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What: May was a rough month for California Resources (OTC:CRC). The company's poorly received first-quarter earnings report kicked off a selling spree, which cut the stock's value by a quarter last month.

So what: California Resources reported an adjusted net loss of $100 million, or $0.26 per share, for the first quarter. While that did beat analysts' expectations by $0.05 per share, it was another weak showing for the struggling oil and gas producer. The main culprit behind its struggles were low oil and gas price realizations during the quarter, which were the weakest in the company's history.

Another big weight is the nearly $6 billion in debt on its balance sheet, which the company has been working to address through a combination of debt exchanges and the use of free cash flow to pay back borrowings. In fact, despite the very weak oil prices last quarter, California Resources was able to generate $87 million in free cash flow to bolster its balance sheet.

That said, the company wants to do more and is assessing all its options to improve leverage. It could explore a debt-for-equity exchange, for example. With market conditions improving, it is cracking open the door for these exchanges once again. In fact, last month Chesapeake Energy (OTC:CHKA.Q) completed two such exchanges. In Chesapeake Energy's case, it diluted its existing shareholders by 10% in return for a 4% reduction in its outstanding debt. While those debt-for-equity exchanges weighed heavily on Chesapeake Energy's stock last month, they also removed a meaningful amount of debt that had been weighing down its balance sheet.  

Now what: California Resources has been hit hard by the oil market downturn due to its debt-laden balance sheet. While the company has made some progress in reducing outstanding debt, more work remains. It's the uncertainty surrounding the route the company will take that's putting pressure on the stock right now and will continue to do so until a substantial amount of its debt has been addressed.

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