California Resources Faces Kern County Well Ruling Risk

California Resources Corp faces a regulatory crosscurrent that could reshape its production outlook. A compromise in Kern County would allow thousands of new oil wells onshore, while tighter rules for offshore operations threaten a separate slice of the company's output.

The Kern County Board of Supervisors approved a revised environmental impact report in late 2023 that permits new drilling permits under stricter air-quality conditions. The California Geologic Energy Management Division, known as CalGEM, has yet to sign off on the county's plan. Without that state approval, the onshore permitting pipeline stays frozen. CRC holds roughly 1.2 million net acres in Kern County, making it the largest oil producer in the county by volume.

Offshore, the picture is different. California's State Lands Commission voted in 2022 to ban new offshore oil and gas leases in state waters, and the federal Bureau of Ocean Energy Management has not offered new federal leases off California since 1984. CRC operates the Wilmington field in Los Angeles County, partly in state waters, and the Huntington Beach field. Those assets contribute about 15% of the company's total production, according to its 2023 annual filing. A state-level push to phase out existing offshore operations by 2045, if enacted, would force CRC to accelerate decommissioning spending on those fields.

The net effect on CRC's cash flow depends on timing. Onshore, a CalGEM approval could unlock permits for infill drilling on existing pads, adding 5,000 to 10,000 barrels of oil equivalent per day within 12 to 18 months, based on the company's own development plans. Offshore, a phase-out timeline would compress the economic life of the Wilmington and Huntington Beach assets, reducing their net present value by an estimated $200 million to $300 million, according to a 2023 analysis by the California Independent Petroleum Association.

CRC's balance sheet carries $3.4 billion in long-term debt as of the third quarter of 2023, against $1.2 billion in cash and equivalents. The company has said it plans to reduce debt by $500 million in 2024 through free cash flow. A delay in onshore permitting would slow that deleveraging. An accelerated offshore phase-out would add decommissioning liabilities that the company has not fully funded.

The next concrete date is March 2024, when CalGEM is expected to issue a draft decision on the Kern County environmental report. If the agency approves the plan, CRC's onshore production outlook improves. If it rejects or further delays the plan, the company's debt-reduction timeline slips. Offshore legislation is unlikely to move before the 2025 California legislative session.

CRC's stock trades at about 3.5 times trailing 12-month EBITDA, a discount to the 4.5 times average for U.S. independent oil producers, according to Bloomberg data. The discount reflects the regulatory overhang. A CalGEM approval would narrow that gap. A rejection would widen it.