Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Shares of California Resources Corp. Surge 23% on Earnings

By Tyler Crowe - May 5, 2017 at 1:49PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Higher oil prices, free cash flow generation, and some new joint venture deals have Wall Street excited for this oil producer.

What happened

Shares of California Resources Corp. ( CRC ) are up 23% as of 11:45 a.m. EDT. Today's gain is mostly attributed to the oil and gas producer's better-than-expected earnings results, although oil prices being up 2% likely helped the situation as well. 

So what

On a normalized basis, California Resources posted a per-share loss of $1.02 versus Wall Street expectations of a normalized per-share loss of $1.26 in the most recent quarter. The company was able to produce the earnings beat mostly because of higher price realizations, but it also helps that it is cutting costs and maintaining relatively flat production even though capital spending has been quite low lately. One of the big fears with oil and gas producers is that if they cut capital spending too much, then production will decline quickly.

Pumpjack at sunset

Image source: Getty Images.

These factors meant that the company was able to generate a decent amount of free cash flow for the quarter, which management used to pay down debt. Considering that California Resources' debt load has been a point of concern for investors lately, this seems like a pretty good idea.

Now what

On top of the announcements of better-than-expected results, California Resources recently signed two joint ventures that will allow it to deploy an additional $500 million in capital to evaluate some of its unproven acreage and to increase production. These two things -- growing reserves and production -- have been absent from the company's results as of late. So, hopefully, these deals will help down the road.

Ultimately, though, California Resources remains a highly indebted exploration and production company that is sensitive to oil and gas prices. At current prices, the company is still producing negative earnings but free cash flow. Perhaps that will change soon as oil prices are in the $50 range, but it doesn't necessarily seem worth it for investors when other exploration and production companies are producing positive results today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

California Resources Corporation Stock Quote
California Resources Corporation

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/01/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.