# A MESSAGE TO OUR SHAREHOLDERS

_Source: `DeepSeekOCR_Ardian_pruned_1k/energy-oil-gas-e-p/NYSE_CRC_2020/NYSE_CRC_2020.mmd` · pages 2-8_

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A MESSAGE TO OUR SHAREHOLDERS

Dear Shareholders,

The past year was one of the most disruptive in memory. The COVID-19 global pandemic, previously unimaginable by most, upturned nearly every aspect of our lives. The steep economic downturn associated with pandemic-related lockdowns, combined with OPEC+ actions, significantly impacted California Resources Corporation (CRC).

These events of early 2020 contributed to CRC's entrance into a Chapter 11 restructuring in July to eliminate the burden of an over leveraged balance sheet. CRC emerged in October with an improved balance sheet, which we simplified further in January with our high yield offering, and we are committed to building on CRC's strong assets and repositioning the company to optimize returns to our investors.

## Looking forward, CRC is shareholder-return focused and building on our strengths

1. Asset portfolio providing resilient and predictable production. Our assets keep on producing. The majority of our interests are in producing properties located in stacked-pay reservoirs that we believe have long-lived production profiles and repeatable development opportunities. CRC's conventional assets are also characterized by shallow base decline rates which limits the investment required to offset production declines and is a competitive advantage over many shale-based peers.

2. Dynamic and disciplined capital investment strategy which facilitated free cash flow \( ^{1} \)  generation in 2020. CRC's flexible approach responds to changes in commodity pricing. As Brent oil prices fell from over 68 at the start of the year to below 20 in April, CRC cut non-discretionary capital spend and shut-in selected wells. Our decisive response to economic conditions enabled 17.2MM in free cash flow \( ^{1} \)  generation for the year despite the drastic change in price environment in the first half of the year and hefty restructuring costs in the second half. CRC continuously analyzes the operating and economic performance of our assets so we can manage our portfolio for the highs and lows of the commodity price cycle.

3. Steadfast commitment to safety and environmental, social and governance (ESG) practices. At CRC, health and safety leads everything we do. Safeguarding people and the environment as we provide reliable energy is our number one principle. In 2020, CRC received 24 National Safety Achievement awards and set a new company safety record for our combined workforce of employees and contractors, better than the insurance and finance sectors. We earned an A- from CDP for our climate disclosure, tied for first among U.S. oil and natural gas companies, and marked two years in a row at CDP's Leadership Level.

## Repositioning CRC for the future

In concert with the Board of Directors, CRC's re-aligned senior management team conducted a full-scale business review. The 2021 repositioning efforts will focus on the following:

1. CRC will be laser-focused on core assets with the highest operating cash flow potential. Non-core assets with insufficient cash generation will be transformed or rationalized.

2. CRC will maintain operating and overhead cost reductions in line with our scale and rationalized asset portfolio.

3. CRC will practice disciplined capital investment with a target of less than 60% of discretionary cash flow \( ^{1} \) .

4. CRC will maintain balance sheet strength. In 2021, CRC will continue hedging ~80% of its production to underpin cashflows and ensure a return on capital. In addition, CRC will focus on retaining low leverage of <1.5x Net Debt/Adjusted EBITDAX \( ^{1} \) .

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## A word of gratitude

I would like to thank the talented women and men of CRC for their dedication and support as we chart a new course for CRC. The reliability of our workforce has proven to be just as critical as the resilience of our assets. Our essential workers have safely and reliably met the energy needs of their fellow Californians before and during the pandemic. Just as the workforce led us through this challenging time, it will implement the actions necessary to CRC's future success. With a foundation built upon focused operations on core assets and our commitment to ESG, CRC is set up to drive both sustainable energy production and shareholder returns.

Thank you,

![](images/3_0.jpg)

Mark A. (Mac) McFarland

Chairman, President and Chief Executive Officer

California Resources Corporation

 \( ^{1} \)  Adjusted EBITDAX, discretionary cash flow, free cash flow and net debt are non-GAAP measures. See the Investor Relations page at www.crc.com for additional information about these non-GAAP measures and reconciliations of non-GAAP measures to their closest GAAP equivalents.

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# UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___ to ___

Commission File Number 001-36478

# California Resources Corporation
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)

46-5670947
(I.R.S. Employer Identification No.)

27200 Tourney Road, Suite 200
Santa Clarita, California 91355
(Address of principal executive offices) (Zip Code)

(888) 848-4754
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class
Common Stock
Trading Symbol(s)
CRC
Name of Each Exchange on Which Registered
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T ( \( §232.405 \)  of this chapter) during the preceding 12 months (or such shorter period as the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☐ Accelerated Filer ☐ Smaller Reporting Company ☐ Emerging Growth Company ☐
Non-Accelerated Filer

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter. Common Stock aggregate market value held by non-affiliates as of June 30, 2020: $59 million.

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☑ No ☐

At February 28, 2021, there were 83,319,660 shares of Common Stock outstanding.

## DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Definitive Proxy Statement to be filed within 120 days after December 31, 2020 with the Securities and Exchange Commission in connection with the registrant's 2021 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.