Key Takeaways:
California Resources Corp. (NYSE: CRC) beat first-quarter earnings estimates on the strength of high oil prices, reporting adjusted income of 88 cents per share even as a significant non-cash charge on derivatives pushed its GAAP result to a net loss of $711 million.
The results reflected a strategy of capitalizing on a firm Brent crude backdrop to fund increased drilling activity and new energy ventures. The company benefited from an average realized oil price of $74.53 per barrel before hedging, translating strong commodity pricing into healthy cash flow.
The oil and gas producer’s adjusted first-quarter net income reached $79 million on operating revenues of $967 million, which were up 6 percent year over year. Production averaged 154 thousand barrels of oil equivalent per day (MBoe/d), of which 81 percent was oil. Free cash flow came in at $116 million for the quarter.
The company is now channeling that cash flow into future growth, raising its year-end 2026 production target to approximately 175 MBoe/d. The move signals a dual strategy: maximizing returns from its core oil and gas assets while investing in energy transition opportunities, including carbon capture and providing power for artificial intelligence data centers.
While the headline GAAP loss of $711 million appeared stark, it was driven primarily by a non-cash loss reflecting the mark-to-market value of the company's outstanding commodity derivatives. Excluding these and other one-time items, California Resources generated adjusted EBITDAX of $304 million, a figure that more closely reflects the core operational profitability of its assets during the quarter.
This divergence between GAAP and adjusted earnings is a common feature for energy producers like Diamondback Energy (NASDAQ: FANG), which also uses extensive hedging strategies to manage commodity price volatility. Diamondback recently reported $1.7 billion in adjusted free cash flow in its own first quarter.
Management expressed confidence in the remainder of the year by increasing its full-year 2026 forecast. California Resources plans to operate seven drilling rigs by the second half of the year, up from its previous plan, with six located in California and one in Utah.
In addition to the production ramp, the company increased its expected annual cost savings from its recent merger with Berry Petroleum to a range of $90 million to $100 million. The firm also strengthened its balance sheet, issuing $350 million in new notes to refinance higher-interest debt and ending the quarter with approximately $1.3 billion in liquidity and a net leverage ratio of 1.1x.
Beyond its traditional oil and gas operations, California Resources is advancing its carbon management business. The company has completed construction of its carbon capture and storage (CCS) project at the Elk Hills gas plant and is now awaiting a final permit from the Environmental Protection Agency to begin injection.
The company also highlighted growing commercial interest in its "powered land" strategy at the same Elk Hills site. A major data center developer is co-investing millions to accelerate permitting for a new campus, which could be powered by CRC's natural gas supply, with the associated emissions potentially captured by the new CCS facility. This strategy aims to meet the surging electricity demand from the AI industry, a trend also benefiting utility and power generation companies like Constellation Energy (NASDAQ: CEG).
This article is for informational purposes only and does not constitute investment advice.
