Huntington Beach Oil Field A Proposed Royalty Modification for California Resources Corporation's (CRC) Offshore Leases, PRCs 91, 163, E-392, 425, & Joseph Fabel, Attorney April 5, 2016 Calendar Item 65

2 CRC’s Leases Offshore Huntington Beach

3 Royalty Rates in 1995 (non PPI Adjusted)1995 Royalty Rates Today (PPI Adjusted)* Realized Oil PriceRoyalty RateRealized Oil PriceRoyalty Rate $ %$ % $ %$ % $ %$ % $ %$ % $ %$ % $ %$ % $ %$ % $ %$ % Current Royalty Rate for CRC’s Huntington Beach Offshore Leases * Adjustment based on monthly producer price index (PPI) of Finished Goods reported by the U.S. Bureau of Labor Standards which tracks relative inflationary changes each month.

CRC’s Concerns Presented to Staff 4 Persistent commodity downturn and servicing of corporate debt is affecting economics. CRC’s workforce, including contractors, reduced across the company by 50%. The Huntington Beach Royalty-Free Breakeven point is 4% royalty (indicated by CRC in its March 1, 2016 proposal to SLC staff). Current weighted price for HB crude is just under $26/BO (verified by staff, February 2016). PPI selected to adjust the 1995 Amendment’s sliding scale has escalated slower than other oil related indexes (2.2% vs. 9.6% average annual change).

Comparison of Inflation Indices 5 The Current Sliding Scale uses the BLS Finished Goods inflation index This inflation index has not kept pace with oil field inflation which has resulted from the high oil price market. (When normalizing Drilling and Services indices to 1/1/1996 finished goods) Curves skewed due to rapid increase, then rapid decrease, in oil price. CSLC curve indicates the rise expected during the “normalized” oil price from 1996 through 2004 CSLC Staff Counter Proposal: add 65 to the Finished Goods Index CRC’s Proposal: add 100 to the Finished Goods Index

6 Current CRC Proposed Change (100 pt. PPI adjustment) CSLC Proposed Change (65 pt. PPI adjustment.) Realized Oil PriceRoyalty RateRealized Oil PriceRoyalty RateRealized Oil PriceRoyalty Rate $ %$ %$ % $ %$ %$ % $ %$ %$ % $ %$ %$ % $ %$ %$ % $ %$ %$ % $ %$ %$ % $ %$ %$ % $ % $ % $ % $ % $ % $ % $ % $ % $ % Royalty Schedule

7 State Projected 2-Year Cumulative Royalty Revenue

8 Revising the Royalty Provisions – Required Findings In order to prevent the premature abandonment of a lease, Public Resources Code section authorizes the Commission to renegotiate the royalties under a State Oil & Gas Lease if the Commission finds that: 1)Continued production from a lease is in the best interests of the people of California, and 2)Such production is economically unfeasible under the current lease terms.

9 Revising the Royalty Provisions – Staff Findings -Continued production appears in the best interests of the people of California PRC section – Legislative findings of a “direct and primary interest” of the people of California in assuring optimum production of oil & gas from state lands, and minimizing the amount of oil & gas left unrecovered in the ground. An oil field’s natural production decline curve requires continual investment to maintain stable production. Economic analysis in 1995 indicates both state and local economic benefit from the facilities and their workforce. -Production appears economically unfeasible under the current lease terms CRC’s reported break-even point of 4%, current oil price is 16 2/3% (approx. Feb. production). Current royalty framework does not account for historic high’s and recent low’s of the oil market.

10 Revising the Royalty Provisions – Staff Proposal Amend the current leases to adjust the current sliding scale royalty by adding 65 points to the reported PPI for Finished Goods each production month For a temporary period of two years (April 2016 through March 2018). Direct staff to negotiate and explore a permanent, long-term royalty structure that accounts for the range of oil valuation experienced over the last decade. Direct staff, in its negotiations, to explore a royalty framework that accounts for when oil reaches historically high levels, such as a rate higher than 25% or other consideration such as environmental enhancements that benefit the people of the state.

11 End of Presentation Thank You