|
$
|
91
|
|
|
$
|
16
|
|
|
$
|
3
|
|
|
$
|
475
|
|
|
|
|
|
|
|
|
|
|
|
FOR THE YEAR ENDED DECEMBER 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property acquisition costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved properties
|
$
|
79
|
|
|
$
|
3
|
|
|
$
|
128
|
|
|
$
|
—
|
|
|
$
|
210
|
|
Unproved properties
|
21
|
|
|
—
|
|
|
81
|
|
|
—
|
|
|
102
|
|
Exploration costs
|
105
|
|
|
—
|
|
|
14
|
|
|
5
|
|
|
124
|
|
Development costs
|
1,356
|
|
|
495
|
|
|
99
|
|
|
12
|
|
|
1,962
|
|
Costs incurred
|
$
|
1,561
|
|
|
$
|
498
|
|
|
$
|
322
|
|
|
$
|
17
|
|
|
$
|
2,398
|
|
|
|
(a)
|
Total development costs include a $49 million increase, a $62 million decrease and a $13 million decrease in asset retirement obligations in 2016, 2015 and 2014, respectively.
|