Document:

Exhibit

EXECUTION VERSION

EXHIBIT 10.3
MASTER SERVICES AGREEMENT

This MASTER SERVICES AGREEMENT (this “Agreement”), is entered into as of February 7, 2018 (the “Effective Date”), by and between Elk Hills Power, LLC, a Delaware limited liability company (the “Company”), and California Resources Elk Hills, LLC, a Delaware limited liability company (together with any Affiliate providing Services hereunder pursuant to Section 1(e), the “Operator”). The Company and the Operator are referred to collectively as the “Parties” and each individually as a “Party”.
WHEREAS, after giving effect to the transactions contemplated by that certain Contribution and Unit Purchase Agreement, by and among the Company, the Operator, ECR Corporate Holdings L.P., a Delaware limited partnership, and California Resources Corporation, a Delaware corporation (solely for purposes of Section 7.14 thereof), dated as of the date of this Agreement (the “Contribution and Unit Purchase Agreement”), the Company now owns the Subject Assets (as defined therein);
WHEREAS, the Company desires to engage the Operator to provide the comprehensive services described in this Agreement to the Company and all of its Subsidiaries (collectively, the “Company Group”), including with respect to the Subject Assets and such other assets that the Company Group may acquire and own after the date hereof (collectively, the “Company Group Assets”); 
WHEREAS, the Operator is willing to undertake such engagement, subject to the terms and conditions of this Agreement; and
WHEREAS, the Transaction Documents, including this Agreement, and the other agreements and documents expressly referred to herein or therein shall constitute an unseverable and single agreement of the Parties with respect to the transactions contemplated hereby and thereby.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:
Section 1    Services.
(a)    Generally. From and after the Effective Date and during the term of the Agreement, on the terms and conditions set forth below, the Operator shall provide to the Company Group: (i) the services set forth on Schedule I attached to this Agreement; and (ii) such other administrative acts or other activities as are reasonably necessary or useful in carrying out the duties and services set forth above, or as are fairly implied by the terms of this Agreement (such services described in this Section 1(a) and any Additional Services the Operator agrees to provide pursuant to Section 1(b), collectively, the “Services”). 

(b)    Additional Services. Over and above those services that are reasonably necessary or useful or fairly implied from this Agreement as described in Section 1(a), at the reasonable request of any member of the Company Group, the Operator may, but shall not be required to, agree to provide additional services (the “Additional Services”), from time to time during the term of this Agreement (as determined by the Operator in its reasonable discretion). In determining whether to provide any requested Additional Services, including in connection with any assets acquired by the Company Group after the date hereof, the Operator may condition the provision of such Additional Services on an adjustment to the MSA Reimbursement Amount as the Parties may mutually agree in accordance with the Company LLC Agreement. 
(c)    Employees.
(i)    The Operator (or its applicable Affiliate) shall select, employ and pay compensation (including the payment of all social security taxes, unemployment taxes and similar payments related thereto) as well as employee benefits and any applicable severance to all personnel and employees of the Operator or its Affiliates necessary for the performance of the Services, unless such personnel and employees are employed by the Company (each such personnel and employee other than those employed by the Company, an “Operator Employee”). The Operator shall also supervise and direct all Operator Employees. The Company may employ its own personnel and employees for utilization by Operator in its performance of the Services (each, a “Company Employee”). Notwithstanding the foregoing, subject to Section 5.8(x) of the Company LLC Agreement, upon advance notice and reasonable consultation with the most senior Company Employee, the Operator may select for employment and terminate the employment of any Company Employee on the Company’s behalf as may be necessary or appropriate in connection with the provision of the Services. The Company shall pay all compensation and employee benefits and any applicable severance for all Company Employees, and the Operator’s obligations with respect to such Company Employees shall be limited to supervising and directing such Company Employees in accordance with this Agreement. The Company Employees shall, at all times during the term of this Agreement and while such employees remain employed by the Company, be employees of the Company and shall not be employees of the Operator notwithstanding any right of the Operator under this Agreement with respect to such Company Employees.
(ii)    From time to time during the term of this Agreement, in accordance with Section 1(c)(i), the Operator shall select a sufficient number of (1) Operator Employees and (2) Company Employees on the Company’s behalf, in each case, to enable the Operator to perform the Services in accordance with this Agreement and to operate the Company Group Assets in the ordinary course of business consistent with past practice.
(iii)    The Operator shall hold all Operator Employees and Company Employees for which it supervises and directs under this Agreement to a standard at least as stringent in all material respects as that to which all of the Operator’s employees are held pursuant to the rules, regulations and policies observed by the Operator in the ordinary course of business, including 

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any drug and alcohol screening programs. In no event, however, shall the standard to which Operator and Company Employees are held fall below that set forth in Section 2(a) below.
(d)    Separateness. In performing the Services under this Agreement, the Operator shall not take any action, or cause any of its Affiliates to take any action, that would cause any member of the Company Group to violate Section 5.15 of the Company LLC Agreement. 
(e)    Delegation of the Services.
(i)    The Parties acknowledge and agree that the Operator may cause its applicable Affiliates to provide the Services as necessary.
(ii)    The Parties acknowledge and agree that the provision of certain of the Services may be supported by third-party service providers, including those providers that have been used in the past in connection with the Company Group Assets and such new independent contractors, independent accountants, outside legal counsel and consultants, in each case, that are capable of performing the Services in accordance with the terms of this Agreement, including the standards set forth in Section 2, as determined in the Operator’s good faith judgment and in accordance with Section 2(d) (“Third-Party Providers”). Without limiting the generality of the foregoing, the Company shall have the right to enter into direct arrangements with Third-Party Providers to provide any of the Services. At the election of the Company, the Operator shall coordinate with such Third-Party Providers to provide the applicable Service.
(f)    FERC Compliance.  In performing the Services under this Agreement, the Operator shall use all commercially reasonable efforts necessary to cause the Company to comply with the Company’s obligations under Section 5.17 of the Company LLC Agreement.
(g)    Air Emissions Credits.
(i)    During the term of this Agreement, the Operator shall, and shall cause its Affiliates to, ensure that the Company shall have priority with respect to the use of any air emissions credits, offsets or allowances that have been allocated to or generated by the Company (the “Company Credits”). 
(ii)    In the event the Operator reasonably determines that any Company Credits are not required for the Company’s operation in the ordinary course, the Operator may provide such Company Credit for use by CREH or any of its Affiliates, provided that CREH (or such applicable Affiliate) shall compensate the Company for such use, calculated according to the applicable market rate for such Company Credit (or portion thereof).
Section 2    Standard of Performance.
(a)    Generally. The Operator shall perform the Services and such other obligations set forth in this Agreement: (i) in a good, workmanlike and efficient manner in accordance in all 

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material respects with all applicable Laws and the terms of all Contracts and Permits to which any of the Company Group Assets or the members of the Company Group are bound; (ii) as a reasonable prudent operator in the oil and gas industry that also operates power generation and gas processing facilities; and (iii) with the same degree of diligence and care that the Operator and its Affiliates exercised with respect to their ownership and operation of the applicable Company Group Assets prior to the Effective Date.
(b)    Prohibited Activities.
(i)    In conducting the Services and duties under this Agreement, the Operator shall not undertake any activity or fail to take any action that would violate, in any material respect: (i) any applicable Law; (ii) any Contract or Permit to which, to the knowledge of the Operator (after reasonable due inquiry), a member of the Company Group, any Company Group Asset or Operator or any of its Affiliates is bound; or (iii) any of the Transaction Documents other than this Agreement. Notwithstanding the foregoing, the Operator shall not be liable for a breach of this Section 2(b) or any other provision of this Agreement for any actions performed or omissions made in accordance with directions given by the Company Group, to the extent the holders of the Class B Preferred Units have caused the Company Group to issue such directions.
(ii)    The Operator shall not, and shall cause its Affiliates not to, place any Encumbrances on the Company Group Assets. The Operator shall also keep the Company Group Assets free from Encumbrances arising under Contracts or Permits binding on the Company Group Assets, in each case, except for (1) Permitted Encumbrances and (2) Encumbrances placed on the Company Group Assets by the Company Group, or by the Operator at the direction of a member of the Company Group, following approval as contemplated by Section 5.9 of the Company LLC Agreement, after the Effective Date.
(c)    Force Majeure. The Operator shall not be liable or responsible to the Company Group, nor be deemed to have defaulted under or breached this Agreement, for any failure or delay by the Operator in fulfilling or performing its obligations under this Agreement (except for any obligations to make payments hereunder, if any), when and to the extent such failure or delay is caused by or results from a Force Majeure. If the Operator is affected by Force Majeure, the Operator shall provide written notice within 5 days of the occurrence of such Force Majeure to the most senior Company Employee, stating the details of such Force Majeure and how long such Force Majeure is expected to continue. The Operator shall use commercially reasonable diligent efforts to end the failure or delay of performance due to Force Majeure and ensure the effects of such Force Majeure are minimized. The Operator shall resume the performance of its obligations under this Agreement as soon as reasonably practicable after the Force Majeure is no longer preventing the Operator’s performance.
(d)    Approved Budget. With respect to the Operator’s activities under this Agreement, the Operator agrees to: (i) operate in a manner that is consistent with the applicable Approved Budget then in effect for the Company except (A) as otherwise authorized by the Board 

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of the Company or (B) with respect to expenditures (1) strictly necessitated by an Emergency or (2) not to exceed 10% of the then-applicable Annual Budget in the aggregate and (ii) not to take any action that is inconsistent with any written direction given by the Company to the Operator. The initial Annual Budget of the Company is attached to this Agreement as Exhibit A. No later than 60 days prior to the end of each Fiscal Year during the term of this Agreement, the Operator shall prepare in good faith and deliver to the Company for its review a draft Annual Budget for the Company’s operations in respect of the following Fiscal Year. 
Section 3    Invoicing for Services.
(a)    Pricing Methodology. For each Billing Period, the Company shall pay to the Operator (i) an amount equal to $125,000 (the “Base MSA Reimbursement Amount”) plus (ii) an amount necessary to reimburse the Operator for all Out-of-Pocket Expenses incurred and actually paid by the Operator in such Billing Period, up to an amount not to exceed $20,000 in the aggregate for such Billing Period (together with the Base MSA Reimbursement Amount, the “MSA Reimbursement Amount”). Notwithstanding the foregoing, so long as the Operator is using commercially reasonable efforts to modify its internal accounting and billing systems as Operator deems reasonable necessary to administer payments and billing under this Agreement, the amount of Out-of-Pocket Expenses reimbursable as part of the MSA Reimbursement Amount shall not be subject to the $20,000 limit set forth in the foregoing clause (ii) until the earlier to occur of (x) the completion of such modification of the Operator’s internal accounting and billing systems and (y) 120 days following the Effective Date of this Agreement.
(b)    Expense Statements. As promptly as practicable, but in no event later than fifteen days following the end of each Billing Period, the Operator shall deliver a statement to the Company for such Billing Period (each, an “Expense Statement”) setting forth the MSA Reimbursement Amount for such Billing Period, together with: (i) a reasonably detailed breakdown of the Out-of-Pocket Expenses set forth in the Expense Statement; (ii) such other supporting documentation as may be reasonably necessary for the Company to verify the accuracy of such Expense Statement; and (iii) the bank account into which the Company shall make payments required by the Expense Statement. No later than 15 days following its receipt of each Expense Statement delivered by the Operator, the Company shall pay the Operator an amount equal to the undisputed MSA Reimbursement Amount for such Billing Period as set forth in such Expense Statement in immediately available funds to the bank account designated by the Operator in such Expense Statement. Notwithstanding the foregoing, to the extent CREH (as defined in the Commercial Agreement) fails to timely make any payment in full pursuant to the terms of the Commercial Agreement, the Company may set off such amounts against the obligation to pay the applicable MSA Reimbursement Amount during the month of such default. 
(c)    Fee Dispute. If the Company disputes in good faith any charges contained in an Expense Statement delivered pursuant to Section 3(b), the Company, shall submit written notice of such dispute to the Operator and may withhold from its payment of the relevant Expense 

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Statement any such disputed amounts, subject to Section 3(d). Upon delivery of such written dispute notice, the Parties shall cooperate and negotiate in good faith and use reasonable efforts to resolve such disputed charges. If the Parties are unable to resolve such disputed charges within 30 days after delivery of the written dispute notice, by written notice to the Company, the Operator may elect to submit the remaining disputed items to an independent accounting firm, mutually selected by the Parties (the “Independent Accountant”). The Independent Accountant shall determine the correctness of the disputed charges and shall be entitled to reasonably request and review all the supporting information of the Parties with respect to such dispute. The Independent Accountant shall be instructed to use its reasonable efforts to perform its review and determination as promptly as practical, but in no event later than 30 days following its selection, unless a longer period is agreed upon in writing by the Parties prior to the expiration of the 30-day period. The determination of the Independent Accountant shall be conclusive and binding on the Parties absent manifest error. Any amounts that are finally determined to have been unpaid by the Company shall be paid to the Operator no later than 10 Business Days following the final determination by the Independent Accountant. The Independent Accountant shall allocate its fees and expenses between Operator and the Company based upon the percentage of the disputed fees submitted to the Independent Accountant that is ultimately awarded to the Company, on the one hand, and the Operator, on the other hand, such that the Company bears a percentage of such fees and expenses equal to the percentage of the contested amount awarded to the Operator and the Operator bears a percentage of such fees and expenses equal to the percentage of the contested amount awarded to the Company.
(d)    Late Payments. If the Company fails to pay any charges reflected as due to the Operator in any Expense Statement rendered when such amount is due, interest will accrue on the unpaid charges from, but excluding, the due date to, and including, the date payment is actually made at the lesser of: (i) the Prime Rate plus 3%, computed on an annualized basis and compounded monthly, and (ii) the maximum legal rate of interest permitted by applicable law. 
(e)    Taxes. With the exception of income taxes and employment taxes, the latter of which are addressed in Section 3(a), any taxes assessed on the provision of the Services shall be paid either by (i) the member of the Company Group in receipt of the applicable Services or (ii) the Company on behalf of such other member of the Company Group.
Section 4    Revenues and Disbursements
(a)    Receipt of Revenues. Only to the extent authorized by a member of the Company Group, the Operator shall have the authority to collect, on behalf of the Company Group, all proceeds and cash attributable to the Company Group Assets (the “Company Revenues”) into one or more bank accounts maintained in the name of the Company (the “Company Bank Accounts”). In performing such collections, if so authorized, the Operator shall use its commercially reasonable efforts to cause, on behalf of the Company Group, all amounts due and owing to the Company Group to be paid on a timely basis. The Operator shall keep a complete and accurate account of all proceeds received on behalf of the Company Group. All Company Revenues received 

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by the Operator shall promptly be deposited in the Company Bank Accounts and shall only be disbursed therefrom in accordance with this Agreement. Notwithstanding the foregoing, to the extent the Operator or any of its Affiliates receives any Company Revenues, the Operator shall, or shall cause its Affiliate to, promptly deposit such Company Revenues in the Company Bank Accounts, regardless of whether such deposit is authorized by a member of the Company Group. This Section 4(a) shall not limit the provisions of Section 1(d). 
(b)    Disbursements. To the extent requested by a member of the Company Group, the Operator shall, on behalf of the Company Group, make disbursements of the Company Revenues (i) from time to time as necessary to timely discharge all costs and expenses and other amounts due and owing by the Company Group and attributable to ownership of the Company Group Assets and other related business activities, including payment of royalties and applicable sales, use, excise, value added and other similar taxes assessed or imposed on the Company Group Assets or the Company Group and (ii) as and when directed by the Company. Notwithstanding the foregoing, the Operator shall not be liable for a breach of this Section 4(b) or any other provision of this Agreement for any actions performed or omissions made in accordance with directions given by the Company Group. This Section 4(b) shall not limit the provisions of Section 1(d).
Section 5    Cooperation; Books and Records and Audit Rights.
(a)    Cooperation. During the term of this Agreement, the Parties shall use commercially reasonable efforts to cooperate with each other in all matters relating to the provision and receipt of the Services. Such reasonable cooperation shall include: (i) exchanging information; (ii) providing electronic access to systems used in connection with the Services; and (iii) using commercially reasonable efforts in obtaining all consents, licenses, sublicenses or approvals necessary to permit each Party to perform its obligations under the Agreement. The Parties acknowledge that some Services to be provided under this Agreement may require instructions, information or authorization from the member of the Company Group receiving such Services, which the Company agrees to provide, or cause to be provided, to the Operator in reasonable time for the Operator to provide or procure such Services. The Operator’s performance of such Services will be excused, however, to the extent that the Company or the applicable member of the Company Group does not provide such required instructions, information or authorization in a reasonable time to allow performance. On behalf of itself and each member of the Company Group, the Company authorizes the Operator as agent of the applicable member of the Company Group to perform the Services and take the actions that the Operator is required to take under this Agreement on behalf of the applicable member of the Company Group.
(b)    Audit Rights. Once each year during the term of this Agreement and once during the one year period following the termination of this Agreement, exercisable at its option and sole expense, the Company shall have the right to review and copy the books and records regarding the performance of the Services and any books, records and accounts of operations, revenues and expenditures of the Company Group in respect of the Company Group Assets kept 

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by the Operator (the “Records”) to verify and evaluate the performance by the Operator of its obligations under this Agreement during the most recent previous fiscal year, and to audit and examine such Records with respect to the most recent previous fiscal year. If, however, the Operator is in breach of its obligations under this Agreement, there shall be no restrictions on the number of times the Company shall have the right to exercise its audit rights during the existence of such breach and the costs and expenses of any such audit shall be borne by the Company. The Company shall conduct each such audit during normal business hours upon reasonable advanced notice to the Operator. Any such audit shall be completed within 12 months of the end of the most recent previous fiscal year. The Company Group shall use its commercially reasonable efforts to conduct any such audit or examination in a manner that minimizes the inconvenience or disruption to the Operator. 
Section 6    Term; Termination.
(a)    Termination. The provision of the Services under this Agreement shall commence on the Effective Date and shall continue indefinitely until this Agreement is terminated pursuant to this Section 6. Subject to the provision of transition services pursuant to Section 6(d), this Agreement may be terminated:
(i)    by the mutual written agreement of the Parties; 
(ii)    upon written notice by the Company, in the event either Party: (1) makes a general assignment for the benefit of creditors; (2) files a voluntary bankruptcy petition; (3) becomes the subject of an order for relief or is declared insolvent in any federal or state bankruptcy or insolvency proceeding; (4) files a petition or answer in a court of competent jurisdiction seeking a reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any applicable Law; (5) files an answer or other pleading admitting or failing to contest the material allegations of a petition filed in a proceeding of the type described in preceding clauses (1) through (5); (6) seeks, consents or acquiesces to the appointment of a trustee, receiver or liquidator of all or any substantial part of its assets or properties or (7) is liquidated and dissolved; 
(iii)    upon written notice by the Company, in the event the Operator fails or delays in fulfilling or performing any obligations under this Agreement due to a Force Majeure and such failure or delay remains uncured for a period of 90 days following the occurrence of such Force Majeure;
(iv)    by either Party, in the event the Company is required to effect an Exit Transaction pursuant to the terms of the Company LLC Agreement; 
(v)    by either Party, upon written notice to the other Party in the event such other Party breaches any material term of this Agreement and fails to cure such breach to the reasonable satisfaction of the non-breaching Party within 60 days following receipt of such written notice; or

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(vi)    by either Party, upon written notice to the other Party in the event of gross negligence, fraud, bad faith or willful misconduct in the other Party’s performance (or failure to perform) of such other Party’s obligations under this Agreement which has caused actual damages (1) in excess of $25,000,000 or (2) in such lesser amount which has not been cured to the reasonable satisfaction of the non-breaching Party within 60 days following receipt of such written notice. Notwithstanding the foregoing, in the event the non-terminating Party in good faith disputes that its conduct constituted gross negligence, fraud, bad faith or willful misconduct, this Agreement shall not be terminated until the date of entry of a final, non-appealable determination by a court of competent jurisdiction that such conduct constituted gross negligence, fraud, bad faith or willful misconduct.
(b)    Effect of Termination or Expiration. If a Party delivers written notice of termination of the Agreement pursuant to Section 6(a)(ii), Section 6(a)(iii) (in the case of the Company) or Section 6(a)(iv) (in the case of the Company or the Operator), such termination of the Agreement shall become effective as of the date of such notice or, if an effective date of termination is specified by such Party in such notice, such effective date of termination. If a Party delivers written notice of a material breach pursuant to Section 6(a)(v), and the other Party fails to cure such breach within 60 days, the termination of the Agreement will be effective as of 60 days after the delivery of the notice of the breach.
(c)    Survival. Notwithstanding anything to the contrary herein, Section 5(b) (Audit Rights), Section 6(b) (Effect of Termination or Expiration), Section 6(c) (Survival), Section 6(d) (Transition Services), Section 7 (Confidentiality), Section 8 (Indemnification and Exculpation) and Section 11 (Miscellaneous) shall survive termination of this Agreement. The termination or expiration of this Agreement shall not relieve any Party from any expense, liability or other obligation or remedy therefor which has accrued or attached prior to the date of such termination or expiration.
(d)    Transition Services. Upon termination of this Agreement for any reason other than by Operator pursuant to Section 6(a)(v) or Section 6(a)(vi) resulting from the Company’s breach of a material term of this Agreement, and if requested by the Company prior to such termination, the Operator shall, for a period of up to six months following such termination (or such shorter period as indicated in writing by the Company) or, in the event of termination of this Agreement pursuant to Section 6(a)(iv), for a period of up to six months following the consummation of the Exit Transaction: (i) provide the Company Group reasonable assistance to transition the Operator’s duties under this Agreement to one or more successor managers designated by the Company, including, in the event of termination of this Agreement pursuant to Section 6(a)(iv), all services that may be reasonably required in connection with the Company effecting such Exit Transaction as provided in the Company LLC Agreement; and (ii) continue to provide such Services as the Company (or its successor(s)) may reasonably request in order to maintain the Company Group Assets until the transition of such Services to the successor manager has been completed. In addition, upon the occurrence of a Dissolution Event, the Operator shall provide the Company Group, or their designee, with transition services substantially comparable to those provided for in 

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this Section 6(d) with respect to the termination of this Agreement. The Operator shall also transition the consulting and management services provided under this Agreement to one or more successor managers for a period not to exceed six months following consummation of such Dissolution Event. In providing transition services pursuant to this Section 6(d), the Operator shall use the same degree of care used in performing the Services in accordance with Section 2 of this Agreement. In consideration for transaction services rendered by the Operator to the Company during a Billing Period, the Company (or its successor(s)) shall pay to the Operator the MSA Reimbursement Amount in accordance with Section 3, prorated for the amount of time during which the Operator actually renders transition services to the Company during such Billing Period. The other terms of this Agreement shall continue to apply with respect to the provision of such transition services.
Section 7    Confidentiality. Each Party agrees that all Confidential Information shall be kept confidential and shall not be disclosed by either Party in any manner whatsoever. Notwithstanding the foregoing, Confidential Information may be disclosed by the Operator or the Company solely to its respective managers, directors, partners, employees, advisors, counsel, accountants, agents or any of its Affiliates who need to know such information for the purpose of providing the Services, in the case of the Operator, or receiving the Services, in the case of the Company, pursuant to this Agreement or otherwise complying with its obligations under this Agreement. In connection with any disclosure pursuant to the previous sentence, the Operator and the Company, as applicable, will: (i) inform such Persons of the confidential nature of such information; (ii) direct and cause them to agree to treat such information in accordance with the terms of this Section 7; and (iii) be liable for any breach of this Section 7 by any such Person. In addition, disclosure of Confidential Information may be made by the either Party to the extent the other Party consents in writing. Either Party may also disclose Confidential Information to the extent required by Law or in response to legal process, applicable governmental regulations or governmental agency request, but only that portion of such Confidential Information which, in the opinion of the Party’s counsel, is required or would be required to be furnished to avoid liability. In the event of a disclosure made pursuant to the prior sentence, the disclosing Party shall: (i) notify the other Party of its obligation to provide such Confidential Information prior to disclosure (unless notification is prohibited by applicable Law or court order or not practicable); and (ii) cooperate to protect the confidentiality of such Confidential Information. For purposes of this Agreement, “Confidential Information” means all confidential and proprietary information (irrespective of the form of communication or whether or not such information is marked as confidential or proprietary) obtained or received by or on behalf of either Party about or concerning the other Party or any of its Affiliates or any of their respective businesses, assets or companies or otherwise in connection with this Agreement, including the terms and existence of this Agreement and the activities pertaining thereto. Confidential Information shall not include, however, information which (a) was or becomes generally available to the public other than as a result of a breach of this Agreement (or any Person for which the Party would be liable pursuant to this Section 7), (b) was or becomes available to the Party from a source other than the other Party; provided that, such source is not known by the Party to be bound by a duty of confidentiality with respect to such information; or (c) was independently developed by the Party without use of or reference to Confidential 

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Information.
Section 8    Indemnification and Exculpation.
(a)    Except in the case of gross negligence, fraud, bad faith or willful misconduct of Operator or any of its Affiliates or the willful violation by Operator or its Affiliates of any employment-related law in connection with its selection, termination, supervision or direction of Company Employees in accordance with Section 1(c)(i), neither Operator nor any of its Affiliates nor their respective directors, officers, employees, managers, members, partners, controlling Persons and equityholders (collectively, the “Indemnified Operator Persons”) shall bear (except in connection with its equity interest in the Company as a member) any losses, damages, claims, costs and expenses (including legal expenses) (“Liabilities”) resulting from performing (or failing to perform) the duties and functions of Operator. The Company shall also defend and indemnify the Indemnified Operator Persons in respect of, and hold it harmless from and against, any Liability suffered, incurred or sustained by any Indemnified Operator Person or to which it becomes subject, however so arising whether under tort, contract, negligence, strict liability or otherwise, resulting from, arising out of, or relating to or in connection with, the performance or failure to perform under this Agreement. 
(b)    Notwithstanding Section 8(a), if the Operator or any of its Affiliates is grossly negligent or engages in fraud, bad faith or willful misconduct in its performance (or failure to perform) the duties and functions of Operator, or if it willfully violates any employment-related law in connection with its selection, termination, supervision or direction of Company Employees in accordance with Section 1(c)(i), in each case, that proximately causes the Company to incur Liabilities, then Operator shall defend and indemnify the Company Group and its Affiliates and their respective directors, officers, employees, managers, members, partners, controlling Persons and equityholders  (collectively, the “Indemnified Company Persons”) in respect of, and hold it harmless from and against, any such Liability suffered, incurred or sustained by any Indemnified Company Person or to which it becomes subject as a result of such misconduct.
(c)    In no event shall either Party or its respective directors, officers, employees, managers, members, partners, controlling Persons and equityholders have any Liability under any provision of this Agreement for any punitive, incidental, consequential, special or indirect damages, including loss of future revenue or income, loss of business reputation or opportunity relating to the breach or alleged breach of this Agreement, or diminution of value or any damages based on any type of multiple, whether based on statute, contract, tort or otherwise, and whether or not arising from the other party’s sole, joint, or concurrent negligence, strict liability, criminal liability or other fault.
(d)    The benefit of the indemnification contemplated by this Agreement shall not extend to insurers and shall not relieve any insurers of their coverage obligations.

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Section 9    Insurance. 
(a)    The Company agrees that, in support of its indemnity obligation, it shall obtain and maintain insurance detailed below for the benefit of the Operator as an additional insured Party. The Company agrees to procure and keep in force, at its sole cost and expense, throughout the term of this Agreement, the following minimum policies of insurance:
(i)    Commercial General Liability Insurance: Commercial general liability insurance on an “occurrence” basis, including contractual liability, non-gradual pollution, products and completed operations, property damage, bodily injury and personal & advertising injury with limits no less than $1,000,000 per occurrence. If a general aggregate limit applies, either the general aggregate limit shall apply separately to this project/location or the general aggregate limit shall be twice the required occurrence limit.
(ii)    Worker’s Compensation Insurance: As required by the State of California, including Alternate Employer Endorsement, and Employer’s Liability with minimum limits of $1,000,000 per accident for bodily injury and disease.
(iii)    Automobile Liability: Insurance covering any auto, hired autos and non-owned autos; with minimum limits of $1,000,000 per accident, covering bodily injury and property damage.
(iv)    Any insurance required by any applicable Law.
(b)    The insurance coverages and limits listed above in this Section 9 may be insured through primary or excess layers of insurance. All insurance must be placed with insurance carriers rated A-, VII or higher by A.M. Best or similar rating agency. In the event that the Company maintains higher limits than the minimums shown above in this Section 9, the Operator shall be entitled to coverage for such higher limits.
(c)    Only with respect to and to the extent of the liabilities and obligations assumed by the Company as the insuring Party under this Agreement: (i) the insurance of the Company as the insuring Party shall be primary to and non-contributing with any other insurance that may be available to the Operator; (ii) the insurance required above in this Section 9 shall provide for waiver of subrogation in favor of the Operator; and (iii) all insurance provided by the Company, except for Worker’s Compensation and Employer’s Liability or other similar statutory insurance, Well Control Insurance and Professional Liability shall include the Operator as an additional insured. Insurance coverage required under this Agreement shall be additional security and shall not limit such liability; nor shall such requirements be considered the ultimate amount or types of insurance either party should carry.

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Section 10    Definitions. As used in this Agreement, the following terms have the meanings indicated:
“Affiliate” shall have the meaning given to such term in the Company LLC Agreement.
“Annual Budget” has the meaning given to such term in the Company LLC Agreement. 
“Approved Budget” means the Annual Budget for the Company for a given period as approved by the Board pursuant to the Company LLC Agreement as of the applicable date.
“Base MSA Reimbursement Amount” has the meaning set forth in Section 3(a).
“Billing Period” means each calendar month during the term of this Agreement or each month during which the Operator provides transition services pursuant to Section 6(d).
“Board” shall have the meaning given to such term in the Company LLC Agreement.
“Business Day” means any day other than a Saturday, Sunday or a day on which commercial banks are authorized or required to close in Los Angeles, California, Houston, Texas or New York, New York.
“Class B Preferred Unit” has the meaning given to such term in the Company LLC Agreement. 
“Commercial Agreement” means that certain Commercial Agreement, by and between the Operator and the Company, dated as of the date of this Agreement. 
“Company Bank Accounts” has the meaning set forth in Section 4(a).
“Company Credits” has the meaning set forth in Section 1(g).
“Company Employee” has the meaning set forth in Section 1(c)(i).
“Company LLC Agreement” means that certain Second Amended and Restated Limited Liability Company Agreement of the Company, dated as of the date of this Agreement.
“Company Revenues” has the meaning set forth in Section 4(a).
“Contract” means any contract, agreement, indenture, note, bond, mortgage, deed of trust, loan, instrument, lease, license, commitment or other arrangement, understanding, undertaking, commitment or obligation, whether written or oral.
“Control” means the possession, directly or indirectly, of the power to direct, or cause the direction of, the management and policies of a Person whether through the ownership of voting securities or other ownership interests, by contract or otherwise. The terms “Controlled” and 

13

“Controlling” shall have correlative meanings.
“Dissolution Event” means the first to occur of: (a) the approval of dissolution of the Company by the unanimous consent of the board of the Company; (b) the consummation of a sale of all or substantially all of the assets of the Company; and (c) the entry of a decree of judicial dissolution of the Company under Section 17-802 of the Delaware Revised Uniform Limited Company Act and any successor statute, as amended from time to time.
“Emergency” means, as determined in the reasonable good faith discretion of the Operator, any event that causes or is reasonably likely to risk causing (a) substantial damage to any of the Company’s assets or the property of any other Person, (b) death of or injury to any natural person or (c) damage or substantial risk of damage to natural resources (including wildlife) or the environment.
“Employee Costs” means employee wages, bonuses, severance payments, employment taxes (including social security taxes and unemployment taxes), benefits (including employee contributions), and the costs of equity awards (based on the costs for such equity awards accrued by the Operator in respect of the period for which the Services are rendered) for employees participating in the provision or support of the provision of the Services, but excluding for the avoidance of doubt any Operating Expenses.
“Encumbrance” means any pledges, restrictions on transfer, proxies and voting or other agreements, liens (statutory or otherwise), conditional sale, trust receipt, consignment or bailment, preference or priority, assessment, deed of trust, easement, servitude, claims, charges, mortgages, security agreements or interests or other legal or equitable encumbrances, limitations or restrictions of any nature whatsoever with respect to any property of any kind.
“Exit Transaction” shall have the meaning given to such term in the Company LLC Agreement.
“Expense Statement” has the meaning set forth in Section 3(b).
“Fiscal Year” means the calendar year ending on December 31, or such other annual accounting period as may be established by the Board.
“Force Majeure” with respect to the Operator means any of the following events to the extent beyond the Operator’s reasonable control: acts of God, acts of the public enemy, wars or warlike action (whether actual or impending), arrests and other restraints of government (civil or military), blockades, embargoes, insurrections, riots, epidemics, landslides, lightning, earthquakes, fires, sabotage, tornadoes, named tropical storms and hurricanes, and floods, strikes, lockouts, civil disturbances, terrorism, explosions, confiscation or seizure by any government or other public authority, any order of any court of competent jurisdiction, regulatory agency or governmental body having jurisdiction. 

14

“G&A Expenses” means (a) the cost of supplies and the operation and maintenance of equipment used in the provision of the Services, excluding costs that are Employee Costs incurred in obtaining such Services or any Operating Expenses and (b) Employee Costs.
“Governmental Entity” means the United States of America or any other nation, any state or other political subdivision thereof, or any entity exercising executive, legislative, judicial, regulatory or administrative functions of government.
 “Law” shall have the meaning given to such term in the Contribution and Unit Purchase Agreement.
“MSA Reimbursement Amount” has the meaning set forth in Section 3(a).
“Operating Expenses” means any costs and expenses incurred directly by the Company and paid for out of the Company Bank Accounts, excluding for the avoidance of doubt any Employee Costs, G&A Expenses or Out-of-Pocket Expenses.
“Operator Employee” has the meaning set forth in Section 1(c)(i).
“Out-of-Pocket Expenses” means the out-of-pocket costs and expenses reasonably incurred by the Operator in connection with providing the Services under this Agreement (but excluding for the avoidance of doubt any G&A Expenses or Operating Expenses), including any (a) fees of Third-Party Providers utilized in the provision or support of the provision of the Services and (b) technology services costs, licensing fees and fees for audit, tax, accounting and other advisors attributable to or otherwise allocated to the provision of the Services.
“Permits” means any approvals, authorizations, consents, licenses, permits, variances, waivers, grants, franchises, concessions, exemptions, orders, registrations or certificates of a Governmental Entity.
“Permitted Encumbrance” means (a) any Encumbrance for taxes that is not yet due and payable, (b) any Encumbrance in favor of vendors, carriers, warehousemen, repairmen, mechanics, workmen, materialmen, construction or similar Encumbrance arising by operation of law or in the ordinary course of business that does not, individually or in the aggregate, materially impair the current use and enjoyment of any material Company Group Asset and (c) any zoning, building code, land use, planning, entitlement or similar Law or regulation imposed by any Governmental Entity that does not, individually or in the aggregate, materially impair the current use and enjoyment of any material Company Group Asset.
“Person” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, association or other entity or a Governmental Entity.
“Prime Rate” means the prime rate on corporate loans at large U.S. money center 

15

commercial banks as set forth in the Wall Street Journal “Money Rates” table under the heading “Prime Rate,” or any successor thereto, on the first date of publication for the calendar Month in which payment is due.
“Subsidiary” with respect to any Person means any corporation, limited liability company, partnership, association or business entity of which (a) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or Controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, (b) if a limited liability company, partnership, association or other business entity (other than a corporation), a majority of limited liability, partnership or other similar ownership interests thereof with voting rights at the time owned or Controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes of this Agreement, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity (other than a corporation) if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or shall be or Control, directly or indirectly, the manager, managing member, managing director (or a board comprised of any of the foregoing) or general partner of such limited liability company, partnership, association or other business entity.
“Transaction Documents” has the meaning given to such term in the Contribution and Unit Purchase Agreement.
Section 11    Miscellaneous.
(a)    Amendment and Waiver. This Agreement may be amended or any provision of this Agreement may be waived. Notwithstanding the foregoing, any amendment or waiver shall be binding only if such amendment or waiver is set forth in a writing executed by the Party against which enforcement is sought. No course of dealing between or among any Persons having any interest in this Agreement shall be deemed effective to modify, amend or discharge any part of this Agreement or any rights or obligations of any Person under or by reason of this Agreement.
(b)    Notices. Except as expressly set forth to the contrary in this Agreement, all notices, requests or consents provided for or permitted to be given under this Agreement must be in writing and must be given either by (a) depositing such writing with a reputable overnight courier for next day delivery, (b) depositing such writing in the United States mail, addressed to the recipient, postage paid, and registered or certified with return receipt requested or (c) delivering such writing to the recipient in person, by courier or by electronic mail transmission; and a notice, request or consent given under this Agreement is effective upon receipt against the Person who receives it. Whenever any notice is required to be given by Law or this Agreement, a written waiver thereof, signed by the Person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. All notices, requests and consents to be sent to a Party must be sent to or made at the following address or email given for that Party, or such other 

16

address or email as that Party may specify by notice to the other Parties:
If to the Operator:
California Resources Elk Hills, LLC 
27200 Tourney Road, Suite 315 
Santa Clarita, CA 91355 
Attention: General Counsel 
Email: michael.preston@crc.com
with a copy to (which shall not constitute notice):
Sullivan & Cromwell LLP 
1888 Century Park East, 21st Floor 
Los Angeles, California 90067-1725 
Attention: Alison S. Ressler 
Email: resslera@sullcrom.com
If to the Company:
Elk Hills Power, LLC
c/o California Resources Corporation
9200 Oakdale Avenue, Suite 900
Los Angeles, CA 91311
Attention: General Counsel 
Email: michael.preston@crc.com
with a copy to (which shall not constitute notice):
Sullivan & Cromwell LLP 
1888 Century Park East, 21st Floor 
Los Angeles, California 90067-1725 
Attention: Alison S. Ressler 
Email: resslera@sullcrom.com
and
ECR Corporate Holdings L.P. 
c/o Development Capital Resources, LLC 
712 Main Street, Suite 920 
Houston TX, 77002 
Attention: Matthew M. Loreman 
Email: mloreman@dcrlp.com

17

and 
Kirkland & Ellis LLP 
609 Main Street 
Houston, Texas 77002 
Attention: John Pitts, P.C. 
Email:    john.pitts@kirkland.com

(c)    Assignment. This Agreement and all of the provisions of this Agreement shall be binding upon and inure to the benefit of the Parties and their respective heirs, successors and permitted assigns. Notwithstanding the foregoing, neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned (including by operation of law) by any Party without the prior written consent of the other Party. Any attempted assignment or delegation in contravention of this Agreement shall be null and void.
(d)    Severability. Each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable Law. If any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable Law in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or the effectiveness or validity of any provision in any other jurisdiction. Should any ruling or illegality, invalidity or unenforceability be obtained, this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained in this Agreement. In addition, if such term or provision could be drawn more narrowly so as not to be illegal, invalid, prohibited or unenforceable in such jurisdiction, it shall be so narrowly drawn, as to such jurisdiction, without invalidating the remaining terms and provisions of this Agreement or affecting the legality, validity or enforceability of such term or provision in any other jurisdiction.
(e)    Third-Party Beneficiaries and Obligations. This Agreement shall inure to the benefit of and be binding upon the Parties and their respective successors and assigns. Except as set forth in Section 11(o), nothing in this Agreement, express or implied, is intended to or shall confer upon any Person other than the Parties or their respective successors and permitted assigns, any rights, remedies or liabilities under or by reason of this Agreement.
(f)    Integration. This Agreement, the other Transaction Documents and the other agreements and documents expressly referred to herein are intended by the Parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the Parties in respect of the subject matter contained herein and therein. This Agreement, the other Transaction Documents and the other agreements and documents expressly referred to herein or therein supersede all prior agreements and understandings between the Parties with respect to such subject matter. Each of the Parties acknowledges and agrees that in executing this Agreement the intent of the Parties in this Agreement, the other Transaction Documents and the other agreements and documents expressly referred to herein or therein shall constitute an unseverable and single agreement of the Parties with respect to the transactions contemplated hereby 

18

and thereby. On behalf of itself and each of its Affiliates, each Party waives any claim or defense based upon the characterization that this Agreement, the other Transaction Documents and the other agreements and documents expressly referred to herein or therein are anything other than a true single agreement relating to such matters. Each Party further acknowledges and agrees the matters set forth in this Section 11(f) constitute a material inducement to enter into this Agreement, the other Transaction Documents and the other agreements and documents expressly referred to herein or therein. Each of the Parties stipulates and agrees: (i) not to challenge the validity, enforceability or characterization of this Agreement, the other Transaction Documents and the other agreements and documents expressly referred to herein or therein as a single, unseverable instrument pertaining to the matters that are the subject of such agreements; (ii) this Agreement, the other Transaction Documents and the other agreements and documents expressly referred to herein or therein shall be treated as a single integrated and indivisible agreement for all purposes, including the bankruptcy of any Party and (iii) not to assert or take or omit to take any action inconsistent with the agreements and understandings set forth in this Section 11(f).
(g)    Counterparts. This Agreement may be executed in multiple counterparts and delivered by facsimile or portable document format (.pdf), each of which, when executed, shall be deemed an original, and all of which shall constitute but one and the same instrument binding on all the Parties.
(h)    No Strict Construction. Notwithstanding the fact that this Agreement has been drafted or prepared by one of the Parties, each Party confirms that they and their respective counsel have reviewed, negotiated and adopted this Agreement as a joint agreement. As a result, the understanding of the Parties and the language used in this Agreement shall be deemed to be the language chosen by the Parties to express their mutual intent, and no rule of strict construction shall be applied against any Person.
(i)    Captions. The captions used in this Agreement are for convenience of reference only and do not constitute a part of this Agreement. Consequently, the captions shall not be deemed to limit, characterize or in any way affect any provision of this Agreement, and all provisions of this Agreement shall be enforced and construed as if no such caption or description had been used in this Agreement.
(j)    Governing Law. This Agreement has been executed and delivered and shall be construed, interpreted and governed pursuant to and in accordance with the laws of the State of Delaware, without regard to any conflict of laws principles which, if applied, might permit or require the application of the laws of another jurisdiction.
(k)    CONSENT TO JURISDICTION. EACH PARTY TO THIS AGREEMENT HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY UNITED STATES DISTRICT COURT LOCATED IN WILMINGTON, DELAWARE OR DELAWARE CHANCERY COURT LOCATED IN WILMINGTON, DELAWARE. EACH PARTY IRREVOCABLY AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO 

19

THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER SUCH ACTIONS OR PROCEEDINGS ARE BASED IN STATUTE, TORT, CONTRACT OR OTHERWISE), SHALL BE LITIGATED IN SUCH COURTS. EACH PARTY: (i) CONSENTS TO SUBMIT ITSELF TO THE PERSONAL JURISDICTION OF SUCH COURTS FOR SUCH ACTIONS OR PROCEEDINGS; (ii) AGREES THAT IT WILL NOT ATTEMPT TO DENY OR DEFEAT SUCH PERSONAL JURISDICTION BY MOTION OR OTHER REQUEST FOR LEAVE FROM ANY SUCH COURT AND (iii) AGREES THAT IT WILL NOT BRING ANY SUCH ACTION OR PROCEEDING IN ANY COURT OTHER THAN SUCH COURTS. EACH PARTY ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE AND IRREVOCABLE JURISDICTION AND VENUE OF THE COURTS DESCRIBED IN THIS SECTION 11(K). EACH PARTY WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY NON-APPEALABLE JUDGMENT RENDERED IN CONNECTION WITH SUCH ACTIONS OR PROCEEDINGS. A COPY OF ANY SERVICE OF PROCESS SERVED UPON THE PARTIES SHALL BE MAILED BY REGISTERED MAIL TO THE RESPECTIVE PARTY. NOTWITHSTANDING THE FOREGOING, UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY A PARTY REFUSES TO ACCEPT SERVICE, EACH PARTY AGREES THAT SERVICE UPON THE APPROPRIATE PARTY BY REGISTERED MAIL SHALL CONSTITUTE SUFFICIENT SERVICE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF A PARTY TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
(l)    WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES TO THIS AGREEMENT WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT. EACH PARTY ALSO WAIVES ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF ANY OF THE OTHER PARTIES. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH PARTY FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS 

20

WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING. EACH PARTY FURTHER AGREES THAT THE WAIVER SET FORTH IN THIS SECTION 11(l) SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE TRANSACTION CONTEMPLATED HEREBY. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAYBE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
(m)    Payments Under Agreement. Each Party agrees that all amounts required to be paid under this Agreement shall be paid in United States currency and, except as otherwise expressly set forth in this Agreement, without discount, rebate, reduction or withholding and not subject counterclaim or offset, on the dates required pursuant to this Agreement (with time being of the essence).
(n)    Relationship of the Parties.
(i)    So long as the Operator is in compliance with the standards set forth in Section 2(a) above, it is the express intent of the Parties that the Operator is to provide the Services in the manner it deems appropriate, independent of the Company, and neither the Operator nor the persons (including Company Employees and Third-Party Providers) it utilizes in connection with its provision of the Services shall be agents or employees of the Company solely as a result of this Agreement or the Operator’s provision of the Services. This Agreement shall not be construed as one of partnership, agency, joint venture or employment between the Operator and the Company, and the rights, duties, obligations and liabilities of each of the Parties under this Agreement shall be individual, not collective or joint. As between the Parties, (1) it is not the intention of the Parties to create, nor shall this Agreement be deemed or construed to create, a partnership, joint venture, association or trust, (2) the Operator is not the actual or implied agent for the Company and (3) the Operator has the exclusive authority to control and direct the specific means, method and manner of performance of the details of the Services to be provided under this Agreement, subject in each case, to the terms and conditions of the Company LLC Agreement.
(ii)    Without limiting the generality of the foregoing, except as expressly provided in this Agreement or as required for the provision of the Services, the Operator agrees that neither it nor any of the persons (including Company Employees and Third-Party Providers) it utilizes in connection with its provision of the Services shall hold itself out as an agent of the Company or make any elections or consent to any actions under any Contracts on behalf of the Company, unless otherwise expressly authorized or agreed in writing by the Company.
(iii)    The Operator shall reasonably promptly (1) advise and inform the most senior Company Employee of any event which the Operator has actual knowledge which does or would reasonably be likely to, in the judgment of the Operator, materially and adversely affect the Company Group and/or the Company Group Assets, taken as a whole and (2) without duplication 

21

of the foregoing, provide to the most senior Company Employee copies and notices, as applicable, of the items set forth on Schedule II attached to this Agreement in accordance with the timing specified therein, if so specified.
(o)    No Recourse. Notwithstanding anything that may be expressed or implied in this Agreement or any Contract delivered contemporaneously herewith, and notwithstanding the fact that any Party may be a partnership or limited liability company, each Party, by its acceptance of the benefits of this Agreement, covenants, agrees and acknowledges that no Persons other than the Parties shall have any obligation hereunder. Each Party to this Agreement further acknowledges and agrees that it has no rights of recovery, whether under this Agreement or under any Contracts delivered contemporaneously herewith, in respect of any oral representations made or alleged to be made in connection herewith or therewith. The prohibition against recovery set forth in this Section 11(o) shall have equal application to any and all claims whether sounding in tort, contract or otherwise. The prohibition set forth in this Section 11(o) shall apply with equal application to any former, current or future director, officer, agent, Affiliate, manager, assignee, incorporator, controlling Person, fiduciary, representative or employee of any Party (or any of their successor or permitted assignees), against any former, current, or future general or limited partner, manager, stockholder or member of any Party (or any of their successors or permitted assignees) or any Affiliate thereof or against any former, current or future director, officer, agent, employee, Affiliate, manager, assignee, incorporator, controlling Person, fiduciary, representative, general or limited partner, stockholder, manager or member of any of the foregoing, but in each case not including the Parties. The prohibitions set forth in this Section 11(o) shall apply without regard to whether the claim is asserted by means of attempting to pierce the corporate veil or through a claim by or on behalf of such Party against such Persons, by the enforcement of any assessment or by any legal or equitable proceeding, or by virtue of any statute, regulation or other applicable law, or otherwise. The Parties to this Agreement further expressly agree and acknowledge that no personal liability whatsoever shall attach to or otherwise be incurred by any of the Persons or entities referenced in this Section 11(o) for any obligations of the applicable Party under this Agreement or the transactions contemplated hereby, under any documents or instruments delivered contemporaneously herewith, in respect of any oral representations made or alleged to be made in connection herewith or therewith, or for any claim (whether in tort, contract or otherwise) based on, in respect of, or by reason of, such obligations or their creation. 
(p)    Interpretation. The table of contents and the section and other headings and subheadings contained in this Agreement and the exhibits hereto are solely for the purpose of reference, are not part of the agreement of the Parties, and shall not in any way affect the meaning or interpretation of this Agreement or any exhibit hereto. Whenever required by the context, any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa. Unless otherwise specified, all references to days or months shall be deemed references to calendar days or months. All references to “$” shall be deemed references to United States dollars. Unless the context otherwise requires, any reference to a “Section,” “Exhibit” or “Schedule” shall be deemed 

22

to refer to a section of this Agreement, exhibit to this Agreement or a schedule to this Agreement, as applicable. The words “hereof,” “herein” and “hereunder” and words of similar import referring to this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. The word “including” shall mean “including, without limitation”. Reference to any agreement, document or instrument means such agreement, document or instrument as amended or otherwise modified from time to time in accordance with the terms thereof, and if applicable hereof. The use of the words “or,” “either” and “any” shall not be exclusive. The Parties have participated jointly in the negotiation and drafting of this Agreement; accordingly, the language used in this Agreement shall be deemed to be the language chosen by the Parties to express their mutual intent, and no rule of strict construction shall be applied against any Party. If an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties, and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. Wherever a conflict exists between this Agreement and any other agreement, this Agreement shall control but solely to the extent of such conflict.
[signature page follows]

23

IN WITNESS WHEREOF, the Parties execute this Agreement, effective as of the Effective Date.
	
			
	 
	ELK HILLS POWER, LLC

	 
	 
	 

	 
	By:
	/s/ Shawn M. Kerns

	 
	Name:
	Shawn M. Kerns

	 
	Title:
	President

	 
	 
	 

	 
	 
	 

	 
	CALIFORNIA RESOURCES CORPORATION

	 
	 
	 

	 
	By:
	/s/ Shawn M. Kerns

	 
	Name:
	Shawn M. Kerns

	 
	Title:
	Executive Vice President – Corporate Development

SIGNATURE PAGE TO 
MASTER SERVICES AGREEMENTExhibit

CONFIDENTIAL

Exhibit 10.4

FORM OF STOCK PURCHASE AGREEMENT
dated February 7, 2018
by and between
California Resources Corporation
and
[PURCHASER]

TABLE OF CONTENTS
	
				
	 
	Page
	 

	 
	 
	 

	ARTICLE I GENERAL
	1
	

	 
	 
	 

	Section 1.01.
	Defined Terms
	1
	

	 
	 
	 

	ARTICLE II PURCHASE AND SALE OF SECURITIES
	5
	

	 
	 
	 

	Section 2.01.
	Purchase and Sale of Purchased Shares
	5
	

	Section 2.02.
	Closing
	5
	

	Section 2.03.
	Deliveries at Closing
	6
	

	 
	 
	 

	ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY
	6
	

	 
	 
	 

	Section 3.01.
	Organization; Existence and Qualification
	6
	

	Section 3.02.
	Power
	6
	

	Section 3.03.
	Authorization and Enforceability
	6
	

	Section 3.04.
	No Violation
	7
	

	Section 3.05.
	Brokers’ Fees
	7
	

	Section 3.06.
	Consents, Approvals or Waivers
	7
	

	Section 3.07.
	Capitalization and Authorization of Purchased Shares
	7
	

	Section 3.08.
	No Registration Rights
	8
	

	Section 3.09.
	No General Solicitation; Offering Exemption
	8
	

	Section 3.10.
	Listing and Maintenance Requirements
	9
	

	Section 3.11.
	Compliance with Laws
	9
	

	Section 3.12.
	Company Reports; Financial Statements
	10
	

	Section 3.13.
	Accounting and Disclosure Controls
	10
	

	Section 3.14.
	Compliance with and Liability Under; Environmental Laws
	11
	

	Section 3.15.
	Investment Company Status
	12
	

	Section 3.16.
	Absence of Certain Changes
	12
	

	Section 3.17.
	Litigation and Liabilities
	12
	

	Section 3.18.
	Energy Regulatory Matters
	12
	

	 
	 
	 

	ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
	13
	

	 
	 
	 

	Section 4.01.
	Organization, Existence and Qualification
	13
	

	Section 4.02.
	Power
	13
	

	Section 4.03.
	Authorization and Enforceability
	13
	

	Section 4.04.
	Brokers’ Fees
	13
	

	Section 4.05.
	No Violation
	13
	

-i-

	
				
	Section 4.06.
	Consents, Approvals or Waivers
	14
	

	Section 4.07.
	Investment Intent
	14
	

	Section 4.08.
	Purchaser Status
	14
	

	Section 4.09.
	Legends
	15
	

	Section 4.10.
	Experience of the Purchaser
	15
	

	Section 4.11.
	Access to Information
	15
	

	Section 4.12.
	Independent Investment Decision
	15
	

	Section 4.13.
	No Reliance
	16
	

	 
	 
	 

	ARTICLE V INDEMNIFICATION
	16
	

	 
	 
	 

	Section 5.01.
	Indemnification
	16
	

	Section 5.02.
	Indemnification Procedures
	17
	

	Section 5.03.
	Limitations
	17
	

	Section 5.04.
	Adjustment for Tax Purposes
	18
	

	 
	 
	 

	ARTICLE VI MISCELLANEOUS
	18
	

	 
	 
	 

	Section 6.01.
	Public Announcements
	18
	

	Section 6.02.
	Fees and Expenses
	19
	

	Section 6.03.
	Transfer Taxes
	19
	

	Section 6.04.
	Further Assurances
	19
	

	Section 6.05.
	Independent Investment
	19
	

	Section 6.06.
	Counterparts
	19
	

	Section 6.07.
	Notices
	19
	

	Section 6.08.
	Removal of Legend
	20
	

	Section 6.09.
	Rule 144 Reporting
	21
	

	Section 6.10.
	Governing Law
	21
	

	Section 6.11.
	Waiver of Jury Trial
	22
	

	Section 6.12.
	Captions; Headings
	22
	

	Section 6.13.
	Amendment
	22
	

	Section 6.14.
	Waivers
	22
	

	Section 6.15.
	Assignment; Successors and Assignees
	22
	

	Section 6.16.
	Entire Agreement
	23
	

	Section 6.17.
	Third Person Beneficiaries
	23
	

	Section 6.18.
	References; Exhibits
	23
	

	Section 6.19.
	Construction
	24
	

	Section 6.20.
	Specific Performance
	24
	

	Section 6.21.
	Severability
	24
	

Exhibit A    Form of Restrictive Legend

-ii-

FORM OF STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the “Agreement”) is made as of the 7th day of February, 2018, by and between California Resources Corporation, a Delaware corporation (the “Company”), and [PURCHASER] (the “Purchaser”). The signatories to this Agreement are sometimes referred to herein collectively as the “Parties” and individually as a “Party.”
WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(a)(2) of the Securities Act (as defined below) and Rule 506 promulgated thereunder, the Company desires to issue and sell to the Purchaser, and the Purchaser desires to purchase from the Company, in a private placement transaction, the Purchased Shares (as defined below), at a price per share of $21.3274 (the “Per-Share Purchase Price”), which aggregate proceeds will be used by the Company for general corporate purposes, which may include repaying outstanding indebtedness, funding capital expenditures and acquisitions. 
NOW, THEREFORE, in consideration of the premises and of the mutual promises, representations, warranties, covenants, conditions and agreements contained herein, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows, each intending to be legally bound:

ARTICLE I  
GENERAL

Section 1.01.    Defined Terms. As used herein:
(a)    “Affiliate” has the meaning ascribed to it, on the date hereof, under Rule 405 of the Securities Act.
(b)    “Aggregate Purchase Price” means the Per-Share Purchase Price multiplied by the number of Purchased Shares sold pursuant to this Agreement.
(c)    “Agreement” has the meaning set forth in the Preamble.
(d)    “Applicable Date” has the meaning set forth in Section 3.12 hereto.
(e)    “Business Day” means any day other than a Saturday or Sunday or any other day on which commercial banks in Los Angeles, California are authorized or required by law or executive order to close.
(f)    “CERCLA” means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended.
(g)    “Closing” has the meaning set forth in Section 2.02(a) hereto.
(h)    “Closing Date” has the meaning set forth in Section 2.02(a) hereto.

(i)    “Common Stock” means the common stock, par value $0.01 per share, of the Company.
(j)    “Company” has the meaning set forth in the Preamble.
(k)    “Company Entities” means the Company and the Company’s Subsidiaries.
(l)    “Company Indemnitees” has the meaning set forth in Section 5.01(b) hereto.
(m)    “Company LTIP” has the meaning set forth in Section 3.07(a).
(n)    “Company Reports” has the meaning set forth in Section 3.12 hereto.
(o)    “Contract” means any written contract, agreement, understanding, option, right to acquire, preferential purchase right, preemptive right, warrant, indenture, debenture, note, bond, loan, loan agreement, collective bargaining agreement, joint venture agreement, joint operating agreement, lease, mortgage, franchise, license, commitment, letter of credit, guaranty, surety or any other binding arrangement.
(p)    “Elk Hills Transaction Documents” means, collectively, (i) the Contribution and Unit Purchase Agreement by and among Elk Hills Power, LLC, California Resources Elk Hills, LLC, ECR Corporate Holdings L.P. and, solely for purposes of Section 7.14, California Resources Corporation, (ii) the New LLC Agreement, and (iii) the other ancillary documents executed in connection with those agreements, all dated as of the date hereof.
(q)    “Environment” means ambient air, indoor air, surface water, groundwater, drinking water, soil, surface and subsurface strata, and natural resources such as wetlands, flora and fauna.
(r)    “Environmental Laws” means the common law and all federal, state, local and foreign Laws or regulations, ordinances, codes, orders, decrees, judgments and injunctions issued, promulgated or entered thereunder, relating to pollution or protection of the Environment or occupational health and workplace safety (only to the extent relating to occupational exposures to Hazardous Materials), including without limitation, those relating to (i) the Release or threatened Release of Hazardous Materials; and (ii) the manufacture, processing, distribution, use, generation, treatment, storage, transport, handling or recycling of Hazardous Materials.
(s)    “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.
(t)    “FERC” means the Federal Energy Regulatory Commission. 
(u)    “FPA” means the Federal Power Act, as amended, including the regulations of the FERC thereunder. 

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(v)    “Fraud” means fraud involving a knowing and willful misrepresentation or concealment of a fact or willful misconduct in connection with the making of any representation contained in this Agreement.
(w)    “Freely Tradable” means, with respect to any security, that such security (i) is eligible to be sold by the holder thereof, without the application of any volume or manner of sale restrictions, pursuant to Rule 144, (ii) bears no legends restricting the transfer thereof (other than legends which would be subject to prompt removal pursuant to Section 6.08), and (iii) bears an unrestricted CUSIP number (if held in global form).
(x)    “GAAP” means generally accepted accounting principles in the United States.
(y)    “Governmental Authority” means any federal, state, local or foreign government and/or any political subdivision thereof, including departments, courts, arbitrators, commissions, boards, bureaus, ministries, agencies or other instrumentalities.
(z)    “Hazardous Material” means any material, substance, chemical, pollutant, contaminant, waste, product, derivative, compound, mixture, solid, liquid, mineral or gas, in each case, whether naturally occurring or man-made, that is hazardous, acutely hazardous or toxic, or that is classified or regulated as such under Environmental Laws and any other substance that could reasonably be expected to give rise to liability under Environmental Laws.
(aa)    “Indemnified Party” has the meaning set forth in Section 5.02(a) hereto.
(bb)    “Indemnifying Party” has the meaning set forth in Section 5.02(a) hereto.
(cc)    “Laws” means all laws, statutes, constitutions, rules, regulations, ordinances, orders, decrees, requirements, judgments and codes of Governmental Authorities.
(dd)    “Lien” means any lien, pledge, condemnation award, claim, restriction, charge, security interest, mortgage or encumbrance of any nature whatsoever including as a statutory landlord lien.
(ee)    “Losses” has the meaning set forth in Section 5.01(a) hereto.
(ff)    “Material Adverse Effect” means any result, occurrence, change, event, condition, circumstance or effect of any of the forgoing (whether foreseeable or not) that, individually or in the aggregate with any such other result, occurrence, change, event, condition, circumstance or effect, has, or is reasonably expected to have, a material adverse effect on (i) the condition (financial or otherwise), or results of operations, stockholders’ equity or properties of the Company Entities taken as a whole or (ii) the ability of the Company Entities to perform their obligations under or consummate the Transactions; provided, however, that a Material Adverse Effect shall not be deemed to occur pursuant to clause (i) or (ii) to the extent such result, occurrence, change, event, condition, circumstance or effect results from: (A) general changes in economic, financial market or regulatory conditions, (B) any outbreak of hostilities or war, acts of terrorism or natural disasters, in each case in the United States or elsewhere, (C) a general deterioration in the economic conditions prevalent 

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in the oil and natural gas industry or exploration and production companies, (D) changes in oil and natural gas prices, including changes in price differentials, (E) changes in other commodity prices, (F) any change of Law or changes to GAAP or interpretations thereof, (G) any decline in the market price, or change in trading volume, of the Common Stock of the Company, (H) any failure by the Company to meet any internal or public projections, forecasts or estimates of revenue, earnings, cash flow, cash position or other financial measures, (I) the announcement of this Agreement or the Transactions or (J) the performance of this Agreement, compliance with the covenants set forth herein or consummation of the Transactions; provided further, that clauses (A), (B) and (C) above apply only to the extent that such result, occurrence, change, event, condition, circumstance or effect has not had, and would not reasonably be expected to have, a disproportionate effect on the Company Entities taken as a whole relative to other participants in the oil and gas industry or exploration and production companies or businesses.
(gg)    “New LLC Agreement” means the Second Amended Restated Limited Liability Company Agreement by and between California Resources Elk Hills, LLC and ECR Corporate Holdings L.P., dated as of the date hereof.
(hh)    “Party” has the meaning set forth in the Preamble.
(ii)    “Permit” means any permit, license, franchise, registration, certificate, exception, authorizations, consent, approval or other similar action by any Governmental Authority.
(jj)    “Per-Share Purchase Price” has the meaning set forth in the Recitals.
(kk)    “Person” means any individual, partnership, firm, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature.
(ll)    “PUHCA” means the Public Utility Holding Company Act of 2005, including the regulations of FERC thereunder. 
(mm)    “Purchased Shares” means the [●] shares of Common Stock purchased pursuant to this Agreement.
(nn)    “Purchaser” has the meaning set forth in the Preamble.
(oo)    “Purchaser Indemnitees” has the meaning set forth in Section 5.01(a) hereto.
(pp)    “QF” means a “qualifying cogeneration facility” within the meaning of 16 U.S.C. § 796 and the regulations of the FERC thereunder, including 18 C.F.R. § 292.205, with all of the exemptions from regulation set forth in 18 C.F.R. Part 292 Subpart F (but for the exemption from Sections 205 and 206 of the FPA). 
(qq)    “Release” means any release, spill, emission, discharge, deposit, disposal, leaking, pumping, pouring, dumping, emptying, injection or leaching into the Environment.
(rr)    “SEC” means the United States Securities and Exchange Commission.

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(ss)    “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder.
(tt)    “Subsidiary” of any Person means a corporation, limited liability company, partnership, joint venture or other entity of which: (i) such party or any other Subsidiary of such party is a general partner; (ii) voting power to elect a majority of the board of directors or others performing similar functions with respect to such organization is held by such party or by any one or more of such party’s Subsidiaries; or (iii) at least 50% of the equity interests is controlled by such party.
(uu)    “Tax” or “Taxes” means any and all taxes and other similar charges, assessments or fees imposed by any Governmental Authority, including all federal, state, local and foreign income, profits, gross receipts, goods and services, net proceeds, alternative or add-on minimum, ad valorem, real property (including assessments, fees or other charges imposed by any Governmental Authority that are based on the use or ownership of real property), personal property (tangible and intangible), value added, turnover, sales, use, environmental, stamp, documentary, leasing, lease, user, excise, duty, franchise, capital, transfer, registration, license, withholding, social security (or similar), unemployment, disability, payroll, employment, fuel, excess or windfall profits, occupational, premium, severance, production, estimated, or other similar tax of any kind whatsoever, together with any interests, penalties, additions to tax, fines or other additional amounts imposed thereon or related thereto, whether disputed or not.
(vv)    “Tax Benefit” has the meaning set forth in Section 5.03(c) hereto.
(ww)    “Transactions” means the transactions contemplated by this Agreement.
(xx)    “Transfer Agent” initially means American Stock Transfer & Trust Company, the Company’s duly appointed transfer agent for the Common Stock.

ARTICLE II  
PURCHASE AND SALE OF SECURITIES

Section 2.01.    Purchase and Sale of Purchased Shares. Subject to the terms and conditions herein set forth, the Company agrees to issue, sell and deliver to the Purchaser, and the Purchaser hereby agrees to purchase from the Company, at the Closing, the Purchased Shares for the Aggregate Purchase Price as set forth herein.

Section 2.02.    Closing. 
(a)    The closing of the sale of the Purchased Shares to the Purchaser (the “Closing”) shall, unless otherwise agreed to by the Parties, take place at the offices of Sullivan & Cromwell LLP, 1888 Century Park East, Suite 2100, Los Angeles, California 90067 or at such other place as the Parties shall mutually agree, at 8:00 A.M. Pacific Time, on the date hereof (such date, the “Closing Date”).

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(b)    At the Closing, (i) the Company shall (or shall cause the Transfer Agent to) (A) record in its stock transfer books the Purchased Shares purchased by the Purchaser, registered in the Purchaser’s name, free and clear of any Liens (other than those created by or in favor of the Purchaser, transfer restrictions under the certificate of incorporation and bylaws of the Company and applicable federal and state securities laws), and (B) deliver to the Purchaser a notice from the Transfer Agent evidencing the issuance of the Purchased Shares, and (ii) the Purchaser will, by wire transfer of immediately available funds, transfer to an account or accounts designated in advance by the Company the Aggregate Purchase Price.

Section 2.03.    Deliveries at Closing. 
(a)    Deliveries of the Company. At the Closing, the Company will deliver, or cause to be delivered, to the Purchaser:
(i)    an opinion of Sullivan & Cromwell LLP, counsel for the Company, dated the Closing Date, in form and substance satisfactory to the Purchaser; and
(ii)    evidence that the Company has submitted a subsequent listing application seeking the authorization of the New York Stock Exchange for the listing of the Purchased Shares.

ARTICLE III  
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser as follows as of the date of this Agreement:

Section 3.01.    Organization; Existence and Qualification. Each of the Company Entities is duly organized and is validly existing and in good standing under the Laws of the state of its formation, is duly qualified to do business and is in good standing in each jurisdiction in which it is required to qualify in order to conduct its business, except where the failure to so qualify would not, individually or in the aggregate, have a Material Adverse Effect.

Section 3.02.    Power. Each Company Entity has the requisite power and authority to own, lease or hold its properties and carry on its business as currently conducted and as proposed to be conducted and, in the case of the Company, to enter into this Agreement and to consummate the Transactions.

Section 3.03.    Authorization and Enforceability.
(a)    The execution, delivery and performance by the Company of this Agreement and the consummation of the Transactions, have been duly and validly authorized by all necessary corporate action on the part of the Company.
(b)    (i) This Agreement has been duly executed and delivered by the Company and (ii) this Agreement constitutes the valid and binding obligations of the Company, enforceable against 

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the Company in accordance with its terms, except, in the case of clause (ii), as such enforceability may be limited by applicable bankruptcy or other similar Laws affecting the rights and remedies of creditors generally as well as to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

Section 3.04.    No Violation. The execution, delivery and performance by the Company of this Agreement, and the consummation of the Transactions will not, with or without notice or the passage of time or both: (a) violate any provision of the organizational documents of any of the Company Entities; (b) violate or breach the terms of, result in a default under, result in the creation of any Lien, or give rise to any right of termination, cancellation, forfeiture, suspension, adverse modification, or acceleration under (x) any note, bond, mortgage, indenture or credit agreement to which any Company Entity is a party and (y) any other Contract to which any Company Entity is a party or by which it is bound or to which any of its assets are subject; (c) violate any judgment, order, ruling, regulation or decree applicable to the Company Entities or any of their properties or assets; or (d) violate any Law applicable to the Company Entities or any of their properties or assets, except for matters described in clauses (b), (c) or (d) above which would not reasonably be expected to have a Material Adverse Effect. As of the date of this Agreement, the Company is not party to a stockholder rights agreement, “poison pill” or similar agreement or plan.

Section 3.05.    Brokers’ Fees. No Person is entitled to any brokerage, financial advisory, finder’s or similar fee or commission in connection with the Transactions based upon arrangements made by or on behalf of the Company.

Section 3.06.    Consents, Approvals or Waivers. The execution, delivery and performance by the Company of this Agreement (including the authorization, issuance and delivery of the Purchased Shares) will not be subject to or require any consent, approval, authorization, or waiver from, or any registration or filing with or notification to, any person (including any Governmental Authority) except for (i) filings required by federal and state securities Laws, (ii) the approval for listing on the NYSE of the Purchased Shares; and (iii) such consents as have been obtained or where the failure of the Company to obtain or make any such consent, approval, authorization, order, filing or registration would not reasonably be expected to have a Material Adverse Effect.

Section 3.07.    Capitalization and Authorization of Purchased Shares. 
(a)    As of the date of this Agreement, the authorized capital stock of the Company consists of (i) 200,000,000 shares of Common Stock, of which as of the date hereof, 42,901,946 are issued and outstanding, including 933,189 shares issued with respect to restricted stock awards granted under the California Resources Corporation Long-Term Incentive Plan (the “Company LTIP”), 1,111,809 shares are reserved for issuance in connection with future grants of awards under the Company LTIP, 1,104,753 shares are reserved for issuance with respect to outstanding stock options issued under the Company LTIP, 1,035,195 shares are reserved for issuance with respect to outstanding restricted stock units issued under the Company LTIP, 515,054 shares are reserved for issuance with respect to outstanding performance share units granted under the Company LTIP (assuming achievement of performance at the maximum level), and 306,154 shares are reserved 

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for issuance under the Company’s 2014 Employee Stock Purchase Plan, as amended and (ii) 20,000,000 shares of preferred stock, $0.01 par value, of which as of the date hereof, none are issued and outstanding. Such issued and outstanding shares have been duly authorized and validly issued and are fully paid and non-assessable. Such issued and outstanding shares were not issued in violation of and are not subject to any preemptive rights, resale rights, rights of first refusal or similar rights.
(b)    The Purchased Shares have been duly authorized for issuance and sale to the Purchaser pursuant to the terms of this Agreement and, when issued and delivered by the Company to the Purchaser pursuant to this Agreement against payment of the consideration set forth herein, will be validly issued, fully paid and non-assessable and will be free and clear of all Liens (other than those created by or in favor of the Purchaser, transfer restrictions under the certificate of incorporation and bylaws of the Company and applicable federal and state securities laws). The Purchased Shares will not be issued in violation of and will not be subject to any preemptive rights, resale rights, rights of first refusal or similar rights.
(c)    Other than as set forth in the Company Reports (as defined below), under the New LLC Agreement or Section 3.07(a), (i) there are no outstanding rights (including preemptive rights), warrants or options to acquire, or instruments convertible into or exchangeable for, any equity interest in any Company Entity (including securities convertible into equity interests), or any Contract of any kind granting any rights to the issuance of any equity interest of any Company Entity, any such convertible or exchangeable securities or any such rights, warrants or options, (ii) there are no outstanding bonds, debentures, notes or other obligations the holders of which have the right to vote (or which are convertible into or exercisable for securities having the right to vote) with the holders of any equity interests in any Company Entity on any matter submitted to the holders or any class thereof and (iii) no Company Entity has any obligation to purchase, redeem or otherwise acquire any equity interests or to pay any dividend or make any other distribution in respect thereof.

Section 3.08.    No Registration Rights. As of the date hereof, except for the Registration Rights Agreement to be entered into as of the date hereof between the Company and the purchasers party thereto and the New LLC Agreement, there are no contracts, agreements or understandings, between any of the Company Entities and any Person granting such Person the right to require any Company Entity to file a registration statement under the Securities Act with respect to any securities of any Company Entity owned or to be owned by such Person or to require any Company Entity to include such securities in any securities being registered pursuant to any registration statement filed by any Company Entity under the Securities Act.

Section 3.09.    No General Solicitation; Offering Exemption. 
(a)    None of the Company or any of its Affiliates (as defined in Rule 501(b) of Regulation D under the Securities Act), has, directly or through an agent, (i) engaged in any form of general solicitation or general advertising in connection with the offering of the Purchased Shares (as those terms are used in Regulation D) under the Securities Act or in any manner involving a public offering within the meaning of Section 4(a)(2) of the Securities Act or (ii) at any time within the past six months, made any offer or sale of any security or any solicitation of any offer to buy any security under circumstances that would (A) eliminate the availability of the exemption from registration 

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under Regulation D of the Securities Act in connection with the offering and sale of the Purchased Shares as contemplated by this Agreement or (B) cause the offering and sale of the Purchased Shares pursuant to this Agreement to be integrated with any prior offerings by the Company for purposes of any applicable law. The Company has not entered into any contractual arrangement with respect to the sale of the Purchased Shares except for this Agreement.
(b)    Assuming the accuracy of the representations of the Purchaser set forth in Section 4.07, the sale and issuance of the Purchased Shares are exempt from registration under the Securities Act, and such sale and issuance is also exempt from registration under applicable state securities and “blue sky” laws. The Company has taken, or will take, all action necessary to be taken to comply with such state securities or “blue sky” laws; provided that the Company shall not be required to (i) qualify as a foreign corporation or other entity or as a dealer in securities in any such jurisdiction where it would not otherwise be required to so qualify, (ii) file any general consent to service of process in any such jurisdiction or (iii) subject itself to taxation in any such jurisdiction if it is not otherwise so subject.

Section 3.10.    Listing and Maintenance Requirements.     The Common Stock is registered pursuant to Section 12(b) of the Exchange Act and listed on The New York Stock Exchange, and the Company has taken no action designed to, or which to the knowledge of the Company is reasonably likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act or delisting the Common Stock from The New York Stock Exchange, nor, other than as disclosed in the Company Reports, has the Company received as of the date of this Agreement any notification that the SEC or The New York Stock Exchange is contemplating terminating such registration or listing.

Section 3.11.    Compliance with Laws. 
(a)    Except as otherwise disclosed in the Company Reports, each of the Company Entities possesses such valid and current certificates, authorizations or Permits issued by the appropriate state, federal or foreign regulatory agencies or bodies necessary to own, lease and operate its properties and to conduct its business, except for any of the foregoing that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of, or noncompliance with, any such certificate, authorization or Permit which, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would reasonably be expected to have a Material Adverse Effect.
(b)    The Company Entities have filed all necessary federal, state, local and foreign tax returns or have properly requested extensions thereof, and have paid all taxes required to be paid by any of them and, if due and payable, any related or similar assessment, fine or penalty levied against any of them except as may be being contested in good faith and by appropriate proceedings and for which adequate reserves are being maintained in accordance with GAAP, and, except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

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Section 3.12.    Company Reports; Financial Statements. 
(a)    The Company has filed or furnished, as applicable, on a timely basis, all forms, statements, certifications, reports and documents required to be filed or furnished by it with the SEC pursuant to the Exchange Act or the Securities Act since January 1, 2016 (the “Applicable Date”) (the forms, statements, reports and documents filed or furnished to the SEC since the Applicable Date, including any amendments thereto, the “Company Reports”). Each of the Company Reports, at the time of its filing or being furnished, complied in all material respects with the applicable requirements of the Securities Act, the Exchange Act and the Sarbanes-Oxley Act of 2002, and any rules and regulations promulgated thereunder applicable to the Company Reports. As of their respective dates (or, if amended, as of the date of such amendment), the Company Reports did not, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading. 
(b)    Each of the consolidated balance sheets included in or incorporated by reference into the Company Reports (including the related notes and schedules) fairly presents, the consolidated financial position of the Company and its consolidated Subsidiaries as of its date and each of the consolidated and combined statements of operations, comprehensive income, equity and cash flows included in or incorporated by reference into the Company Reports (including any related notes and schedules) fairly presents the results of operations, retained earnings (loss) and changes in financial position, as the case may be, of such companies for the periods set forth therein (subject, in the case of unaudited statements, to notes and normal year-end audit adjustments), and in each case were prepared in accordance with GAAP applied on a consistent basis during the periods involved, except as may be noted therein or in the notes thereto. KPMG LLP is an independent registered public accounting firm with respect to the Company and has not resigned or been dismissed as independent registered public accountants of the Company as a result of or in connection with any disagreement with the Company on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures.

Section 3.13.    Accounting and Disclosure Controls. 
(a)    The Company maintains “internal control over financial reporting” (as defined in Rule 13a-15(f) of the Exchange Act) that has been designed by, or under the supervision of, its principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and that include those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures of the Company are being made only in accordance with the authorizations of management and the directors of the Company; (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a Material Adverse Effect on the Company’s financial statements; and (iv) provide reasonable assurance that the interactive 

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data in eXtensible Business Reporting Language incorporated by reference in the Company Reports fairly presents the required information in all material respects and has been prepared in accordance with the SEC’s rules and guidelines applicable thereto.
(b)    The Company maintains “disclosure controls and procedures” (as defined in Rule 13a-15(e) of the Exchange Act) that are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including controls and procedures designed to ensure that such information is accumulated and communicated to the Company’s management as appropriate to allow timely decisions regarding required disclosure. The Company has carried out evaluations of the effectiveness of its disclosure controls and procedures as required by Rule 13a-15 of the Exchange Act and such disclosure controls and procedures were effective as of the end of the Company’s most recently completed fiscal quarter.

Section 3.14.    Compliance with and Liability Under; Environmental Laws. 
(a)    Except as otherwise disclosed in the Company Reports or as would not, individually or in the aggregate, have a Material Adverse Effect: (i) each of the Company Entities and their respective operations and facilities are in compliance with all applicable Environmental Laws; (ii) each of the Company Entities holds and is in compliance with all Permits, licenses or other governmental authorizations or approvals required for their operations under Environmental Laws; (iii) none of the Company Entities has received any written communication from a Governmental Authority or third party alleging that any of the Company Entities is in violation of, or liable under, any Environmental Law; (iv) there are no claims, demands, actions or proceedings by a Governmental Authority or third party alleging a violation of, or liability under, applicable Environmental Laws that are pending or, to the Company’s knowledge, threatened against the Company Entities; (v) none of the Company Entities has received any written notice asserting an alleged liability or obligation under any Environmental Law, including without limitation, CERCLA, or any comparable state Laws, with respect to a site or facility requiring investigation, response or other corrective action; and (vi) there has been no Release or, to the Company’s knowledge, threatened Release of Hazardous Materials at, on, under or from any of the Company Entities’ properties or, to the Company’s knowledge, any other location, that reasonably could be expected to give rise to any liability, or any remedial or corrective action obligations under any Environmental Law.
(b)    In the ordinary course of its business, the Company Entities assess the effect of Environmental Laws on their business, operations and properties, and they identify and evaluate associated costs and liabilities (including, without limitation, any capital or operating expenditures required for cleanup, closure of properties, compliance with Environmental Laws or any Permit, license or approval, any related constraints on operating activities, and any potential liabilities to third parties under Environmental Laws).

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Section 3.15.    Investment Company Status. The Company is not, and after giving effect to the issuance and sale of the Purchased Shares and the application of the proceeds therefrom as described herein will not be, required to register as an “investment company” as such term is defined in the Investment Company Act.

Section 3.16.    Absence of Certain Changes.     Since September 30, 2017, the Company and its Subsidiaries have conducted their respective businesses in the ordinary course of such businesses consistent with past practices (other than in connection with this Agreement and the Elk Hills Transaction Documents), and there has not been any change with respect to any circumstance, occurrence or development, that, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect.
Section 3.17.    Litigation and Liabilities.
(a)    Except as otherwise disclosed in the Company Reports, there are no legal or governmental actions, suits or proceedings pending or, to the Company’s knowledge, threatened (i) against or affecting any of the Company Entities or (ii) which have, as the subject thereof, any property owned or leased by any of the Company Entities, which such action, suit or proceeding, in either (i) or (ii), if determined adversely to the applicable Company Entity, would reasonably be expected to have a Material Adverse Effect or adversely affect the consummation of the transactions contemplated by this Agreement or (iii) that are required to be described in the Company Reports and are not so described; and there are no statutes, regulations, contracts or other documents that are required to be described in the Company Reports that are not so described or filed as required.
(b)    No material labor dispute with the employees of any of the Company Entities exists, or, to the knowledge of the Company, is imminent, except as described in the Company Reports.

Section 3.18.    Energy Regulatory Matters. Every direct and indirect “subsidiary company” (as defined in PUHCA) of the Company that is an “electric utility” or a “public utility” (as those terms are defined under the FPA) is the owner of a QF. The Company is not itself a “public utility” under the FPA. Each QF that is an “affiliate” (as that term is defined under PUHCA) of the Company is in compliance with, or has received a waiver from FERC with respect to, all of the material requirements of the FERC applicable to a QF. The execution, delivery and performance by the Company of this Agreement and the consummation of the Transactions do not require the approval or authorization of the FERC under Section 203(a)(1) of the FPA, provided, however, that following such consummation, any “affiliate” (as that term is defined under PUHCA) of the Company that is a QF, or that holds any authorization or has filed any tariff with the FERC under 18 C.F.R. Part 35 Subpart H of the FERC’s regulations must submit to FERC such notices and reports as the regulations of the FERC then require. The Company is not subject to regulation by FERC as a “Natural Gas Company,” as that term is defined under the Natural Gas Act, as amended. The Company is not subject to regulation as a “public utility” under the California Public Utilities Code. As of the date hereof, to the knowledge of the Company, the Company is not the subject of any actual, pending, or threatened proceeding, investigation, data request, summons, subpoena, or notice under any of 18 C.F.R. Part 1b, Part 1c, Part 33, Part 35, or Part 292. Notwithstanding the foregoing, for so long as any Purchased Shares are owned by the Purchaser, the Company shall promptly advise the Purchaser 

12

of any actual, pending, or threatened loss of the status as a QF, or ineligibility for status as a QF, of any electric generating facility that is directly or indirectly owned, controlled or operated by the Company or any Subsidiary of the Company.

ARTICLE IV 
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as follows as of the date of this Agreement:

Section 4.01.    Organization, Existence and Qualification. The Purchaser is an entity that has been duly organized and is validly existing and in good standing under the Laws of its jurisdiction of organization.

Section 4.02.    Power. The Purchaser has the requisite power and authority to enter into and perform this Agreement and to consummate the Transactions.

Section 4.03.    Authorization and Enforceability. The execution, delivery and performance by the Purchaser of this Agreement and the consummation of the Transactions have been duly and validly authorized by all necessary requisite action on the part of the Purchaser. This Agreement has been duly executed and delivered by the Purchaser and constitutes a valid and binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy or other similar Laws affecting the rights and remedies of creditors generally as well as to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

Section 4.04.    Brokers’ Fees. There is no broker or finder or other Person engaged by the Purchaser who would have any valid claim through the Purchaser against the Company for any commission or brokerage fee or other similar payment in connection with this Agreement or the Transactions as a result of any agreement of or action taken by the Purchaser.

Section 4.05.    No Violation. The execution, delivery and performance by the Purchaser of this Agreement, and the consummation of the Transactions will not, with or without notice or the passage of time or both: (a) violate any provision of the organizational documents of the Purchaser; (b) conflict with or violate or breach the terms of, result in a default under, result in the creation of any Lien under, or give rise to any right of termination, cancellation, forfeiture, suspension, adverse modification, or acceleration under any note, bond, mortgage, indenture, credit agreement or other Contract to which the Purchaser is a party or by which it is bound; (c) violate any judgment, order, ruling, regulation or decree applicable to the Purchaser as a party in interest; or (d) violate any Law applicable to the Purchaser or any of its assets, except any matters described in clauses (b), (c) or (d) above which would not have a material adverse effect on the ability of the Purchaser to consummate the Transactions.

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Section 4.06.    Consents, Approvals or Waivers. All consents, approvals, authorizations or waivers from, and any registrations or filings with or notifications to, any Governmental Authority required on the part of the Purchaser in connection with the Purchaser’s execution, delivery or performance of this Agreement and the consummation of the Transactions contemplated therein have been obtained and are effective as of the date hereof.

Section 4.07.    Investment Intent. The Purchaser understands that the Purchased Shares are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law. The Purchaser is acquiring the Purchased Shares as principal for its own account for investment purposes only and not with a view to or for distributing or reselling such Purchased Shares or any part thereof, has no present intention of distributing any of such Purchased Shares and has no arrangement or understanding with any other Persons regarding the distribution of such Purchased Shares in any transaction in violation of the applicable federal and state securities laws in the United States (this representation and warranty not limiting the Purchaser’s right to sell or otherwise dispose of the Purchased Shares in compliance with applicable federal and state securities laws in the United States and in compliance with other agreed restrictions). The Purchaser does not have any agreement or understanding, directly or indirectly, with any Person to distribute any of the Purchased Shares. Such Purchaser understands and acknowledges that the Purchased Shares are subject to certain resale restrictions under applicable securities laws. The Purchaser also acknowledges that it has been advised to consult its own legal advisers with respect to applicable resale restrictions and that it is solely responsible for complying with such restrictions (and that, without limiting the representations and warranties made by the Company in this Agreement, the Company is not in any manner responsible for ensuring compliance by the Purchaser with such restrictions).

Section 4.08.    Purchaser Status. (A) At the time the Purchaser was offered the Purchased Shares, it was, and at the date hereof, it is, an “accredited investor” as defined in Rule 501(a) under the Securities Act. (B) The Purchaser is not itself a “public utility” under the FPA. The execution, delivery and performance by the Purchaser of this Agreement and the consummation of the Transactions do not require the approval or authorization of the FERC under Section 203(a)(2) of the FPA provided, however, that following such consummation, any “affiliate” (as that term is defined under PUHCA) of the Purchaser that holds any authorization or has filed any tariff with the FERC under 18 C.F.R. Part 35 Subpart H of the FERC’s regulations must submit to FERC such notices and reports as the regulations of the FERC then require.  The Purchaser is not subject to regulation by FERC as a “Natural Gas Company,” as that term is defined under the Natural Gas Act, as amended. As of the date hereof, to the knowledge of the Purchaser, the Purchaser is not the subject of any actual, pending, or threatened proceeding, investigation, data request, summons, subpoena, or notice under any of 18 C.F.R. Part 1b, Part 1c, Part 33, Part 35, or Part 292.

Section 4.09.    Legends. The Purchaser understands that, until such time as the Purchased Shares have been registered pursuant to the provisions of the Securities Act, or the Purchased Shares are otherwise eligible for resale under the Securities Act (including pursuant to Rule 144 promulgated thereunder) without any restriction as to the number of securities as of a particular date that can then be immediately sold, the Purchased Shares will bear a restrictive 

14

legend as set forth in Exhibit A.

Section 4.10.    Experience of the Purchaser. The Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Purchased Shares, and has so evaluated the merits and risks of such investment. The Purchaser is able to bear the economic risk of an investment in the Purchased Shares and, at the present time, is able to afford a complete loss of such investment.

Section 4.11.    Access to Information. The Purchaser acknowledges that it has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Purchased Shares and the merits and risks of investing in the Purchased Shares; (ii) access to information about the Company Entities and their respective financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the purchase of the Purchased Shares; and (iv) the opportunity to ask questions of management. Neither such inquiries nor any other investigation conducted by or on behalf of such Purchaser or its representatives or counsel shall modify, amend or affect such Purchaser’s right to rely on the truth, accuracy and completeness of the Company’s representations and warranties contained in this Agreement. The Purchaser has sought such accounting, legal and tax advice as it has considered necessary to make an informed decision with respect to its acquisition of the Purchased Shares.

Section 4.12.    Independent Investment Decision. The Purchaser has independently evaluated the merits of its decision to purchase the Purchased Shares pursuant to this Agreement, and the Purchaser confirms that it has not relied on the advice of any other Person’s business and/or legal counsel in making such decision. The Purchaser understands that nothing in this Agreement or any other materials presented by or on behalf of the Company to such Purchaser in connection with the purchase of the Purchased Shares constitutes legal, tax or investment advice. The Purchaser has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its purchase of the Purchased Shares.

Section 4.13.    No Reliance.  The Purchaser has not relied on any representation or warranty in connection with the purchase of the Purchased Shares other than those contained in this Agreement.

ARTICLE V 
INDEMNIFICATION

Section 5.01.    Indemnification.
(a)    The Company will indemnify, defend and hold harmless the Purchaser and its 

15

Affiliates and their respective officers, directors, managers, agents, representatives, employees, Subsidiaries, partners, equityholders, members, controlling persons and their respective successors and assignees (collectively, the “Purchaser Indemnitees”) to the fullest extent permitted by Law from and against any and all claims, proceedings (including administrative, judicial or regulatory proceedings), losses, liabilities, damages, deficiencies, judgments, assessments, fines, settlements, costs or expenses (including interest, penalties, reasonable costs of investigation and reasonable fees, disbursements and other charges of counsel) (collectively, “Losses”) based upon, arising out of or otherwise in respect of any breach, violation or inaccuracy by the Company (i) of any representation or warranty made by the Company in this Agreement; or (ii) of any covenant or agreement of the Company contained in this Agreement. 
(b)    The Purchaser will indemnify, defend and hold harmless the Company, its officers, directors, managers, agents, representatives, employees and Subsidiaries and their respective successors and assignees (collectively, the “Company Indemnitees”), to the fullest extent permitted by Law from and against any and all Losses based upon, arising out of or otherwise in respect of any breach, violation or inaccuracy by the Purchaser (i) of any representation or warranty made by the Purchaser in this Agreement; or (ii) of any covenant or agreement of the Purchaser contained in this Agreement.
(c)    Notwithstanding anything to the contrary contained in this Agreement, from and after Closing, this Section 5.01 contains the Parties’ exclusive remedy against each other with respect to breaches of the representations, warranties, covenants and agreements of the Parties contained in Article III, and Article IV, except in the case of Fraud and for claims of injunctive relief in accordance with Section 6.20.

Section 5.02.    Indemnification Procedures. 
(a)    As promptly as possible after receipt by a Purchaser Indemnitee or Company Indemnitee (hereinafter the “Indemnified Party”) under this Article V of notice of the threat, assertion or commencement of any claim, action or proceeding, such Indemnified Party will, if a claim for indemnification in respect thereof is to be made under this Article V, notify the indemnitor hereunder (the “Indemnifying Party”) in writing of the commencement thereof; provided, however, that the failure to notify the Indemnifying Party promptly of the threat, assertion or commencement of any such claim, action or proceeding shall not relieve the Indemnifying Party of any liability to the Indemnified Party under this Article V except to the extent that the Indemnifying Party is materially prejudiced by such failure.
(b)    The Indemnifying Party shall have the right to participate in and, to the extent the Indemnifying Party desires, to assume at its expense the defense thereof with counsel reasonably satisfactory to the Indemnified Party. For so long as the Indemnifying Party diligently pursues such defense, the Indemnifying Party shall not be liable for any additional legal expenses incurred by the Indemnified Party in connection with any defense or settlement of any claim, action or proceeding; provided, however, that if the defendants in any such claim, action or proceeding include both the Indemnified Party and the Indemnifying Party and counsel to the Indemnified Party shall have reasonably concluded that there may be one or more legal defenses available to the Indemnified Party which are different from or additional to those available to the Indemnifying Party, or that 

16

such claim or litigation involves or could have an effect upon matters beyond the scope of the indemnity agreement provided in this Article V, the Indemnifying Party shall not have the right to assume the defense of such action on behalf of such Indemnified Party, and the Indemnifying Party shall reimburse such Indemnified Party for the fees and expenses of one separate counsel that are reasonably related to the matters covered by the indemnity agreement provided in this Article V. For the avoidance of doubt, (i) the Company shall only be required to reimburse the fees and expenses of one separate counsel for all Purchaser Indemnitees pursuant to the foregoing proviso and (ii) the Purchaser Indemnitees shall only be required to reimburse the fees and expenses of one separate counsel for all Company Indemnitees pursuant to the foregoing proviso. Subject to the foregoing, an Indemnified Party shall have the right to employ separate counsel in any such action and to participate in the defense thereof but the fees and expenses of such counsel shall not be at the expense of the Indemnifying Party. The Indemnifying Party shall not be liable for any settlement of any proceeding effected without its prior written consent. The Indemnifying Party shall not, without the prior written consent of the Indemnified Party (such consent not to be unreasonably withheld, conditioned or delayed), effect any settlement of any pending proceeding unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such proceeding.

Section 5.03.    Limitations.
(a)    The representations and warranties of the Parties set forth in Section 3.01, Section 3.02, Section 3.03, Section 3.07, Section 4.01, Section 4.02 and Section 4.03 shall survive for thirty days following the maximum period permitted by any applicable statute of limitations.
(b)    All other representations and warranties in Article III and Article IV shall survive the Closing for a period of twelve (12) months. Representations, warranties, covenants and agreements shall be of no further force and effect after the date of expiration of the applicable survival period; provided, that there shall be no termination of any bona fide claim asserted pursuant to this Agreement with respect to any breach of any representation, warranty, covenant, or agreement prior to its expiration date.
(c)    The amount of any Losses for which an Indemnified Party is entitled to indemnity under this Article V shall be reduced by (i) the amount of insurance proceeds realized by the Indemnified Party or its Affiliates with respect to such Losses (x) net of any collection costs, retrospective premium adjustments or experience based premium adjustments, (y) excluding any such proceeds in circumstances where the Indemnified Party is required to pay such proceeds over to a third Person pursuant to subrogation arrangements or otherwise and (z) excluding the proceeds of any insurance policy issued or underwritten by the Indemnified Party or its Affiliates and (ii) any Tax Benefit inuring to the Indemnified Party on account of such Losses. For purposes hereof, “Tax Benefit” means any refund of Taxes actually received or reduction in the amount of Taxes actually paid by (A) the Indemnified Party or (B) in the event the Indemnified Party is treated as a partnership or disregarded entity or otherwise as a pass through entity for tax purposes, the direct or indirect owners of the Indemnified Party.
(d)    The maximum aggregate amount of indemnifiable Losses arising out of or resulting from the indemnification obligation enumerated in Section 5.01(a) that may be recovered from the 

17

Company shall not exceed the Aggregate Purchase Price.
(e)    Notwithstanding anything to the contrary contained in this Agreement, no Person shall be liable under this Article VIII for any consequential, punitive, special, exemplary, incidental or indirect damages, including lost profits.

Section 5.04.    Adjustment for Tax Purposes. Any payments made pursuant to this Article V shall constitute an adjustment of the consideration paid for the Purchased Shares for Tax purposes and shall be treated as such by the Parties on their tax returns to the extent permitted by Law.

ARTICLE VI 
MISCELLANEOUS

Section 6.01.    Public Announcements. No Party shall make any press release or other public announcement regarding the existence of this Agreement without the prior written consent of the other Party, which consent shall not be unreasonably withheld, conditioned or delayed; provided, however, that the foregoing shall not restrict disclosures by the Purchaser or the Company that are required by applicable securities or other Laws or by the applicable rules of any stock exchange having jurisdiction over the disclosing Party or its Affiliates.

Section 6.02.    Fees and Expenses. Subject to Section 7.13 of the Contribution and Unit Purchase Agreement dated as of the date hereof, each Party shall pay fees and expenses incurred by such Party in connection with the negotiation, documentation and diligence of, and the transactions contemplated by, this Agreement.

Section 6.03.    Transfer Taxes. All transfer, sales and use, registration, stamp and similar Taxes imposed in connection with the sale of the Purchased Shares or any other transaction that occurs pursuant to this Agreement shall be borne by the Company.

Section 6.04.    Further Assurances. The Company shall use its reasonable best efforts to promptly secure the listing of the Purchased Shares upon the New York Stock Exchange. The Company agrees to execute and deliver and the Purchaser agrees to execute and deliver, such other documents, certificates, agreements and other writings and to take such other actions as may be necessary or desirable in order to consummate or implement expeditiously the Transactions.

Section 6.05.    Independent Investment. Except as may be otherwise disclosed by the Purchaser in any filings with the SEC under Section 13 and/or Section 16 of the Exchange Act, the Purchaser is acting independently with respect to its investment in, and related rights with respect to voting, holding or disposing of, the Purchased Shares purchased hereunder.

Section 6.06.    Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original instrument, but all such counterparts together shall constitute but one agreement. Facsimiles of signatures or signatures delivered in 

18

portable document format (.pdf) will be deemed to be originals.

Section 6.07.    Notices. All notices that are required or may be given pursuant to this Agreement shall be sufficient in all respects if given in writing. Any such notice shall be deemed given (a) when made, if made by hand delivery, and upon confirmation of receipt, if made by electronic mail transmission, (b) one Business Day after being deposited with a next-day courier, postage prepaid, or (c) three Business Days after being sent certified or registered mail, return receipt requested, postage prepaid, in each case addressed as follows:
	
			
	If to the Company, to:

	 
	 

	 
	California Resources Corporation
9200 Oakdale Avenue, 9th Floor
Los Angeles, California 91311

	 
	Attn:
	Michael L. Preston 
Executive Vice President,  
General Counsel and Corporate Secretary 

	 
	Email:
	Michael.Preston@crc.com

	 
	 
	 

	With a copy to (which copy shall not constitute notice):

	 
	 
	 

	 
	Sullivan & Cromwell LLP
1888 Century Park East
Los Angeles, California 90067-1725

	 
	Attn:
	Alison S. Ressler

	 
	Email:
	resslera@sullcrom.com

	 
	 
	 

	If to any Purchaser, to:

	 
	 
	 

	 
	[•]

	 
	 
	 

	With a copy to (which copy shall not constitute notice):

	 
	 
	 

	 
	Clifford Chance US LLP
31 West 52nd Street
New York, New York 10019

	 
	Attn:
	Michael Sabin

	 
	Email:
	michael.sabin@cliffordchance.com

Any Party may change its address for notice by notice to the other in the manner set forth above. All notices shall be deemed to have been duly given at the time of receipt by the Party to which such notice is addressed.

Section 6.08.    Removal of Legend. In connection with a sale of Purchased Shares by the Purchaser in reliance on Rule 144, the Purchaser or its broker shall deliver to the 

19

Transfer Agent and the Company a broker representation letter providing to the Transfer Agent and the Company any information the Company deems necessary to determine that the sale of the Purchased Shares is made in compliance with Rule 144. Upon receipt of such representation letter, the Company shall promptly direct its transfer agent to remove the notation of a restrictive legend in the Purchaser’s certificate or the book entry account maintained by the Transfer Agent, including the legend referred to in Section 4.09, and the Company shall bear all costs associated therewith. At such time as the Purchased Shares have been sold pursuant to an effective registration statement under the Securities Act or have been held by the Purchaser for more than six months if the Purchaser is not, and has not been in the preceding three months, an affiliate of the Company (as defined in Rule 144), if the book entry account or certificate for such Purchased Shares still bears the notation of the restrictive legend referred to in Section 4.09, the Company agrees, upon request of the Purchaser or permitted assignee, to take all steps necessary to promptly effect the removal of the legend described in Section 4.09 from the Purchased Shares, and the Company shall bear all costs associated therewith, regardless of whether the request is made in connection with a sale or otherwise, so long as the Purchaser or its permitted assigns provide to the Company any information the Company deems reasonably necessary to determine that the legend is no longer required under the Securities Act or applicable state laws. The Company shall cooperate with the Purchaser to effect the removal of the legend referred to in Section 4.09 at any time such legend is no longer appropriate. 

Section 6.09.    Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the SEC that may permit the sale of the Purchased Shares to the public without registration, the Company agrees to use its reasonable best efforts to:
(a)    make and keep public information regarding the Company available, as those terms are understood and defined in Rule 144, at all times from and after the Closing Date until all Purchased Shares held by the Purchaser are Freely Tradable;
(b)    file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act at all times from and after the Closing Date until all Purchased Shares held by the Purchaser are Freely Tradeable;
(c)    until all Purchased Shares held by the Purchaser are Freely Tradeable, furnish to the Purchaser forthwith upon request a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed as the Purchaser may reasonably request in availing itself of any rule or regulation of the SEC allowing the Purchaser to sell any such Purchased Shares without registration; and
(d)    take such further action as the Purchaser may reasonably request, all to the extent required from time to time to enable the Purchaser to sell Purchased Shares without registration under the Securities Act within the limitations of the exemption provided by Rule 144.

Section 6.10.    Governing Law. This Agreement and all matters pertaining hereto, including matters of performance, non-performance, breach, remedies, procedures, rights, duties, and interpretation or construction hereof, shall be governed and construed in accordance 

20

with the Laws of the State of Delaware, United States of America without regard to principles of conflicts of laws that would direct the application of the Laws of another jurisdiction. Any action referred to in this Section 6.10 shall be brought in the federal or state courts located within the State of Delaware. The Parties hereto hereby (a) irrevocably consent to the personal jurisdiction and venue of such courts, and (b) waive any claim (by way of motion, as a defense or otherwise) of improper venue, that such parties are not subject personally to the jurisdiction of such courts, that such courts are an inconvenient forum or that this Agreement or the subject matter may not be enforced in or by such courts. The Parties agree that a judgment in any such dispute may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law.

Section 6.11.    Waiver of Jury Trial. THE PARTIES HEREBY ACKNOWLEDGE THAT THEY HAVE BEEN REPRESENTED BY AND HAVE CONSULTED WITH COUNSEL OF THEIR CHOICE, AND HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN RESPECT OF ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER DOCUMENT EXECUTED IN CONNECTION HEREWITH, OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

Section 6.12.    Captions; Headings. The Table of Contents and the captions and headings in this Agreement are for convenience only and shall not be considered a part of or affect the construction or interpretation of any provision of this Agreement.

Section 6.13.    Amendment. No amendment, supplement or modification of or to any provision of this Agreement, or any waiver of any provisions of this Agreement shall be effective unless signed by each of the Company and the Purchaser.

Section 6.14.    Waivers. Any failure by any Party to comply with any of its obligations or agreements herein contained may be waived by the Party to whom such compliance is owed by an instrument signed by the Party to whom compliance is owed and expressly identified as a waiver but not in any other manner. No waiver of, or consent to a change in, any of the provisions of this Agreement shall be deemed or shall constitute a waiver of, or consent to a change in, other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.

Section 6.15.    Assignment; Successors and Assignees. 
(a)    The Company may not assign or otherwise transfer all or any part of this Agreement, nor shall the Company delegate any of its rights or duties hereunder, without the prior written consent of the Purchaser and any transfer or delegation made without such consent shall be void. 
(b)    The Purchaser may not assign or otherwise transfer all or any part of this Agreement, nor shall the Purchaser delegate any of its rights or duties hereunder, without the prior written consent of the Company and any transfer or delegation made without such consent shall be void.

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(c)    On and after the Closing, subject to compliance with any restrictions on transfer imposed by the Securities Act and state securities and “blue sky” laws, the Purchaser may transfer the Purchased Shares to any Person.
(d)    Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns.

Section 6.16.    Entire Agreement. This Agreement constitutes the entire agreement between the Parties pertaining to the subject matter hereof, and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the Parties pertaining to the subject matter hereof.

Section 6.17.    Third Person Beneficiaries. Nothing in this Agreement shall entitle any Person other than the Purchaser, the Company and their respective successors and permitted assigns to any claim, cause of action, remedy or right of any kind; provided, however, that the indemnification provisions of Article V shall inure to the benefit of the Indemnified Parties.

Section 6.18.    References; Exhibits. 
(a)    In this Agreement, unless a clear contrary intention appears:
(i)    References to any gender includes a reference to all other genders;
(ii)    Reference to a Person includes such Person’s successors and assigns but, in the case of a Party, only if such successors and assigns are permitted by this Agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity;
(iii)    References to the singular includes the plural, and vice versa;
(iv)    Reference to any Article or Section means an Article or Section of this Agreement;
(v)    References to “days” are to calendar days;
(vi)    All references to money refer to the lawful currency of the United States;
(vii)    Reference to any Exhibit means an Exhibit to this Agreement, all of which are incorporated into and made a part of this Agreement;
(viii)    Unless expressly provided to the contrary, “hereunder”, “hereof”, “herein” and words of similar import are references to this Agreement as a whole and not any particular Section or other provision of this Agreement; 
(ix)    The word “or” is not exclusive; 

22

(x)    “Include” and “including” mean including, without limitation; and
(xi)    The “knowledge” of a Party means the actual knowledge of the executive officers of such Party, after internal inquiry of such Party’s personnel as such executive officers have deemed appropriate. 

Section 6.19.    Construction. The Purchaser is capable of making such investigation, inspection, review and evaluation of the Purchased Shares as a prudent purchaser would deem appropriate under the circumstances. The Company and the Purchaser have had the opportunity to exercise business discretion in relation to the negotiation of the details of the transaction contemplated hereby. This Agreement is the result of arm’s-length negotiations from equal bargaining positions. Each Party has been represented by its own counsel in connection with the negotiation and preparation of this Agreement and, consequently, each Party hereby waives the application of any rule of Law that would otherwise be applicable in connection with the interpretation of this Agreement, including but not limited to any rule of Law to the effect that any provision of this Agreement will be interpreted or construed against the Party whose counsel drafted that provision.

Section 6.20.    Specific Performance. The Parties agree that irreparable damage may occur in the event that any of the provisions of this Agreement were not performed in accordance with its specific terms or were otherwise breached. Each Party agrees that, in the event of any breach or threatened breach by any other Party of any covenant or obligation contained in this Agreement, the non-breaching Party shall be entitled (in addition to any other remedy that may be available to it, including monetary damages) to seek and obtain (a) a decree or order of specific performance to enforce the observance and performance of such covenant or obligation, and (b) an injunction restraining such breach or threatened breach. Each Party further agrees that no other Party or any other Person shall be required to obtain, furnish or post any bond or similar instrument in connection with or as a condition to obtaining any remedy referred to in this Section 6.20, and each Party hereto irrevocably waives any right it may have to require the obtaining, furnishing or posting of any such bond or similar instrument. Each Party further agrees that it shall not object to the granting of an order of specific performance, an injunction or other equitable relief on the basis that there exists an adequate remedy at law.

Section 6.21.    Severability. Any term or provision of this Agreement which is determined by a court of competent jurisdiction to be invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction, and if any provision of this Agreement is determined to be so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable, in all cases so long as neither the economic nor legal substance of the Transactions contemplated hereby is affected in any manner adverse to any Party or its equityholders. Upon any such determination, the Parties shall negotiate in good faith in an effort to agree upon a suitable and equitable substitute provision to effect the original intent of the Parties as closely as possible and to the end that the Transactions contemplated hereby shall be fulfilled to the 

23

maximum extent possible.
[Signature pages follow]

24

IN WITNESS WHEREOF, this Agreement has been signed by each of the Parties as of the date first above written.

	
			
	 
	COMPANY:

	 
	 
	 

	 
	 
	 

	 
	California Resources Corporation

	 
	 
	 

	 
	 
	 

	 
	By:
	 

	 
	Name:
	 

	 
	Title:
	 

Signature Page to Stock Purchase Agreement

	
			
	 
	PURCHASER:

	 
	 
	 

	 
	 
	 

	 
	By:
	 

	 
	Name:
	 

	 
	Title:
	 

Signature Page to Stock Purchase Agreement

EXHIBIT A
Restrictive Legend
“THE OFFER AND SALE OF THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION THEREUNDER AND, IN THE CASE OF A TRANSACTION EXEMPT FROM REGISTRATION, UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT OR THE ISSUER HAS RECEIVED DOCUMENTATION REASONABLY SATISFACTORY TO IT THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION UNDER SUCH ACT.

Exhibit A to Stock Purchase Agreement

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