10-Q: California Resources Corp. Q1 2026 Results Impacted by Berry Merger

California Resources Corporation reported a net loss for Q1 2026, significantly impacted by the Berry Merger, with revenues increasing but derivative losses widening.

Summary

• California Resources Corporation (CRC) reported a net loss of $711 million for the first quarter of 2026, a significant change from a net income of $115 million in the same period of 2025. This was largely due to a net loss from commodity sales derivatives of $848 million.
• Total operating revenues increased to $119 million in Q1 2026 from $912 million in Q1 2025, primarily driven by the inclusion of Berry Corporation's results following the merger on December 18, 2025. Oil, natural gas, and natural gas liquids sales were $905 million in Q1 2026.
• Operating expenses rose to $830 million in Q1 2026 from $726 million in Q1 2025, with increases in operating costs and general and administrative expenses, partly due to the Berry Merger.
• The company's oil and natural gas segment reported a profit of $282 million, while the carbon management segment (Carbon TerraVault) incurred a loss of $12 million.
• Cash flow from operating activities decreased to $99 million in Q1 2026 from $186 million in Q1 2025, mainly due to changes in working capital and increased derivative settlements.
• Capital investments for the full year 2026 are estimated to be between $520 million and $560 million, an increase from the initial estimate.
• The company declared a quarterly cash dividend of $0.4050 per share, payable in June 2026.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this filing as negative due to the significant net loss, driven by substantial derivative losses, despite an increase in revenues from the Berry merger. The increased capital expenditure guidance also adds a layer of caution.

Positives

• Total operating revenues increased to $119 million in Q1 2026 from $912 million in Q1 2025, driven by the inclusion of Berry Corporation's results post-merger.
• Oil, natural gas, and natural gas liquids sales were $905 million in Q1 2026.
• The oil and natural gas segment generated a profit of $282 million.
• The company reaffirmed its borrowing base of $1.5 billion under its Revolving Credit Facility and amended it to reduce interest margins.
• A quarterly cash dividend of $0.4050 per share was declared, indicating continued shareholder returns.
• The company expects to generate sufficient operating cash flow to meet obligations for the next twelve months.

Negatives

• The company reported a net loss of $711 million for Q1 2026, compared to a net income of $115 million in Q1 2025.
• A significant net loss of $848 million from commodity sales derivatives impacted the results.
• Operating expenses increased to $830 million in Q1 2026 from $726 million in Q1 2025.
• Cash flow from operating activities decreased by $87 million to $99 million in Q1 2026 compared to Q1 2025.
• The carbon management segment (Carbon TerraVault) reported a loss of $12 million.
• The company's capital program estimate for 2026 was revised upwards to $520-$560 million from $430-$470 million.

Risks

• Fluctuations in commodity prices, including supply and demand, can significantly impact revenues and operating expenses.
• Government policy, war, and political conditions, particularly geopolitical uncertainty in the Middle East and conflicts in Ukraine, can affect operations and prices.
• The successful integration of the Berry Merger and achievement of projected synergies are subject to risks.
• Regulatory actions and changes affecting the oil and gas industry, including permitting, emissions management, and environmental protection, pose risks.
• Refinery closures and reductions in pipeline transportation capacity could strain market access.
• The evolving nature of tariff policy and potential future modifications could increase costs and extend delivery lead times.
• High fuel costs are adversely impacting transportation and equipment prices.
• The potential for additional crude oil production from the San Ynez Unit could strain pipeline capacity and compete with CRC's production.
• Uncertainty regarding the California Cap-and-Invest program (AB 1207 and SB 840) could impact the business.
• The company faces risks related to the recoverability of resources, unexpected geologic conditions, and the ability to replace reserves.
• Environmental risks and liabilities under various environmental laws and regulations are a concern.
• The creditworthiness and performance of counterparties, including financial institutions and project participants, are critical.
• Disruptions due to natural disasters, accidents, labor difficulties, cybersecurity breaches, or other catastrophic events could impact operations.
• The company's ability to realize the anticipated benefits from its energy transition strategies, including CCS projects, is subject to various risks.
• Uncertainty around the accounting of emissions and the ability to gather and verify emissions data could pose challenges.

Future Outlook

The company has revised its 2026 capital program to a range of $520 million to $560 million, with $500 million to $525 million allocated to the oil and natural gas segment, $12 million to $20 million to the carbon management segment, and $8 million to $15 million for corporate and other activities. The company expects to generate sufficient operating cash flow to meet its obligations for the next twelve months and plans to continue returning cash to shareholders through dividends.

Management Comments

• The Berry Merger significantly impacts the comparability of our financial results for the three months ended March 31, 2026 as compared to the same period in 2025.
• We believe we have sufficient sources of liquidity to meet our obligations for the next twelve months.
• We continue to monitor the current macroeconomic environment and will adjust our planned uses of cash as necessary.
• Our hedging strategy seeks to mitigate our exposure to commodity price volatility and ensure our financial strength and liquidity by protecting our cash flows.

Industry Context

StockSavvy.ai notes that California Resources Corporation's Q1 2026 results reflect the ongoing integration of the Berry Corporation acquisition, a common strategy in the energy sector to consolidate assets and achieve scale. The significant impact of derivative losses highlights the inherent volatility in commodity markets, a challenge faced by all E&P companies. The company's dual focus on traditional oil and gas production and carbon management (CCS) aligns with broader industry trends towards energy transition and decarbonization efforts.

Comparison to Industry Standards

• The net loss of $711 million for the quarter, driven by derivative losses, is a significant deviation from typical industry performance during periods of rising oil prices, suggesting a substantial hedging impact or mispricing.
• The increase in capital expenditures for 2026 to $520-$560 million places CRC in line with many mid-sized E&P companies investing in production and strategic initiatives.
• The company's focus on carbon capture and storage (CCS) through its Carbon TerraVault JV positions it alongside other energy majors and specialized firms like ExxonMobil, Chevron, and Occidental Petroleum, which are also investing heavily in decarbonization technologies.
• The declared dividend of $0.4050 per share is a common practice for mature energy companies, though the overall financial performance this quarter may raise questions about its sustainability if losses persist.

Legal Proceedings

• Signal Hill Services, Inc. default on decommissioning obligations for offshore platforms, with BSEE order holding former lessees responsible, including CRC via indemnification from Oxy.
• CalGEM seeking to recover costs for plugging and abandoning approximately 120 'orphaned' oil and gas wells in Cat Canyon, Santa Barbara County, which CRC is disputing.

Related Party Transactions

• Transactions between CRC and the Carbon TerraVault JV (a joint venture with Brookfield) are related party transactions.
• Brookfield's initial investment in Carbon TerraVault JV is reflected as a contingent liability.
• CRC performs well abandonment work at Elk Hills field and seeks reimbursement from Carbon TerraVault JV.

Stakeholder Impact

• Shareholders: The net loss and negative sentiment may impact share price. The declared dividend provides some positive return.
• Creditors: The company's liquidity and debt covenants appear to be managed, with a reaffirmed borrowing base and no reported covenant breaches.
• Employees: The Berry Merger includes integration of Berry's workforce, potentially leading to changes in compensation and roles. Increased G&A expenses related to compensation suggest this.
• Suppliers: Tariffs and high fuel costs are expected to increase the cost of oilfield goods and extend delivery lead times, potentially impacting suppliers and CRC's costs.
• Customers: The potential for increased crude oil production from the San Ynez Unit could compete with CRC's production in the California refining market.

Next Steps

• Complete the purchase price allocation for the Berry Merger within the 12-month period subsequent to the closing date.
• Continue to monitor developments in the California Cap-and-Invest program (AB 1207 and SB 840).
• Evaluate the impact of implemented injection pressure reductions in the Wilmington Oil Field and await further guidance from CalGEM.
• Prepare for first injection at the first carbon capture project at the cryogenic gas processing facility, subject to commissioning and regulatory approval.
• Continue to challenge the BSEE order regarding Signal Hill offshore platform decommissioning obligations.
• Pursue the recovery of $25 million paid to CalGEM under protest related to orphaned oil and gas wells.

Key Dates

Recommendation

While the Berry merger provides scale and the company is investing in carbon management, the significant net loss driven by derivative impacts and increased capital expenditure guidance warrants a cautious approach. The operational performance appears mixed, and the large derivative losses obscure the true underlying profitability. A 'hold' recommendation allows for further observation of the integration progress and commodity price environment.

Keywords

California Resources Corporation, CRC, Form 10-Q, Quarterly Report, Berry Merger, Oil and Gas, Carbon Management, CCS, Commodity Prices, Financial Statements, Derivatives, Capital Investments, Dividends