Shares of independent oil and gas company California Resources Corporation (CRC) are up 11% as of 3:45 p.m. EDT today and were up as high as 22.8%. The stock moves came after management issued an SEC filing that said it was not considering restructuring.
This matters because there was a report yesterday that the company had met with restructuring advisors. Reports like that typically portend some tough decisions that few shareholders want to stick around for.
This morning, though, management issued an 8-K where it clarified its position and refuted some of the things that were reported. According to the 8-K Filing:
Contrary to recent erroneous reporting, we are not considering restructuring or hiring advisors for this purpose. We regularly meet with investment banks and advisors on ideas to help us achieve our long-term goal of strengthening our balance sheet and reducing the absolute levels of our debt. As discussed on our earnings calls, we are actively looking at asset sales, royalty monetizations and other transactions similar to those we have done in the past to help us delever.
Selling some assets to trim its debt load is one thing, but a full-blown restructuring is another. Today's news that it's only the former is slightly encouraging.
California Resources is in some desperate need of debt relief. Even though its debt-to-EBITDA (earnings before interest, taxes, deprecation, and amortization) ratio has improved over recent quarters, it's still sitting on a net debt load of $5.1 billion, and interest is eating up a large portion of net income. The announcement that it's actively looking to unload some assets is encouraging, but the company still has a long way to go before becoming a financially healthy company.
Some might see this as a value stock because its shares are so cheap, but California Resources' outcomes are highly dependent on oil prices. Anyone looking for a long-term investment should stay away.