10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission file number 001-36478

_____________________

California Resources Corporation

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	46-5670947 (I.R.S. Employer Identification No.)
9200 Oakdale Avenue, Suite 900 Los Angeles, California (Address of principal executive offices)	91311 (Zip Code)

(888) 848-4754

(Registrant’s telephone number, including area code)

n/a

(Registrant's former name, former address and former fiscal year, if changed since last report)

_____________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     þ Yes   ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    þ Yes   ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. (See definition of "accelerated filer", "large accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act):

Large Accelerated Filer ¨   Accelerated Filer ¨   Non-Accelerated Filer þ   Smaller Reporting Company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    ¨ Yes   þ No

Shares of common stock outstanding as of September 30, 2015 387,837,645

California Resources Corporation and Subsidiaries

Table of Contents

				PAGE
Part I	Financial Information
	Item 1.	Financial Statements (unaudited)
		Consolidated Condensed Balance Sheets —
			September 30, 2015 and December 31, 2014	2
		Consolidated Condensed Statements of Operations —
			Three and nine months ended September 30, 2015 and 2014	3
		Consolidated Condensed Statements of Comprehensive Income —
			Three and nine months ended September 30, 2015 and 2014	4
		Consolidated Condensed Statements of Cash Flows —
			Nine months ended September 30, 2015 and 2014	5
		Notes to Consolidated Condensed Financial Statements		6
	Item 2.	Management’s Discussion and Analysis of Financial
			Condition and Results of Operations	15
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		29
	Item 4.	Controls and Procedures		30
Part II	Other Information
	Item 1.	Legal Proceedings		30
	Item 1A.	Risk Factors		31
	Item 5.	Other Disclosures		31
	Item 6.	Exhibits		31

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PART I    FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

CALIFORNIA RESOURCES CORPORATION AND SUBSIDIARIES

Consolidated Condensed Balance Sheets

(in millions)

	September 30,			December 31,
	2015			2014
CURRENT ASSETS
Cash and cash equivalents	$	4		$	14
Trade receivables, net	217			308
Inventories	73			71
Other current assets	308			308
Total current assets	602			701
PROPERTY, PLANT AND EQUIPMENT	20,845			20,536
Accumulated depreciation, depletion and amortization	(9,588		)	(8,851		)
	11,257			11,685
OTHER ASSETS	54			43
TOTAL ASSETS	$	11,913		$	12,429

CURRENT LIABILITIES
Current maturities of long-term debt	$	75		$	—
Accounts payable	280			588
Accrued liabilities	393			334
Total current liabilities	748			922
LONG-TERM DEBT, NET	6,345			6,292
DEFERRED INCOME TAXES	1,886			2,055
OTHER LONG-TERM LIABILITIES	579			549
EQUITY
Preferred stock (200 million shares authorized at $0.01 par value) no shares outstanding at September 30, 2015 and December 31, 2014	—			—
Common stock (2.0 billion shares authorized at $0.01 par value) outstanding shares (September 30, 2015 - 387,837,645 and December 31, 2014 - 385,639,582)	4			4
Additional paid-in capital	4,772			4,748
Accumulated deficit	(2,401		)	(2,117		)
Accumulated other comprehensive income / (loss)	(20		)	(24		)
Total equity	2,355			2,611
TOTAL LIABILITIES AND EQUITY	$	11,913		$	12,429

The accompanying notes are an integral part of these consolidated condensed financial statements.

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CALIFORNIA RESOURCES CORPORATION AND SUBSIDIARIES

Consolidated Condensed Statements of Operations

For the three and nine months ended September 30, 2015 and 2014

(in millions)

	Three months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
REVENUES
Oil and natural gas net sales to third parties	$	596		$	630		$	1,754		$	678
Oil and natural gas net sales to related parties	—			421			—			2,560
Other revenue	30			41			83			115
	626			1,092			1,837			3,353
COSTS AND OTHER DEDUCTIONS
Production costs	246			271			730			805
General and administrative expenses	129			78			290			218
Depreciation, depletion and amortization	253			304			757			886
Taxes other than on income	42			56			150			163
Exploration expense	5			25			29			71
Interest and debt expense, net	82			—			244			—
Other expenses	23			39			74			109
	780			773			2,274			2,252
INCOME / (LOSS) BEFORE INCOME TAXES	(154		)	319			(437		)	1,101
Income tax (expense) / benefit	50			(131		)	165			(444		)
NET INCOME / (LOSS)	$	(104	)	$	188		$	(272	)	$	657
Net income / (loss) per share of common stock
Basic	$	(0.27	)	$	0.48		$	(0.71	)	$	1.69
Diluted	$	(0.27	)	$	0.48		$	(0.71	)	$	1.69
Dividends per common share	$	0.01		$	—		$	0.03		$	—

The accompanying notes are an integral part of these consolidated condensed financial statements.

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CALIFORNIA RESOURCES CORPORATION AND SUBSIDIARIES

Consolidated Condensed Statements of Comprehensive Income

For the three and nine months ended September 30, 2015 and 2014

(in millions)

	Three months ended September 30,					Nine months ended September 30,
	2015			2014		2015			2014
Net income / (loss)	$	(104	)	$	188	$	(272	)	$	657
Other comprehensive income / (loss) items:
Unrealized losses on derivatives (a)	—			—		—			(2		)
Pension and postretirement (losses) / gains (b)	(4		)	—		(7		)	1
Reclassification to income of realized losses on derivatives (c)	—			—		—			3
Reclassification to income of realized losses on pension and postretirement (d)	6			—		11			—
Other comprehensive income / (loss), net of tax	2			—		4			2
Comprehensive income / (loss)	$	(102	)	$	188	$	(268	)	$	659

(a) No tax for the three months ended September 30, 2015 and 2014. Net of tax of zero and $1 million for the nine months ended September 30, 2015 and 2014, respectively.

(b) Net of tax of $3 million and zero for the three months ended September 30, 2015 and 2014, respectively. Net of tax of $5 million and zero for the nine months ended September 30, 2015 and 2014, respectively. See Note 10, Retirement and Postretirement Benefit Plans, for additional information.

(c) No tax for the three months ended September 30, 2015 and 2014. Net of tax of zero and ($2) million for the nine months ended September 30, 2015 and 2014, respectively.

(d) Net of tax of ($4) million and zero for the three months ended September 30, 2015 and 2014, respectively. Net of tax of ($7) million and zero for the nine months ended September 30, 2015 and 2014, respectively. See Note 10, Retirement and Postretirement Benefit Plans, for additional information.

The accompanying notes are an integral part of these consolidated condensed financial statements.

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CALIFORNIA RESOURCES CORPORATION AND SUBSIDIARIES

Consolidated Condensed Statements of Cash Flows

For the nine months ended September 30, 2015 and 2014

(in millions)

	2015			2014
CASH FLOW FROM OPERATING ACTIVITIES
Net income / (loss)	$	(272	)	$	657
Adjustments to reconcile net income / (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization	757			886
Deferred income tax expense / (benefit)	(165		)	262
Other noncash charges to income	126			22
Dry hole expenses	9			52
Changes in operating assets and liabilities, net	(43		)	(12		)
Net cash provided by operating activities	412			1,867
CASH FLOW FROM INVESTING ACTIVITIES
Capital investments	(323		)	(1,569		)
Changes in capital investment accruals	(202		)	24
Acquisitions and other	(17		)	(69		)
Net cash used by investing activities	(542		)	(1,614		)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from revolving credit facility	1,345			—
Repayments of revolving credit facility	(1,224		)	—
Proceeds from issuance of common stock	7			—
Cash dividends paid	(8		)	—
Distributions to Occidental, net	—			(148		)
Net cash provided / (used) by financing activities	120			(148		)
Increase / (decrease) in cash and cash equivalents	(10		)	105
Cash and cash equivalents—beginning of period	14			—
Cash and cash equivalents—end of period	$	4		$	105

The accompanying notes are an integral part of these consolidated condensed financial statements.

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CALIFORNIA RESOURCES CORPORATION AND SUBSIDIARIES

Notes to Consolidated Condensed Financial Statements

September 30, 2015

NOTE 1    THE SPIN-OFF AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Separation and Spin-off

We are an independent oil and natural gas exploration and production company operating properties exclusively within the State of California. We were incorporated in Delaware as a wholly-owned subsidiary of Occidental Petroleum Corporation (Occidental) on April 23, 2014, and remained a wholly-owned subsidiary of Occidental until November 30, 2014. Prior to November 30, 2014, all material existing assets, operations and liabilities of the California business were consolidated under us. On November 30, 2014, Occidental distributed shares of our common stock on a pro rata basis to Occidental stockholders and we became an independent, publicly traded company (the Spin-off). Occidental retained approximately 18.5% of our outstanding shares of common stock, which it has stated it intends to divest within 18 months of the Spin-off.

Except when the context otherwise requires or where otherwise indicated, (1) all references to CRC, the Company, we, us and our refer to California Resources Corporation and its subsidiaries or the California business, (2) all references to the California business refer to Occidental’s California oil and gas exploration and production operations and related assets, liabilities and obligations, which we assumed in connection with the Spin-off, and (3) all references to Occidental refer to Occidental Petroleum Corporation, our former parent, and its subsidiaries.

Basis of Presentation

Until the Spin-off, the accompanying financial statements were derived from the consolidated financial statements and accounting records of Occidental and were presented on a combined basis for the pre-Spin-off periods. These financial statements reflect the historical results of operations, financial position and cash flows of the California business. We account for our share of oil and gas exploration and production ventures, in which we have a direct working interest, by reporting our proportionate share of assets, liabilities, revenues, costs and cash flows within the relevant lines on the balance sheets and statements of income and cash flows.

The statements of income for periods prior to the Spin-off included expense allocations for certain corporate functions and centrally-located activities historically performed by Occidental. These functions include executive oversight, accounting, treasury, tax, financial reporting, finance, internal audit, legal, risk management, information technology, government relations, public relations, investor relations, human resources, procurement, engineering, drilling, exploration, marketing, ethics and compliance, and certain other shared services. These allocations were based primarily on specific identification of time or activities associated with us, employee headcount or our relative size compared to Occidental. Our management believes the assumptions underlying the financial statements, including the assumptions regarding allocating expenses from Occidental, are reasonable. However, the financial statements for the pre-Spin-off periods may not include all of the actual expenses that would have been incurred, may include duplicative costs and may not reflect our results of operations, financial position and cash flows had we operated as a stand-alone public company during the periods presented. Actual costs that would have been incurred if we had been a stand-alone company prior to the Spin-off would have depended on multiple factors, including organizational structure and strategic and operating decisions.

The assets and liabilities in the pre-Spin-off financial statements are presented on a historical cost basis. We have eliminated all of our significant intercompany transactions and accounts. Prior to the Spin-off, we participated in Occidental’s centralized treasury management program and had not incurred any debt. Excess cash generated by our business was distributed to Occidental, and likewise our cash needs were provided by Occidental, in the form of contributions.

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All financial information presented after the Spin-off represents our financial position, results of operations and cash flows, as follows:

• Our consolidated statements of operations, comprehensive income and cash flows for the three and nine months ended September 30, 2015, as applicable, consist of our stand-alone consolidated results following the Spin-off, and the three and nine months ended September 30, 2014 consist of the combined results of the California business.

• Our consolidated balance sheets at September 30, 2015 and December 31, 2014 consist of our consolidated balances.

In the opinion of our management, the accompanying financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to fairly present our financial position as of September 30, 2015, and the statements of operations, comprehensive income, and cash flows for the three and nine months ended September 30, 2015 and 2014, as applicable. The income / (loss) and cash flows for the periods ended September 30, 2015 and 2014 are not necessarily indicative of the income / (loss) or cash flows you should expect for the full year.

Certain prior year amounts have been reclassified to conform to the 2015 presentation. In the second quarter of 2015, we changed the classification of certain employee-related costs from general and administrative expenses to production costs to better align these costs with the functions performed by those employees. Prior period amounts have been changed to conform to the current year classification.

We have prepared this report pursuant to the rules and regulations of the United States Securities and Exchange Commission applicable to interim financial information, which permit omission of certain disclosures to the extent they have not changed materially since the latest annual financial statements. We believe our disclosures are adequate to make the information not misleading. You should read this Form 10-Q in conjunction with the consolidated and combined financial statements and the notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2014.

NOTE 2 ACCOUNTING AND DISCLOSURE CHANGES

In July 2015, the Financial Accounting Standards Board (FASB) issued rules requiring entities to measure inventory within the scope of these rules at the lower of cost and net realizable value. These new rules will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, and must be applied prospectively with earlier application permitted. We do not expect these new rules to have a significant impact on our financial statements.

In May 2015, the FASB issued rules to remove the requirements to categorize within the fair value hierarchy all investments for which the fair value is measured using the net asset value (NAV) per share practical expedient. The new rules also limit disclosures to investments for which the entity has elected to measure the fair value using that practical expedient, rather than for all investments that are eligible to be measured at fair value using the NAV per share. These rules will be effective for annual periods beginning after December 15, 2015, and interim periods within those fiscal years, with early adoption of the rules permitted. We do not expect the disclosure changes to have a significant impact on our financial statements.

In April 2015, the FASB issued rules to simplify the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with the presentation of debt discounts. These rules will be effective for annual periods beginning after December 15, 2015 and interim periods within those fiscal years, with early adoption of the rules permitted for financial statements which have not been previously issued. We early adopted the new rule in the first quarter of 2015 and retrospectively reclassified unamortized debt issuance costs of $68 million at December 31, 2014. The amount was previously reflected in other assets.

NOTE 3 OTHER INFORMATION

Other current assets at September 30, 2015 and December 31, 2014, include amounts due from joint interest partners of approximately $110 million and $120 million, deferred tax assets of $55 million and $60 million, and greenhouse gas emission credits of $40 million and $65 million, respectively.

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Accrued liabilities at September 30, 2015 and December 31, 2014, include accrued compensation-related costs of approximately $130 million and $95 million, interest payable of $65 million and $70 million and greenhouse gas liabilities of $75 million and $65 million, respectively. Of the $130 million accrued compensation-related costs at September 30, 2015, $40 million relates to third quarter voluntary retirement and employee reduction charges. Other long-term liabilities include asset retirement obligations of $397 million each at September 30, 2015 and December 31, 2014.

Other revenue and other expenses mainly comprise sales and the associated costs, respectively, of the portion of electricity generated by our power plant that is sold to third parties.

Supplemental Cash Flow Information

Prior to the Spin-off we did not make any United States federal and state income tax payments directly to taxing jurisdictions. During that period, our share of Occidental's tax payments or refunds were paid or received, as applicable, by our former parent. We did not make any United States federal or state income tax payments during the nine-month period ended September 30, 2015. Interest paid totaled approximately $248 million and zero for the nine months ended September 30, 2015 and 2014, respectively.

NOTE 4    INVENTORIES

Inventories as of September 30, 2015 and December 31, 2014, consisted of the following:

	2015		2014
	(in millions)
Materials and supplies	$	69	$	66
Finished goods	4		5
Total	$	73	$	71

NOTE 5     DEBT

Debt as of September 30, 2015 and December 31, 2014, consisted of the following:

	2015			2014
	(in millions)
Revolving Credit Facility	$	481		$	360
Term Loan Facility	1,000			1,000
5% notes due 2020	1,000			1,000
5 1/2% notes due 2021	1,750			1,750
6% notes due 2024	2,250			2,250
Total debt	6,481			6,360
Less: Current maturities of long-term debt	(75		)	—
Less: Deferred financing costs	(61		)	(68		)
Total long-term debt, net	$	6,345		$	6,292

Credit Facilities

We have a credit agreement with a syndicate of lenders that provides for (i) a five-year senior term loan facility (the Term Loan Facility) and (ii) a five-year senior revolving loan facility (the Revolving Credit Facility and, together with the Term Loan Facility, the Credit Facilities). All borrowings under these facilities are subject to certain customary conditions. During the third quarter of 2015, our corporate ratings from Moody's Investors Service (Moody's) and Standard & Poor's Ratings Services (S&P) were downgraded to B1 and BB-, respectively, resulting in the imposition of a borrowing base and the requirement to grant security on a first-lien basis in our oil and gas reserves under our Credit Facilities. In addition, we amended the Credit Facilities effective as of November 2,

8

2015, to change certain of our financial and other covenants. The following describes the terms of our facilities after giving effect to this amendment.

The aggregate commitments of the lenders are $2.0 billion under the Revolving Credit Facility and $1.0 billion under Term Loan Facility, respectively. The Revolving Credit Facility includes a sub-limit of $400 million for the issuance of letters of credit. We will be required to repay the Term Loan Facility in $25 million quarterly installments beginning on March 31, 2016. As of September 30, 2015, we had $481 million outstanding under our Revolving Credit Facility. Had the November 2, 2015 amendment been in place at September 30, 2015, we would have had borrowing availability of up to an additional $1,523 million, taking into account our cash balance at that time, subject to compliance with our quarterly financial covenants described below, which would have limited our ability to utilize the full amount.

Borrowings under the Credit Facilities bear interest, at our election, at either a LIBOR rate or an alternate base rate (ABR) (equal to the greatest of (i) the administrative agent’s prime rate, (ii) the one-month LIBOR rate plus 1.00% and (iii) the federal funds effective rate plus 0.50%), in each case plus an applicable margin. This applicable margin is based on our borrowing base utilization or our most current leverage ratio and will vary from (a) in the case of LIBOR loans, 1.50% to 2.75% and (b) in the case of ABR loans, 0.50% to 1.75%. The unused portion of the Revolving Credit Facility is subject to a commitment fee equal to 0.50% per annum. We also pay customary fees and expenses under the Credit Facilities. Interest on ABR loans is payable quarterly in arrears.  Interest on LIBOR loans is payable at the end of each LIBOR period, but not less than quarterly.   

All obligations under the Credit Facilities are guaranteed jointly and severally by all of our wholly-owned material subsidiaries. The assets and liabilities of subsidiaries not guaranteeing the debt are de minimis. Our ability to borrow under the Credit Facilities is subject to a borrowing base. Our initial borrowing base was set at $3.0 billion and is subject to redetermination on or around January 15, 2016, and thereafter will be redetermined annually by our lenders each May, commencing May 1, 2016. Between scheduled borrowing base redeterminations, we and the lenders (requiring a request from the lenders holding 66 2/3 percent of our commitments), may each request one special redetermination. We will be permitted to have security released when both (i) our credit ratings are at least Baa3 from Moody's and BBB- from S&P, in each case with a stable or better outlook, and (ii) certain permitted liens securing other debt are released.

The Credit Facilities require us to apply 50% of the proceeds from certain transactions, including certain deleveraging transactions, to repay the Term Loan. We must also apply cash on hand in excess of $250 million to repay certain amounts outstanding under the Revolving Credit Facility. In addition, our ability to pay dividends or make other distributions to common stockholders is limited to $20 million per year. While we are subject to the borrowing base, the Credit Facilities require us to maintain the following financial covenants for the trailing twelve months ended as of the last day of each fiscal quarter: (a) a first lien senior secured leverage ratio of no more than 2.25 to 1.00 and (b) an interest expense ratio of no less than 2.00 to 1.00. At September 30, 2015, we were in compliance with the financial and other covenants under our Credit Facilities as they existed at that time. If we were to breach any of these covenants, our lenders would be permitted to accelerate the principal amount due under the facilities. If payment were accelerated it would result in a default under our notes described below.

Senior Notes

On October 1, 2014, we issued $5.00 billion in aggregate principal amount of our senior notes, including $1.00 billion of 5% senior notes due January 15, 2020 (the 2020 notes), $1.75 billion of 5 1/2% senior notes due September 15, 2021 (the 2021 notes) and $2.25 billion of 6% senior notes due November 15, 2024 (the 2024 notes and together with the 2020 notes and the 2021 notes, the notes). The notes were issued at par and are fully and unconditionally guaranteed on a senior unsecured basis by all of our material subsidiaries. We used the net proceeds from the notes to make a $4.95 billion cash distribution to Occidental in October 2014.

We pay interest on the 2020 notes semi-annually in cash in arrears on January 15 and July 15 of each year, beginning on July 15, 2015. We pay interest on the 2021 notes semi-annually in cash in arrears on March 15 and September 15 of each year, beginning on March 15, 2015. We pay interest on the 2024 notes semi-annually in cash in arrears on May 15 and November 15 of each year, beginning on May 15, 2015.

The indenture governing the notes includes covenants that, among other things, limit our and our restricted subsidiaries’ ability to incur debt secured by liens. These covenants also restrict our ability to merge or consolidate with, or transfer all or substantially all of our assets to, another entity. These covenants are subject to a number of

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important qualifications and limitations that are set forth in the indenture. The covenants are not, however, directly linked to measures of our financial performance. In addition, if we experience a change of control coupled with a credit rating decline below investment grade, we will be required to offer to purchase the notes at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest or to have exercised our redemption right.

We estimate the fair value of fixed-rate debt based on prices from known market transactions for our instruments. The estimated fair value of our debt at September 30, 2015 and December 31, 2014, the fixed rate portion of which was classified as Level 1, and the variable rate portion of which approximated fair value, was approximately $4.5 billion and $5.6 billion, respectively, compared to a net carrying value of approximately $6.4 billion and $6.3 billion, respectively. A one-eighth percent change in the variable interest rates on the borrowings under our Term Loan Facility and Revolving Credit Facility on September 30, 2015, would result in an approximately $2 million change in annual interest expense.

As of September 30, 2015 and December 31, 2014, we had letters of credit in the aggregate amount of approximately $23 million and $25 million, respectively, that were issued to support ordinary course marketing and other matters.

NOTE 6    LAWSUITS, CLAIMS, COMMITMENTS AND CONTINGENCIES

We, or certain of our subsidiaries, are involved, in the normal course of business, in lawsuits, environmental and other claims and other contingencies that seek, among other things, compensation for alleged personal injury, breach of contract, property damage or other losses, punitive damages, civil penalties, or injunctive or declaratory relief. We accrue reserves for currently outstanding lawsuits, claims and proceedings when it is probable that a liability has been incurred and the liability can be reasonably estimated. Reserve balances at September 30, 2015 and December 31, 2014 were not material to our balance sheets as of such dates. We also evaluate the amount of reasonably possible losses that we could incur as a result of these matters. We believe that reasonably possible losses that we could incur in excess of reserves accrued on our balance sheet would not be material to our consolidated financial position or results of operations.

We, our subsidiaries, or both, have indemnified various parties against specific liabilities those parties might incur in the future in connection with the Spin-off, purchases and other transactions that they have entered into with us. These indemnities include indemnities made to Occidental against certain tax-related liabilities that may be incurred by Occidental relating to the Spin-off and liabilities related to the operation of our business while it was still owned by Occidental. As of September 30, 2015, we are not aware of circumstances that we believe would reasonably be expected to lead to indemnity claims that would result in payments materially in excess of reserves.

NOTE 7    DERIVATIVES

General

From time to time, we use a variety of derivative instruments intended to establish, as of the date of production, the price we receive, to improve the effective realized prices for oil and gas, and to protect our capital program in case of price deterioration. Derivatives are carried at fair value and on a net basis when a legal right of offset exists with the same counterparty. We apply hedge accounting when transactions meet specified criteria for cash-flow hedge treatment and management elects and documents such treatment. Otherwise, we recognize any fair value gains or losses, over the remaining term of the hedge instrument, in earnings in the current period. We recognized approximately $53 million and $33 million of derivative gains from marking these contracts to market, which were included in net sales, for the three and nine months ended September 30, 2015, respectively.

As of September 30, 2015, our existing hedge positions, the initial values of which were not material, were as follows:

• Weighted average Brent-based floors and ceilings of $61.25 per barrel and $73.88 per barrel, respectively, for 40,000 barrels per day of our fourth quarter 2015 oil production;

• Brent-based hedges with a floor of $55 per barrel and a ceiling of $70 per barrel for 12,500 barrels per day of our January through June 2016 crude oil production;

• Brent-based hedges with a floor of $50 per barrel and a weighted average ceiling of $74.42 per barrel for 3,000 barrels per day of our July through December 2016 oil production;

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• Index-based hedges at an average price of $3.01 per million British thermal units (MMBtu) for 40,000 MMBtu per day and weighted average floors and ceilings of $2.80 per MMBtu and $3.17 per MMBtu, respectively, for 20,000 MMBtu per day of our fourth quarter 2015 natural gas production. These same hedges were also in place for our third quarter 2015 natural gas production.

Subsequent to September 30, 2015, we entered into additional hedges for our first half 2016 crude oil production, bringing our first half 2016 hedging program to a total of 30,500 barrels per day with a weighted average floor of $52.38 per barrel and 35,500 barrels per day with a ceiling of $66.15 per barrel. The initial value of these hedges was not material.

For our third quarter 2015 oil production, we had hedged 70,000 barrels per day at weighted average Brent-based floors of $52.14 per barrel and 30,000 barrels per day at Brent-based ceilings of $72.12 per barrel. The initial value of these hedges was not material.

From January through June 2015 we had purchased options for 100,000 barrels of our crude oil production per day, at $50 per barrel Brent and sold options for 30,000 barrels per day for March through June 2015 at $75 per barrel Brent. The initial intrinsic and time values were deferred and subsequent changes were included in the net derivative losses reported in net sales. The initial intrinsic value, which was accounted for as a cash flow hedge, was insignificant.

Going forward, we will continue to be strategic and opportunistic in implementing any hedging program. Our objective is to protect against the cyclical nature of commodity prices to provide a level of certainty around our cash flows and margins necessary to implement our capital investment program and protect our ability to comply with our credit facility covenants.

For the first quarter of 2014 we had hedged 50 MMcf per day of our natural gas production, which qualified as cash-flow hedges. The weighted average strike price of these swaps was $4.30 per Mcf.

The after-tax gains and losses recognized in, and reclassified to income from, Accumulated Other Comprehensive Income (AOCI) for derivative instruments classified as cash-flow hedges for the three- and nine-month periods ended September 30, 2015 and 2014, and the ending AOCI balances at those dates were not material.

There were no fair value hedges as of and during the three- and nine-month periods ended September 30, 2015 and 2014.

Fair Value of Derivatives

Our commodity derivatives are measured at fair value with the changes recognized in the statement of operations using industry-standard models with various inputs, including quoted forward prices. The initial value of our 100,000 barrel put options from January through June 2015 was approximately $24 million on a gross and net basis, which approximated the time value of the instruments as of December 31, 2014.

The following table presents the gross and net fair values of our outstanding derivatives as of September 30, 2015 (in millions):

	Asset Derivatives			Liability Derivatives
September 30, 2015	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Commodity contracts	Other current assets	$	66	Accrued Liabilities	$	(4	)
Total gross and net fair value		$	66		$	(4	)

NOTE 8    FAIR VALUE MEASUREMENTS

We have categorized our assets and liabilities that are measured at fair value in a three-level fair value hierarchy, based on the inputs to the valuation techniques: Level 1 - using quoted prices in active markets for identical assets or liabilities; Level 2 - using observable inputs, such as quoted prices for similar assets and liabilities; and Level 3 - using unobservable inputs. Transfers between levels, if any, are reported at the end of each reporting period.

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Fair Values - Recurring

The following tables present assets and liabilities accounted for at fair value on a recurring basis as of September 30, 2015 and December 31, 2014 (in millions):

	September 30, 2015
	Level 1		Level 2		Level 3		Collateral		Total
Assets:
Commodity derivative instruments, other current assets	$	—	$	66	$	—	$	—	$	66
Liabilities:
Commodity derivative instruments, accrued liabilities	$	—	$	4	$	—	$	—	$	4

	December 31, 2014
	Level 1		Level 2		Level 3		Collateral		Total
Assets:
Commodity derivative instruments, other current assets	$	—	$	24	$	—	$	—	$	24

Fair Values - Nonrecurring

During the nine months ended September 30, 2015 and 2014, we did not have any assets or liabilities measured at fair value on a non-recurring basis.

Financial Instruments Fair Value

The carrying amounts of cash and other on-balance sheet financial instruments, other than fixed-rate debt, approximate fair value.

NOTE 9    EARNINGS PER SHARE

We compute earnings per share (EPS) using the two-class method required for participating securities. Undistributed earnings allocated to participating securities are subtracted from net income in determining net income attributable to common stockholders. Restricted stock awards are considered participating securities because holders of such shares have non-forfeitable dividend rights in the event of our declaration of a dividend for common shares.

The denominator of basic EPS is the sum of the daily weighted-average number of common shares outstanding during the periods presented and vested stock awards that have not yet been issued as common stock; however, it excludes outstanding shares related to unvested stock awards. The denominator of diluted EPS is based on the basic shares outstanding, adjusted for the effect of outstanding option awards, to the extent they are dilutive.

On the Spin-off date, we issued 381.4 million shares of our common stock. For comparative purposes, and to provide a more meaningful calculation of weighted-average shares outstanding, we have assumed this amount to be outstanding as of the beginning of each period prior to the Spin-off presented in the calculation of weighted-average shares. In addition, we have assumed the vested stock awards granted in December 2014 were also outstanding for each of the periods presented prior to the Spin-off, resulting in a weighted-average basic share count of 381.8 million shares. The effect of stock options granted in December 2014 was anti-dilutive for the periods presented. For the three and nine months ended September 30, 2015, we issued approximately 792,000 shares and 1.5 million shares, respectively, of common stock in connection with our employee stock purchase plan. The effect of the employee stock purchase plan was anti-dilutive for the three and nine months ended September 30, 2015.

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The following table presents the calculation of basic and diluted EPS for the three- and nine-month periods ended September 30, 2015 and 2014:

	Three months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
	(in millions, except per-share amounts)
Basic EPS calculation
Net income / (loss)	$	(104	)	$	188		$	(272	)	$	657
Net income / (loss) allocated to participating securities	—			(3		)	—			(11		)
Net income / (loss) available to common stockholders	$	(104	)	$	185		$	(272	)	$	646
Weighted-average common shares outstanding - basic	383.1			381.8			382.7			381.8
Basic EPS	$	(0.27	)	$	0.48		$	(0.71	)	$	1.69
Diluted EPS calculation
Net income / (loss)	$	(104	)	$	188		$	(272	)	$	657
Net income / (loss) allocated to participating securities	—			(3		)	—			(11		)
Net income / (loss) available to common stockholders	$	(104	)	$	185		$	(272	)	$	646
Weighted average common shares outstanding - basic	383.1			381.8			382.7			381.8
Dilutive effect of potentially dilutive securities	—			—			—			—
Weighted-average common shares outstanding - diluted	383.1			381.8			382.7			381.8
Diluted EPS	$	(0.27	)	$	0.48		$	(0.71	)	$	1.69

NOTE 10    RETIREMENT AND POSTRETIREMENT BENEFIT PLANS

The following table sets forth the components of the net periodic benefit costs for our defined benefit pension and postretirement benefit plans:

	Three months ended September 30,
		2015					2014
	Pension Benefit			Postretirement Benefit		Pension Benefit			Postretirement Benefit
	(in millions)
Service cost	$	1		$	1	$	1		$	1
Interest cost		1			1		1			—
Expected return on plan assets		(1	)		—		(1	)		—
Recognized actuarial loss		1			—		—			1
Settlements / Curtailments		10			10		—			—
Total	$	12		$	12	$	1		$	2

	Nine months ended September 30,
		2015					2014
	Pension Benefit			Postretirement Benefit		Pension Benefit			Postretirement Benefit
	(in millions)
Service cost	$	3		$	3	$	3		$	3
Interest cost		3			3		3			2
Expected return on plan assets		(3	)		—		(4	)		—
Recognized actuarial loss		2			—		1			1
Settlements / Curtailments		18			10		—			—
Total	$	23		$	16	$	3		$	6

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We contributed $3 million to our defined benefit pension plans during the nine months ended September 30, 2015. We expect to contribute $10 million to our defined benefit pension plans in the fourth quarter of 2015. We did not make any contributions during the three-month period ended September 30, 2015, or either of the three- or nine-month periods ended September 30, 2014. The 2015 settlements / curtailments were associated with early retirements.

NOTE 11    RELATED-PARTY TRANSACTIONS

Through July 2014, substantially all of our products were sold to Occidental’s marketing subsidiaries at market prices and were settled at the time of sale to those entities. Beginning August 2014, we started marketing our own products directly to third parties. For the three and nine months ended September 30, 2014, related party sales included oil and natural gas products of approximately $421 million and $2,560 million, respectively, and power (reflected in other revenue) of approximately $25 million and $90 million, respectively.

Purchases from related parties reflect products purchased at market prices from Occidental’s subsidiaries prior to the Spin-off and used in our operations. These purchases were approximately $45 million and $165 million for the three and nine months ended September 30, 2014, respectively, and were included in production costs. There were no significant related-party receivable or payable balances at September 30, 2015 and December 31, 2014.

Prior to the Spin-off, the statement of operations included expense allocations for certain corporate functions and centrally-located activities historically performed by Occidental. Charges from Occidental for these services of approximately $43 million and $120 million for the three and nine months ended September 30, 2014, respectively, are reflected in general and administrative expenses.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Except when the context otherwise requires or where otherwise indicated, (1) all references to CRC, the Company, we, us and our refer to California Resources Corporation and its subsidiaries or the California business, (2) all references to the California business refer to Occidental’s California oil and gas exploration and production operations and related assets, liabilities and obligations, which we assumed in connection with our spin-off from Occidental on November 30, 2014 (the Spin-off), and (3) all references to Occidental refer to Occidental Petroleum Corporation, our former parent, and its subsidiaries.

The Separation and Spin-off

We are an independent oil and natural gas exploration and production company operating properties exclusively within the State of California. We were incorporated in Delaware as a wholly-owned subsidiary of Occidental on April 23, 2014 and remained a wholly-owned subsidiary of Occidental until the Spin-off. On November 30, 2014, Occidental distributed shares of our common stock on a pro rata basis to Occidental stockholders and we became an independent, publicly traded company. Occidental retained approximately 18.5% of our outstanding shares of common stock, which it has stated it intends to divest within 18 months of the Spin-off.

Basis of Presentation and Certain Factors Affecting Comparability

Until the Spin-off, the accompanying financial statements were derived from the consolidated financial statements and accounting records of Occidental and were presented on a combined basis for the pre-Spin-off periods. These financial statements reflect the historical results of operations, financial position and cash flows of the California business. All financial information presented after the Spin-off consists of the stand-alone consolidated results of operations, financial position and cash flows of CRC. We account for our share of oil and gas exploration and production ventures, in which we have a direct working interest, by reporting our proportionate share of assets, liabilities, revenues, costs and cash flows within the relevant lines on the balance sheets and statements of income and cash flows.

The statements of income for periods prior to the Spin-off include expense allocations for certain corporate functions and centrally-located activities historically performed by Occidental. These functions include executive oversight, accounting, treasury, tax, financial reporting, finance, internal audit, legal, risk management, information technology, government relations, public relations, investor relations, human resources, procurement, engineering, drilling, exploration, marketing, ethics and compliance, and certain other shared services. These allocations were based primarily on specific identification of time or activities associated with us, employee headcount or our relative size compared to Occidental. Our management believes the assumptions underlying the financial statements, including the assumptions regarding allocating expenses from Occidental, are reasonable. However, the financial statements for the pre-Spin-off periods may not include all of the actual expenses that would have been incurred, may include duplicative costs and may not reflect our results of operations, financial position and cash flows had we operated as a stand-alone public company during the periods presented. Actual costs that would have been incurred if we had been a stand-alone company prior to the Spin-off would have depended on multiple factors, including organizational structure and strategic and operating decisions.

Prior to the Spin-off, we participated in Occidental’s centralized treasury management program and did not incur any debt. Excess cash generated by our business was distributed to Occidental, and likewise our cash needs were provided by Occidental, in the form of contributions.

In the second quarter of 2015, we changed the classification of certain employee-related costs from general and administrative expenses to production costs to better align these costs with the functions performed by those employees. Prior period amounts have been changed to conform to the current year classification.

Business Environment and Industry Outlook

Our operating results and those of the oil and gas industry as a whole are heavily influenced by commodity prices. Oil and gas prices and differentials may fluctuate significantly, generally as a result of changes in supply and demand and other market-related uncertainties. These and other factors make it impossible to predict realized prices reliably. We respond to economic conditions by adjusting the size and allocation of our capital investments to be in line with those conditions, and continuing to pursue operating and capital efficiencies. The changes in our

15

capital program may have an impact on our future production levels and cash flows and sustained low-price periods may materially affect the quantities of oil and gas reserves we can economically produce.

During the course of 2015, we experienced significant and extended price declines as compared to prices for 2014, which will impact the quantity of reserves we report as of December 31, 2015. The unweighted arithmetic average first-day-of-the-month price for Brent decreased from $101.30 for 2014 to $55.89 for the first ten months of 2015. As a result, the SEC prices used to determine our December 31, 2015 fiscal year end reserves will likely be significantly lower than those used for December 31, 2014 and we will experience negative price related revisions to our proved reserves at December 31, 2015. Generally, lower prices adversely impact the quantity of our reserves as those reserves expected to be produced in later years, which tend to be costlier on a per unit basis, become uneconomic. In addition, a portion of our proved undeveloped reserves may no longer meet the economic producibility criteria under the rules or may be removed due to a lower amount of capital available to develop these projects. However, our production-sharing contracts in Long Beach tend to partially offset these effects as our share of production and reserves from these contracts increases when prices decline. Further, during the course of the year we have implemented significant cost reduction and efficiency steps, which have reduced our operating costs by over 12% on a per BOE basis, and drilling costs by approximately 10% for shallow wells and up to 20% for deeper wells. These cost reductions would offset a portion of the loss of reserve quantities as some of the barrels that would become uneconomic in later years would remain economic, and we would be able to restore a portion of the proved undeveloped reserves that would otherwise be removed from the reserve quantities as more of them would become economic and we would expect to drill more wells with the same amount of capital. We expect further costs savings to be in effect by the end of the year, but cannot accurately estimate those savings as of this date. We do not currently have an estimate of our year-end 2015 reserve quantities. However, we have developed ranges of the potential impact of the low commodity prices on our reported reserves as of December 31, 2014. We believe that if we had determined our December 31, 2014 reserves using the SEC prices as calculated through October 1, 2015, including the estimated effect of known cost savings to date, our 2014 year-end reserves could have been reduced by approximately 10% to 20%. This estimate does not reflect the effect of further cost savings that we expect to implement by the end of the year, the effect of the 2015 production and the reserves that we expect to add as a result of our 2015 capital program, or any other adjustments or revisions to 2014 reserves. Subject to the completion of our year-end reserves estimates, we do not currently believe that prevailing commodity and the current strip prices would result in an impairment of the carrying value of our assets.

In the third quarter of 2015, we announced a voluntary retirement program and other employee actions to align our workforce with our view of a normalized commodity price environment. At the time of our spin-off, we had about 2,000 employees. We will end the year with about 1,700 employees, representing a 15% reduction mainly through attrition and the third quarter employee actions. We recorded a pre-tax charge of approximately $62 million in the third quarter of 2015 in connection with these actions. A significant majority of these costs will be paid to the affected employees over a period of eighteen months. We expect annual pre-tax savings of approximately $50 million, as a result of our third quarter actions, none of which is reflected in our third quarter results. We do not expect these actions to impact our production outlook; they will, however, starting in the fourth quarter of this year, reduce our operating costs and general and administrative expenses, as well as our drilling costs, and enhance our margins.

Given the recent volatile oil price environment, as well as our leverage, we began a hedging program shortly after the Spin-off to protect our capital investment program and our ability to comply with our credit facility covenants in case of further price deterioration. As of October 31, 2015, our existing hedge positions with respect to oil volumes were as follows:

• Weighted average Brent-based floors and ceilings of $61.25 per barrel and $73.88 per barrel, respectively, for 40,000 barrels per day of our fourth quarter 2015 oil production;

• Brent-based hedges with a weighted average floor of $52.38 per barrel and a ceiling of $66.15 per barrel for 30,500 barrels per day and 35,500 barrels per day, respectively, of our January through June 2016 crude oil production;

• Brent-based hedges with a floor of $50 per barrel and a weighted average ceiling of $74.42 per barrel for 3,000 barrels per day of our July through December 2016 oil production.

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The following graph represented our oil hedges as of October 31, 2015:

In addition, for our fourth quarter 2015 natural gas production we have index-based swaps at an average price of $3.01 per million British thermal units (MMBtu) for 40,000 MMBtu per day and weighted average floors and ceilings of $2.80 per MMBtu and $3.17 per MMBtu, respectively, for 20,000 MMBtu per day.

We will continue to be strategic and opportunistic with our hedging program in support of our capital investment plans.

We sell all of our crude oil into California markets. As a result we typically receive a premium associated with international waterborne-based prices because the structural energy deficit in the State results in most of its oil being imported. Over the last several years these prices have exceeded and continue to exceed West Texas Intermediate (WTI) based prices for comparable grades. Our realized crude oil prices in the third quarter of 2015 and for the nine months ended September 30, 2015 were lower than the comparable periods of 2014, reflecting a decline in the benchmarks as well as wider differentials, particularly in the first quarter of 2015, resulting from certain refinery interruptions. The differentials began improving in the second quarter and continued to improve in the third quarter of 2015 as the effects of these events have largely dissipated and have begun to approach historical norms.

The following table presents the average daily Brent, WTI and NYMEX prices for the three and nine months ended September 30, 2015 and 2014:

	Three months ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
Brent oil ($/Bbl)	$	51.17	$	103.39	$	56.61	$	107.02
WTI oil ($/Bbl)	$	46.43	$	97.17	$	51.00	$	99.61
NYMEX gas ($/MMBtu)	$	2.78	$	4.17	$	2.86	$	4.46

Oil prices and differentials will continue to be affected by (i) global supply and demand, which are generally a function of global economic conditions, the actions of OPEC, other significant producers and governments, inventory levels, threatened or actual production or refining disruptions, the effects of conservation, technological advances and regional market conditions; (ii) transportation capacity and cost in producing areas; (iii) currency exchange rates; and (iv) the effect of changes in these variables on market perceptions.

Prices and differentials for natural gas liquids (NGLs) are related to the supply and demand for the products making up these liquids. Some of them more typically correlate to the price of oil while others are affected by natural gas prices as well as the demand for certain chemical products for which they are used as feedstock. In addition, infrastructure constraints magnify the pricing volatility of NGLs.

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Natural gas prices and differentials are strongly affected by local supply and demand fundamentals, as well as availability of transportation capacity from producing areas.

Our earnings are also affected by the performance of our processing and power generation assets. We process our wet gas to extract NGLs and other natural gas byproducts, and deliver dry gas to pipelines and sell the NGLs. The efficiency with which we extract liquids from the wet gas stream affects our operating results. In addition, a portion of the power produced by our Elk Hills power plant is used for certain of our operations while a majority of the output is sold to third parties.

Seasonality

While certain aspects of our operations are affected by seasonal factors, such as electricity costs, overall, seasonality is not a material driver of changes in our quarterly earnings during the year.

Operations

We conduct our operations through fee interests, land leases and other contractual arrangements. We believe we are the largest private oil and natural gas mineral acreage holder in California, with interests in approximately 2.3 million net acres, approximately 60% of which we hold in fee. Our oil and gas leases have a primary term ranging from one to ten years, which is extended through the end of production once it commences. We also own a network of strategically placed infrastructure assets which are integral to our underlying oil and natural gas production operations and are designed to maximize the value generated from our production, including gas plants, oil and gas gathering pipelines and systems, a power plant, compressors, steam generators, water separation and treatment facilities and other related assets.

Our share of production and reserves from operations in the Wilmington field is subject to contractual arrangements similar to production-sharing contracts that are in effect through the economic life of the assets. Under such contracts we are obligated to fund all capital and production costs. We record a share of production and reserves to recover such capital and production costs and an additional share for profit. Our portion of the production represents volumes: (1) to recover our partners’ share of capital and production costs that we incur on their behalf, (2) for our share of contractually defined base production and (3) for our share of production in excess of contractually defined base production for each period. We realize our share of capital and production costs, and generate returns, through our defined share of production from (2) and (3) above. These contracts do not transfer any right of ownership to us and reserves reported from these arrangements are based on our economic interest as defined in the contracts. Our share of production and reserves from these contracts decreases when product prices rise and increases when prices decline; however, our net economic benefit is greater when product prices are higher.

Fixed and Variable Costs

Our total production costs consist of variable costs that tend to vary depending on production levels, and fixed costs that do not vary with changes in production levels or well counts, especially in the short term. The substantial majority of our near-term fixed costs become variable over the longer term as they can be managed based on the field’s stage of life and operating characteristics. For example, portions of labor and material costs, energy, workovers and maintenance expenditures correlate to well count, production and activity levels. Portions of these same costs can be relatively fixed over the near term; however, they are managed down as fields mature in a manner that correlates to production and commodity price levels. While a certain amount of costs for facilities, surface support, surveillance and related maintenance can be regarded as fixed in the early phases of a program, as the production from a certain area matures, well count increases and daily per well production drops, such support costs can be reduced and consolidated over a larger number of wells, reducing costs per operating well. Further, many of our other costs, such as property taxes and oilfield services, are variable and will respond to activity levels and tend to correlate with commodity prices. Overall, we believe less than one-third of our operating costs are fixed over the life cycle of our fields. We actively manage our fields to optimize production and costs. If we see growth in a field we increase capacities, and similarly if a field is reaching the end of its economic life we would manage the costs while it remains economically viable to produce.

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Financial and Operating Results

For the three and nine months ended September 30, 2015, we had a net loss of $104 million and $272 million, or ($0.27) and ($0.71) per diluted share, respectively, and an adjusted net loss of $86 million and $234 million, or ($0.22) and ($0.61) per diluted share. For the three and nine months ended September 30, 2014, both net income and adjusted net income were $188 million and $657 million, or $0.48 and $1.69 per diluted share, respectively. The table below reconciles net income / (loss) to adjusted net income / (loss):

	Three months ended September 30,					Nine months ended September 30,
	2015			2014		2015			2014
	(in millions)
Adjusted net income / (loss)	$	(86	)	$	188	$	(234	)	$	657
Early retirement and severance costs	(62		)	—		(72		)	—
Hedge related gains	53			—		33			—
Rig terminations and other costs	(3		)	—		(6		)	—
Tax-related adjustments	(6		)	—		7			—
Net income / (loss)	$	(104	)	$	188	$	(272	)	$	657

Our results of operations can include the effects of significant, unusual or infrequent transactions and events affecting earnings that vary widely and unpredictably in nature, timing, amount and frequency. Therefore, management uses a measure called adjusted net income / (loss), which excludes those items. This measure is not meant to disassociate items from management's performance, but rather is meant to provide useful information to investors interested in comparing our earnings performance between periods. Reported earnings are considered representative of management's performance over the long term. Adjusted net income / (loss) is not considered to be an alternative to income / (loss) reported in accordance with United States generally accepted accounting principles (GAAP).

Adjusted results for the third quarter of 2015, compared to the same period in 2014, reflected higher oil volumes, and lower production costs, depreciation, depletion and amortization expense (DD&A), adjusted general and administrative expense, exploration expense and ad valorem tax expense, offset by significantly lower realized oil, NGL and gas prices and higher interest expense resulting from our current capital structure as an independent company. The third quarter 2015 net loss includes the effects of a pre-tax $62 million charge for the voluntary retirement program and employee reductions, non-cash hedge income of $53 million and other charges and tax related adjustments of $9 million.

Average oil production increased by 3% or 3,000 barrels per day to 103,000 barrels per day in the third quarter of 2015 compared to the same period of the prior year. NGL production decreased by 5% to 18,000 barrels per day and natural gas production decreased by 9% to 226 million cubic feet (MMcf) per day. Daily oil and gas production volumes averaged 158,000 barrels of oil equivalent (BOE) in the third quarter of 2015, compared with 160,000 BOE in the third quarter of 2014.

Realized crude oil prices decreased 50% to $47.79 per barrel including the effect of realized hedges in the third quarter of 2015 from $96.27 per barrel in the third quarter of 2014. The realized crude oil price in the current quarter before the effect of hedges was $46.10 per barrel. The decrease reflected the drop in global oil prices. Realized NGL prices decreased 64% to $16.92 per barrel in the third quarter of 2015 from $47.20 per barrel in the third quarter of 2014. Realized natural gas prices decreased 33% in the third quarter of 2015 to $2.83 per thousand cubic feet (Mcf), compared with $4.24 per Mcf in the same period of 2014.

The first nine months in 2015, compared to the same period in 2014, reflected higher volumes, in particular for oil, and lower production costs, DD&A, exploration expense and ad valorem tax expense, offset by significantly lower realized product prices in 2015 and higher interest expense. The net loss for the nine months ended September 30, 2015 includes the effects of pre-tax charges of $72 million for the voluntary retirement program and employee reductions mainly in the third quarter of 2015, non-cash hedge income of $33 million and other charges and the related tax effects of $1 million.

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For the first nine months of 2015, daily oil and natural gas production averaged 161,000 BOE, compared with 157,000 in the first nine months of 2014. Average oil production increased 8,000 barrels per day, or by 8%, to 105,000 barrels per day in 2015. NGL production decreased by 5% to 18,000 barrels per day and natural gas production decreased by 5% to 234 MMcf per day.

Realized crude oil prices decreased 50% to $50.28 per barrel including the effect of realized hedges for the first nine months of 2015 from $100.94 per barrel for the first nine months of 2014. The realized crude oil price for the first nine months before the effect of hedges was $49.70 per barrel. The decrease reflected the drop in global oil prices. Realized NGL prices decreased 62% to $19.64 per barrel in the first nine months of 2015 from $52.26 per barrel for the first nine months of 2014. Realized natural gas prices decreased 40% to $2.72 per Mcf in the first nine months of 2015, compared with $4.53 per Mcf in the first nine months of 2014.

The following table sets forth our average production volumes of oil, NGLs and natural gas per day for the three- and nine-month periods ended September 30, 2015 and 2014:

	Three months ended September 30,		Nine months ended September 30,
	2015	2014	2015	2014
Oil (MBbl/d)
San Joaquin Basin	64	65	65	63
Los Angeles Basin	32	29	33	28
Ventura Basin	7	6	7	6
Sacramento Basin	—	—	—	—
Total	103	100	105	97
NGLs (MBbl/d)
San Joaquin Basin	17	18	17	18
Los Angeles Basin	—	—	—	—
Ventura Basin	1	1	1	1
Sacramento Basin	—	—	—	—
Total	18	19	18	19
Natural gas (MMcf/d)
San Joaquin Basin	172	182	175	179
Los Angeles Basin	1	2	3	1
Ventura Basin	11	9	11	11
Sacramento Basin	42	56	45	55
Total	226	249	234	246
Total Production (MBoe/d)(a)	158	160	161	157

_________________________

Note: MBbl/d refers to thousands of barrels per day; MMcf/d refers to millions of cubic feet per day; MBoe/d refers to thousands of barrels of oil equivalent per day.

(a) Natural gas volumes have been converted to Boe based on the equivalence of energy content between six Mcf of natural gas and one barrel of oil. Barrels of oil equivalence does not necessarily result in price equivalence. The price of natural gas on a barrel of oil equivalent basis is currently substantially lower than the corresponding price for oil and has been similarly lower for a number of years. For example, for the nine months ended September 30, 2015, the average prices of Brent oil and NYMEX natural gas were $56.61 per barrel and $2.86 per Mcf, respectively, resulting in an oil-to-gas ratio of approximately 20 to 1.

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The following table sets forth the average realized prices for our products:

	Three months ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
Oil prices with hedge ($ per Bbl)	$	47.79	$	96.27	$	50.28	$	100.94
Oil prices without hedge ($ per Bbl)	$	46.10	$	96.27	$	49.70	$	100.94
NGLs prices ($ per Bbl)	$	16.92	$	47.20	$	19.64	$	52.26
Natural gas prices ($ per Mcf)	$	2.83	$	4.24	$	2.72	$	4.53

The following table presents our average realized prices as a percentage of Brent, WTI and NYMEX for the three- and nine-month periods ended September 30, 2015 and 2014:

	Three months ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
Oil with hedge as a percentage of Brent	93	%	93	%	89	%	94	%
Oil without hedge as a percentage of Brent	90	%	93	%	88	%	94	%
Oil with hedge as a percentage of WTI	103	%	99	%	99	%	101	%
Oil without hedge as a percentage of WTI	99	%	99	%	97	%	101	%
NYMEX gas	102	%	102	%	95	%	102	%

Balance Sheet Analysis

The changes in our balance sheet from December 31, 2014 to September 30, 2015 are discussed below:

	September 30, 2015		December 31, 2014
	(in millions)
Cash and cash equivalents	$	4	$	14
Trade receivables, net	$	217	$	308
Inventories	$	73	$	71
Other current assets	$	308	$	308
Property, plant and equipment, net	$	11,257	$	11,685
Other assets	$	54	$	43

Current maturities of long-term debt	$	75	$	—
Accounts payable	$	280	$	588
Accrued liabilities	$	393	$	334
Long-term debt, net	$	6,345	$	6,292
Deferred income taxes	$	1,886	$	2,055
Other long-term liabilities	$	579	$	549
Equity	$	2,355	$	2,611

See Liquidity and Capital Resources for discussion of changes in our cash and cash equivalents and long-term debt, net.

The decrease in trade receivables, net was mainly due to lower product prices for the third quarter of 2015, compared to the fourth quarter of 2014, and lower oil volumes. The decrease in property, plant and equipment reflected DD&A for the period, partially offset by capital investments.

The increase in current maturities of long-term debt reflected the 2016 quarterly payments due on the term loan facility. The decrease in accounts payable reflected the lower capital investments made in 2015. The increase in accrued liabilities was mainly due to the third quarter 2015 employee-related actions discussed earlier and higher

21

ad valorem tax accruals. The decrease in deferred income taxes was mainly due to our net loss for the first nine months of 2015, which resulted in net operating losses. The decrease in equity mainly reflected the net loss for the nine-month period in 2015.

Statement of Operations Analysis

The following table presents the results of our operations:

	Three months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
	(in millions)
Oil and gas net sales (including related parties)	$	596		$	1,051		$	1,754		$	3,238
Other revenue	30			41			83			115
Production costs	(246		)	(271		)	(730		)	(805		)
General and administrative expenses	(129		)	(78		)	(290		)	(218		)
Depreciation, depletion and amortization	(253		)	(304		)	(757		)	(886		)
Taxes other than on income	(42		)	(56		)	(150		)	(163		)
Exploration expense	(5		)	(25		)	(29		)	(71		)
Interest and debt expense, net	(82		)	—			(244		)	—
Other expenses	(23		)	(39		)	(74		)	(109		)
Income tax (expense) / benefit	50			(131		)	165			(444		)
Net income / (loss)	$	(104	)	$	188		$	(272	)	$	657
Adjusted net income / (loss)(1)	$	(86	)	$	188		$	(234	)	$	657
Adjusted EBITDAX(2)	$	212		$	662		$	680		$	2,094
Effective tax rate	32		%	41		%	38		%	40		%

________________________

(1) See "Financial and Operating Results" for our Non-GAAP reconciliation.

(2) We define adjusted EBITDAX consistent with our credit facilities as earnings before interest expense; income taxes; depreciation, depletion and amortization; exploration expense; and certain other non-cash items as well as unusual or infrequent items. Our management believes adjusted EBITDAX provides useful information in assessing our financial condition, results of operations and cash flows and is widely used by the industry and investment community. The amounts included in the calculation of adjusted EBITDAX were computed in accordance with GAAP. This measure is a material component of certain of our financial covenants under our credit facilities and is provided in addition to, and not as an alternative for, income and liquidity measures calculated in accordance with GAAP. Certain items excluded from adjusted EBITDAX are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic cost of depreciable and depletable assets. Adjusted EBITDAX should be read in conjunction with the information contained in our financial statements prepared in accordance with GAAP.

The following table presents a reconciliation of the GAAP financial measure of net income / (loss) to the non-GAAP financial measure of adjusted EBITDAX:

	Three months ended September 30,					Nine months ended September 30,
	2015			2014		2015			2014
	(in millions)
Net income / (loss)	$	(104	)	$	188	$	(272	)	$	657
Interest expense	82			—		244			—
Income tax expense / (benefit)	(50		)	131		(165		)	444
Depreciation, depletion and amortization	253			304		757			886
Exploration expense	5			25		29			71
Early retirement and severance costs	62			—		72			—
Hedge related gains	(53		)	—		(33		)	—
Rig terminations and other costs	3			—		6			—
Other, non-cash items	14			14		42			36
Adjusted EBITDAX	$	212		$	662	$	680		$	2,094

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The following represents key metrics of our oil and gas operations, excluding certain corporate items, on a per BOE basis for the three and nine months ended September 30:

	Three months ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
Production costs	$	16.91	$	18.35	$	16.56	$	18.78
Depreciation, depletion and amortization	$	16.92	$	20.21	$	16.71	$	20.31
Taxes other than on income	$	2.50	$	3.51	$	3.02	$	3.48

The following table presents the reconciliation of general and administrative expenses to adjusted general and administrative expenses (in millions):

	Three months ended September 30,					Nine months ended September 30,
	2015			2014		2015			2014
General and administrative expenses	$	129		$	78	$	290		$	218
Early retirement and severance costs	(62		)	—		(72		)	—
Adjusted general and administrative expenses	$	67		$	78	$	218		$	218

Three Months Ended September 30, 2015 vs. 2014

Oil and gas net sales decreased 43%, or $455 million, for the three months ended September 30, 2015, compared to the same period of 2014, mainly due to an approximately $455 million negative impact from lower oil prices, $50 million from lower NGL prices and $40 million from lower natural gas prices and volumes. The decrease was partially offset by an approximately $20 million positive impact from higher oil volumes, and a net gain of approximately $53 million from hedge related activity. Average oil production increased by 3% or 3,000 barrels per day to 103,000 barrels per day in the third quarter of 2015 compared to the same period of the prior year. NGL production decreased by 5% to 18,000 barrels per day and natural gas production decreased by 9% to 226 MMcf per day.

Other revenue decreased 27%, or $11 million, for the three months ended September 30, 2015, compared to the same period of 2014. The decrease reflected lower third-party power sales from our Elk Hills power plant, largely due to the lower rate structure set by California power utilities.

Production costs for the three months ended September 30, 2015 decreased $25 million, to $246 million or $16.91 per BOE, compared to $271 million or $18.35 per BOE for the same period of 2014, resulting in an 8% decrease on a per BOE basis. The decrease was driven by cost reductions across the board, particularly in well servicing efficiency, surface operations and energy use, and was also aided by lower natural gas and power prices.

Our adjusted G&A expense, which excludes the voluntary retirement and employee reduction costs, was lower for the three months ended September 30, 2015, compared to the same period of 2014, on a total dollar and per BOE basis, largely due to our cost reduction efforts and included lower stock-based compensation costs due to our lower quarter-end stock price. The non-cash portion of adjusted G&A comprising equity compensation and pension costs was approximately $7 million for the three months ended September 30, 2015.

DD&A expense decreased 17%, or $51 million, for the three months ended September 30, 2015, compared to the same period of 2014. Of this decrease, approximately $44 million was due to a decrease in the DD&A rate that resulted from asset impairments in the fourth quarter of 2014, and approximately $7 million was attributable to lower volumes.

Taxes other than on income, which consist largely of ad valorem taxes, greenhouse gas credits and production taxes, for the three months ended September 30, 2015 decreased compared to the same period of 2014, largely reflecting lower ad valorem taxes.

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Exploration expense decreased 80%, or $20 million, for the three months ended September 30, 2015, compared to the same period of 2014, consistent with our reduced exploration activity.

Interest and debt expense, net, of $82 million for the third quarter of 2015 was associated with the debt we incurred in connection with the Spin-off in the fourth quarter of 2014.

Other expenses decreased 41%, or $16 million, for the three months ended September 30, 2015, compared to the same period of 2014, reflecting lower natural gas costs for our Elk Hills power plant.

Income tax benefit of $50 million for the three months ended September 30, 2015 reflected a pre-tax loss of $154 million for the quarter, compared to an expense of $131 million in the same period of 2014, reflecting pre-tax income of $319 million. The change in the effective tax rate was due to a non-recurring spin-related income tax adjustment in the third quarter of 2015.

Nine Months Ended September 30, 2015 vs. 2014

Oil and gas net sales decreased 46%, or $1.5 billion, for the nine months ended September 30, 2015, compared to the same period of 2014, mainly due to approximately $1.4 billion negative impact from lower oil prices, $170 million from lower NGL prices and volumes, and $130 million from lower natural gas prices and volumes. The decrease was partially offset by an approximately $195 million positive impact from higher oil volumes, and a net gain of $33 million from hedge related activity. Average oil production increased 8,000 barrels per day, or by 8%, to 105,000 barrels per day in 2015. NGL production decreased by 5% to 18,000 barrels per day and natural gas production decreased by 5% to 234 MMcf per day.

Other revenue decreased 28%, or $32 million, for the nine months ended September 30, 2015, compared to the same period of 2014. The decrease reflected lower third-party power sales from our Elk Hills power plant, largely due to the lower rate structure set by California power utilities.

Production costs for the nine months ended September 30, 2015 decreased $75 million, to $730 million or $16.56 per BOE, compared to $805 million or $18.78 per BOE for the same period of 2014, resulting in a 12% decrease on a per BOE basis. The decrease was driven by cost reductions across the board, particularly in well servicing efficiency, surface operations and energy use, and was also aided by lower natural gas and power prices.

Our adjusted G&A expense, which excludes the voluntary retirement and employee reduction costs, was comparable for the nine months ended September 30, 2015, compared to the same period of 2014, on a total dollar and per BOE basis. The non-cash portion of adjusted G&A comprising equity compensation and pension costs was approximately $25 million for the nine months ended September 30, 2015.

DD&A expense decreased 15%, or $129 million, for the nine months ended September 30, 2015, compared to the same period of 2014. Of this decrease, approximately $150 million was due to a decrease in the DD&A rate that resulted from asset impairments in the fourth quarter of 2014, partially offset by $15 million attributable to higher volumes.

Taxes other than on income for the nine months ended September 30, 2015 decreased compared to the same period of 2014, due to lower ad valorem taxes.

Exploration expense decreased 59%, or $42 million, for the nine months ended September 30, 2015, compared to the same period of 2014, consistent with our reduced exploration activity.

Interest and debt expense, net, of $244 million for the nine months ended September 30, 2015 was associated with the debt we incurred in connection with the Spin-off in the fourth quarter of 2014.

Other expenses decreased 32%, or $35 million, for the nine months ended September 30, 2015, compared to the same period of 2014, reflecting lower natural gas costs for our Elk Hills power plant.

Income tax benefit of $165 million for the nine months ended September 30, 2015 reflected a pre-tax loss of $437 million for the period, compared to an expense of $444 million in the same period of 2014, reflecting pre-tax income of $1,101 million. The change in the effective tax rate was due to a non-recurring spin-related income tax adjustment in the third quarter of 2015.

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Liquidity and Capital Resources

The primary source of liquidity and capital resources to fund our capital program and other obligations is cash flow from operations. Through November 2014, any excess cash generated by our business was distributed to Occidental, and our cash needs were provided by Occidental, in the form of a contribution. We expect our needs for capital investments, other obligations and any dividends for at least the next twelve months will be met by cash generated from operations. Operating cash flows are largely dependent on oil and natural gas prices and differentials, sales volumes and costs. We plan to continuously evaluate our level of operating activity and capital as appropriate based on actual commodity prices. If the current conditions persist, we expect our future production levels may decrease modestly as we intend to continue to limit our capital program to a level consistent with our expected operating cash flows. We are pursuing certain transactions that may provide us with additional capital beyond our operating cash flows, which may mitigate the impact on our production. We are also pursuing a number of alternatives to deleverage our balance sheet and better align our capital structure for a more modest commodity price environment. Potential transactions may include a combination of asset monetizations, joint ventures and other deleveraging opportunities, such as capital market alternatives. The asset monetization opportunities we are pursuing primarily involve our midstream and power assets. Negotiations are ongoing and we are working toward definitive documentation. While we are working to announce at least one transaction this year, we cannot provide any assurance with respect to the terms or size of any transaction or that we will successfully complete these negotiations, execute definitive agreements by year end or ultimately close a transaction in the near term.

Our Board of Directors has decided to suspend the payment of our quarterly dividend of $0.01 per share, beginning immediately.  This decision is consistent with the Company's broader initiatives to cut costs and reduce overall debt levels.  In the longer term, our Board will re-evaluate the payment of dividends as commodity prices normalize.

Credit Facilities

We have a credit agreement with a syndicate of lenders that provides for (i) a five-year senior term loan facility (the Term Loan Facility) and (ii) a five-year senior revolving loan facility (the Revolving Credit Facility and, together with the Term Loan Facility, the Credit Facilities). All borrowings under these facilities are subject to certain customary conditions. During the third quarter of 2015, our corporate ratings from Moody's Investors Service (Moody's) and Standard & Poor's Ratings Services (S&P) were downgraded to B1 and BB-, respectively, resulting in the imposition of a borrowing base and the requirement to grant security on a first-lien in our oil and gas reserves under our Credit Facilities. In addition, we amended the Credit Facilities effective as of November 2, 2015, to change certain of our financial and other covenants. The following describes the terms of our facilities after giving effect to this amendment.

The aggregate commitments of the lenders are $2.0 billion under the Revolving Credit Facility and $1.0 billion under Term Loan Facility, respectively. The Revolving Credit Facility includes a sub-limit of $400 million for the issuance of letters of credit. We will be required to repay the Term Loan Facility in $25 million quarterly installments beginning on March 31, 2016. As of September 30, 2015, we had $481 million outstanding under our Revolving Credit Facility. Had the November 2, 2015 amendment been in place at September 30, 2015, we would have had borrowing availability of up to an additional $1,523 million, taking into account our cash balance at that time, subject to compliance with our quarterly financial covenants described below, which would have limited our ability to utilize the full amount.

Borrowings under the Credit Facilities bear interest, at our election, at either a LIBOR rate or an alternate base rate (ABR) (equal to the greatest of (i) the administrative agent’s prime rate, (ii) the one-month LIBOR rate plus 1.00% and (iii) the federal funds effective rate plus 0.50%), in each case plus an applicable margin. This applicable margin is based on our borrowing base utilization or our most current leverage ratio and will vary from (a) in the case of LIBOR loans, 1.50% to 2.75% and (b) in the case of ABR loans, 0.50% to 1.75%. The unused portion of the Revolving Credit Facility is subject to a commitment fee equal to 0.50% per annum. We also pay customary fees and expenses under the Credit Facilities. Interest on ABR loans is payable quarterly in arrears.  Interest on LIBOR loans is payable at the end of each LIBOR period, but not less than quarterly.   

All obligations under the Credit Facilities are guaranteed jointly and severally by all of our wholly-owned material subsidiaries. The assets and liabilities of subsidiaries not guaranteeing the debt are de minimis. Our ability to borrow under the Credit Facilities is subject to a borrowing base. Our initial borrowing base was set at

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$3.0 billion and is subject to redetermination on or around January 15, 2016 and thereafter will be redetermined annually by our lenders each May, commencing May 1, 2016. Between scheduled borrowing base redeterminations, we and the lenders (requiring a request from the lenders holding 66 2/3 percent of our commitments), may each request one special redetermination. We will be permitted to have security released when both (i) our credit ratings are at least Baa3 from Moody's and BBB- from S&P, in each case with a stable or better outlook, and (ii) certain permitted liens securing other debt are released.

The Credit Facilities require us to apply 50% of the proceeds from certain transactions, including certain of the deleveraging transactions discussed above, to repay the Term Loan. We must also apply cash on hand in excess of $250 million to repay certain amounts outstanding under the Revolving Credit Facility. In addition, our ability to pay dividends or make other distributions to common stockholders is limited to $20 million per year. While we are subject to the borrowing base, the Credit Facilities require us to maintain the following financial covenants for the trailing twelve months ended as of the last day of each fiscal quarter: (a) a first lien senior secured leverage ratio of no more than 2.25 to 1.00 and (b) an interest expense ratio of no less than 2.00 to 1.00. At September 30, 2015, we were in compliance with the financial and other covenants under our Credit Facilities as they existed at that time. If we were to breach any of these covenants, our lenders would be permitted to accelerate the principal amount due under the facilities. If payment were accelerated it would result in a default under our notes described below.

Senior Notes

On October 1, 2014, we issued $5.00 billion in aggregate principal amount of our senior notes, including $1.00 billion of 5% senior notes due January 15, 2020 (the 2020 notes), $1.75 billion of 5 1/2% senior notes due September 15, 2021 (the 2021 notes) and $2.25 billion of 6% senior notes due November 15, 2024 (the 2024 notes and together with the 2020 notes and the 2021 notes, the notes). The notes were issued at par and are fully and unconditionally guaranteed on a senior unsecured basis by all of our material subsidiaries. We used the net proceeds from the notes to make a $4.95 billion cash distribution to Occidental in October 2014.

We will pay interest on the 2020 notes semi-annually in cash in arrears on January 15 and July 15 of each year, beginning on July 15, 2015. We will pay interest on the 2021 notes semi-annually in cash in arrears on March 15 and September 15 of each year, beginning on March 15, 2015. We will pay interest on the 2024 notes semi-annually in cash in arrears on May 15 and November 15 of each year, beginning on May 15, 2015.

The indenture governing the notes includes covenants that, among other things, limit our and our restricted subsidiaries’ ability to incur debt secured by liens. These covenants also restrict our ability to merge or consolidate with, or transfer all or substantially all of our assets to, another entity. These covenants are subject to a number of important qualifications and limitations that are set forth in the indenture. The covenants are not, however, directly linked to measures of our financial performance. In addition, if we experience a change of control coupled with a credit rating decline below investment grade, we will be required to offer to purchase the notes at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest or to have exercised our redemption right.

Cash Flow Analysis

	Nine months ended September 30,
	2015			2014
	(in millions)
Net cash flows provided by operating activities	$	412		$	1,867
Net cash flows used in investing activities	$	(542	)	$	(1,614	)
Net cash flows provided / (used) by financing activities	$	120		$	(148	)
Adjusted EBITDAX (1)	$	680		$	2,094

_______________________________

(1) We define adjusted EBITDAX consistent with our credit facilities as earnings before interest expense; income taxes; depreciation, depletion and amortization; exploration expense; and certain other non-cash items as well as unusual or infrequent items. Our management believes adjusted EBITDAX provides useful information in assessing our financial condition, results of operations and cash flows and is widely used by the industry and investment community. The amounts included in the calculation of adjusted EBITDAX were computed in accordance with GAAP. This measure is a material component of certain of our financial covenants under our credit facilities and is provided in addition to, and not as an alternative for, income and liquidity measures calculated in accordance with GAAP. Certain items excluded from adjusted EBITDAX are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of

26

capital and tax structure, as well as the historic cost of depreciable and depletable assets. Adjusted EBITDAX should be read in conjunction with the information contained in our financial statements prepared in accordance with GAAP.

The following table sets forth a reconciliation of the GAAP measure of net cash provided by operating activities to the non-GAAP financial measure of adjusted EBITDAX:

	Nine months ended September 30,
	2015			2014
	(in millions)
Net cash provided by operating activities	$	412		$	1,867
Interest expense	244			—
Cash income taxes	—			182
Cash exploration expenses	20			19
Changes in operating assets and liabilities	43			12
Other non-cash items, net	(39		)	14
Adjusted EBITDAX	$	680		$	2,094

Our net cash provided by operating activities decreased by approximately $1.5 billion, to $412 million for the nine months ended September 30, 2015, compared to the same period of 2014. The decrease reflected lower revenue of approximately $1.5 billion mainly due to lower product prices, $244 million of higher interest expense, partially offset by the absence of cash income taxes of $182 million, lower operating costs of $80 million and working capital reductions of $30 million.

Our cash flow used in investing activities decreased approximately $1.1 billion for the nine months ended September 30, 2015 from $1.6 billion in 2014. The decrease largely reflected our lower capital investments of $323 million in 2015, compared to $1.6 billion in 2014. Additionally, the 2015 investing activities included approximately $200 million of 2014 capital investments paid in 2015.

Our net cash flow provided by financing activities increased by approximately $270 million for the nine months ended September 30, 2015, compared to the same period of 2014. The change reflected net proceeds from the Revolving Credit Facility of approximately $120 million in 2015 and net distributions to Occidental of approximately $150 million in 2014.

2015 Capital Program

We develop our capital investment programs by prioritizing life of project returns to grow our net asset value over the long term, while balancing the short- and long-term growth potential of each of our assets. We use the Value Creation Index (VCI) metric for project selection and capital allocation across our portfolio of opportunities. The VCI for each project is calculated by dividing the present value of the project's expected pre-tax cash flow over its life by the present value of the investments, each using a 10% discount rate. Projects are expected to meet a VCI of 1.3, including the return of capital, meaning that 30% of expected value is created above our cost of capital for every dollar invested.

In light of current commodity prices, our focus on creating value and our commitment to internally fund our capital program with operating cash flows, we have significantly reduced our capital investment budget for 2015 to $440 million, as compared to $2.1 billion in 2014. We have focused substantially all of our 2015 program on our mature steamfloods, waterfloods and capital workovers, which have much lower expected decline rates than many unconventional projects. Capital investments in the first three quarters of 2015 have been running below budgeted amounts, largely due to efficiencies we have implemented across all aspects of our business, while exceeding the goals of our capital program. The resulting savings will be used to repay borrowings and to fund additional capital workovers in the fourth quarter of 2015.

Our 2015 capital investment program targets investments in the San Joaquin, Los Angeles and Ventura basins, and is expected to be directed almost entirely towards higher-margin, higher-return and low-decline crude oil projects, consistent with 2014. Of the total 2015 program, approximately $150 million is expected to be allocated to drilling wells, $50 million to workovers, $130 million to additional steam-generation capacity and compression

27

expansion, $15 million to exploration and the rest to 3D seismic, maintenance capital, occupational health, safety and environmental projects and other items. We will also continue to pursue and fund our most attractive unconventional projects when they meet our VCI criteria.

The table below sets forth our 2015 capital investments for the nine months ended September 30, 2015:

	Conventional								Unconventional		Other		Total Capital Investments
	Primary		Waterflood		Steamflood		Total		Primary
Basin:
San Joaquin	$	43	$	12	$	117	$	172	$	17	$	—	$	189
Los Angeles	—		74		—		74		—		—		74
Ventura	11		7		2		20		—		—		20
Sacramento	—		—		—		—		—		—		—
Basin Total	54		93		119		266		17		—		283
Exploration and Other	—		—		—		—		—		40		40
Total	$	54	$	93	$	119	$	266	$	17	$	40	$	323

In addition, during this period of lower capital investment, we will continue to take advantage of the lower activity levels to redeploy our existing resources to build our project inventory and further refine and enhance our production techniques. We plan to position ourselves so we can rapidly take advantage of a more favorable pricing environment.

Lawsuits, Claims, Contingencies and Commitments

We, or certain of our subsidiaries, are involved, in the normal course of business, in lawsuits, environmental and other claims and other contingencies that seek, among other things, compensation for alleged personal injury, breach of contract, property damage or other losses, punitive damages, civil penalties, or injunctive or declaratory relief. We accrue reserves for currently outstanding lawsuits, claims and proceedings when it is probable that a liability has been incurred and the liability can be reasonably estimated. Reserve balances at September 30, 2015 and December 31, 2014 were not material to our balance sheets as of such dates. We also evaluate the amount of reasonably possible losses that we could incur as a result of these matters. We believe that reasonably possible losses that we could incur in excess of reserves accrued on our balance sheet would not be material to our consolidated financial position or results of operations.

We, our subsidiaries, or both, have indemnified various parties against specific liabilities those parties might incur in the future in connection with the Spin-off, purchases and other transactions that they have entered into with us. These indemnities include indemnities made to Occidental against certain tax-related liabilities that may be incurred by Occidental relating to the Spin-off and liabilities related to the operation of our business while it was still owned by Occidental. As of September 30, 2015, we are not aware of circumstances that we believe would reasonably be expected to lead to indemnity claims that would result in payments materially in excess of reserves.

Significant Accounting and Disclosure Changes

In July 2015, the Financial Accounting Standards Board (FASB) issued rules requiring entities to measure inventory within the scope of these rules at the lower of cost and net realizable value. These new rules do not apply to inventory that is measured using last-in, first-out or the retail inventory method and will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The rules must be applied prospectively with earlier application permitted. We do not expect these new rules to have a significant impact on our financial statements.

In May 2015, the FASB issued rules to remove the requirements to categorize within the fair value hierarchy all investments for which the fair value is measured using the net asset value (NAV) per share practical expedient. The new rules also limit disclosures to investments for which the entity has elected to measure the fair value using that practical expedient, rather than for all investments that are eligible to be measured at fair value using the NAV per share. These rules will be effective for annual periods beginning after December 15, 2015, and interim periods

28

within those fiscal years, with early adoption of the rules permitted. We do not expect the disclosure changes to have a significant impact on our financial statements.

In April 2015, the FASB issued rules to simplify the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with the presentation of debt discounts. These rules will be effective for annual periods beginning after December 15, 2015 and interim periods within those fiscal years, with early adoption of the rules permitted for financial statements which have not been previously issued. We early adopted the new rule in the first quarter of 2015 and retrospectively reclassified unamortized debt issuance costs of $68 million at December 31, 2014. The amount was previously reflected in other assets.

Safe Harbor Statement Regarding Outlook and Forward-Looking Information

The information in this document includes forward-looking statements that involve risks and uncertainties that could materially affect our expected results of operations, liquidity, cash flows and business prospects. Such statements specifically include our expectations as to our future financial position, drilling program, production, projected costs, future operations, hedging activities, future transactions, planned capital investments and other guidance. Actual results may differ from anticipated results, sometimes materially, and reported results should not be considered an indication of future performance. You can typically identify forward-looking statements by words such as aim, anticipate, believe, budget, continue, could, effort, estimate, expect, forecast, goal, guidance, intend, likely, may, might, objective, outlook, plan, potential, predict, project, seek, should, target, will or would and other similar words. For any such forward-looking statement that includes a statement of the assumptions or bases underlying such forward-looking statement, we caution that, while we believe such assumptions or bases to be reasonable and make them in good faith, assumed facts or bases almost always vary from actual results, sometimes materially. Material risks that may affect our results of operations and financial position appear in Part I, Item 1A, Risk Factors of the 2014 Form 10-K and Item 1A of this Form 10-Q.

Factors (but not necessarily all the factors) that could cause results to differ include: commodity price fluctuations; the effect of our debt on our financial flexibility; sufficiency of our operating cash flow to fund planned capital expenditures; the ability to obtain government permits and approvals; effectiveness our capital investments; our ability to monetize selected assets; restrictions and changes in restrictions imposed by regulations including those related to our ability to obtain, use, manage or dispose of water or use advanced well stimulation techniques like hydraulic fracturing; risks of drilling; tax law changes; competition with larger, better funded competitors for and costs of oilfield equipment, services, qualified personnel and acquisitions; the subjective nature of estimates of proved reserves and related future net cash flows; restriction of operations to, and concentration of exposure to events such as industrial accidents, natural disasters and labor difficulties in, California; limitations on our ability to enter efficient hedging transactions; the recoverability of resources; concerns about climate change and air quality issues; lower-than-expected production from development projects or acquisitions; catastrophic events for which we may be uninsured or underinsured; cyber attacks; operational issues that restrict market access; and uncertainties related to the Spin-off and the agreements related thereto.  Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no responsibility to publicly release the result of any revision of our forward-looking statements after the date they are made.  

All forward-looking statements, expressed or implied, included in this report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

For the three and nine months ended September 30, 2015, there were no material changes in the information required to be provided under Item 305 of Regulation S-K included under the caption Management's Discussion and Analysis of Financial Condition and Results of Operations (Incorporating Item 7A) - Quantitative and Qualitative Disclosures About Market Risk in the 2014 Form 10-K, except for the following matters.

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Commodity Price Risk

Derivatives

As of October 31, 2015, our existing hedge positions were as follows:

• Weighted average Brent-based floors and ceilings of $61.25 per barrel and $73.88 per barrel, respectively, for 40,000 barrels per day of our fourth quarter 2015 oil production;

• Brent-based hedges with a weighted average floor of $52.38 per barrel and a ceiling of $66.15 per barrel for 30,500 barrels per day and 35,500 barrels per day, respectively, of our January through June 2016 crude oil production;

• Brent-based hedges with a floor of $50 per barrel and a weighted average ceiling of $74.42 per barrel for 3,000 barrels per day of our July through December 2016 oil production;

• Index-based hedges at an average price of $3.01 per million British thermal units (MMBtu) for 40,000 MMBtu per day and weighted average floors and ceilings of $2.80 per MMBtu and $3.17 per MMBtu, respectively, for 20,000 MMBtu per day of our fourth quarter 2015 natural gas production.

Counterparty Risk

Our credit risk relates primarily to trade receivables and derivative financial instruments. Credit exposure for each customer is monitored for outstanding balances and current activity. For our derivatives, we are subject to counterparty credit risk to the extent the counterparty associated with a specific derivative is unable to meet its settlement commitments. We actively manage this credit risk by selecting counterparties that we believe to be financially strong and by continuing to monitor their financial health.

As of September 30, 2015, the substantial majority of the credit exposures related to our business was with investment grade counterparties. We believe exposure to credit-related losses related to our business at September 30, 2015 was not material and losses associated with credit risk have been insignificant for all periods presented.

Item 4. Controls and Procedures

Our President and Chief Executive Officer and our Senior Executive Vice President and Chief Financial Officer supervised and participated in our evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report.  Based upon that evaluation, our President and Chief Executive Officer and our Senior Executive Vice President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2015.

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the third quarter of 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II    OTHER INFORMATION

Item 1. Legal Proceedings

For information regarding legal proceedings, see Note 6 to the consolidated and combined condensed financial statements in Part I of this Form 10-Q and Part I, Item 3, "Legal Proceedings" in the Form 10-K for the year ended December 31, 2014.

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Item 1.A. Risk Factors

We are subject to various risks and uncertainties in the course of our business. A discussion of such risks and uncertainties may be found under the heading "Risk Factors" in our Form 10-K for the year ended December 31, 2014 and below:

Our lenders can limit our borrowing capabilities, which may materially impact our ability to access capital for capital expenditures and operations.

At September 30, 2015, we had approximately $481 million of outstanding debt under our Revolving Credit Facility. Effective November 2, 2015, our initial borrowing base was $3.0 billion and commitments from our bank group under our Revolving Credit Facility totaled $2.0 billion. The borrowing base under our credit facility is redetermined annually based upon a number of factors, including commodity prices and reserve levels. As a result the estimated value of our reserves may not exceed our initial borrowing base by as much as it does today or may be less than our inital borrowing base, in which case our borrowing base would be adjusted. In addition, between redeterminations we and, if requested by lenders holding 66 2/3 percent of our commitments, our lenders, may each request one special redetermination. Upon a redetermination, our borrowing base could be substantially reduced, and in the event the amount outstanding under our credit facility at any time exceeds the borrowing base at such time, we may be required to repay a portion of our outstanding borrowings. We expect to utilize cash flow from operations and bank borrowings to fund our development, exploration and acquisition activities and manage working capital fluctuations. A reduction in our borrowing base could limit our activities.

Item 5. Other Disclosures

On November 2, 2015, we entered into a second amendment to our Credit Facilities with our senior lenders. The second amendment modified financial and other covenants and certain other terms as described in the "Liquidity and Capital Resources" portion of this Form 10-Q.

Item 6. Exhibits

10.1	Second Amendment to Credit Agreement, dated as of November 2, 2015, among California Resources Corporation, the Lenders and JPMorgan Chase Bank, N.A. as Administrative Agent, a Swingline Lender and a Letter of Credit Issuer and Bank of America, N.A. as Syndication Agent, a Swingline Lender and a Letter of Credit Issuer.
10.2	Form of 2015 Performance Stock Unit Award Terms and Conditions.
10.3	Form of 2015 Restricted Stock Unit Award Terms and Conditions.
10.4	Form of 2015 Nonstatutory Stock Option Award Terms and Conditions.
12	Computation of Ratios of Earnings to Fixed Charges.
31.1	Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certifications of CEO and CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document.
101.SCH	XBRL Taxonomy Extension Schema Document.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CALIFORNIA RESOURCES CORPORATION

DATE:	November 5, 2015	/s/ Roy Pineci
		Roy Pineci
		Executive Vice President - Finance
		(Principal Accounting Officer)

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EXHIBIT INDEX

EXHIBITS

10.1	Second Amendment to Credit Agreement, dated as of November 2, 2015, among California Resources Corporation, the Lenders and JPMorgan Chase Bank, N.A. as Administrative Agent, a Swingline Lender and a Letter of Credit Issuer and Bank of America, N.A. as Syndication Agent, a Swingline Lender and a Letter of Credit Issuer.
10.2	Form of 2015 Performance Stock Unit Award Terms and Conditions.
10.3	Form of 2015 Restricted Stock Unit Award Terms and Conditions.
10.4	Form of 2015 Nonstatutory Stock Option Award Terms and Conditions.
12	Computation of Ratios of Earnings to Fixed Charges.
31.1	Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certifications of CEO and CFO Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document.
101.SCH	XBRL Taxonomy Extension Schema Document.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.

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EX-10.1

EXHIBIT 10.1

SECOND AMENDMENT

TO

CREDIT AGREEMENT

DATED AS OF NOVEMBER 2, 2015
AMONG
CALIFORNIA RESOURCES CORPORATION,
AS THE BORROWER,
JPMORGAN CHASE BANK, N.A.,
AS ADMINISTRATIVE AGENT, SWINGLINE LENDER
AND A LETTER OF CREDIT ISSUER,
BANK OF AMERICA, N.A.,
AS SYNDICATION AGENT, SWINGLINE LENDER
AND A LETTER OF CREDIT ISSUER,
AND

THE LENDERS
PARTY HERETO

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SECOND AMENDMENT TO CREDIT AGREEMENT

This Second Amendment to the Credit Agreement (this “Amendment”) dated as of November 2, 2015, is among California Resources Corporation, a Delaware corporation (the “Borrower”), each of the undersigned guarantors (the “Guarantors”), each Lender (as defined below) party hereto, and JPMorgan Chase Bank, N.A., as administrative agent for the Lenders (in such capacity, together with its successors and assigns, the “Administrative Agent”).

RECITALS

A.The Borrower, the Administrative Agent and the banks and other financial institutions from time to time party thereto (together with their respective successors and assigns in such capacity, each a “Lender”) have entered into that certain Credit Agreement dated as of September 24, 2014 (as amended by the First Amendment to Credit Agreement dated as of February 25, 2015 and as further amended, restated, modified or supplemented from time to time, the “Credit Agreement”).

B.The Borrower has requested and the Lenders party hereto have agreed to amend certain provisions of the Credit Agreement on the terms and conditions set forth herein.

C.NOW, THEREFORE, to induce the Administrative Agent and the Lenders to enter into this Amendment and in consideration of the premises and the mutual covenants herein contained, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

Section 1.Definitions. Unless otherwise defined in this Amendment, each capitalized term used in this Amendment has the meaning assigned to such term in the Credit Agreement. Unless otherwise indicated, all section references in this Amendment refer to sections of the Credit Agreement.

Section 2.Amendments to Credit Agreement.

2.1Amendments to Section 1.1.

(a)The following defined terms are hereby amended and restated in their entirety or added in their entirety, in each case to read as follows:

“Applicable Margin” shall mean:

(a) during an Investment Grade Period and as otherwise provided in clause (b) of this definition below, for any day, with respect to any ABR Loan or LIBOR Loan, as the case may be, the rate per annum set forth in the grid below based upon the Leverage Ratio in effect on such day:

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Table 1

Leverage Ratio Grid
Leverage Ratio	≥ 3.00x	< 3.00x and ≥ 2.00x	< 2.00x and  ≥ 1.00x	< 1.00x
LIBOR Loans	2.25%	2.00%	1.75%	1.50%
ABR Loans	1.25%	1.00%	0.75%	0.50%
Commitment Fee Rate	0.50%	0.50%	0.375%	0.30%

During an Investment Grade Period, each change in the Commitment Fee Rate or Applicable Margin shall apply during the period commencing on the last day of each fiscal quarter of the Borrower after the date of such change and ending on the last day of the succeeding fiscal quarter of the Borrower after the date of such change (the “Calculation Period”).

During an Investment Grade Period, if any financial statements required to be delivered under Section 10.1 are not delivered within the time periods specified in Section 10.1, then the Applicable Margin and Commitment Fee Rate previously in effect shall continue to apply until such financial statements are delivered; provided that upon delivery of such financial statements, if timely delivery of such financial statements would have led to the application of a higher Applicable Margin or a higher Commitment Fee Rate for any Applicable Period than the Applicable Margin or Commitment Fee Rate, as applicable, actually applied during such time, then the Borrower shall immediately pay to the Administrative Agent the net accrued additional interest and expense (determined after taking into account any corresponding reduction in the Applicable Margin or Commitment Fee Rate in any other period), if any, owing as a result of such increased Applicable Margin or Commitment Fee Rate;

and

(b) during a Borrowing Base Trigger Period, for any day, with respect to any ABR Loan or LIBOR Loan, as the case may be, the rate per annum set forth in the grid below based upon the Borrowing Base Utilization in effect on such day:

Table 2

Borrowing Base Utilization Grid
Borrowing Base Utilization Percentage	≥ 90%	< 90%	< 75%	< 50%	< 25%
LIBOR Loans	2.75%	2.50%	2.25%	2.00%	1.75%
ABR Loans	1.75%	1.50%	1.25%	1.00%	.75%
Commitment Fee Rate	0.50%	0.50%	0.50%	0.50%	0.50%

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provided that (i) if for any day during a Borrowing Base Trigger Period, with respect to any ABR Loan or LIBOR Loan, as the case may be, the rate per annum set forth in the grid of Table 2 is lower than the rate per annum set forth in the grid of Table 1, the rate per annum set forth in the grid of Table 1 shall apply and (ii) if for any day during a Borrowing Base Trigger Period, the Leverage Ratio for the applicable Calculation Period is equal to or lower than 3.00 to 1:00, then the rate per annum set forth in the grid of Table 1 shall apply with respect to any ABR Loan or LIBOR Loan, as the case may be.

During a Borrowing Base Trigger Period, each change in the Commitment Fee Rate or Applicable Margin shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change; provided, however, that if the Borrower fails to deliver a Reserve Report pursuant to Section 10.13, and until such Reserve Report is delivered, then the “Applicable Margin” means the rate per annum set forth on Table 2 when the Borrowing Base Utilization Percentage is at its highest level.

“Borrowing Base Properties” shall mean the Oil and Gas Properties of the Credit Parties included in the most recently delivered Reserve Report delivered pursuant to Section 10.13; provided that for the avoidance of doubt, Midstream Assets and Power Assets shall not constitute Borrowing Base Properties.

“Borrowing Base Trigger Event” shall mean (a) the public announcement by Moody’s or S&P that the Borrower’s Credit Rating is either Ba1 or lower from (or is unrated by) Moody’s or BB+ or lower from (or is unrated by) S&P or (b) the Borrower or one of its Restricted Subsidiaries creates, assumes or suffers to exist an Enumerated Lien.

“Borrowing Base Trigger Period” shall mean (a) the first Business Day following a Borrowing Base Trigger Event until the first Business Day on which (i) the Borrower’s Credit Rating is Baa3 with a stable or better outlook, or higher, from Moody’s and is BBB- with a stable or better outlook, or higher, from S&P and (ii) all Enumerated Liens are released; or (b) the period commencing with the date on which the Borrower elects under Section 14.18 to have the Facility governed by a Borrowing Base and ending on any date on which the Borrower has elected to cease to have the Facility governed by a Borrowing Base, provided, that on such date, no Borrowing Base Trigger Event is in effect.

“Borrowing Base Utilization Percentage” means, as of any day, the fraction expressed as a percentage, the numerator of which is the Total Exposure, and the denominator of which is the Borrowing Base in effect on such day.

“Collateral Requirements” shall mean, during a Borrowing Base Trigger Period, the collateral requirements set forth in Section 10.10 and in any other Security Document including without limitation:

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(a)    a pledge by the Credit Parties of (i) 100% of the stock of each Restricted Subsidiary that is a Domestic Subsidiary directly owned thereby and (ii) 66-2/3% of the stock of each Restricted Subsidiary that is a Foreign Subsidiary directly owned thereby; and

(b)    with respect to substantially all other assets of the Credit Parties other than Excluded Property, first priority, perfected liens and security interests on such assets of the Credit Parties; provided that, (i) with respect to the Borrower’s Oil and Gas Properties (other than Excluded Property), the Credit Parties shall be required to deliver and maintain an Acceptable Security Interest on not less than 80% (but shall not be required to deliver and maintain an Acceptable Security Interest on more than 80%) of the PV-9 of the Proved Reserves evaluated in the Reserve Report most recently delivered to the Administrative Agent and (ii) with respect to all other assets other than Excluded Property, the Credit Parties shall not be required to take any action to perfect a lien on any such assets securing the Facilities unless such perfection may be accomplished by (A) the filing of a UCC-1 financing statement in the obligor’s jurisdiction of formation, (B) delivery of certificates representing any pledged equity consisting of certificated securities, in each case, with appropriate endorsements or transfer powers, (C) granting the Administrative Agent control (within the meaning of the Uniform Commercial Code) over any pledged equity consisting of uncertificated securities or (D) granting the Administrative Agent control (within the meaning of the Uniform Commercial Code) over any Deposit Accounts (other than Excluded Deposit Accounts) by entering into a deposit account control agreement with the Administrative Agent and the account bank for such Deposit Account; provided further that such assets may be subject to Liens permitted under Section 11.2; and provided further that no intention to subordinate the first priority Lien of the Administrative Agent and the Secured Parties pursuant to the Security Documents is to be hereby implied or expressed by the permitted existence of such Permitted Liens.

“Consolidated EBITDAX” shall mean, for any period, for the Borrower and its Restricted Subsidiaries on a consolidated basis, an amount equal to Consolidated Net Income for such period plus (a) the following to the extent deducted in calculating such Consolidated Net Income: (i) Consolidated Interest Charges for such period, (ii) an amount equal to the provision for federal, state, and local income and franchise taxes payable or to become payable by the Borrower and its Restricted Subsidiaries for such period, (iii) depletion, depreciation, amortization and exploration expense for such period (including all drilling, completion, geological and geophysical costs), (iv) losses from asset Dispositions (excluding Hydrocarbons Disposed of in the ordinary course of business), (v) all other non-cash items reducing such Consolidated Net Income for such period, and (vi) extraordinary or non-recurring losses for such period, and minus (b) the following to the extent included in calculating such Consolidated Net Income: (i) federal, state and local income tax credits of the Borrower and its Restricted

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Subsidiaries for such period (ii) gains from asset Dispositions (excluding Hydrocarbons Disposed of in the ordinary course of business), (iii) all other non-cash items increasing Consolidated Net Income for such period, and (iv) extraordinary or non-recurring gains for such period; provided that, with respect to the determination of the Borrower’s compliance with the Financial Performance Covenants set forth in Section 11.11 for any period, Consolidated EBITDAX shall be adjusted to give effect, on a pro forma basis, to any Qualified Acquisition or Qualified Disposition made during such period, as if such acquisition or Disposition had occurred on the first day of such period.

“Consolidated First Lien Secured Debt” shall mean, as of any date of determination, the sum of (a) the Total Exposure of all Lenders on such date, plus (b) without duplication of any amounts included in clause (a), the aggregate principal amount of Consolidated Total Debt of the Borrower and its Restricted Subsidiaries on such date that is secured by a first priority Lien on any asset or Property of the Borrower or any Restricted Subsidiary, minus (c) the aggregate amount of unrestricted cash and Permitted Investments (other than clauses (b) and (i) thereof) included in the cash and cash equivalents accounts listed on the consolidated balance sheet of the Borrower and the Restricted Subsidiaries at such date, not to exceed $50,000,000 (it being understood that such amount shall exclude in any event any cash or cash equivalents identified on such balance sheet as “restricted” (it being further understood that (i) cash or cash equivalents subject to a control agreement in favor of any Person other than the Administrative Agent or any Lender shall be deemed “restricted”, and (ii) cash or cash equivalents restricted in favor of the Administrative Agent or any Lender (excluding cash that is Cash Collateralizing outstanding L/C Obligations under Section 3.8) shall be deemed not “restricted”)).

“Consolidated Interest Charges” shall mean, for any period, for the Borrower and its Restricted Subsidiaries on a consolidated basis, the sum of (a) all interest, premium payments, debt discount, fees, charges and related expenses of the Borrower and its Restricted Subsidiaries for such period in connection with borrowed money (including capitalized interest for such period) or in connection with the deferred purchase price of assets, in each case to the extent treated as interest in accordance with GAAP and (b) the portion of rent expense of the Borrower and its Restricted Subsidiaries with respect to such period under capital leases that is treated as interest in accordance with GAAP; provided, that Consolidated Interest Charges shall not include non-cash interest and amortization of original issue discount on the Permitted Second Lien Indebtedness; provided, further, that Consolidated Interest Charges shall include payment in kind interest.

“Consolidated Total Debt” shall mean, as of any date of determination, (a) all Indebtedness of the types described in clauses (a) and (b) (other than intercompany Indebtedness owing to the Borrower or any Restricted Subsidiary), clause (d) (but, in the case of clause (d), only to the extent of any unreimbursed drawings

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under any letter of credit that has not been cash collateralized) and clauses (e) through (i) (but, in the case of clause (i) only to the extent of Guarantee Obligations with respect to Indebtedness otherwise included in this definition) of the definition thereof, in each case actually owing by the Borrower and the Restricted Subsidiaries on such date and to the extent appearing on the balance sheet of the Borrower determined on a consolidated basis in accordance with GAAP minus (b) the aggregate amount of unrestricted cash and Permitted Investments (other than clauses (b) and (i) thereof) included in the cash and cash equivalents accounts listed on the consolidated balance sheet of the Borrower and the Restricted Subsidiaries at such date, not to exceed $50,000,000 (it being understood that such amount shall exclude in any event any cash or cash equivalents identified on such balance sheet as “restricted” (it being understood that (i) cash or cash equivalents subject to a control agreement in favor of any Person other than the Administrative Agent or any Lender shall be deemed “restricted”, and (ii) cash or cash equivalents restricted in favor of the Administrative Agent or any Lender (excluding cash that is Cash Collateralizing outstanding L/C Obligations under Section 3.8) shall be deemed not “restricted”)).

“Enumerated Liens” shall mean, at any time of determination, any Lien that is incurred under Section 11.2(e) (but only with respect to Liens permitted by Section 11.2(f)) or Sections 11.2(f), (g), (h), (w), (y), or (z); provided that if at such time such Lien could otherwise be incurred under Section 11.2, such Lien shall not be deemed to be an Enumerated Lien at such time.

“Excluded Deposit Account” shall mean Deposit Accounts the balance of which consists exclusively of (a) withheld income taxes and federal, state or local employment taxes required to be paid to the Internal Revenue Service or state or local government agencies with respect to employees of the Borrower or any Subsidiary, (b) amounts required to be paid over to an employee benefit plan pursuant to DOL Reg. Sec. 2510.3 102 on behalf of or for the benefit of employees of the Borrower or any Subsidiary and (c) amounts set aside for payroll and the payment of accrued employee benefits, medical, dental and employee benefits claims to employees of the Borrower or any Subsidiary.

“Excluded Property” shall mean (a) all Excluded Stock, (b) any property to the extent the grant or maintenance of a Lien on such property (i) is prohibited by applicable law, (ii) could reasonably be expected to result in material adverse tax consequences to the Borrower or any Subsidiary of the Borrower, (iii) requires a consent not obtained of any Governmental Authority pursuant to applicable law or (iv) is prohibited by, or constitutes a breach or default under or results in the termination of or requires any consent not obtained under, any contract, license, agreement, instrument or other document evidencing or giving rise to such property, except to the extent that such term in such contract, license, agreement, instrument or other document or similar agreement providing for such prohibition, breach, default or termination or requiring such consent is ineffective under

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applicable law (including without limitation, pursuant to Section 9-406, 9-407, 9-408 or 9-409 of the New York UCC), (c) motor vehicles and other assets subject to certificates of title, (d) trust accounts, payroll accounts, zero balance accounts and escrow accounts, in each case for so long as they remain such type of account, (e) all real property not constituting Borrowing Base Properties, (f) all Midstream Assets and Power Assets and (g) any property as to which the Administrative Agent and the Borrowers agree in writing that the costs of obtaining a security interest in, or Lien on, such property, or perfection thereof, are excessive in relation to the value to the Secured Parties of the security interest afforded thereby.

“First Lien Senior Secured Leverage Ratio” shall mean as of the last day of each fiscal quarter of the Borrower, the ratio of (a) Consolidated First Lien Secured Debt as of such date to (b) Consolidated EBITDAX for the Test Period ending on such date (after giving pro forma effect to any transactions contemplated in such period as set forth in the definition of “Consolidated EBITDAX”).

“First Scheduled Redetermination Date” shall mean January 15, 2016.

“Interest Expense Ratio” shall mean, as of the last day of each fiscal quarter of the Borrower, the ratio of (a) Consolidated EBITDAX for the Test Period ending on such date (after giving pro forma effect to any transactions completed in such period as set forth the definition of “Consolidated EBITDAX”) to (b) Consolidated Interest Charges for the Test Period ending on such date.

“ISP” shall mean, with respect to any standby Letter of Credit, the “International Standby Practices 1998” published by the Institute of International Banking Law & Practice (or such later version thereof as may be in effect at the time of issuance).

“Leverage Ratio” shall mean, as of the last day of each fiscal quarter of the Borrower, the ratio of (a) Consolidated Total Debt as of such date to (b) Consolidated EBITDAX for the Test Period ending on such date (after giving pro forma effect to any transactions completed in such period as set forth in the definition of “Consolidated EBITDAX”).

“Liquidity” shall mean, as of any date of determination, the positive difference, if any, between (a) the sum of (i) the Available Revolving Commitment and (ii) the aggregate amount of unrestricted cash and cash equivalents of the Borrower and its Restricted Subsidiaries as set forth on the most recent consolidated balance sheet of the Borrower and its Restricted Subsidiaries (it being understood that (1) cash or cash equivalents subject to a control agreement in favor of any Person other than the Administrative Agent or any Lender shall be deemed “restricted” (except calculating the Consolidated Cash Balance for purposes of Section 5.2(d), in which case such cash or cash equivalents shall be deemed not “restricted”) and (2) cash or cash equivalents upon which a Lien in favor of the Administrative Agent or any Lender has been granted (excluding cash that is Cash Collateralizing outstanding L/C Obligations under Section 3.8) shall be deemed

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not “restricted”) (the amount in this clause (ii), the “Consolidated Cash Balance”) and (b) the amount, if any, of the Borrowing Base Deficiency existing on such date of determination.

“Midstream Assets” shall mean all tangible and intangible property used in (a) gathering, compressing, treating, processing and transporting Hydrocarbons, water or steam; (b) fractionating and transporting Hydrocarbons, water or steam; and (c) marketing Hydrocarbons, water or steam; including, without limitation, gathering lines and gathering systems, pipelines and pipeline systems, storage facilities, liquid extraction plants, plant compressors, pumps, pumping units, field gathering systems, gas processing plants, and any other gathering, transportation, compression, storage, processing, treating, dehydration, fractionation, generation, disposal or other similar assets related to the handling of Hydrocarbons, water or steam, and together with surface leases, rights-of-way, easements and servitudes related to each of the foregoing.

“Net Cash Proceeds” shall mean (a) with respect to any Disposition, the cash proceeds (including cash proceeds subsequently received (as and when received) in respect of noncash consideration initially received), net of (i) selling expenses (including reasonable broker’s fees or commissions, legal, accounting and investment banking fees and expenses, title insurance premiums, survey costs, transfer and similar taxes and the Borrower’s good faith estimate of income taxes paid or payable in connection with such sale), (ii) amounts provided as a reserve, in accordance with GAAP, against any liabilities under any indemnification obligations or purchase price adjustment associated with such Disposition (provided that, to the extent and at the time any such amounts are released from such reserve, such amounts shall constitute Net Cash Proceeds), (iii) amounts paid in respect of the termination of Hedge Agreements in respect of notional volumes or amounts corresponding to the property subject of such Disposition or any Indebtedness being repaid under clause (iv) and (iv) the principal amount, premium or penalty, if any, interest and other amounts on any Indebtedness permitted hereunder that is secured by a Lien permitted hereunder (other than any Lien pursuant to a Security Document) on the asset disposed of in such Disposition and required to be repaid with such proceeds (other than any such Indebtedness assumed by the purchaser of such asset); and (b) with respect to any issuance or incurrence of Indebtedness, the cash proceeds thereof, net of all taxes and attorneys’ fees, accountants’ fees, underwriters’ or placement agents’ fees, listing fees, commissions and brokerage, consultant and other customary fees and charges actually incurred in connection with such issuance.

“Permitted Refinancing Indebtedness” shall mean, with respect to any Indebtedness (the “Refinanced Indebtedness”), any Indebtedness issued or incurred in exchange for, or the net proceeds of which are used to modify, extend, refinance, renew, replace or refund (collectively to “Refinance” or a “Refinancing” or “Refinanced”), such Refinanced Indebtedness (or previous

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refinancing thereof constituting Permitted Refinancing Indebtedness); provided that (A) the principal amount (or accreted value, if applicable) of any such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Refinanced Indebtedness outstanding immediately prior to such Refinancing except by an amount equal to the unpaid accrued interest and premium thereon plus other amounts paid and fees and expenses incurred in connection with such Refinancing plus an amount equal to any existing commitment unutilized and letters of credit undrawn thereunder, (B) if the Indebtedness being Refinanced is Indebtedness permitted by Section 11.1(h) or 11.1(i), the direct and contingent obligors with respect to such Permitted Refinancing Indebtedness are not changed (except that a Credit Party may be added as an additional obligor), (C) other than with respect to a Refinancing in respect of Indebtedness permitted pursuant to Section 11.1(g), such Permitted Refinancing Indebtedness shall have a final maturity date equal to or later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Refinanced Indebtedness (calculated at the time such Permitted Refinancing Indebtedness is incurred), (D) if the Indebtedness being Refinanced is Indebtedness permitted by Section 11.1(h) or 11.1(i), terms and conditions of any such Permitted Refinancing Indebtedness, taken as a whole, are not materially less favorable to the Lenders than the terms and conditions of the Refinanced Indebtedness being Refinanced (including, if applicable, as to collateral priority and subordination, but excluding as to interest rates, fees, floors, funding discounts and redemption or prepayment premiums); provided that a certificate of an Authorized Officer of the Borrower delivered to the Administrative Agent at least five Business Days prior to the incurrence or issuance of such Indebtedness, together with a reasonably detailed description of the material terms and conditions of such Indebtedness or drafts of the documentation relating thereto, stating that the Borrower has determined in good faith that such terms and conditions satisfy the foregoing requirement shall be conclusive evidence that such terms and conditions satisfy the foregoing requirement and (E) if the Indebtedness being Refinanced is Indebtedness permitted by Section 11.1(z), the terms and conditions of such Permitted Refinancing Indebtedness meet the requirements of clauses (i), (ii), (iii) and (iv) of the definition of “Permitted Second Lien Indebtedness” if such Permitted Refinancing Indebtedness is secured by any Property of the Borrower or its Restricted Subsidiaries.

“Permitted Second Lien Indebtedness” shall mean Indebtedness of the Borrower and its Subsidiaries that is secured by a second priority Lien on any asset or Property of the Borrower or any Restricted Subsidiary; provided, that such Indebtedness (i) is subject to an intercreditor agreement in the form of Exhibit J, (ii) has a maturity date that is not earlier than 91 days after the Maturity Date (determined at the time of issuance or incurrence), (iii) is issued at market terms, as certified by an Authorized Officer of the Borrower in good faith and (iv) may not be mandatorily prepaid prior the repayment of the Term Loans (except

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regularly scheduled amortization payments not to exceed 1% annually of the original principal amount of such Indebtedness); provided, further, that the terms and documentation of such Indebtedness shall be (A) reasonably satisfactory to the Administrative Agent or (B) either (x) not materially more restrictive, taken as a whole, to the Borrower and its Restricted Subsidiaries, than the Credit Documents (or if materially more restrictive, the Lenders receive the benefit of the more restrictive terms which, for the avoidance of doubt, may be provided to the Lenders without consent) or (y) if more restrictive, then such more restrictive terms are only applicable after the Maturity Date, in each case, as certified by an Authorized Officer of the Borrower in good faith.

“Power Assets” shall mean all tangible and intangible property used in connection with the ownership and operation of electric power and cogeneration facilities, including, without limitation, related transmission lines and gas lines.

“PV-9” shall mean, with respect to any Proved Reserves expected to be produced from any Borrowing Base Properties, the net present value, discounted at 9% per annum, of the future net revenues expected to accrue to the Credit Parties’ collective interests in such reserves during the remaining expected economic lives of such reserves, calculated using the Bank Price Deck (provided to the Borrower by the Administrative Agent pursuant to Section 2.14(j)) and, solely with respect to Section 2.14(k), the Strip Price. The PV-9 attributable to Proved Non-Producing Reserves and Proved Undeveloped Reserves (in the aggregate) shall not exceed 35% of aggregate PV-9. The PV-9 shall be adjusted to give effect to the Hedge Agreements (or term physical sales contracts) permitted by this Agreement as in effect on the date of such determination.

“Reserve Report” shall mean any report, in form and substance reasonably satisfactory to the Administrative Agent, setting forth, as of each December 31^st (or another date in the event of certain Interim Redeterminations or establishing the Borrowing Base after a Borrowing Base Trigger Event) the Proved Reserves and the Proved Developed Reserves attributable to the Borrowing Base Properties of the Borrower and the Credit Parties, together with a projection of the rate of production and future net income, taxes, operating expenses and Capital Expenditures with respect thereto as of such date, based upon the most recent Bank Price Deck provided to the Borrower by the Administrative Agent pursuant to Section 2.14(j) and, solely with respect to Section 2.14(k), the Strip Price; provided that in connection with any Interim Redeterminations of the Borrowing Base pursuant to the last sentence of Section 2.14(b), (i.e., as a result of the Borrower having acquired Oil and Gas Properties with Proved Reserves that are to be Borrowing Base Properties having a PV-9 (calculated at the time of acquisition) in excess of 10% of the Borrowing Base in effect immediately prior to such acquisition), the Borrower shall be required, for purposes of updating the Reserve Report, to set forth only such additional Proved Reserves and related information as are the subject of such acquisition.

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“Second Amendment” shall mean that certain Second Amendment to Credit Agreement, dated as of November 2, 2015, between the Borrower, the Administrative Agent and the Lenders party thereto.

“Second Amendment Effective Date” shall mean the Effective Date as defined in the Second Amendment.

“UCP” shall mean, with respect to any commercial or standby Letter of Credit, the Uniform Customs and Practice for Documentary Credits (2007 Revision), International Chamber of Commerce Publication No. 600 (or such later version thereof as may be in effect at the time of issuance).

(b)Clause (m) of the definition of “Permitted Liens” is hereby amended and restated in its entirety to read as follows:

(m)    Liens which arise in the ordinary course of business under operating agreements (including preferential purchase rights, consents to assignment and other restraints on alienation), joint operating agreements, joint venture agreements, oil and gas partnership agreements, oil and gas leases, farm-out agreements, farm-in agreements, division orders, contracts for the sale, transportation or exchange of oil and natural gas, unitization and pooling declarations and agreements, area of mutual interest agreements, overriding royalty and royalty agreements, reversionary interests, marketing agreements, processing agreements, net profits agreements, development agreements, gas balancing or deferred production agreements, injection, repressuring and recycling agreements, salt water or other disposal agreements, seismic or other geophysical permits or agreements, and other agreements that are usual and customary in the oil and gas business and are for claims which are not delinquent or that are being contested in good faith and by appropriate proceedings for which appropriate reserves have been established to the extent required by and in accordance with GAAP; and to the extent the same constitute Liens, Liens on Oil and Gas Properties that arise pursuant to usual and customary dedications of Hydrocarbon production from specified Oil and Gas Properties in favor of a joint venture providing midstream services in connection with the obligation to deliver such Hydrocarbons, if and when produced, for transportation or processing by such joint venture, in each case so long as such Liens do not secure any monetary obligation; provided that any such Lien referred to in this clause does not in the aggregate have a Material Adverse Effect;

(c)The following defined terms are hereby deleted in their entirety: “Existing Financial Covenants”, “Interim Covenant Period” and “Regular Covenant Period”.

2.2Amendment to Section 2.14(e). Section 2.14(e) of the Credit Agreement is hereby amended by adding the following sentence at the end thereof:

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For the avoidance of doubt, no adjustment shall be made to the Borrowing Base in connection with a Disposition of Oil and Gas Properties that are not Borrowing Base Properties (including, for the avoidance of doubt, Midstream Assets and Power Assets).

2.3Amendment to Section 2.14(f). The first parenthetical in Section 2.14(f) of the Credit Agreement is hereby amended in its entirety to read as follows:

(other than (i) Indebtedness constituting Permitted Refinancing Indebtedness up to the original principal amount of the refinanced Indebtedness and (ii) Permitted Second Lien Indebtedness incurred to refinance the Term Loans or the Senior Notes, up to the original principal amount of the refinanced Term Loans or Senior Notes, as applicable).

2.4Amendment to Section 2.14(k). Section 2.14(k) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

(k)    Revolving Facility Termination. If (i) the Revolving Facility has terminated, (ii) a Borrowing Base Trigger Period is continuing, and (iii) JPMorgan Chase Bank, N.A. is no longer the Administrative Agent hereunder, the Borrowing Base will be equal to the amount of (1) 65% of the PV-9 of the Proved Developed Producing Reserves described in the most recent Reserve Report delivered to the Administrative Agent, based on the Strip Price, plus (2) 35% of the PV-9 of Proved Non-Producing Reserves described in such Reserve Report, based on the Strip Price, plus (3) 25% of the PV-9 of Proved Undeveloped Reserves described in such Reserve Report, based on the Strip Price, plus or minus (4) 65% of the PV-9 of the future receipts expected to be paid to or by the Borrower and its restricted subsidiaries under commodity Hedge Agreements or term physical sales contracts (other than basis differential commodity swap agreements), netted against the Strip Price, plus or minus (5) 65% of the PV-9 of the future receipts expected to be paid to or by the Borrower and its Restricted Subsidiaries under basis differential commodity Hedge Agreements, in each case for the Borrower and its Restricted Subsidiaries.

2.5Amendment to Section 3.3(c). Section 3.3(c) of the Credit Agreement is hereby amended in its entirety to read as follows:

(c)    In the event that the Letter of Credit Issuer makes any payment under any Letter of Credit issued by it and the Borrower shall not have repaid such amount in full to the respective Letter of Credit Issuer pursuant to Section 3.4(a), or if any reimbursement payment is required to be refunded to the Borrower, the Letter of Credit Issuer shall promptly notify the Administrative Agent and each L/C Participant of such failure, and each such L/C Participant shall promptly and unconditionally pay to the Administrative Agent for the account of the Letter of Credit Issuer, the amount of such L/C Participant’s Revolving Commitment

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Percentage of such unreimbursed payment in Dollars and in immediately available funds; provided, however, that the foregoing shall not be construed to excuse the Letter of Credit Issuer for any liability to the Borrower arising from any wrongful payment made by the Letter of Credit Issuer under any such Letter of Credit as a result of acts or omissions constituting willful misconduct or gross negligence on the part of the Letter of Credit Issuer (as determined in a final and non-appealable judgment by a court of competent jurisdiction). Each L/C Participant shall make available to the Administrative Agent for the account of the Letter of Credit Issuer such L/C Participant’s Revolving Commitment Percentage of the amount of such payment no later than 1:00 p.m. (New York City time) on the first Business Day after the date notified by the Letter of Credit Issuer in immediately available funds. If and to the extent such L/C Participant shall not have so made its Revolving Commitment Percentage of the amount of such payment available to the Administrative Agent for the account of the Letter of Credit Issuer, such L/C Participant agrees to pay to the Administrative Agent for the account of the Letter of Credit Issuer, forthwith on demand, such amount, together with interest thereon for each day from such date until the date such amount is paid to the Administrative Agent for the account of the Letter of Credit Issuer at a rate per annum equal to the Overnight Rate from time to time then in effect, plus any administrative, processing or similar fees customarily charged by the Letter of Credit Issuer in connection with the foregoing. The failure of any L/C Participant to make available to the Administrative Agent for the account of the Letter of Credit Issuer its Revolving Commitment Percentage of any payment under any Letter of Credit shall not relieve any other L/C Participant of its obligation hereunder to make available to the Administrative Agent for the account of the Letter of Credit Issuer its Revolving Commitment Percentage of any payment under such Letter of Credit on the date required, as specified above, but no L/C Participant shall be responsible for the failure of any other L/C Participant to make available to the Administrative Agent such other L/C Participant’s Revolving Commitment Percentage of any such payment

2.6Amendment to Section 3.3(e). The paragraph appearing immediately after Section 3.3(e) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

provided, however, that the foregoing shall not be construed to excuse the Letter of Credit Issuer for any liability to the Borrower arising from any wrongful payment made by the Letter of Credit Issuer under a Letter of Credit as a result of acts or omissions constituting willful misconduct or gross negligence on the part of the Letter of Credit Issuer (as determined in a final and non-appealable judgment by a court of competent jurisdiction).

2.7Amendment to Section 3.4(b). Section 3.4(b) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

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(b)     The obligations of the Borrower under this Section 3.4 to reimburse the Letter of Credit Issuer with respect to Unpaid Drawings (including, in each case, interest thereon) shall be absolute and unconditional under any and all circumstances and irrespective of any set-off, counterclaim or defense to payment that the Borrower or any other Person may have or have had against the Letter of Credit Issuer, the Administrative Agent or any Lender (including in its capacity as an L/C Participant), including any defense based upon the failure of any drawing under a Letter of Credit (each a “Drawing”) to conform to the terms of the Letter of Credit or any non-application or misapplication by the beneficiary of the proceeds of such Drawing; provided that the foregoing shall not be construed to excuse the Letter of Credit Issuer for any liability to the Borrower for wrongful payment made by the Letter of Credit Issuer under the Letter of Credit issued by it as a result of acts or omissions constituting willful misconduct or gross negligence on the part of the Letter of Credit Issuer (as determined in a final and non-appealable judgment by a court of competent jurisdiction).

2.8Amendment to Section 3.9. Section 3.9 of the Credit Agreement is hereby amended in its entirety to read as follows:

3.9 Applicability of ISP and UCP. Unless otherwise expressly agreed by the Letter of Credit Issuer and the Borrower when a Letter of Credit is issued, (a) the rules of the ISP shall apply to each standby Letter of Credit and (b) the rules of the UCP, as most recently published by the International Chamber of Commerce at the time of issuance, shall apply to each commercial Letter of Credit and, on an exception basis to a standby Letter of Credit, as may be required by local law or statute.

2.9Amendment to Section 5.2. Section 5.2 of the Credit Agreement is hereby amended by (a) deleting Subsection 5.2(d) in its entirety and adding the following as new Subsection 5.2(d); (b) adding the following new Subsection 5.2(e) after the current Subsection 5.2(d) and (c) renumbering the current Subsections 5.2(e) (together with the paragraph appearing immediately thereafter) and 5.2(f) as, respectively, Subsections 5.2(f) and 5.2(g):

(d)     Application of Excess Cash. If, as of any date of determination, the Consolidated Cash Balance exceeds $250,000,000, the Borrower shall on the next Business Day prepay (i) any then-outstanding Swingline Loans and (ii) after all Swingline Loans have been paid in full, any then-outstanding Revolving Loans, in an aggregate principal amount equal to the lesser of (A) such excess and (B) the sum of the then-outstanding Swingline Loans plus Revolving Loans.

(e)     Repayment of Loans Following Disposition of Non-Borrowing Base Properties. If the Borrower or any one of the other Credit Parties Disposes of Oil and Gas Properties or Disposes of any Stock or Stock Equivalents in any Restricted Subsidiary owning Oil and Gas Properties, and such Disposition does not involve Borrowing Base Properties, the Borrower

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shall, on the next Business Day, prepay the Term Loans in an aggregate principal amount equal to the lesser of (A) 50% of the Net Cash Proceeds obtained from such Disposition and (B) the sum of the then-outstanding Term Loans.

2.10Amendment to Section 5.4(i). Section 5.4(i) of the Credit Agreement is hereby amended by adding the following sentence at the end thereof:

For purposes of determining withholding Taxes imposed under FATCA, from and after the effective date of the Second Amendment, the Borrower and the Administrative Agent shall treat (and the Lenders hereby authorize the Administrative Agent to treat) the Loans as not qualifying as a “grandfathered obligation” within the meaning of Treasury Regulation Section 1.1471-2(b)(2)(i).

2.11Amendment to Section 10.10(d). The last sentence of Section 10.10(d) is hereby amended in its entirety to read as follows:

Notwithstanding the foregoing, Borrower will not be required to take any action to perfect a Lien on any of its or the Subsidiaries’ personal property unless perfection may be accomplished by (A) the filing of a Uniform Commercial Code financing statement in Borrower’s or a Subsidiary’s respective jurisdiction of formation or in the case of as-extracted collateral and goods that are or are to become fixtures or collateral in connection with a Mortgage, the filing of a financing statement filed as a fixture filing or as a financing statement covering such property in the county in which such collateral or fixtures are located, (B) delivery of certificates representing pledged Stock or Stock Equivalents consisting of certificated securities together with appropriate endorsements or transfer powers, (C) granting the Administrative Agent “control” (within the meaning of the relevant Uniform Commercial Code) over any pledged Stock or Stock Equivalents consisting of uncertificated securities and (D) granting the Administrative Agent “control” (within the meaning of the relevant Uniform Commercial Code) over any Deposit Accounts (other than Excluded Deposit Accounts) by entering into a deposit account control agreement with the Administrative Agent and the account bank for such Deposit Account.

2.12Amendment to Section 10.13(b). Section 10.13(b) of the Credit Agreement is hereby amended in its entirety to read as follows:

(b) Upon a Borrowing Base Trigger Event or in the event of an Interim Redetermination, the Borrower shall furnish to the Administrative Agent a Reserve Report prepared by one or more Approved Petroleum Engineers or by or under the supervision of the chief engineer of the Borrower or by the Borrower. For any Interim Redetermination pursuant to Section 2.14(b) or any determination of the Borrowing Base upon a Borrowing Base Trigger Event pursuant to Section 2.14(l), the Borrower shall provide such Reserve Report as soon as possible, but in any event (i) no later than ninety (90) days following the receipt of such a request occurring on or prior

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to December 31, 2015 and (ii) no later than sixty (60) days following the receipt of such a request occurring after December 31, 2015, in each case with an “as of” date as of the most recent month ending prior to the request; provided that the Reserve Report delivered in connection with the Borrowing Base Trigger Event occurring immediately prior to the Second Amendment shall have an “as of” date of October 1, 2015.

2.13Amendments to Section 11.1. Section 11.1 of the Credit Agreement is hereby amended by adding the word “and” to the end of subclause (y), deleting the period at the end of subclause (y), amending and restating subclause (x) as set forth below and adding the following as subclause (z):

(x)    during a Borrowing Base Trigger Period, other Indebtedness so long as (i) the aggregate principal amount of such Indebtedness at the time of the incurrence thereof and after giving pro forma effect thereto and the use of proceeds thereof, does not exceed the greater of $200,000,000 and 1.50% of Consolidated Total Assets (measured, in each case, as of the date such Indebtedness is incurred based upon the financial statements most recently available prior to such date) and (ii) after giving pro forma effect thereto, the Borrower is in pro forma compliance with the Financial Performance Covenants set forth in Section 11.11;

(z)    Permitted Second Lien Indebtedness and any Permitted Refinancing Indebtedness issued or incurred to refinance such Indebtedness not to exceed, at any time, $2,250,000,000; provided that as of the time of the issuance or incurrence thereof and after giving pro forma effect thereto and to the use of proceeds thereof, (i) no Event of Default has occurred and is continuing, (ii) the Borrower is in pro forma compliance with the Financial Performance Covenants set forth in Section 11.11 and (iii) the proceeds thereof are issued or incurred to prepay, repurchase, redeem or defease (A) the Term Loans simultaneously with the issuance or incurrence of such Indebtedness or (B) the Senior Notes or Permitted Additional Debt, so long as, with respect to this clause (B), (I) Liquidity is equal to $750,000,000 or greater and (II) the aggregate increase in the Consolidated Interest Charges resulting from transactions consummated pursuant to this clause (B) from the Second Amendment Effective Date to the date of such issuance or incurrence does not exceed $34,000,000.

2.14Amendment to Section 11.2.

(a)Section 11.2 of the Credit Agreement is hereby amended by adding the words “during a Borrowing Base Trigger Period,” (i) to clause (e) thereof immediately before the first instance of the phrase “(f)” and (ii) at the beginning of clause (h) thereof.

(b)Section 11.2 of the Credit Agreement is hereby amended by deleting the existing subclause (y) and adding the following as new subclause (y) and subclause (z):

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(y)     during a Borrowing Base Trigger Period, Liens securing Indebtedness issued or incurred under Section 11.1(z); provided that such Liens are subordinated to the Liens securing the Obligations pursuant to an intercreditor agreement in the form of Exhibit J; and

(z)     during a Borrowing Base Trigger Period, additional Liens on property not constituting Borrowing Base Properties, so long as (i) the aggregate principal amount of the obligations secured thereby at the time of the incurrence thereof and after giving pro forma effect thereto and the use of proceeds thereof, does not exceed the greater of $200,000,000 and 1.50% of Consolidated Total Assets (measured, in each case, as of the date such Lien or the obligations secured is incurred based upon the financial statements most recently available prior to such date) and (ii) after giving pro forma effect thereto the Borrower is in pro forma compliance with the Financial Performance Covenants set forth in Section 11.11(measured based on the financial statements most recently delivered prior to such date).

2.15Amendment to Section 11.6(h). Section 11.6(h) of the Credit Agreement is hereby amended in its entirety to read as follows:

(h)     during any Borrowing Base Trigger Period, if, after giving pro forma effect thereto, (i) no Event of Default shall have occurred and be continuing, and (ii) Available Revolving Commitment is not less than 10% of the then effective Revolving Loan Limit (on a pro forma basis after giving effect to such Restricted Payment), the Borrower may make, declare and pay additional Restricted Payments in an aggregate amount not to exceed $20,000,000 per calendar year, in cash or otherwise to the holders of its Stock and Stock Equivalents; provided, that, in the case of any Restricted Payment in the form of assets other than cash, no such Restricted Payment shall be made if a Borrowing Base Deficiency would result from an adjustment to the Borrowing Base resulting from such Restricted Payment (unless the Borrower shall have cash on hand sufficient to eliminate any such potential Borrowing Base Deficiency);

2.16Amendment to Section 11.7(a). Section 11.7(a) of the Credit Agreement is hereby amended in its entirety to read as follows:

(a)    The Borrower will not, and will not permit any Restricted Subsidiary to, optionally prepay, repurchase or redeem or otherwise defease the Senior Notes, any Permitted Second Lien Indebtedness or any Permitted Additional Debt (it being understood that payments of regularly scheduled cash interest in respect of, and payment of principal on the scheduled maturity date of, the Senior Notes, Permitted Second Lien Indebtedness (only to the extent permitted under the definition thereof) or Permitted Additional Debt shall be permitted); provided, that:

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(i) the Borrower or any Subsidiary may optionally prepay, repurchase, redeem or defease the Senior Notes or any Permitted Additional Debt in an amount not to exceed the sum of (a) $150,000,000, plus (b) the amount equal to 50% of the Net Cash Proceeds obtained from any Disposition pursuant to Section 11.4(a)(xiii); so long as (A) the principal amount of such Senior Notes or Permitted Additional Debt is prepaid, repurchased, redeemed or defeased at a discount of 30% or greater (calculated for each prepayment, repurchase, redemption or defeasance on a weighted average basis giving effect (in addition to the discount in such prepayment, repurchase, redemption or defeasance) to any prior discount in prepayments, repurchases, redemptions or defeasances that have occurred from the first day of the calendar quarter in which such prepayment, repurchase, redemption or defeasance is consummated to the date such prepayment, repurchase, redemption or defeasance is consummated) and (B) after giving proforma effect to such prepayment, repurchase, redemption or defeasance, (1) Liquidity is equal to $750,000,000 or greater, (2) no Event of Default has occurred and is continuing and (3) after giving proforma effect to such prepayment, repurchase, redemption or defeasance, the Borrower is in pro forma compliance with the Financial Performance Covenants set forth in Section 11.11;

(ii) the Borrower or any Subsidiary may (A) optionally prepay, repurchase, redeem or defease the Senior Notes or any Permitted Additional Debt with the Net Cash Proceeds of Permitted Second Lien Indebtedness in an amount not to exceed the positive difference (if any) between (1) the aggregate amount of Net Cash Proceeds of Permitted Second Lien Indebtedness issued at any time after the Second Amendment Effective Date to the date of such prepayment, repurchase, redemption or defeasance and (2) the aggregate amount of the Net Cash Proceeds used to prepay, repurchase, redeem or defease such Senior Notes or Permitted Additional Debt pursuant to this Section 11.7(a)(ii) during such period, (B) exchange the Senior Notes or any Permitted Additional Debt for Permitted Second Lien Indebtedness issued in connection with such exchange or (C) exchange the Senior Notes or any Permitted Additional Debt for Permitted Second Lien Indebtedness issued in connection with such exchange and Net Cash Proceeds of Permitted Second Lien Indebtedness (in the case of such Net Cash Proceeds not to exceed the amount specified in clause (A) above); provided that, in each case after giving pro forma effect to such prepayment, repurchase, redemption, defeasance or exchange (1) Liquidity is equal to $750,000,000 or greater, (2) no Event of Default has occurred and is continuing, (3) the aggregate increase in the Consolidated Interest Charges resulting from transactions consummated pursuant to this Section 11.7(a)(ii) (including such prepayment, repurchase, redemption, defeasance or exchange) from the Second Amendment Effective Date to the date of such prepayment, repurchase, redemption, defeasance or

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exchange does not exceed $34,000,000 and (4) after giving proforma effect to such prepayment, repurchase, redemption or defeasance, the Borrower is in pro forma compliance with the Financial Performance Covenants set forth in Section 11.11;

2.17Amendment to Section 11.11. Section 11.11 of the Credit Agreement is hereby amended in its entirety to read as follows:

Section 11.11    Financial Performance Covenants.

(a) Leverage Ratio.

(A) During a Borrowing Base Trigger Period, the Borrower will not permit the First Lien Senior Secured Leverage Ratio as of the last day of each fiscal quarter of the Borrower to be greater than 2.25 to 1:00.

(B) During an Investment Grade Period, the Borrower will not permit the Leverage Ratio as of the last day of each fiscal quarter of the Borrower to be greater than 4.50 to 1.00.

(b) Interest Expense Ratio.

(A) During a Borrowing Base Trigger Period, the Borrower will not permit the Interest Expense Ratio as of the last day of each fiscal quarter of the Borrower to be less than 2.00 to 1.00.

(B) During an Investment Grade Period, the Borrower will not permit the Interest Expense Ratio as of the last day of each fiscal quarter of the Borrower to be less than 2.50 to 1.00.

(c) Asset Coverage Ratio. As of the last day of each fiscal quarter of the Borrower (other than during a Borrowing Base Trigger Period when a Borrowing Base has been established), the Borrower will not permit the Asset Coverage Ratio to be less than the ratio applicable to such fiscal quarter set forth below:

Fiscal Quarter Ending	Asset Coverage Ratio
March 31, 2015 through December 31, 2016	1.05 to 1.00
Thereafter	1.50 to 1.00

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2.18Amendment to Section 13.12. Section 13.12 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

13.12    Security Documents and Guarantee. Each Secured Party hereby further authorizes the Administrative Agent, on behalf of and for the benefit of Secured Parties, to be the agent for and representative of the Secured Parties with respect to the Collateral and the Security Documents. Subject to Section 14.1, without further written consent or authorization from any Secured Party, the Administrative Agent may (a) execute any documents or instruments necessary in connection with a Disposition of assets permitted by this Agreement, (b) release any Lien encumbering any item of Collateral that is the subject of such Disposition of assets or with respect to which Majority Lenders (or such other Lenders as may be required to give such consent under Section 14.1) have otherwise consented, (c) release any Guarantor from the Guarantee with respect to which Majority Lenders (or such other Lenders as may be required to give such consent under Section 14.1) have otherwise consented or (d) enter into an intercreditor agreement in the form of Exhibit J.

2.19Amendments to Schedules. Schedule 14.2 of the Credit Agreement is hereby amended by deleting such Schedule in its entirety and replacing it with Schedule 14.2 attached hereto.

2.20Amendments to Exhibits. The attached Exhibit J is hereby added to the Credit Agreement as Exhibit J.

Section 3.Borrowing Base. On the Effective Date, the Borrowing Base shall be equal to $3,000,000,000, which Borrowing Base shall remain in effect until the First Scheduled Redetermination Date, the next Scheduled Redetermination Date, the next Interim Redetermination Date or the next adjustment to the Borrowing Base under Section 2.14(e), Section 2.14(f), Section 2.14(g) or Section 2.14(l) of the Credit Agreement, whichever occurs first. This Section 3 constitutes (a) notice of the redetermined Borrowing Base in accordance with Section 2.14(d) of the Credit Agreement and (b) acknowledgement by the Required Revolving Lenders that they have approved the redetermined Borrowing Base consistent with each such Lender’s usual and customary oil and gas lending criteria as they currently exist as provided in Section 2.14(c)(iii) of the Credit Agreement.

Section 4.Effectiveness.

4.1This Amendment shall become effective on the first date on which each of the conditions set forth in this Section 4.1 is satisfied (the “Effective Date”):

(a)The Administrative Agent shall have received duly executed counterparts (in such number as may be requested by the Administrative Agent) of this Amendment from the Borrower, each Guarantor, the Majority Lenders and the Required Revolving Lenders.

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(b)The Borrower shall have paid all fees and other amounts due and payable on or prior to the Effective Date to the extent invoiced, including all reasonable out-of-pocket expenses required to be reimbursed or paid by the Borrower under the Credit Agreement.

(c)No Default or Event of Default shall have occurred and be continuing as of the date hereof, after giving effect to the terms of this Amendment.

Section 5.Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

Section 6.Miscellaneous.

6.1(a) On and after the effectiveness of this Amendment, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof” or words of like import referring to the Credit Agreement, and each reference in each other Credit Document to “the Credit Agreement”, “thereunder”, “thereof” or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as amended or otherwise modified by this Amendment; (b) the execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any default of the Borrower or any right, power or remedy of the Administrative Agent or the Lenders under any of the Credit Documents, nor constitute a waiver of any provision of any of the Credit Documents; (c) this Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart; and (d) delivery of an executed counterpart of a signature page to this Amendment by telecopier or electronic mail shall be effective as delivery of a manually executed counterpart of this Amendment.

6.2Neither the execution by the Administrative Agent or the Lenders of this Amendment, nor any other act or omission by the Administrative Agent or the Lenders or their officers in connection herewith, shall be deemed a waiver by the Administrative Agent or the Lenders of any defaults which may exist or which may occur in the future under the Credit Agreement and/or the other Credit Documents, or any future defaults of the same provision waived hereunder (collectively “Violations”). Similarly, nothing contained in this Amendment shall directly or indirectly in any way whatsoever either: (a) impair, prejudice or otherwise adversely affect the Administrative Agent’s or the Lenders’ right at any time to exercise any right, privilege or remedy in connection with the Credit Documents with respect to any Violations; (b) amend or alter any provision of the Credit Agreement, the other Credit Documents, or any other contract or instrument; or (c) constitute any course of dealing or other basis for altering any obligation of the Borrower or any right, privilege or remedy of the Administrative Agent or the Lenders under the Credit Agreement, the other Credit Documents, or any other contract or instrument. Nothing in this letter shall be construed to be a consent by the Administrative Agent or the Lenders to any Violations.

6.3The Borrower and each Guarantor hereby (a) acknowledges the terms of this Amendment; (b) ratifies and affirms its obligations under, and acknowledges, renews and extends its continued liability under, each Credit Document to which it is a party and agrees that each Credit Document to which it is a party remains in full force and effect, except as expressly amended or modified hereby; and (c) represents and warrants to the Lenders that as of the Effective Date, after

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giving effect to the terms of this Amendment: (i) all of the representations and warranties contained in each Credit Document to which it is a party are true and correct in all material respects (unless already qualified by materiality in which case such applicable representation and warranty shall be true and correct), except to the extent any such representations and warranties are expressly limited to an earlier date, in which case, such representations and warranties shall continue to be true and correct in all material respects (unless already qualified by materiality in which case such applicable representation and warranty shall be true and correct) as of such specified earlier date, and (ii) no Default or Event of Default has occurred and is continuing.

6.4This Amendment is a Credit Document as defined and described in the Credit Agreement and all of the terms and provisions of the Credit Agreement relating to Credit Documents shall apply hereto.

6.5 THE CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS, INCLUDING THIS AMENDMENT, EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDE ALL OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

[Signature Pages Follow]

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their officers thereunto duly authorized as of the date first above written.

BORROWER:	CALIFORNIA RESOURCES CORPORATION
	By: /s/ Marshall D. Smith
	Name: Marshall D. Smith
	Title: Senior Executive Vice President and Chief Financial Officer

Signature Page

CALIFORNIA RESOURCES CORPORATION – Second Amendment

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GUARANTORS:	CALIFORNIA HEAVY OIL, INC.
	CALIFORNIA RESOURCES PETROLEUM COPORATION
	CALIFORNIA RESOURCES PRODUCTION CORPORATION
	SOUTHERN SAN JOAQUIN PRODUCTION, INC.
	THUMS LONG BEACH COMPANY
	CALIFORNIA RESOURCES WILMINGTON, LLC
	CALIFORNIA RESOURCES ELK HILLS, LLC
	CRC SERVICES, LLC
	SOCAL HOLDING, LLC
	CRC CONSTRUCTION SERVICES, LLC
	By: /s/ Michael L. Preston
	Name: Michael L. Preston
	Title: Executive Vice President, General Counsel and Corporate Secretary
	CRC MARKETING, INC.
	By: /s/ D. Adam Smith
	Name: D. Adam Smith
	Title: Assistant Secretary
	TIDELANDS OIL PRODUCTION COMPANY
	By: /s/ Michael L. Preston
	Name: Michael L. Preston
	Title: Executive Vice President, General Counsel and Corporate Secretary of California Resources Tidelands, Inc., Its Managing Partner
	CALIFORNIA RESOURCES LONG BEACH, INC.
	CALIFORNIA RESOURCES TIDELANDS, INC.
	By: /s/ Michael L. Preston
	Name: Michael L. Preston
	Title: Vice President, General Counsel and Corporate Secretary

Signature Page

CALIFORNIA RESOURCES CORPORATION – Second Amendment

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ELK HILLS POWER, LLC

By: /s/ Micky Nelson

Name: Micky Nelson

Title: Vice President

Signature Page

CALIFORNIA RESOURCES CORPORATION – Second Amendment

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JPMORGAN CHASE BANK, N.A., as Administrative Agent, Letter of Credit Issuer, Swingline Lender, Revolving Lender and Term Loan Lender

By: /s/ Dave Katz

Name: Dave Katz

Title: Executive Director

Signature Page

CALIFORNIA RESOURCES CORPORATION – Second Amendment

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BANK OF AMERICA, N.A., as Syndication Agent, Letter of Credit Issuer, Swingline Lender, Revolving Lender and Term Loan Lender

By: /s/ Bryan Heller

Name: Bryan Heller

Title: Director

Signature Page

CALIFORNIA RESOURCES CORPORATION – Second Amendment

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CITIBANK, N.A., as Letter of Credit Issuer, Revolving Lender and Term Loan Lender

By: /s/ Phil Ballard

Name: Phil Ballard

Title: Managing Director

Signature Page

CALIFORNIA RESOURCES CORPORATION – Second Amendment

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WELLS FARGO BANK, NATIONAL ASSOCIATION, as Letter of Credit Issuer, Revolving Lender and Term Loan Lender

By: /s/ Michael A. Tribolet

Name: Michael A. Tribolet

Title: Managing Director

Signature Page

CALIFORNIA RESOURCES CORPORATION – Second Amendment

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THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., as Revolving Lender and Term Loan Lender

By: /s/ Stephen W. Warfel

Name: Stephen W. Warfel

Title: Managing Director

Signature Page

CALIFORNIA RESOURCES CORPORATION – Second Amendment

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U.S. BANK NATIONAL ASSOCIATION, as Revolving Lender and Term Loan Lender

By: /s/ Elizabeth C. Hengeveld

Name: Elizabeth C. Hengeveld

Title: Senior Vice President

Signature Page

CALIFORNIA RESOURCES CORPORATION – Second Amendment

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MORGAN STANLEY BANK, N.A., as Revolving Lender and Term Loan Lender

By: /s/ Dmitriy Barskiy

Name: Dmitriy Barskiy

Title: Authorized Signatory

Signature Page

CALIFORNIA RESOURCES CORPORATION – Second Amendment

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HSBC BANK USA, NA, as Revolving Lender and Term Loan Lender

By: /s/ Steven Smith

Name: Steven Smith

Title: Director

Signature Page

CALIFORNIA RESOURCES CORPORATION – Second Amendment

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GOLDMAN SACHS BANK USA, as Revolving Lender and Term Loan Lender

By: /s/ Jerry Li

Name: Jerry Li

Title: Authorized Signatory

Signature Page

CALIFORNIA RESOURCES CORPORATION – Second Amendment

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COMPASS BANK, as Revolving Lender and Term Loan Lender

By: /s/ Susana Campuzano

Name: Susana Campuzano

Title: Senior Vice President

Signature Page

CALIFORNIA RESOURCES CORPORATION – Second Amendment

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MIZUHO BANK, LTD., as Revolving Lender and Term Loan Lender

By: /s/ Leon Mo

Name: Leon Mo

Title: Authorized Signatory

Signature Page

CALIFORNIA RESOURCES CORPORATION – Second Amendment

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BANK OF NOVA SCOTIA, as Revolving Lender and Term Loan Lender

By: /s/ Mark Sparrow

Name: Mark Sparrow

Title: Director

Signature Page

CALIFORNIA RESOURCES CORPORATION – Second Amendment

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SOCIÉTÉ GÉNÉRALE, as Revolving Lender and Term Loan Lender

By: /s/ Diego Medina

Name: Diego Medina

Title: Director

Signature Page

CALIFORNIA RESOURCES CORPORATION – Second Amendment

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PNC BANK, NATIONAL ASSOCIATION, as Revolving Lender and Term Loan Lender

By: /s/ Sandra Aultman

Name: Sandra Aultman

Title: Managing Director

Signature Page

CALIFORNIA RESOURCES CORPORATION – Second Amendment

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BRANCH BANKING AND TRUST COMPANY, as Revolving Lender and Term Loan Lender

By: /s/ James Giordano

Name: James Giordano

Title: Senior Vice President

Signature Page

CALIFORNIA RESOURCES CORPORATION – Second Amendment

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DNB CAPITAL LLC, as Revolving Lender and Term Loan Lender

By: /s/ James Grubb

Name: James Grubb

Title: Vice President

By: /s/ Asulv Tveit

Name: Asulv Tveit

Title: First Vice President

Signature Page

CALIFORNIA RESOURCES CORPORATION – Second Amendment

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THE BANK OF NEW YORK MELLON, as Revolving Lender and Term Loan Lender

By: /s/ Mark W. Rogers

Name: Mark W. Rogers

Title: Vice President

Signature Page

CALIFORNIA RESOURCES CORPORATION – Second Amendment

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SUMITOMO MITSUI BANKING CORPORATION, as Revolving Lender and Term Loan Lender

By: /s/ Ryo Suzuki

Name: Ryo Suzuki

Title: General Manager

Signature Page

CALIFORNIA RESOURCES CORPORATION – Second Amendment

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INTESA SANPAOLO S.P.A., as Revolving Lender and Term Loan Lender

By: /s/ Neil Derfler

Name: Neil Derfler

Title: Vice President

By: /s/ Francesco DiMario

Name: Francesco DiMario

Title: FVP. Credit Manager

Signature Page

CALIFORNIA RESOURCES CORPORATION – Second Amendment

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KEYBANK NATIONAL ASSOCIATION, as Revolving Lender and Term Loan Lender

By: /s/ John Dravenstott

Name: John Dravenstott

Title: Vice President

Signature Page

CALIFORNIA RESOURCES CORPORATION – Second Amendment

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Schedule 14.2

Notice Addresses

Entity	Notice Address/Information
Administrative Agent	JPMorgan Chase Bank, N.A. Mail Code FL3-2414 10410 Highland Manor Drive, Floor 4 Tampa, FL 33610-9128
Borrower	California Resources Corporation 27200 Tourney Road Santa Clarita, CA 91355 Attention: Michael Preston Phone: 818.661.3702 Email: michael.preston@crc.com

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Exhibit J

INTERCREDITOR AGREEMENT
dated as of [_______], 201[_] between
JPMORGAN CHASE BANK, N.A.,
as Priority Lien Agent,
and
[______________________],
as Second Lien Collateral Agent

THIS IS THE INTERCREDITOR AGREEMENT REFERRED TO IN (A) THE [INDENTURE/SECOND LIEN CREDIT AGREEMENT] DATED AS OF [______], 201[_], AMONG CALIFORNIA RESOURCES CORPORATION, CERTAIN OF ITS SUBSIDIARIES FROM TIME TO TIME PARTY THERETO AND [_________________], AS SECOND LIEN COLLATERAL AGENT, (B) THE FIRST LIEN CREDIT AGREEMENT DATED AS OF SEPTEMBER 24, 2014, AS AMENDED, SUPPLEMENTED, RESTATED OR OTHERWISE MODIFIED FROM TIME TO TIME, AMONG CALIFORNIA RESOURCES CORPORATION, THE LENDERS PARTY THERETO FROM TIME TO TIME AND JPMORGAN CHASE BANK, N.A., AS ADMINISTRATIVE AGENT, (C) THE OTHER NOTE DOCUMENTS REFERRED TO IN SUCH [INDENTURE/SECOND LIEN CREDIT AGREEMENT] AND (D) THE OTHER LOAN DOCUMENTS REFERRED TO IN SUCH FIRST LIEN CREDIT AGREEMENT.

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TABLE OF CONTENTS

		Page
	ARTICLE I
	DEFINITIONS
Section 1.01	Construction; Certain Defined Terms	1
	ARTICLE II
	LIEN PRIORITIES
Section 2.01	Relative Priorities	10
Section 2.02	Prohibition on Marshalling, Etc	11
Section 2.03	No New Liens	11
Section 2.04	Similar Collateral and Agreements	12
Section 2.05	No Duties of Priority Lien Agent	12
	ARTICLE III
	ENFORCEMENT RIGHTS; PURCHASE OPTION
Section 3.01	Limitation on Enforcement Action	13
Section 3.02	Standstill Period; Permitted Enforcement Action	13
Section 3.03	Insurance	14
Section 3.04	Notification of Release of Collateral	14
Section 3.05	No Interference; Payment Over	15
Section 3.06	Purchase Option	16
	ARTICLE IV
	OTHER AGREEMENTS
Section 4.01	Release of Liens; Automatic Release of Second Liens	18
Section 4.02	Certain Agreements With Respect to Insolvency or Liquidation Proceedings	18
Section 4.03	Reinstatement	21
Section 4.04	Refinancings	22
Section 4.05	Amendments to Second Lien Documents	22
Section 4.06	Legends	23
Section 4.07	Second Lien Secured Parties Rights as Unsecured Creditors; Judgment Lien Creditor	23
Section 4.08	Postponement of Subrogation	23
Section 4.09	Acknowledgment by the Secured Debt Representatives	23
	ARTICLE V
	GRATUITOUS BAILMENT FOR PERFECTION OF CERTAIN SECURITY INTERESTS
Section 5.01	General	24
Section 5.02	Deposit Accounts	24
	ARTICLE VI
	APPLICATION OF PROCEEDS; DETERMINATION OF AMOUNTS
Section 6.01	Application of Proceeds	24
Section 6.02	Determination of Amounts	25

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	ARTICLE VII
	NO RELIANCE; NO LIABILITY; OBLIGATIONS ABSOLUTE; CONSENT OF GRANTORS; ETC.
Section 7.01	No Reliance; Information	25
Section 7.02	No Warranties or Liability	25
Section 7.03	Obligations Absolute	26
Section 7.04	Grantors Consent	27
	ARTICLE VIII
	REPRESENTATIONS AND WARRANTIES
Section 8.01	Representations and Warranties of Each Party	27
Section 8.02	Representations and Warranties of Each Representative	27
	ARTICLE IX
	MISCELLANEOUS
Section 9.01	Notices	27
Section 9.02	Waivers; Amendment	28
Section 9.03	Actions Upon Breach; Specific Performance	28
Section 9.04	Parties in Interest	29
Section 9.05	Survival of Agreement	29
Section 9.06	Counterparts	29
Section 9.07	Severability	29
Section 9.08	Governing Law; Jurisdiction; Consent to Service of Process	29
Section 9.09	WAIVER OF JURY TRIAL	30
Section 9.10	Headings	30
Section 9.11	Conflicts	30
Section 9.12	Provisions Solely to Define Relative Rights	30
Section 9.13	Certain Terms Concerning the Second Lien Agent	30
Section 9.14	Certain Terms Concerning the Priority Lien Agent and the Second Lien Agent	31
Section 9.15	Authorization of Secured Agents	31
Section 9.16	Further Assurances	31
Section 9.17	Relationship of Secured Parties	31

Annex and Exhibits

Annex I
Exhibit A	Form of Priority Confirmation Joinder
Exhibit B	Security Documents

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INTERCREDITOR AGREEMENT, dated as of [________], 201[_] (as amended, supplemented or otherwise modified from time to time in accordance with the terms hereof, this “Agreement”), between JPMORGAN CHASE BANK, N.A., as administrative agent for the Priority Lien Secured Parties referred to herein (in such capacity, and together with its successors and assigns in such capacity, the “Original Priority Lien Agent”) and [_______________], as [administrative agent/collateral agent/collateral trustee for the Second Lien Secured Parties referred to herein (in such capacity, and together with its successors in such capacity, the “Second Lien Collateral Agent”) and acknowledged and agreed by California Resources Corporation, a Delaware corporation (the “Borrower”) and the other Grantors party hereto.

WHEREAS, the Borrower, the Original Priority Lien Agent, as administrative agent, and the lenders party thereto from time to time, entered into that certain First Lien Credit Agreement dated as of September 24, 2014 providing for a revolving credit facility of up to $[___] million and a term credit facility up to $[___] million (as amended, restated, supplemented, modified or Refinanced from time to time in accordance with the terms of this Agreement, the “Priority Credit Agreement”);

WHEREAS, the Borrower, certain subsidiaries of the Borrower and the Original Second Lien Agent are entering into that certain [Indenture/Second Lien Credit Agreement] dated as of even date herewith providing for up to $[____] million of [Second Lien Indenture Notes/Second Lien Term Loans] (as amended, restated, supplemented, modified or Refinanced from time to time in accordance with the terms of this Agreement, the “Original Second Lien Agreement”);

WHEREAS, the Priority Lien Obligations will be secured by the Collateral pursuant to the terms of the Priority Lien Documents;

WHEREAS, the Second Lien Obligations will be secured by the Collateral pursuant to the terms of the Second Lien Documents;

WHEREAS, the Priority Lien Documents and the Second Lien Documents provide, among other things, that the parties thereto shall set forth in this Agreement their respective rights and remedies with respect to the Collateral; and

WHEREAS, in order to induce the Priority Lien Agent and the other Priority Lien Secured Parties to consent to the incurring of the Second Lien Obligations and to induce the Priority Lien Secured Parties to continue to extend credit and other financial accommodations and lend monies to or for the benefit of the Borrower, the Second Lien Collateral Agent on behalf of the Second Lien Secured Parties, has agreed to the Lien subordination and other provisions set forth in this Agreement.

NOW THEREFORE, in consideration of the foregoing, the mutual agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Priority Lien Agent (for itself and on behalf of the Priority Lien Secured Parties) and the Second Lien Collateral Agent (for itself and on behalf of the Second Lien Secured Parties) agree as follows:

ARTICLE IDEFINITIONS

Section 1.01Construction; Certain Defined Terms. (a) The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The word “will” shall be construed to have the same meaning and effect as the word “shall.” Unless the context requires otherwise,

(i) any reference herein to any agreement, instrument, other document, statute or regulation shall be construed as referring to such agreement, instrument, other document, statute or regulation as from time to time amended, supplemented or otherwise modified, (ii) any reference herein to any Person shall be construed to include such Person’s successors and assigns, but shall not be deemed to include the subsidiaries of such Person unless express reference is made to such subsidiaries, (iii) the words “herein,” “hereof and “hereunder,” and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (iv) all references herein to Articles, Sections and Annexes shall be construed to refer to Articles, Sections and Annexes of this Agreement, (v) unless otherwise expressly qualified herein, the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights and (vi) the term “or” is not exclusive.

(b)All terms used in this Agreement that are defined in Article 1, 8 or 9 of the New York UCC (whether capitalized herein or not) and not otherwise defined herein have the meanings assigned to them in Article 1, 8 or 9 of the New York UCC. If a term is defined in Article 9 of the New York UCC and another Article of the UCC, such term shall have the meaning assigned to it in Article 9 of the New York UCC.

(c)Unless otherwise indicated, capitalized terms used but not defined herein shall have the meaning given to such terms in the Priority Credit Agreement as in effect on the date hereof or as amended in accordance with this Agreement.

(d)As used in this Agreement, the following terms have the meanings specified below:

“Accounts” has the meaning assigned to such term in Section 3.01(a).

“Additional Second Lien Credit Facility” means any credit agreement, indenture, note or other definitive loan agreement governing Indebtedness for which the requirements of Section 4.04(b) of this Agreement have been satisfied, as amended, restated, modified, renewed, refunded, restated, restructured, increased, supplemented, replaced or refinanced in whole or in part from time to time in accordance with each applicable Secured Debt Document; provided that neither the Original Second Lien Agreement nor any Second Lien Substitute Facility shall constitute an Additional Second Lien Credit Facility at any time.

“Additional Second Lien Documents” means the Additional Second Lien Credit Facility and the Additional Second Lien Security Documents.

“Additional Second Lien Obligations” means, with respect to any Grantor, any obligations of such Grantor owed to any Additional Second Lien Secured Party (or any of its Affiliates) in respect of the Additional Second Lien Documents.

“Additional Second Lien Secured Parties” means, at any time, the Second Lien Collateral Agent, the trustee, agent or other representative of the holders of any Series of Second Lien Debt who maintains the transfer register for such Series of Second Lien Debt (other than the Original Second Lien Credit Facility), the beneficiaries of each indemnification obligation undertaken by any Grantor under any Additional Second Lien Document and each other holder of, or obligee in respect of, any holder or lender pursuant to any Series of Second Lien Debt outstanding at such time; provided that the Original Second Lien Secured Parties shall not be deemed Additional Second Lien Secured Parties.

“Additional Second Lien Security Documents” means the Additional Second Lien Credit Facility (insofar as the same grants a Lien on the Collateral) and any other security agreements, pledge agreements,

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collateral assignments, mortgages, deeds of trust, collateral agency agreements, control agreements, or grants or transfers for security, now existing or entered into after the date hereof, executed and delivered by the Borrower or any other Grantor creating (or purporting to create) a Lien upon the Second Lien Collateral in favor of the Additional Second Lien Secured Parties.

“Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, “control,” as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person will be deemed to be control. For purposes of this definition, the terms “controlling,” “controlled by” and “under common control with” have correlative meanings.

“Agreement” has the meaning assigned to such term in the preamble hereto.

“Bankruptcy Code” means Title 11 of the United States Code.

“Bankruptcy Law” means the Bankruptcy Code and any similar federal, state or foreign law providing for the relief of debtors.

“Board of Directors” means: (1) with respect to a corporation, the board of directors of the corporation; (2) with respect to a partnership, the Board of Directors of the general partner of the partnership; and (3) with respect to any other Person, the board or committee of such Person serving a similar function.

“Borrower” has the meaning assigned to such term in the preamble hereto.

“Business Day” means each day that is not a Saturday, Sunday or other day on which banking institutions in Houston, Texas or in New York, New York are authorized or required by law to close.

“Capital Stock” means (a) in the case of a corporation, corporate stock; (b) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; (c) in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and (d) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.

“Collateral” means all of the assets and property of any Grantor, whether real, personal or mixed, constituting the Priority Lien Collateral and/or the Second Lien Collateral.

“Credit Facilities” means, one or more debt facilities, indentures or commercial paper facilities (including, without limitation, the Priority Credit Agreement), in each case, with banks or other financial institutions providing for revolving credit loans, term loans, capital markets financings, private placements, receivables financings (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit or letter of credit guarantees, in each case, as amended, restated, modified, supplemented, extended, renewed, refunded, replaced or refinanced in whole or in part from time to time.

“DIP Financing” has the meaning assigned to such term in Section 4.02(b).

“DIP Financing Liens” has the meaning assigned to such term in Section 4.02(b).

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“DIP Lenders” has the meaning assigned to such term in Section 4.02(b).

“Discharge of Priority Lien Obligations” means the occurrence of all of the following:

(a)    termination or expiration of all commitments to extend credit that would constitute Priority Lien Debt;

(b)    indefeasible payment in full in cash of the principal of and interest and premium (if any) on all Priority Lien Debt (other than any undrawn letters of credit);

(c)    discharge or cash collateralization in an amount equal to 105% of the sum of the aggregate undrawn amount of all then outstanding letters of credit constituting Priority Lien Obligations and the aggregate fronting and similar fees which will accrue thereon through the stated expiry of such letters of credit;

(d)    payment of all obligations under Secured Hedge Agreements constituting Priority Lien Obligations (and, with respect to any particular Hedge Agreement, termination of such agreement and payment in full in cash of all obligations thereunder or such other arrangements as have been made by the counterparty thereto (and communicated to the Priority Lien Agent) pursuant to the terms of the Priority Credit Agreement); and

(e)    payment in full in cash of all other Priority Lien Obligations, including without limitation, any obligations under Secured Cash Management Agreements, that are outstanding and unpaid at the time the Priority Lien Debt is paid in full in cash (other than any obligations for taxes, costs, indemnifications, reimbursements, damages and other liabilities in respect of which no claim or demand for payment has been made at or prior to such time);

provided that, if, at any time after the Discharge of Priority Lien Obligations has occurred, the Borrower enters into any Priority Lien Document evidencing a Priority Lien Obligation which incurrence is not prohibited by the applicable Secured Debt Documents, then such Discharge of Priority Lien Obligations shall automatically be deemed not to have occurred for all purposes of this Agreement with respect to such new Priority Lien Obligations (other than with respect to any actions taken as a result of the occurrence of such first Discharge of Priority Lien Obligations), and, from and after the date on which the Borrower designates such Indebtedness as Priority Lien Debt in accordance with this Agreement, the obligations under such Priority Lien Document shall automatically and without any further action be treated as Priority Lien Obligations for all purposes of this Agreement, including for purposes of the Lien priorities and rights in respect of Collateral set forth in this Agreement, any Second Lien Obligations shall be deemed to have been at all times Second Lien Obligations and at no time Priority Lien Obligations. For the avoidance of doubt, a Replacement as contemplated by Section 4.04(a) shall not be deemed to cause a Discharge of Priority Lien Obligations.

“Disposition” shall mean any sale, lease, exchange, assignment, license, contribution, transfer or other disposition. “Dispose” shall have a correlative meaning.

“Excess Priority Lien Obligations” means Obligations constituting Priority Lien Obligations for the principal amount of indebtedness (including letters of credit and reimbursement obligations) under the Priority Credit Agreement and/or any other Credit Facility pursuant to which Priority Lien Debt has been

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issued to the extent that such Obligations for principal, letters of credit and reimbursement obligations are in excess of the amount in clause (a) of the definition of “Priority Lien Cap.”

“Governmental Authority” means the government of the United States or any other nation, or any political subdivision thereof, whether state, provincial or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other Person exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

“Grantor” means the Borrower, each other subsidiary of the Borrower that shall have granted any Lien in favor of any of the Priority Lien Agent or the Second Lien Collateral Agent on any of its assets or properties to secure any of the Secured Obligations.

“Insolvency or Liquidation Proceeding” means:

(a)    any case commenced by or against the Borrower or any other Grantor under the Bankruptcy Code or any other Bankruptcy Law, any other proceeding for the reorganization, recapitalization or adjustment or marshalling of the assets or liabilities of the Borrower or any other Grantor, any receivership or assignment for the benefit of creditors relating to the Borrower or any other Grantor or any similar case or proceeding relative to the Borrower or any other Grantor or its creditors, as such, in each case whether or not voluntary;

(b)    any liquidation, dissolution, marshalling of assets or liabilities or other winding up of or relating to the Borrower or any other Grantor, in each case whether or not voluntary and whether or not involving bankruptcy or insolvency; or

(c)    any other proceeding of any type or nature including any composition agreement in which substantially all claims of creditors of the Borrower or any other Grantor are determined and any payment or distribution is or may be made on account of such claims.

“Lien” means any interest in property securing an obligation owed to, or a claim by, a Person other than the owner of the property, whether such interest is based on the common law, statute or contract, and whether such obligation or claim is fixed or contingent, and including (a) the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement or a financing lease, consignment or bailment for security purposes or (b) Production Payments and the like payable out of Oil and Gas Properties; provided that in no event shall an operating lease be deemed to be a Lien.

“New York UCC” means the Uniform Commercial Code as from time to time in effect in the State of New York.

“Obligations” means any principal (including reimbursement obligations and obligations to provide cash collateral with respect to letters of credit whether or not drawn), interest , premium (if any), fees, indemnifications, reimbursements, expenses and other liabilities payable under the documentation governing any Indebtedness including, to the extent legally permitted, all interest incurred, accrued or arising thereon after the commencement of any Insolvency or Liquidation Proceeding at the applicable interest rate, including any applicable post-default interest rate even if such interest is not enforceable, allowable or allowed as a claim in such proceeding.

“Officer” means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary, any Senior Vice President, any Vice President or any Assistant Vice President of such Person.

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“Officers’ Certificate” means a certificate signed on behalf of the Borrower by any Officers of the Borrower.

“Original Priority Lien Agent” has the meaning assigned to such term in the preamble hereto.

“Original Second Lien Agent” means [ ], in its capacity as [ ] under the Original Second Lien Agreement, and together with its successors in either such capacity.

“Original Second Lien Agreement” has the meaning assigned to such term in the recitals hereto.

“Original Second Lien Documents” means the Original Second Lien Agreement, the Original Second Lien Security Documents, the other “Loan Documents” (as defined in the Original Second Lien Agreement) and all other loan documents, notes, guarantees, instruments and agreements governing or evidencing, or executed or delivered in connection with, the Original Second Lien Agreement or any Second Lien Substitute Facility.

“Original Second Lien Obligations” means, with respect to any Grantor, any obligations of such Grantor owed to any Original Second Lien Secured Party (or any of its Affiliates) in respect of the Original Second Lien Documents.

“Original Second Lien Secured Parties” means, at any time, the Second Lien Agent, the Second Lien Collateral Agent, the trustees, agents and other representatives of the holders of the Original Second Lien Obligations (including any holders of notes pursuant to supplements executed in connection with the issuance of any Series of Second Lien Debt under the Original Second Lien Agreement) who maintain the transfer register for such Original Second Lien Obligations or such Series of Second Lien Debt, the beneficiaries of each indemnification obligation undertaken by any Grantor under any Original Second Lien Document and each other holder of, or obligee in respect of, any Original Second Lien Obligation, any holder or lender pursuant to any Original Second Lien Document outstanding at such time; provided that the Additional Second Lien Secured Parties shall not be deemed Original Second Lien Secured Parties.

“Original Second Lien Security Documents” means the Original Second Lien Agreement (insofar as the same grants a Lien on the Collateral), the Second Lien Collateral Agency Agreement, each agreement listed in Part B of Exhibit B hereto and any other security agreements, pledge agreements, collateral assignments, mortgages, deeds of trust, collateral agency agreements, control agreements, or grants or transfers for security, now existing or entered into after the date hereof, executed and delivered by the Borrower or any other Grantor creating (or purporting to create) a Lien upon Collateral in favor of the Second Lien Collateral Agent (including any such agreements, assignments, mortgages, deeds of trust and other documents or instruments associated with any Second Lien Substitute Facility).

“Person” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity.

“Priority Confirmation Joinder” means an agreement substantially in the form of Exhibit A.

“Priority Credit Agreement” has the meaning assigned to such term in the recitals hereto.

“Priority Lien” means a Lien granted by the Borrower or other Grantor in favor of the Priority Lien Agent, at any time, upon any Property of the Borrower or such Grantor or the proceeds thereof to secure Priority Lien Obligations (including Liens on such Collateral under the security documents associated with any Priority Substitute Credit Facility).

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“Priority Lien Agent” means the Original Priority Lien Agent, and, from and after the date of execution and delivery of a Priority Substitute Credit Facility, the agent, collateral agent, trustee or other representative of the lenders or holders of the indebtedness and other Obligations evidenced thereunder or governed thereby, in each case, together with its successors in such capacity.

“Priority Lien Cap” means, as of any date, (a) the aggregate principal amount of all indebtedness outstanding at any time under the Priority Credit Agreement (with outstanding letters of credit being deemed to have a principal amount equal to the stated amount thereof) not in excess of the greater of (i) $4.0 billion, (ii) the Borrowing Base in effect at the time of incurrence of such indebtedness and (iii) 15% of the Consolidated Total Assets (as defined in the Priority Credit Agreement) of the Borrower and the Restricted Subsidiaries (as defined in the Priority Credit Agreement) if incurred under the Priority Credit Agreement plus (b) the amount of all Hedge Obligations arising under Secured Hedge Agreements, plus (c) the amount of all Cash Management Obligations arising under Secured Cash Management Agreements, plus (d) the amount of accrued and unpaid interest (excluding any interest paid-in-kind) and outstanding fees, to the extent such Obligations are secured by the Priority Liens, plus (e) fees, indemnifications, reimbursements and expenses as may be due pursuant to the terms of any Priority Lien Documents.

“Priority Lien Collateral” shall mean all “Collateral”, as defined in the Priority Credit Agreement or any other Priority Lien Document, and any other assets of any Grantor now or at any time hereafter subject to Liens which secure or purport to secure any Priority Lien Obligation.

“Priority Lien Debt” means the indebtedness under the Priority Credit Agreement and guarantees thereof (including letters of credit and reimbursement obligations with respect thereto) that was permitted to be incurred and secured under the Priority Credit Agreement, the Original Second Lien Agreement, any Additional Second Lien Agreement or any Second Lien Substitute Facility (or as to which the lenders or other financing sources under the Priority Credit Agreement obtained an Officers’ Certificate at the time of incurrence to the effect that such indebtedness was permitted to be incurred and secured by all applicable Secured Debt Documents) and additional indebtedness under any Priority Substitute Credit Facility. For purposes of this Agreement, indebtedness under the Priority Credit Agreement is permitted to be incurred under the Original Second Lien Agreement.

“Priority Lien Documents” means the Priority Credit Agreement, the Priority Lien Security Documents, the other “Loan Documents” (as defined in the Priority Credit Agreement) and all other loan documents, notes, guarantees, instruments and agreements governing or evidencing, or executed or delivered in connection with, any Priority Substitute Credit Facility.

“Priority Lien Obligations” has the meaning assigned to the term “Obligations” in the Priority Credit Agreement.

“Priority Lien Secured Parties” means, at any time, the Priority Lien Agent, each lender or issuing bank under the Priority Credit Agreement, each holder, provider or obligee of any Secured Hedge Agreement and Secured Cash Management Agreement that is a Cash Management Bank or Hedge Bank, as applicable, and is a secured party (or a party entitled to the benefits of the security) under any Priority Lien Document, the beneficiaries of each indemnification obligation undertaken by any Grantor under any Priority Lien Document, each other Person that provides letters of credit, guarantees or other credit support related thereto under any Priority Lien Document and each other holder of, or obligee in respect of, any Priority Lien Obligations (including pursuant to a Priority Substitute Credit Facility), in each case to the extent designated as a secured party (or a party entitled to the benefits of the security) under any Priority Lien Document outstanding at such time.

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“Priority Lien Security Documents” means the Priority Credit Agreement (insofar as the same grants a Lien on the Collateral), each agreement listed in Part A of Exhibit B hereto, and any other security agreements, pledge agreements, collateral assignments, mortgages, deeds of trust, control agreements, or grants or transfers for security, now existing or entered into after the date hereof, executed and delivered by the Borrower or any other Grantor creating (or purporting to create) a Lien upon Collateral in favor of the Priority Lien Agent (including any such agreements, assignments, mortgages, deeds of trust and other documents or instruments associated with any Priority Substitute Credit Facility).

“Priority Substitute Credit Facility” means any Credit Facility with respect to which the requirements contained in Section 4.04(a) of this Agreement have been satisfied and that Replaces the Priority Credit Agreement then in existence. For the avoidance of doubt, no Priority Substitute Credit Facility shall be required to be a revolving, term or asset-based loan facility and may be a facility evidenced or governed by a credit agreement, loan agreement, note agreement, promissory note, indenture or any other agreement or instrument; provided that any Priority Lien securing such Priority Substitute Credit Facility shall be subject to the terms of this Agreement for all purposes (including the lien priorities as set forth herein as of the date hereof).

“Property” means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible, including, without limitation, cash, securities, accounts and contract rights.

“Replaces” means, (a) in respect of any agreement with reference to the Priority Credit Agreement or the Priority Lien Obligations or any Priority Substitute Credit Facility, that such agreement refunds, refinances or replaces the Priority Credit Agreement, the Priority Lien Obligations or such Priority Substitute Credit Facility in whole (in a transaction that is in compliance with Section 4.04(a)) and that all commitments thereunder are terminated, or, to the extent permitted by the terms of the Priority Credit Agreement, Priority Lien Obligations or such Priority Substitute Credit Facility, in part and (b) in respect of any agreement with reference to the Second Lien Documents, the Second Lien Obligations or any Second Lien Substitute Facility, that such indebtedness refunds, refinances or replaces the Second Lien Documents, the Second Lien Obligations or such Second Lien Substitute Facility in whole (in a transaction that is in compliance with Section 4.04(a)) and that all commitments thereunder are terminated, or, to the extent permitted by the terms of the Second Lien Documents, the Second Lien Obligations or such Second Lien Substitute Facility, in part. “Replace,” “Replaced” and “Replacement” shall have correlative meanings.

“Second Lien” means a Lien granted by a Second Lien Document to the Second Lien Collateral Agent, at any time, upon any Collateral by any Grantor to secure the Second Lien Obligations (including Liens on such Collateral under the security documents associated with any Second Lien Substitute Facility).

“Second Lien Agent” means the Original Second Lien Agent, and from and after the date of execution and delivery of a Second Lien Substitute Facility, the agent, collateral agent, trustee or other representative of the lenders or holders of the indebtedness and other Obligations evidenced thereunder or governed thereby, in each case together with its successors in such capacity appointed pursuant to the terms of the Original Second Lien Agreement or Second Lien Substitute Facility, as applicable.

“Second Lien Collateral” shall mean all “Collateral”, as defined in any Second Lien Document, and any other assets of any Grantor now or at any time hereafter subject to Liens which secure, but only to the extent securing, any Second Lien Obligations.

“Second Lien Collateral Agency Agreement” means the [ ], dated as of [ ], among the Borrower, the other Grantors from time to time party thereto, the Second Lien Agent, the other Second Lien Representatives from time to time party thereto and the Second Lien Collateral Agent, as amended, restated, adjusted, waived,

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renewed, extended, supplemented or otherwise modified from time to time, in accordance with each applicable Second Lien Document.

“Second Lien Collateral Agent” means the Original Second Lien Collateral Agent, together with its successors in such capacity appointed pursuant to the terms of the Second Lien Collateral Agency Agreement.

“Second Lien Debt” means the indebtedness under the Original Second Lien Agreement and guarantees thereof and all additional indebtedness incurred under any Additional Second Lien Documents, in each case that was permitted to be incurred and secured in accordance with the Secured Debt Documents (or as to which the lenders or other financing sources under the applicable Second Lien Documents obtained an Officers’ Certificate at the time of incurrence to the effect that such Indebtedness was permitted to be incurred and secured by all applicable Secured Debt Documents and with respect to which the requirements of Section 4.04(b) have been (or are deemed) satisfied, and all Indebtedness incurred under any Second Lien Substitute Facility.

“Second Lien Documents” means the Original Second Lien Documents and the Additional Second Lien Documents.

“Second Lien Obligations” means Second Lien Debt and all other Obligations in respect thereof. Notwithstanding any other provision hereof, the term “Second Lien Obligations” will include accrued interest, fees, costs, and other charges incurred under the Second Lien Documents, whether incurred before or after commencement of an Insolvency or Liquidation Proceeding and whether or not allowable in an Insolvency or Liquidation Proceeding.

“Second Lien Purchasers” has the meaning assigned to such term in Section 3.06.

“Second Lien Representative” means (a) in the case of the Original Second Lien Agreement, the Second Lien Agent, and (b) in the case of any other Series of Second Lien Debt, the trustee, agent or representative of the holders of such Series of Second Lien Debt who (i) is appointed as a Second Lien Representative (for purposes related to the administration of the security documents) pursuant to the indenture, credit agreement or other agreement governing such Series of Second Lien Debt, together with its successors in such capacity, and (ii) has become party to the Second Lien Collateral Agency Agreement by executing a joinder in the form required under the Second Lien Collateral Agency Agreement.

“Second Lien Secured Parties” means the Original Second Lien Secured Parties and the Additional Second Lien Secured Parties.

“Second Lien Security Documents” means the Original Second Lien Agreement Documents and the Additional Second Lien Security Documents.

“Second Lien Substitute Facility” means any facility with respect to which the requirements contained in Section 4.04(a) of this Agreement have been satisfied and that is permitted to be incurred pursuant to the Priority Lien Documents, the proceeds of which are used to, among other things, Replace the Original Second Lien Agreement and/or any Additional Second Lien Credit Facility then in existence. For the avoidance of doubt, no Second Lien Substitute Facility shall be required to be evidenced by notes or other instruments and may be a facility evidenced or governed by a credit agreement, loan agreement, note agreement, promissory note, indenture or any other agreement or instrument; provided that any such Second Lien Substitute Facility shall be subject to the terms of this Agreement for all purposes (including the lien priority as set forth herein as of the date hereof) to the same extent as the other Liens securing the Second Lien Obligations are subject to under this Agreement.

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“Secured Debt Documents” means the Priority Lien Documents and the Second Lien Documents.

“Secured Debt Representative” means the Priority Lien Agent and the Second Lien Collateral Agent.

“Secured Obligations” means the Priority Lien Obligations and the Second Lien Obligations.

“Secured Parties” means the Priority Lien Secured Parties and the Second Lien Secured Parties.

“Security Documents” means the Priority Lien Security Documents and the Second Lien Security Documents.

“Series of Second Lien Debt” means, severally, the Original Second Lien Agreement and each other issue or series of Second Lien Debt (including any Additional Second Lien Credit Facility) for which a single transfer register is maintained.

“Standstill Period” has the meaning assigned to such term in Section 3.02.

“subsidiary” means, with respect to any specified Person: (1) any corporation, association, limited liability company or other business entity (other than a partnership) of which more than 50% of the total voting power of Voting Stock is at the time owned or controlled, directly or through another subsidiary, by that Person or one or more of the other subsidiaries of that Person (or a combination thereof); and (2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a subsidiary of such Person or (b) the only general partners of which are that Person or one or more subsidiaries of that Person (or any combination thereof), or (c) as to which such Person and its subsidiaries are entitled to receive more than 50% of the assets of such partnership upon its dissolution.

[“TIA” means the Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as in effect on the date hereof.]

“Voting Stock” of any Person as of any date means the Capital Stock of such Person that is at the time entitled (without regard to the occurrence of any contingency) to vote in the election of the Board of Directors of such Person.

ARTICLE II
LIEN PRIORITIES

Section 2.01Relative Priorities. (a) The grant of the Priority Liens pursuant to the Priority Lien Documents and the grant of the Second Liens pursuant to the Second Lien Documents create two separate and distinct Liens on the Collateral.

(b)Notwithstanding anything contained in this Agreement, the Priority Lien Documents, the Second Lien Documents or any other agreement or instrument or operation of law to the contrary, or any other circumstance whatsoever and irrespective of (i) how a Lien was acquired (whether by grant, possession, statute, operation of law, subrogation, or otherwise), (ii) the time, manner, or order of the grant, attachment or perfection of a Lien, (iii) any conflicting provision of the New York UCC or other applicable law, (iv) any defect in, or non-perfection, setting aside, or avoidance of, a Lien or a Priority Lien Document or a Second Lien Document, (v) the modification of a Priority Lien Obligation or a Second Lien Obligation, or (vi) the subordination of a Lien on Collateral securing a Priority Lien Obligation to a Lien securing another obligation of the Borrower or other Person that is permitted under the Priority Lien Documents as in effect on the date hereof or securing a DIP Financing, the Second Lien Collateral Agent,

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on behalf of itself and the other Second Lien Secured Parties hereby agrees that (A) any Priority Lien on any Collateral now or hereafter held by or for the benefit of any Priority Lien Secured Party shall be senior in right, priority, operation, effect and all other respects to any and all Second Liens on any Collateral, and (B) any Second Lien on any Collateral now or hereafter held by or for the benefit of any Second Lien Secured Party shall be junior and subordinate in right, priority, operation, effect and all other respects to any and all Priority Liens on any Collateral.

(c)It is acknowledged that, subject to the Priority Lien Cap as provided herein (i) the aggregate amount of the Priority Lien Obligations may be increased from time to time pursuant to the terms of the Priority Lien Documents, (ii) a portion of the Priority Lien Obligations consists or may consist of indebtedness that is revolving in nature, and the amount thereof that may be outstanding at any time or from time to time may be increased or reduced and subsequently reborrowed, and (iii) (A) the Priority Lien Documents may be replaced, restated, supplemented, restructured or otherwise amended or modified from time to time and (B) the Priority Lien Obligations may be increased, extended, renewed, replaced, restated, supplemented, restructured, repaid, refunded, refinanced or otherwise amended or modified from time to time, in the case of the foregoing (A) and (B) all without affecting the subordination of the Second Liens hereunder or the provisions of this Agreement defining the relative rights of the Priority Lien Secured Parties and the Second Lien Secured Parties. The lien priorities provided for herein shall not be altered or otherwise affected by any amendment, modification, supplement, extension, increase, renewal, restatement or Replacement of either the Priority Lien Obligations (or any part thereof) or the Second Lien Obligations (or any part thereof), by the release of any Collateral or of any guarantees for any Priority Lien Obligations or by any action that any Secured Debt Representative or Secured Party may take or fail to take in respect of any Collateral.

Section 2.02Prohibition on Marshalling, Etc. Until the Discharge of Priority Lien Obligations, the Second Lien Collateral Agent will not assert any marshalling, appraisal, valuation, or other similar right that may otherwise be available to a junior secured creditor.

Section 2.03No New Liens. The parties hereto agree that, so long as the Discharge of Priority Lien Obligations has not occurred, none of the Grantors shall, nor shall any Grantor permit any of its subsidiaries to, (a) grant or permit any additional Liens on any asset of a Grantor to secure any Second Lien Obligation, or take any action to perfect any additional Liens, unless it has granted, or substantially concurrently therewith grants (or offers to grant), a Lien on such asset of such Grantor to secure the Priority Lien Obligations and has taken all actions required to perfect such Liens; or (b) grant or permit any additional Liens on any asset of a Grantor to secure any Priority Lien Obligation, or take any action to perfect any additional Liens, unless it has granted, or substantially concurrently therewith grants (or offers to grant), a Lien on such asset of such Grantor to secure the Second Lien Obligations and has taken all actions required to perfect such Liens. To the extent that the provisions of the immediately preceding sentence are not complied with for any reason, without limiting any other right or remedy available to the Priority Lien Agent or the other Priority Lien Secured Parties, the Second Lien Collateral Agent, for itself and on behalf of the other Second Lien Secured Parties, agrees that any amounts received by or distributed to any Second Lien Secured Party pursuant to or as a result of any Lien granted in contravention of this Section 2.03 shall be subject to Section 3.05(b).

Section 2.04Similar Collateral and Agreements. The parties hereto acknowledge and agree that it is their intention that the Priority Lien Collateral and the Second Lien Collateral be identical. In furtherance of the foregoing, the parties hereto agree (a) to cooperate in good faith in order to determine, upon any reasonable request by the Priority Lien Agent or the Second Lien Collateral Agent, the specific assets included in the Priority Lien Collateral and the Second Lien Collateral, the steps taken to perfect the Priority Liens

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and the Second Liens thereon and the identity of the respective parties obligated under the Priority Lien Documents and the Second Lien Documents in respect of the Priority Lien Obligations and the Second Lien Obligations, respectively, (b) that the Second Lien Security Documents creating Liens on the Collateral shall be in all material respects the same forms of documents as the respective Priority Lien Security Documents creating Liens on the Collateral other than (i) with respect to the priority nature of the Liens created thereunder in such Collateral, (ii) such other modifications to such Second Lien Security Documents which are less restrictive than the corresponding Priority Lien Security Documents, (iii) provisions in the Second Lien Security Documents which are solely applicable to the rights and duties of the Second Lien Collateral Agent, and (iv) if applicable, deletions or modifications of representations, warranties and covenants as are customary with respect to security documents establishing Liens securing publicly traded debt securities, and (c) that at no time shall there be any Grantor that is an obligor in respect of the Second Lien Obligations that is not also an obligor in respect of the Priority Lien Obligations.

Section 2.05No Duties of Priority Lien Agent. The Second Lien Collateral Agent, for itself and on behalf of each Second Lien Secured Party acknowledges and agrees that neither the Priority Lien Agent nor any other Priority Lien Secured Party shall have any duties or other obligations to any such Second Lien Secured Party with respect to any Collateral, other than to transfer to the Second Lien Collateral Agent any remaining Collateral and any proceeds of the sale or other Disposition of any such Collateral remaining in its possession following the associated Discharge of Priority Lien Obligations, in each case without representation or warranty on the part of the Priority Lien Agent or any Priority Lien Secured Party. In furtherance of the foregoing, each Second Lien Secured Party acknowledges and agrees that until the Discharge of Priority Lien Obligations (subject to the terms of Section 3.02, including the rights of the Second Lien Secured Parties following the expiration of the Standstill Period), the Priority Lien Agent shall be entitled, for the benefit of the Priority Lien Secured Parties, to sell, transfer or otherwise Dispose of or deal with such Collateral, as provided herein and in the Priority Lien Documents, without regard to any Second Lien or any rights to which the Second Lien Collateral Agent or any Second Lien Secured Party would otherwise be entitled as a result of such Second Lien. Without limiting the foregoing, each Second Lien Secured Party agrees that neither the Priority Lien Agent nor any other Priority Lien Secured Party shall have any duty or obligation first to marshal or realize upon any type of Collateral, or to sell, Dispose of or otherwise liquidate all or any portion of such Collateral, in any manner that would maximize the return to the Second Lien Secured Parties, notwithstanding that the order and timing of any such realization, sale, Disposition or liquidation may affect the amount of proceeds actually received by the Second Lien Secured Parties from such realization, sale, Disposition or liquidation. Each of the Second Lien Secured Parties waives any claim such Second Lien Secured Party may now or hereafter have against the Priority Lien Agent or any other Priority Lien Secured Party arising out of any actions which the Priority Lien Agent or the Priority Lien Secured Parties take or omit to take (including actions with respect to the creation, perfection or continuation of Liens on any Collateral, actions with respect to the foreclosure upon, sale, release or depreciation of, or failure to realize upon, any of the Collateral, and actions with respect to the collection of any claim for all or any part of the Priority Lien Obligations from any account debtor, guarantor or any other party) in accordance with this Agreement and the Priority Lien Documents or the valuation, use, protection or release of any security for the Priority Lien Obligations.

ARTICLE III
ENFORCEMENT RIGHTS; PURCHASE OPTION

Section 3.01Limitation on Enforcement Action. Prior to the Discharge of Priority Lien Obligations, the Second Lien Collateral Agent, for itself and on behalf of each Second Lien Secured Party, hereby agrees that, subject to Section 3.05(b) and Section 4.07, none of the Second Lien Collateral Agent or any other Second Lien Secured Party shall commence any judicial or nonjudicial foreclosure proceedings

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with respect to, seek to have a trustee, receiver, liquidator or similar official appointed for or over, attempt any action to take possession of, exercise any right, remedy or power with respect to, or otherwise take any action to enforce its interest in or realize upon, or take any other action available to it in respect of, any Collateral under any Second Lien Security Document, applicable law or otherwise (including but not limited to any right of setoff), it being agreed that only the Priority Lien Agent, acting in accordance with the applicable Priority Lien Documents, shall have the exclusive right (and whether or not any Insolvency or Liquidation Proceeding has been commenced), to take any such actions or exercise any such remedies, in each case, without any consultation with or the consent of the Second Lien Collateral Agent or any other Second Lien Secured Party. In exercising rights and remedies with respect to the Collateral, the Priority Lien Agent and the other Priority Lien Secured Parties may enforce the provisions of the Priority Lien Documents and exercise remedies thereunder, all in such order and in such manner as they may determine in their sole discretion and regardless of whether such exercise and enforcement is adverse to the interest of any Second Lien Secured Party. Such exercise and enforcement shall include the rights of an agent appointed by them to Dispose of Collateral upon foreclosure, to incur expenses in connection with any such Disposition and to exercise all the rights and remedies of a secured creditor under the Uniform Commercial Code, the Bankruptcy Code or any other applicable or Bankruptcy Law. Without limiting the generality of the foregoing, the Priority Lien Agent will have the exclusive right to deal with that portion of the Collateral consisting of deposit accounts and securities accounts (collectively “Accounts”), including exercising rights under control agreements with respect to such Accounts. The Second Lien Collateral Agent, for itself and on behalf of the other Second Lien Secured Parties, hereby acknowledges and agrees that no covenant, agreement or restriction contained in any Second Lien Security Document, or any other Second Lien Document shall be deemed to restrict in any way the rights and remedies of the Priority Lien Agent or the other Priority Lien Secured Parties with respect to the Collateral as set forth in this Agreement. Notwithstanding the foregoing, subject to Section 3.05, the Second Lien Collateral Agent, on behalf of the Second Lien Secured Parties, may, but will have no obligation to, take all such actions (not adverse to the Priority Liens or the rights of the Priority Lien Agent and the Priority Lien Secured Parties) it deems necessary to perfect or continue the perfection of the Second Liens in the Collateral or to create, preserve or protect (but not enforce) the Second Liens in the Collateral. Nothing herein shall limit the right or ability of the Second Lien Secured Parties to (a) purchase (by credit bid or otherwise) all or any portion of the Collateral in connection with any enforcement of remedies by the Priority Lien Agent to the extent that, and so long as, the Priority Lien Secured Parties receive payment in full in cash of all Priority Lien Obligations after giving effect thereto or (b) file a proof of claim with respect to the Second Lien Obligations.

Section 3.02Standstill Period; Permitted Enforcement Action. Prior to the Discharge of Priority Lien Obligations and notwithstanding the foregoing Section 3.01, both before and during an Insolvency or Liquidation Proceeding after a period of 180 days has elapsed (which period will be tolled during any period in which the Priority Lien Agent is not entitled, on behalf of the Priority Lien Secured Parties, to enforce or exercise any rights or remedies with respect to any Collateral as a result of (a) any injunction issued by a court of competent jurisdiction or (b) the automatic stay or any other stay in any Insolvency or Liquidation Proceeding) since the date on which the Second Lien Collateral Agent has delivered to the Priority Lien Agent written notice of the acceleration of any Second Lien Debt (the “Standstill Period”), the Second Lien Collateral Agent and the other Second Lien Secured Parties may enforce or exercise any rights or remedies with respect to any Collateral; provided, however that notwithstanding the expiration of the Standstill Period or anything in the Second Lien Documents to the contrary, in no event may the Second Lien Collateral Agent or any other Second Lien Secured Party enforce or exercise any rights or remedies with respect to any Collateral, or commence, join with any Person at any time in commencing, or petition for or vote in favor of any resolution for, any such action or proceeding, if the Priority Lien Agent on behalf of the Priority Lien Secured Parties or any other Priority Lien Secured Party shall have commenced, and shall be diligently pursuing (or shall have sought or requested relief from, or modification of, the automatic stay or any other

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stay or other prohibition in any Insolvency or Liquidation Proceeding to enable the commencement and pursuit thereof), the enforcement or exercise of any rights or remedies with respect to the Collateral or any such action or proceeding (prompt written notice thereof to be given to the Second Lien Representatives by the Priority Lien Agent); provided, further, that, at any time after the expiration of the Standstill Period, if neither the Priority Lien Agent nor any other Priority Lien Secured Party shall have commenced and be diligently pursuing (or shall have sought or requested relief from, or modification of, the automatic stay or any other stay or other prohibition in any Insolvency or Liquidation Proceeding to enable the commencement and pursuit thereof) the enforcement or exercise of any rights or remedies with respect to any material portion of the Collateral or any such action or proceeding, and the Second Lien Collateral Agent shall have commenced the enforcement or exercise of any rights or remedies with respect to any material portion of the Collateral or any such action or proceeding in respect of such rights and remedies, then for so long as the Second Lien Collateral Agent is diligently pursuing such rights or remedies, none of any Priority Lien Secured Party or the Priority Lien Agent shall take any action of a similar nature with respect to such Collateral, or commence, join with any Person at any time in commencing, or petition for or vote in favor of any resolution for, any such action or proceeding (provided that during such period the Priority Lien Agent may take any of the actions the Second Lien Collateral Agent is permitted to take during the Standstill Period). Nothing contained in this Section 3.02 shall relieve the Second Lien Collateral Agent or any Second Lien Secured party of its obligations under Section 3.05(b).

Section 3.03Insurance. Unless and until the Discharge of Priority Lien Obligations has occurred (subject to the terms of Section 3.02, including the rights of the Second Lien Secured Parties following expiration of the Standstill Period), the Priority Lien Agent shall have the sole and exclusive right, subject to the rights of the Grantors under the Priority Lien Documents, to adjust and settle claims in respect of Collateral under any insurance policy in the event of any loss thereunder and to approve any award granted in any condemnation or similar proceeding (or any deed in lieu of condemnation) affecting the Collateral. Unless and until the Discharge of Priority Lien Obligations has occurred, and subject to the rights of the Grantors under the Priority Lien Documents, all proceeds of any such policy and any such award (or any payments with respect to a deed in lieu of condemnation) in respect to the Collateral shall be paid to the Priority Lien Agent pursuant to the terms of the Priority Lien Documents (including for purposes of cash collateralization of commitments, letters of credit and Hedge Obligations). If the Second Lien Collateral Agent or any Second Lien Secured Party shall, at any time prior to the Discharge of Priority Lien Obligations, receive any proceeds of any such insurance policy or any such award or payment in contravention of the foregoing, it shall pay such proceeds over to the Priority Lien Agent. In addition, if by virtue of being named as an additional insured or loss payee of any insurance policy of any Grantor covering any of the Collateral, the Second Lien Collateral Agent or any other Second Lien Secured Party shall have the right to adjust or settle any claim under any such insurance policy, then unless and until the Discharge of Priority Lien Obligations has occurred, the Second Lien Collateral Agent and any such Second Lien Secured Party shall follow the instructions of the Priority Lien Agent, or of the Grantors under the Priority Lien Documents to the extent the Priority Lien Documents grant such Grantors the right to adjust or settle such claims, with respect to such adjustment or settlement (subject to the terms of Section 3.02, including the rights of the Second Lien Secured Parties following expiration of the Standstill Period).

Section 3.04Notification of Release of Collateral. Each of the Priority Lien Agent and the Second Lien Collateral Agent shall give the other Secured Debt Representatives prompt written notice of the Disposition by it of, and Release by it of the Lien on, any Collateral. Such notice shall describe in reasonable detail the subject Collateral, the parties involved in such Disposition or Release, the place, time manner and method thereof, and the consideration, if any, received therefor; provided, however, that the failure to give any such notice shall not in and of itself in any way impair the effectiveness of any such Disposition or Release.

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Section 3.05No Interference; Payment Over.

(a)No Interference. The Second Lien Collateral Agent, for itself and on behalf of each Second Lien Secured Party, agrees that each Second Lien Secured Party (i) will not take or cause to be taken any action the purpose or effect of which is, or could be, to make any Second Lien pari passu with, or to give such Second Lien Secured Party any preference or priority relative to, any Priority Lien with respect to the Collateral or any part thereof, (ii) will not challenge or question in any proceeding the validity or enforceability of any Priority Lien Obligations or Priority Lien Document, or the validity, attachment, perfection or priority of any Priority Lien, or the validity or enforceability of the priorities, rights or duties established by the provisions of this Agreement, (iii) will not take or cause to be taken any action the purpose or effect of which is, or could be, to interfere, hinder or delay, in any manner, whether by judicial proceedings or otherwise, any sale, transfer or other Disposition of the Collateral by any Priority Lien Secured Party or the Priority Lien Agent acting on their behalf, (iv) shall have no right to (A) direct the Priority Lien Agent or any other Priority Lien Secured Party to exercise any right, remedy or power with respect to any Collateral or (B) consent to the exercise by the Priority Lien Agent or any other Priority Lien Secured Party of any right, remedy or power with respect to any Collateral, (v) will not institute any suit or assert in any suit or Insolvency or Liquidation Proceeding any claim against the Priority Lien Agent or other Priority Lien Secured Party seeking damages from or other relief by way of specific performance, instructions or otherwise with respect to, and neither the Priority Lien Agent nor any other Priority Lien Secured Party shall be liable for, any action taken or omitted to be taken by the Priority Lien Agent or other Priority Lien Secured Party with respect to any Priority Lien Collateral, (vi) will not seek, and hereby waives any right, to have any Collateral or any part thereof marshaled upon any foreclosure or other Disposition of such Collateral, (vii) will not attempt, directly or indirectly, whether by judicial proceedings or otherwise, to challenge the enforceability of any provision of this Agreement, (viii) will not object to forbearance by the Priority Lien Agent or any Priority Lien Secured Party, and (ix) will not assert, and hereby waives, to the fullest extent permitted by law, any right to demand, request, plead or otherwise assert or claim the benefit of any marshalling, appraisal, valuation or other similar right that may be available under applicable law with respect to the Collateral or any similar rights a junior secured creditor may have under applicable law.

(b)Payment Over. The Second Lien Collateral Agent, for itself and on behalf of each other Second Lien Secured Party, hereby agrees that if any Second Lien Secured Party shall obtain possession of any Collateral or shall realize any proceeds or payment in respect of any Collateral, pursuant to any rights or remedies with respect to the Collateral under any Second Lien Security Document or on account of any rights available to it under applicable law or in any Insolvency or Liquidation Proceeding, to the extent permitted hereunder, at any time prior to the Discharge of Priority Lien Obligations secured, or intended to be secured, by such Collateral, then it shall hold such Collateral, proceeds or payment in trust for the Priority Lien Agent and the other Priority Lien Secured Parties and transfer such Collateral, proceeds or payment, as the case may be, to the Priority Lien Agent as promptly as practicable. Furthermore, the Second Lien Collateral Agent shall, at the Grantors’ expense, promptly send written notice to the Priority Lien Agent upon receipt of such Collateral, proceeds or payment by any Second Lien Secured Party and if directed by the Priority Lien Agent within five (5) days after receipt by the Priority Lien Agent of such written notice, shall deliver such Collateral, proceeds or payment to the Priority Lien Agent in the same form as received, with any necessary endorsements, or as court of competent jurisdiction may otherwise direct. The Priority Lien Agent is hereby authorized to make any such endorsements as agent for the Second Lien Collateral Agent or any other Second Lien Secured Party. The Second Lien Collateral Agent, for itself and on behalf of each other Second Lien Secured Party agrees that if, at any time, it obtains written notice that all or part of any payment with respect to any Priority Lien Obligations previously made shall be rescinded for any reason whatsoever, it will promptly pay over to the Priority Lien Agent any payment received by it and then in its possession or under its direct control in respect of any such Priority Lien Collateral and shall promptly turn

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any such Collateral then held by it over to the Priority Lien Agent, and the provisions set forth in this Agreement will be reinstated as if such payment had not been made, until the Discharge of Priority Lien Obligations. All Second Liens will remain attached to and enforceable against all proceeds so held or remitted, subject to the priorities set forth in this Agreement. Anything contained herein to the contrary notwithstanding, this Section 3.05(b) shall not apply to any proceeds of Collateral realized in a transaction not prohibited by the Priority Lien Documents and as to which the possession or receipt thereof by the Second Lien Collateral Agent or any other Second Lien Secured Party is otherwise permitted by the Priority Lien Documents.

Section 3.06Purchase Option.

(a)Notwithstanding anything in this Agreement to the contrary, on or at any time after (i) the commencement of an Insolvency or Liquidation Proceeding or (ii) the acceleration of the Priority Lien Obligations, holders of the Second Lien Debt and each of their respective designated Affiliates (the “Second Lien Purchasers”) will have the right, at their sole option and election (but will not be obligated), at any time upon prior written notice to the Priority Lien Agent, to purchase from the Priority Lien Secured Parties all (but not less than all) Priority Lien Obligations (including unfunded commitments then in effect) other than any Priority Lien Obligations constituting Excess Priority Lien Obligations and any loans provided by any of the Priority Lien Secured Parties in connection with a DIP Financing that are outstanding on the date of such purchase. Promptly following the receipt of such notice, the Priority Lien Agent will deliver to the Second Lien Collateral Agent a statement of the amount of Priority Lien Debt, other Priority Lien Obligations (other than any Priority Lien Obligations constituting Excess Priority Lien Obligations) and DIP Financing provided by any of the Priority Lien Secured Parties, if any, then outstanding and the amount of the cash collateral requested by the Priority Lien Agent to be delivered pursuant to Section 3.06(b)(ii) below. The right to purchase provided for in this Section 3.06 will expire unless, within 10 Business Days after the receipt by the Second Lien Collateral Agent of such notice from the Priority Lien Agent, the Second Lien Collateral Agent delivers to the Priority Lien Agent an irrevocable commitment of the Second Lien Purchasers to purchase all (but not less than all) of the Priority Lien Obligations (including unfunded commitments) other than any Priority Lien Obligations constituting Excess Priority Lien Obligations and any loans provided by any of the Priority Lien Secured Parties in connection with a DIP Financing and to otherwise complete such purchase on the terms set forth under this Section 3.06.

(b)On the date specified by the Second Lien Collateral Agent (on behalf of the Second Lien Purchasers) in such irrevocable commitment (which shall not be less than five Business Days nor more than 20 Business Days, after the receipt by the Priority Lien Agent of such irrevocable commitment), the Priority Lien Secured Parties shall sell to the Second Lien Purchasers all (but not less than all) Priority Lien Obligations (including unfunded commitments) other than any Priority Lien Obligations constituting Excess Priority Lien Obligations and any loans provided by any of the Priority Lien Secured Parties in connection with a DIP Financing that are outstanding on the date of such sale, subject to any required approval of any Governmental Authority then in effect, if any, and only if on the date of such sale, the Priority Lien Agent receives the following:

(i)payment, as the purchase price for all Priority Lien Obligations sold in such sale, of an amount equal to the full amount of all Priority Lien Obligations (other than outstanding letters of credit as referred to in clause (ii) below) other than any Priority Lien Obligations constituting Excess Priority Lien Obligations and loans provided by any of the Priority Lien Secured Parties in connection with a DIP Financing then outstanding (including principal, interest, fees, reasonable attorneys’ fees and legal expenses, but excluding contingent indemnification obligations for which no claim or demand for payment has been made at or prior to such time); provided that in the case of Hedge Obligations that constitute Priority Lien

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Obligations, the Second Lien Purchasers shall cause the applicable agreements governing such Hedge Obligations to be assigned and novated or, if such agreements have been terminated, such purchase price shall include an amount equal to the sum of any unpaid amounts then due in respect of such Hedge Obligations, calculated using the market quotation method and after giving effect to any netting arrangements;

(ii)a cash collateral deposit in such amount as the Priority Lien Agent determines is reasonably necessary to secure the payment of any outstanding letters of credit constituting Priority Lien Obligations that may become due and payable after such sale (but not in any event in an amount greater than one hundred five percent (105%) of the amount then reasonably estimated by the Priority Lien Agent to be the aggregate outstanding amount of such letters of credit at such time), which cash collateral shall be (A) held by the Priority Lien Agent as security solely to reimburse the issuers of such letters of credit that become due and payable after such sale and any fees and expenses incurred in connection with such letters of credit and (B) returned to the Second Lien Collateral Agent (except as may otherwise be required by applicable law or any order of any court or other Governmental Authority) promptly after the expiration or termination from time to time of all payment contingencies affecting such letters of credit; and

(iii)any agreements, documents or instruments which the Priority Lien Agent may reasonably request pursuant to which the Second Lien Collateral Agent and the Second Lien Purchasers in such sale expressly assume and adopt all of the obligations of the Priority Lien Agent and the Priority Lien Secured Parties under the Priority Lien Documents and in connection with loans provided by any of the Priority Lien Secured Parties in connection with a DIP Financing on and after the date of the purchase and sale and the Second Lien Collateral Agent (or any other representative appointed by the holders of a majority in aggregate principal amount of the Second Lien Debt then outstanding) becomes a successor agent thereunder.

(c)Such purchase of the Priority Lien Obligations (including unfunded commitments) and any loans provided by any of the Priority Lien Secured Parties in connection with a DIP Financing shall be made on a pro rata basis among the Second Lien Purchasers giving notice to the Priority Lien Agent of their interest to exercise the purchase option hereunder according to each such Second Lien Purchaser’s portion of the Second Lien Debt outstanding on the date of purchase or such portion as such Second Lien Purchasers may otherwise agree among themselves. Such purchase price and cash collateral shall be remitted by wire transfer in federal funds to such bank account of the Priority Lien Agent as the Priority Lien Agent may designate in writing to the Second Lien Collateral Agent for such purpose. Interest shall be calculated to but excluding the Business Day on which such sale occurs if the amounts so paid by the Second Lien Purchasers to the bank account designated by the Priority Lien Agent are received in such bank account prior to 12:00 noon, New York City time, and interest shall be calculated to and including such Business Day if the amounts so paid by the Second Lien Purchasers to the bank account designated by the Priority Lien Agent are received in such bank account later than 12:00 noon, New York City time.

(d)Such sale shall be expressly made without representation or warranty of any kind by the Priority Lien Secured Parties as to the Priority Lien Obligations, the Collateral or otherwise and without recourse to any Priority Lien Secured Party, except that the Priority Lien Secured Parties shall represent and warrant severally as to the Priority Lien Obligations (including unfunded commitments) and any loans provided by any of the Priority Lien Secured Parties in connection with a DIP Financing then owing to it: (i) that such applicable Priority Lien Secured Party owns such Priority Lien Obligations (including unfunded commitments) and any loans provided by any of the Priority Lien Secured Parties in connection with a DIP Financing; and (ii) that such applicable Priority Lien Secured Party has the necessary corporate or other governing authority to assign such interests.

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(e)After such sale becomes effective, the outstanding letters of credit will remain enforceable against the issuers thereof and will remain secured by the Priority Liens upon the Collateral in accordance with the applicable provisions of the Priority Lien Documents as in effect at the time of such sale, and the issuers of letters of credit will remain entitled to the benefit of the Priority Liens upon the Collateral and sharing rights in the proceeds thereof in accordance with the provisions of the Priority Lien Documents as in effect at the time of such sale, as fully as if the sale of the Priority Lien Debt had not been made, but, except with respect to cash collateral held by the issuer(s) of such letters of credit, only the Person or successor agent to whom the Priority Liens are transferred in such sale will have the right to foreclose upon or otherwise enforce the Priority Liens and only the Second Lien Purchasers in the sale will have the right to direct such Person or successor as to matters relating to the foreclosure or other enforcement of the Priority Liens.

ARTICLE IV
OTHER AGREEMENTS

Section 4.01Release of Liens; Automatic Release of Second Liens. (a) Prior to the Discharge of Priority Lien Obligations, the Second Lien Collateral Agent, for itself and on behalf of each other Second Lien Secured Party agrees that, in the event the Priority Lien Secured Parties release their Lien on any Collateral, the Second Lien on such Collateral shall terminate and be released automatically and without further action if (i) such release is permitted under the Priority Lien Documents, (ii) such release is effected in connection with the Priority Lien Agent’s foreclosure upon, or other exercise of rights or remedies with respect to, such Collateral, or (iii) such release is effected in connection with a sale or other Disposition of any Collateral (or any portion thereof) under Section 363 of the Bankruptcy Code or any other provision of the Bankruptcy Code if the Priority Lien Secured Parties shall have consented to such sale or Disposition of such Collateral; provided that, in the case of each of clauses (i), (ii) and (iii), the Second Liens on such Collateral shall attach to (and shall remain subject and subordinate to all Priority Liens securing Priority Lien Obligations, subject to the Priority Lien Cap) any proceeds of a sale, transfer or other Disposition of Collateral not paid to the Priority Lien Secured Parties or that remain after the Discharge of Priority Lien Obligations.

(b)The Second Lien Collateral Agent agrees to execute and deliver (at the sole cost and expense of the Grantors) all such releases and other instruments as shall reasonably be requested by the Priority Lien Agent to evidence and confirm any release of Collateral provided for in this Section 4.01.

Section 4.02Certain Agreements With Respect to Insolvency or Liquidation Proceedings. (a) The parties hereto acknowledge that this Agreement is a “subordination agreement” under Section 510(a) of the Bankruptcy Code and shall continue in full force and effect, notwithstanding the commencement of any Insolvency or Liquidation Proceeding by or against the Borrower or any subsidiary of the Borrower. All references in this Agreement to the Borrower or any subsidiary of the Borrower or any other Grantor will include such Person or Persons as a debtor-in-possession and any receiver or trustee for such Person or Persons in an Insolvency or Liquidation Proceeding.

(b)If the Borrower or any of its subsidiaries shall become subject to any Insolvency or Liquidation Proceeding and shall, as debtor(s)-in-possession, or if any receiver or trustee for such Person or Persons shall, move for approval of financing (“DIP Financing”) to be provided by one or more lenders (the “DIP Lenders”) under Section 364 of the Bankruptcy Code or the use of cash collateral under Section 363 of the Bankruptcy Code, the Second Lien Collateral Agent, for itself and on behalf of each Second Lien Secured Party, agrees that neither it nor any other Second Lien Secured Party will raise any objection, contest or oppose, and each Second Lien Secured Party will waive any claim such Person may now or hereafter

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have, to any such financing or to the Liens on the Collateral securing the same (“DIP Financing Liens”), or to any use, sale or lease of cash collateral that constitutes Collateral or to any grant of administrative expense priority under Section 364 of the Bankruptcy Code, unless (i) the Priority Lien Agent or the Priority Lien Secured Parties oppose or object to such DIP Financing or such DIP Financing Liens or such use of cash collateral, (ii) the maximum principal amount of indebtedness permitted under such DIP Financing exceeds the sum of (A) $1,000,000,000 plus (B) the aggregate face amount of any letters of credit issued and outstanding under Priority Lien Documents on the date of the commencement of such Insolvency or Liquidation Proceeding, or (iii) the terms of such DIP Financing provide for the sale of a substantial part of the Collateral or require the confirmation of a plan of reorganization containing specific terms or provisions (other than repayment in cash of such DIP Financing on the effective date thereof). To the extent such DIP Financing Liens are senior to, or rank pari passu with, the Priority Liens, the Second Lien Collateral Agent will, for itself and on behalf of the other Second Lien Secured Parties, subordinate the Second Liens on the Collateral to the Priority Liens and to such DIP Financing Liens, so long as the Second Lien Collateral Agent, on behalf of the Second Lien Secured Parties, retains Liens on all the Collateral, including proceeds thereof arising after the commencement of any Insolvency or Liquidation Proceeding, with the same priority relative to the Priority Liens as existed prior to the commencement of the case under the Bankruptcy Code.

(c)Prior to the Discharge of Priority Lien Obligations, without the consent of the Priority Lien Agent, in its sole discretion, the Second Lien Collateral Agent, for itself and on behalf of each Second Lien Secured Party agrees not to propose, support or enter into any DIP Financing.

(d)The Second Lien Collateral Agent, for itself and on behalf of each Second Lien Secured Party agrees that it will not object to, oppose or contest (or join with or support any third party objecting to, opposing or contesting) a sale or other Disposition, a motion to sell or Dispose or the bidding procedure for such sale or Disposition of any Collateral (or any portion thereof) under Section 363 of the Bankruptcy Code or any other provision of the Bankruptcy Code if the Priority Lien Secured Parties shall have consented to such sale or Disposition, such motion to sell or Dispose or such bidding procedure for such sale or Disposition of such Collateral provided that (a) all Priority Liens and Second Liens will attach to the proceeds of the sale in the same respective priorities as set forth in this Agreement or (b) the net cash Proceeds of any Disposition under Section 363(b) of the Bankruptcy Code are permanently applied to the DIP Financing or to the Priority Lien Obligations.

(e)The Second Lien Collateral Agent, for itself and on behalf of each other Second Lien Secured Party waives any claim that may be had against the Priority Lien Agent or any other Priority Lien Secured Party arising out of any DIP Financing Liens or administrative expense priority under Section 364 of the Bankruptcy Code (in each case that is granted in a manner that is consistent with this Agreement).

(f)The Second Lien Collateral Agent, for itself and on behalf of each other Second Lien Secured Party, agrees that neither the Second Lien Collateral Agent nor any other Second Lien Secured Party will file or prosecute in any Insolvency or Liquidation Proceeding any motion for adequate protection (or any comparable request for relief) based upon their interest in the Collateral, nor object to, oppose or contest (or join with or support any third party objecting to, opposing or contesting) (i) any request by the Priority Lien Agent or any other Priority Lien Secured Party for adequate protection or (ii) any objection by the Priority Lien Agent or any other Priority Lien Secured Party to any motion, relief, action or proceeding based on the Priority Lien Agent or Priority Lien Secured Parties claiming a lack of adequate protection, except that the Second Lien Secured Parties may:

(A)freely seek and obtain relief granting adequate protection in the form of a replacement lien co-extensive in all respects with, but subordinated (as set forth in Section

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2.01) to, and with the same relative priority to the Priority Liens as existed prior to the commencement of the Insolvency or Liquidation Proceeding, all Liens granted in the Insolvency or Liquidation Proceeding to, or for the benefit of, the Priority Lien Secured Parties; and

(B)freely seek and obtain any relief upon a motion for adequate protection (or any comparable relief), without any condition or restriction whatsoever, at any time after the Discharge of Priority Lien Obligations; and

(g)The Second Lien Collateral Agent, for itself and on behalf of each of the other of the Second Lien Secured Parties waives any claim it or any such other Second Lien Secured Party may now or hereafter have against the Priority Lien Agent or any other Priority Lien Secured Party (or their representatives) arising out of any election by the Priority Lien Agent or any Priority Lien Secured Parties, in any proceeding instituted under the Bankruptcy Code, of the application of Section 1111(b) of the Bankruptcy Code.

(h)The Second Lien Collateral Agent, for itself and on behalf of each other Second Lien Secured Party, agrees that in any Insolvency or Liquidation Proceeding, neither the Second Lien Collateral Agent nor any other Second Lien Secured Party shall support or vote to accept any plan of reorganization or disclosure statement of the Borrower or any other Grantor unless (i) such plan is accepted by the Priority Lien Secured Parties in accordance with Section 1126(c) of the Bankruptcy Code or otherwise provides for the payment in full in cash of all Priority Lien Obligations (including all post-petition interest approved by the bankruptcy court, fees and expenses and cash collateralization of all letters of credit) on the effective date of such plan of reorganization, or (ii) such plan provides on account of the Priority Lien Secured Parties for the retention by the Priority Lien Agent, for the benefit of the Priority Lien Secured Parties, of the Liens on the Collateral securing the Priority Lien Obligations, and on all proceeds thereof whenever received, and such plan also provides that any Liens retained by, or granted to, the Second Lien Collateral Agent are only on property securing the Priority Lien Obligations and shall have the same relative priority with respect to the Collateral or other property, respectively, as provided in this Agreement with respect to the Collateral. Except as provided herein, the Second Lien Secured Parties shall remain entitled to vote their claims in any such Insolvency or Liquidation Proceeding.

(i)The Second Lien Collateral Agent, for itself and on behalf of each other Second Lien Secured Party, agrees that neither the Second Lien Collateral Agent nor any other Second Lien Secured Party shall seek relief, pursuant to Section 362(d) of the Bankruptcy Code or otherwise, from the automatic stay of Section 362(a) of the Bankruptcy Code or from any other stay in any Insolvency or Liquidation Proceeding in respect of the Collateral without the prior written consent of the Priority Lien Agent.

(j)The Second Lien Collateral Agent, for itself and on behalf of each other Second Lien Secured Party, agrees that neither the Second Lien Collateral Agent nor any other Second Lien Secured Party shall oppose or seek to challenge any claim by the Priority Lien Agent or any other Priority Lien Secured Party for allowance or payment in any Insolvency or Liquidation Proceeding of Priority Lien Obligations consisting of post-petition interest, fees or expenses or cash collateralization of all letters of credit to the extent of the value of the Priority Liens (it being understood that such value will be determined without regard to the existence of the Second Liens on the Collateral) subject to the Priority Lien Cap. Neither the Priority Lien Agent nor any other Priority Lien Secured Party shall oppose or seek to challenge any claim by the Second Lien Collateral Agent or any other Second Lien Secured Party for allowance or payment in any Insolvency or Liquidation Proceeding of Second Lien Obligations consisting of post-petition interest, fees or expenses to the extent of the value of the Second Liens on the Collateral; provided that if the Priority Lien Agent or any other Priority Lien Secured Party shall have made any claim for post-petition interest,

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fees or expenses in respect of the Priority Lien Obligations, such claim (i) shall have been approved or (ii) will be approved contemporaneously with the approval of any such claim by the Second Lien Collateral Agent or any Second Lien Secured Party.

(k)Without the express written consent of the Priority Lien Agent, none of the Second Lien Collateral Agent or any other Second Lien Secured Party shall (or shall join with or support any third party in opposing, objecting to or contesting, as the case may be), in any Insolvency or Liquidation Proceeding involving any Grantor, (i) oppose, object to or contest the determination of the extent of any Liens held by any of Priority Lien Secured Party or the value of any claims of any such holder under Section 506(a) of the Bankruptcy Code or (ii) oppose, object to or contest the payment to the Priority Lien Secured Party of interest, fees or expenses under Section 506(b) of the Bankruptcy Code subject to the Priority Lien Cap.

(l)Notwithstanding anything to the contrary contained herein, if in any Insolvency or Liquidation Proceeding a determination is made that any Lien encumbering any Collateral is not enforceable for any reason, then the Second Lien Collateral Agent for itself and on behalf of each other Second Lien Secured Party agrees that, any distribution or recovery they may receive in respect of any Collateral shall be segregated and held in trust and forthwith paid over to the Priority Lien Agent for the benefit of the Priority Lien Secured Parties in the same form as received without recourse, representation or warranty (other than a representation of the Second Lien Collateral Agent that it has not otherwise sold, assigned, transferred or pledged any right, title or interest in and to such distribution or recovery) but with any necessary endorsements or as a court of competent jurisdiction may otherwise direct. The Second Lien Collateral Agent, for itself and on behalf of each other Second Lien Secured Party hereby appoints the Priority Lien Agent, and any officer or agent of the Priority Lien Agent, with full power of substitution, the attorney-in-fact of each Second Lien Secured Party for the limited purpose of carrying out the provisions of this Section 4.02(l) and taking any action and executing any instrument that the Priority Lien Agent may deem necessary or advisable to accomplish the purposes of this Section 4.02(l), which appointment is irrevocable and coupled with an interest.

(m)The Second Lien Collateral Agent, for itself and on behalf of each other Second Lien Secured Party, hereby agrees that the Priority Lien Agent shall have the exclusive right to credit bid the Priority Lien Obligations and further that none of the Second Lien Collateral Agent or any other Second Lien Secured Party shall (or shall join with or support any third party in opposing, objecting to or contesting, as the case may be) oppose, object to or contest such credit bid by the Priority Lien Agent.

(n)Without the consent of the Priority Lien Agent in its sole discretion, the Second Lien Collateral Agent, for itself and on behalf of each other Second Lien Secured Party agrees it will not file an involuntary bankruptcy claim or seek the appointment of an examiner or a trustee for the Borrower or any of its subsidiaries.

(o)The Second Lien Collateral Agent, for itself and on behalf of each other Second Lien Secured Party waives any right to assert or enforce any claim under Section 506(c) or 552 of the Bankruptcy Code as against any Priority Lien Secured Party or any of the Collateral.

Section 4.03Reinstatement. If any Priority Lien Secured Party is required in any Insolvency or Liquidation Proceeding or otherwise to turn over or otherwise pay to the estate of any Grantor any amount (a “Recovery”) for any reason whatsoever, then the Priority Lien Obligations shall be reinstated to the extent of such Recovery and the Priority Lien Secured Parties shall be entitled to a reinstatement of Priority Lien Obligations with respect to all such recovered amounts. The Second Lien Collateral Agent, for itself and on behalf of each other Second Lien Secured Party agrees that if, at any time, a Second Lien Secured Party

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receives notice of any Recovery, the Second Lien Collateral Agent or any other Second Lien Secured Party, shall promptly pay over to the Priority Lien Agent any payment received by it and then in its possession or under its control in respect of any Collateral subject to any Priority Lien securing such Priority Lien Obligations and shall promptly turn any Collateral subject to any such Priority Lien then held by it over to the Priority Lien Agent, and the provisions set forth in this Agreement shall be reinstated as if such payment had not been made. If this Agreement shall have been terminated prior to any such Recovery, this Agreement shall be reinstated in full force and effect, and such prior termination shall not diminish, release, discharge, impair or otherwise affect the obligations of the parties hereto from such date of reinstatement. Any amounts received by the Second Lien Collateral Agent or any other Second Lien Secured Party and then in its possession or under its control on account of the Second Lien Obligations after the termination of this Agreement shall, in the event of a reinstatement of this Agreement pursuant to this Section 4.03, be held in trust for and paid over to the Priority Lien Agent for the benefit of the Priority Lien Secured Parties for application to the reinstated Priority Lien Obligations until the discharge thereof. This Section 4.03 shall survive termination of this Agreement.

Section 4.04Refinancings; Additional Second Lien Debt.

(c)The Priority Lien Obligations and the Second Lien Obligations may be Replaced, by any Priority Substitute Credit Facility or Second Lien Substitute Facility, as the case may be, in each case, without notice to, or the consent of any Secured Party, all without affecting the Lien priorities provided for herein or the other provisions hereof; provided, that (i) the Priority Lien Agent and the Second Lien Collateral Agent shall receive on or prior to incurrence of a Priority Substitute Credit Facility or Second Lien Substitute Facility (A) an Officers’ Certificate from the Borrower stating that (I) the incurrence thereof is permitted by each applicable Secured Debt Document to be incurred and (II) the requirements of Section 4.06 have been satisfied, and (B) a Priority Confirmation Joinder from the holders or lenders of any indebtedness that Replaces the Priority Lien Obligations or the Second Lien Obligations (or an authorized agent, trustee or other representative on their behalf), (ii) the aggregate outstanding principal amount of the Priority Lien Obligations, after giving effect to such Priority Substitute Credit Facility, shall not exceed the Priority Lien Cap and (iii) on or before the date of such incurrence, such Priority Substitute Credit Facility or Second Lien Substitute Facility is designated by the Borrower, in an Officers’ Certificate delivered to the Priority Lien Agent and the Second Lien Collateral Agent, as “Priority Lien Debt” or “Second Lien Debt”, as applicable, for the purposes of the Secured Debt Documents and this Agreement; provided that no series of Secured Debt may be designated as more than one of Priority Lien Debt or Second Lien Debt.

(d)The Borrower will be permitted to designate as an additional holder of Second Lien Obligations hereunder each Person who is, or who becomes, the registered holder of Second Lien Debt, incurred by the Borrower after the date of this Agreement in accordance with the terms of all applicable Secured Debt Documents. The Borrower may effect such designation by delivering to the Priority Lien Agent and the Second Lien Collateral Agent each of the following:

(ii)an Officers’ Certificate stating that the Borrower intends to incur Additional Second Lien Obligations which will be Second Lien Debt permitted to be incurred by each applicable Secured Debt Document and secured by a Second Lien, equally and ratably with all previously existing and future Second Lien Debt;

(iii)an authorized agent, trustee or other representative on behalf of the holders or lenders of any Additional Second Lien Obligations must be designated as an additional holder of Secured Obligations hereunder and must, prior to such designation, sign and deliver on behalf of the holders or lenders of such Additional Second Lien Obligations a Priority Confirmation Joinder, and, to the extent necessary or

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appropriate to facilitate such transaction, a new intercreditor agreement substantially similar to this Agreement, as in effect on the date hereof; and

(iv)evidence that the Borrower has duly authorized, executed (if applicable) and recorded (or caused to be recorded) in each appropriate governmental office all relevant filings and recordations deemed necessary by the Borrower and the holder of such Additional Second Lien Obligations, or its Secured Debt Representative, to ensure that the Additional Second Lien Obligations are secured by the Collateral in accordance with the Second Lien Security Documents (provided that such filings and recordings may be authorized, executed and recorded following any incurrence on a post-closing basis if permitted by the Second Lien Representative for such Additional Second Lien Obligations).

Notwithstanding the foregoing, nothing in this Agreement will be construed to allow the Borrower or any other Grantor to incur additional indebtedness unless otherwise permitted by the terms of each applicable Secured Debt Document.

(e)Each of the then-exiting Priority Lien Agent and the Second Lien Collateral Agent shall be authorized to execute and deliver such documents and agreements (including amendments or supplements to this Agreement) as such holders, lenders, agent, trustee or other representative may reasonably request to give effect to any such Replacement or any incurrence of Additional Second Lien Obligations, it being understood that the Priority Lien Agent and the Second Lien Collateral Agent or (if permitted by the terms of the applicable Secured Debt Documents) the Grantors, without the consent of any other Secured Party or (in the case of the Grantors) one or more Secured Debt Representatives, may amend, supplement, modify or restate this Agreement to the extent necessary or appropriate to facilitate such amendments or supplements to effect such Replacement or incurrence all at the expense of the Grantors. Upon the consummation of such Replacement or incurrence and the execution and delivery of the documents and agreements contemplated in the preceding sentence, the holders or lenders of such indebtedness and any authorized agent, trustee or other representative thereof shall be entitled to the benefits of this Agreement.

Section 4.05Amendments to Second Lien Documents. Prior to the Discharge of Priority Lien Obligations, without the prior written consent of the Priority Lien Agent, no Second Lien Document may be amended, supplemented, restated or otherwise modified and/or refinanced or entered into to the extent such amendment, supplement, restatement or modification and/or refinancing, or the terms of any new Second Lien Document would (i) adversely affect the lien priority rights of the Priority Lien Secured Parties or the rights of the Priority Lien Secured Parties to receive payments owing pursuant to the Priority Lien Documents, (ii) except as otherwise provided for in this Agreement, add any Liens securing any additional Property as Collateral under the Second Lien Security Documents unless such additional Property is added as Collateral under the Priority Lien Security Documents, (iii) confer any additional rights on the Second Lien Collateral Agent or any other Second Lien Secured Party in a manner adverse to the Priority Lien Secured Parties, or (iv) contravene the provisions of this Agreement or the Priority Lien Documents.Legends

Section 4.06Second Lien Secured Parties Rights as Unsecured Creditors; Judgment Lien Creditor. Both before and during an Insolvency or Liquidation Proceeding, any of the Second Lien Secured Parties may take any actions and exercise any and all rights that would be available to a holder of unsecured claims; provided, however, that the Second Lien Secured Parties may not take any of the actions prohibited by Sections 3.01, 3.05(a), 4.01 or 4.02 or any other provisions in this Agreement; provided, further, that in the event that any of the Second Lien Secured Parties becomes a judgment lien creditor in respect of any Collateral as a result of its enforcement of its rights as an unsecured creditor with respect to the Second Lien Obligations, such judgment lien shall be subject to the terms of this Agreement for all purposes (including in relation to the Priority Lien Obligations) as the Second Liens are subject to this Agreement.

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Section 4.07Postponement of Subrogation. The Second Lien Collateral Agent, for itself and on behalf of each other Second Lien Secured Party, hereby agrees that no payment or distribution to any Priority Lien Secured Party pursuant to the provisions of this Agreement shall entitle any Second Lien Secured Party to exercise any rights of subrogation in respect thereof until the Discharge of Priority Lien Obligations shall have occurred. Following the Discharge of Priority Lien Obligations, but subject to the reinstatement as provided in Section 4.03, each Priority Lien Secured Party will execute such documents, agreements, and instruments as any Second Lien Secured Party may reasonably request to evidence the transfer by subrogation to any such Person of an interest in the Priority Lien Obligations resulting from payments or distributions to such Priority Lien Secured Party by such Person, so long as all costs and expenses (including all reasonable legal fees and disbursements) incurred in connection therewith by such Priority Lien Secured Party are paid by such Person upon request for payment thereof.

Section 4.08Acknowledgment by the Secured Debt Representatives. Each of the Priority Lien Agent, for itself and on behalf of the other Priority Lien Secured Parties and the Second Lien Collateral Agent, for itself and on behalf of the other Second Lien Secured Parties, hereby acknowledges that this Agreement is a material inducement to enter into a business relationship, that each has relied on this Agreement to enter into the Priority Credit Agreement and the Original Second Lien Agreement, as applicable, and all documentation related thereto, and that each will continue to rely on this Agreement in their related future dealings.

ARTICLE V
GRATUITOUS BAILMENT FOR PERFECTION OF CERTAIN SECURITY INTERESTS

Section 5.01General. Prior to the Discharge of Priority Lien Obligations, the Priority Lien Agent agrees that if it shall at any time hold a Priority Lien on any Collateral that can be perfected by the possession or control of such Collateral or of any Account in which such Collateral is held, and if such Collateral or any such Account is in fact in the possession or under the control of the Priority Lien Agent, the Priority Lien Agent will serve as gratuitous bailee for the Second Lien Collateral Agent for the sole purpose of perfecting the Second Lien of the Second Lien Collateral Agent on such Collateral. It is agreed that the obligations of the Priority Lien Agent and the rights of the Second Lien Collateral Agent and the other Second Lien Secured Parties in connection with any such bailment arrangement will be in all respects subject to the provisions of Article II. Notwithstanding anything to the contrary herein, the Priority Lien Agent will be deemed to make no representation as to the adequacy of the steps taken by it to perfect the Second Lien on any such Collateral and shall have no responsibility, duty, obligation or liability to the Second Lien Collateral Agent or any other Second Lien Secured Party or any other Person for such perfection or failure to perfect, it being understood that the sole purpose of this Article is to enable the Second Lien Secured Parties to obtain a perfected Second Lien in such Collateral to the extent, if any, that such perfection results from the possession or control of such Collateral or any such Account by the Priority Lien Agent. The Priority Lien Agent acting pursuant to this Section 5.01 shall not have by reason of the Priority Lien Security Documents, the Second Lien Security Documents, this Agreement or any other document or theory, a fiduciary relationship in respect of any Priority Lien Secured Party, the Second Lien Collateral Agent or any Second Lien Secured Party. Subject to Section 4.03, from and after the Discharge of Priority Lien Obligations, the Priority Lien Agent shall take all such actions in its power as shall reasonably be requested by the Second Lien Collateral Agent (at the sole cost and expense of the Grantors) to transfer possession or control of such Collateral or any such Account (in each case to the extent the Second Lien Collateral Agent has a Lien on such Collateral or Account after giving effect to any prior or concurrent releases of Liens) to the Second Lien Collateral Agent for the benefit of all Second Lien Secured Parties.

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Section 5.02Deposit Accounts. Prior to the Discharge of Priority Lien Obligations, to the extent that any Account is under the control of the Priority Lien Agent at any time, the Priority Lien Agent will act as gratuitous bailee for the Second Lien Collateral Agent for the purpose of perfecting the Liens of the Second Lien Secured Parties in such Accounts and the cash and other assets therein as provided in Section 5.01 (but will have no duty, responsibility or obligation to the Second Lien Secured Parties (including, without limitation, any duty, responsibility or obligation as to the maintenance of such control, the effect of such arrangement or the establishment of such perfection) except as set forth in the last sentence of this Section 5.02). Unless the Second Liens on such Collateral shall have been or concurrently are released, after the occurrence of Discharge of Priority Lien Obligations, the Priority Lien Agent shall, at the request of the Second Lien Collateral Agent, cooperate with the Grantors and the Second Lien Collateral Agent (at the expense of the Grantors) in permitting control of any other Accounts to be transferred to the Second Lien Collateral Agent (or for other arrangements with respect to each such Accounts satisfactory to the Second Lien Collateral Agent to be made).

ARTICLE VI
APPLICATION OF PROCEEDS; DETERMINATION OF AMOUNTS

Section 6.01Application of Proceeds. Prior to the Discharge of Priority Obligations, and regardless of whether an Insolvency or Liquidation Proceeding has been commenced, Collateral or Proceeds received in connection with the enforcement or exercise of any rights or remedies with respect to any portion of the Collateral will be applied:

(a)first, to the payment in full in cash of all Priority Lien Obligations that are not Excess Priority Lien Obligations,

(b)second, to the payment in full in cash of all Second Lien Obligations,

(c)third, to the payment in full in cash of all Excess Priority Lien Obligations, and

(d)fourth, to the Borrower or as otherwise required by applicable law.

Section 6.02Determination of Amounts. Whenever a Secured Debt Representative shall be required, in connection with the exercise of its rights or the performance of its obligations hereunder, to determine the existence or amount of any Priority Lien Obligations (or the existence of any commitment to extend credit that would constitute Priority Lien Obligations), or Second Lien Obligations, or the existence of any Lien securing any such obligations, or the Collateral subject to any such Lien, it may request that such information be furnished to it in writing by the other Secured Debt Representative and shall be entitled to make such determination on the basis of the information so furnished; provided, however, that if a Secured Debt Representative shall fail or refuse reasonably promptly to provide the requested information, the requesting Secured Debt Representative shall be entitled to make any such determination by such method as it may, in the exercise of its good faith judgment, determine, including by reliance upon a certificate of the Borrower. Each Secured Debt Representative may rely conclusively, and shall be fully protected in so relying, on any determination made by it in accordance with the provisions of the preceding sentence (or as otherwise directed by a court of competent jurisdiction) and shall have no liability to the Borrower or any of their subsidiaries, any Secured Party or any other Person as a result of such determination.

ARTICLE VII
NO RELIANCE; NO LIABILITY; OBLIGATIONS ABSOLUTE;
CONSENT OF GRANTORS; ETC.

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Section 7.01No Reliance; Information. The Priority Lien Secured Parties and the Second Lien Secured Parties shall have no duty to disclose to any Second Lien Secured Party or to any Priority Lien Secured Party, as the case may be, any information relating to the Borrower or any of the other Grantors, or any other circumstance bearing upon the risk of non-payment of any of the Priority Lien Obligations or the Second Lien Obligations, as the case may be, that is known or becomes known to any of them or any of their Affiliates. In the event any Priority Lien Secured Party or any Second Lien Secured Party, in its sole discretion, undertakes at any time or from time to time to provide any such information to, any Second Lien Secured Party or any Priority Lien Secured Party, as the case may be, it shall be under no obligation (a) to make, and shall not make or be deemed to have made, any express or implied representation or warranty, including with respect to the accuracy, completeness, truthfulness or validity of the information so provided, (b) to provide any additional information or to provide any such information on any subsequent occasion or (c) to undertake any investigation.

Section 7.02No Warranties or Liability.

(f)The Priority Lien Agent, for itself and on behalf of the other Priority Lien Secured Parties, acknowledges and agrees that, except for the representations and warranties set forth in Article VIII, neither the Second Lien Collateral Agent nor any other Second Lien Secured Party has made any express or implied representation or warranty, including with respect to the execution, validity, legality, completeness, collectability or enforceability of any of the Second Lien Documents, the ownership of any Collateral or the perfection or priority of any Liens thereon.

(g)The Second Lien Collateral Agent, for itself and on behalf of the other Second Lien Secured Parties, acknowledges and agrees that, except for the representations and warranties set forth in Article VIII, neither the Priority Lien Agent nor any other Priority Lien Secured Party has made any express or implied representation or warranty, including with respect to the execution, validity, legality, completeness, collectability or enforceability of any of the Priority Lien Documents, the ownership of any Collateral or the perfection or priority of any Liens thereon.

(h)The Priority Lien Agent and the other Priority Lien Secured Parties shall have no express or implied duty to the Second Lien Collateral Agent or any other Second Lien Secured Party and the Second Lien Collateral Agent and the other Second Lien Secured Parties shall have no express or implied duty to the Priority Lien Agent or any other Priority Lien Secured Party to act or refrain from acting in a manner which allows, or results in, the occurrence or continuance of a default or an event of default under any Priority Lien Document and any Second Lien Document (other than, in each case, this Agreement), regardless of any knowledge thereof which they may have or be charged with.

(i)The Second Lien Collateral Agent, for itself and on behalf of each other Second Lien Secured Party hereby waives any claim that may be had against the Priority Lien Agent or any other Priority Lien Secured Party arising out of any actions which the Priority Lien Agent or such Priority Lien Secured Party takes or omits to take (including actions with respect to the creation, perfection or continuation of Liens on any Collateral, actions with respect to the foreclosure upon, sale, release or depreciation of, or failure to realize upon, any Collateral, and actions with respect to the collection of any claim for all or only part of the Priority Lien Obligations from any account debtor, guarantor or any other party) in accordance with this Agreement and the Priority Lien Documents or the valuation, use, protection or release of any security for such Priority Lien Obligations.

Section 7.03Obligations Absolute. The Lien priorities provided for herein and the respective rights, interests, agreements and obligations hereunder of the Priority Lien Agent and the other Priority Lien

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Secured Parties and the Second Lien Collateral Agent and the other Second Lien Secured Parties shall remain in full force and effect irrespective of:

(a)any lack of validity or enforceability of any Secured Debt Document;

(b)any change in the time, place or manner of payment of, or in any other term of (including the Replacing of), all or any portion of the Priority Lien Obligations, it being specifically acknowledged that a portion of the Priority Lien Obligations consists or may consist of Indebtedness that is revolving in nature, and the amount thereof that may be outstanding at any time or from time to time may be increased or reduced and subsequently reborrowed;

(c)any amendment, waiver or other modification, whether by course of conduct or otherwise, of any Secured Debt Document;

(d)the securing of any Priority Lien Obligations or Second Lien Obligations with any additional collateral or guarantees, or any exchange, release, voiding, avoidance or non-perfection of any security interest in any Collateral or any other collateral or any release of any guarantee securing any Priority Lien Obligations or Second Lien Obligations;

(e)the commencement of any Insolvency or Liquidation Proceeding in respect of the Borrower or any other Grantor; or

(f)any other circumstances that otherwise might constitute a defense available to, or a discharge of, the Borrower or any other Grantor in respect of the Priority Lien Obligations or the Second Lien Obligations.

Section 7.04Grantors Consent. Each Grantor hereby consents to the provisions of this Agreement and the intercreditor arrangements provided for herein and agrees that the obligations of the Grantors under the Secured Debt Documents will in no way be diminished or otherwise affected by such provisions or arrangements (except as expressly provided herein).

ARTICLE VIII
REPRESENTATIONS AND WARRANTIES

Section 8.01Representations and Warranties of Each Party. Each party hereto represents and warrants to the other parties hereto as follows:

(j)Such party is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has all requisite power and authority to enter into and perform its obligations under this Agreement.

(k)This Agreement has been duly executed and delivered by such party.

(l)The execution, delivery and performance by such party of this Agreement (i) do not require any consent or approval of, registration or filing with or any other action by any Governmental Authority of which the failure to obtain could reasonably be expected to have a Material Adverse Effect (as defined in the Priority Credit Agreement), (ii) will not violate any applicable law or regulation or any order of any Governmental Authority or any indenture, agreement or other instrument binding upon such party which could reasonably be expected to have a Material Adverse Effect and (iii) will not violate the charter, by-laws or other organizational documents of such party.

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Section 8.02Representations and Warranties of Each Representative. Each of the Priority Lien Agent and the Second Lien Collateral Agent represents and warrants to the other parties hereto that it is authorized under the Priority Credit Agreement and the Original Second Lien Agreement, as the case may be, to enter into this Agreement.

ARTICLE IX
MISCELLANEOUS

Section 9.01Notices. All notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows:

(g)if to the Priority Lien Agent, to it at:

[____________________]

[____________________]

Fax: ([___]) [____________]

Attention: [______________]

(h)if to the Second Lien Collateral Agent, to it at:

[___________________]

[___________________]

Fax: ([___]) [___________]

Attention: [____________]

(i)if to any other Secured Debt Representative, to such address as specified in the Priority Confirmation Joinder.

Any party hereto may change its address or facsimile number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt (if a Business Day) and on the next Business Day thereafter (in all other cases) if delivered by hand or overnight courier service or sent by telecopy or on the date five Business Days after dispatch by certified or registered mail if mailed, in each case delivered, sent or mailed (properly addressed) to such party as provided in this Section 9.01 or in accordance with the latest unrevoked direction from such party given in accordance with this Section 9.01. As agreed to in writing among the Borrower, the Priority Lien Agent and the Second Lien Collateral Agent from time to time, notices and other communications may also be delivered by e-mail to the e-mail address of a representative of the applicable person provided from time to time by such person.

Section 9.02Waivers; Amendment. (a) No failure or delay on the part of any party hereto in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the parties hereto are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by any party therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section 9.02, and then such waiver or consent shall be effective only in the specific instance and for the

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purpose for which given. No notice or demand on any party hereto in any case shall entitle such party to any other or further notice or demand in similar or other circumstances.

(b)Neither this Agreement nor any provision hereof may be terminated, waived, amended or modified except pursuant to an agreement or agreements in writing entered into by each Secured Debt Representative; provided, however, that this Agreement may be amended from time to time as provided in Section 4.04. Any amendment of this Agreement that is proposed to be effected without the consent of a Secured Debt Representative as permitted by the proviso to the preceding sentence shall be submitted to such Secured Debt Representative for its review at least 5 Business Days prior to the proposed effectiveness of such amendment.

Section 9.03Actions Upon Breach; Specific Performance. (a) Prior to the Discharge of Priority Lien Obligations, if any Second Lien Secured Party, contrary to this Agreement, commences or participates in any action or proceeding against any Grantor or the Collateral, such Grantor, with the prior written consent of the Priority Lien Agent, may interpose as a defense or dilatory plea the making of this Agreement, and any Priority Lien Secured Party may intervene and interpose such defense or plea in its or their name or in the name of such Grantor.

(b)Prior to the Discharge of Priority Lien Obligations, should any Second Lien Secured Party, contrary to this Agreement, in any way take, attempt to or threaten to take any action with respect to the Collateral (including any attempt to realize upon or enforce any remedy with respect to this Agreement), or take any other action in violation of this Agreement or fail to take any action required by this Agreement, the Priority Lien Agent or any other Priority Lien Secured Party (in its own name or in the name of the relevant Grantor) or the relevant Grantor, with the prior written consent of the Priority Lien Agent, (A) may obtain relief against such Second Lien Secured Party by injunction, specific performance and/or other appropriate equitable relief, it being understood and agreed by the Second Lien Collateral Agent on behalf of each Second Lien Secured Party that (I) the Priority Lien Secured Parties’ damages from its actions may at that time be difficult to ascertain and may be irreparable, and (II) each Second Lien Secured Party waives any defense that the Grantors and/or the Priority Lien Secured Parties cannot demonstrate damage and/or be made whole by the awarding of damages, and (B) shall be entitled to damages, as well as reimbursement for all reasonable and documented costs and expenses incurred in connection with any action to enforce the provisions of this Agreement.

Section 9.04Parties in Interest. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, as well as the other Secured Parties, all of whom are intended to be bound by, and to be third party beneficiaries of, this Agreement.

Section 9.05Survival of Agreement. All covenants, agreements, representations and warranties made by any party in this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement.

Section 9.06Counterparts. This Agreement may be executed in counterparts, each of which shall constitute an original but all of which when taken together shall constitute a single contract. Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Agreement.

Section 9.07Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate

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such provision in any other jurisdiction. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

Section 9.08Governing Law; Jurisdiction; Consent to Service of Process. (a) THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAW PRINCIPLES (BUT GIVING EFFECT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATION LAW).

(b)Each party hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State court or, to the extent permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any party hereto may otherwise have to bring any action or proceeding relating to this Agreement in the courts of any jurisdiction.

(c)Each party hereto hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section 9.08. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

(d)Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law.

Section 9.09WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

Section 9.10Headings. Article, Section and Annex headings used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement.

Section 9.11Conflicts. In the event of any conflict or inconsistency between the provisions of this Agreement and the provisions of any Secured Debt Documents, the provisions of this Agreement shall

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control; [provided, however, that if any of the provisions of the Second Lien Security Documents limit, qualify or conflict with the duties imposed by the provisions of the TIA, in each case, the TIA shall control].

Section 9.12Provisions Solely to Define Relative Rights. The provisions of this Agreement are and are intended solely for the purpose of defining the distinct and separate relative rights of the Priority Lien Secured Parties and the Second Lien Secured Parties. None of the Borrower, any other Grantor or any other creditor thereof shall have any rights or obligations hereunder, except as expressly provided in this Agreement (provided that nothing in this Agreement (other than Sections 4.01, 4.02, 4.04, or 4.05) is intended to or will amend, waive or otherwise modify the provisions of the Priority Credit Agreement or the Original Second Lien Agreement, as applicable), and except as expressly provided in this Agreement neither the Borrower nor any other Grantor may rely on the terms hereof (other than Sections 4.01, 4.02, 4.04, or 4.05, Article V, Article VII and Article IX). Nothing in this Agreement is intended to or shall impair the obligations of the Borrower or any other Grantor, which are absolute and unconditional, to pay the Obligations under the Secured Debt Documents as and when the same shall become due and payable in accordance with their terms. Notwithstanding anything to the contrary herein or in any Secured Debt Document, the Grantors shall not be required to act or refrain from acting pursuant to this Agreement, any Priority Lien Document or any Second Lien Document with respect to any Collateral in any manner that would cause a default under any Priority Lien Document.

Section 9.13Certain Terms Concerning the Second Lien Collateral Agent. The Second Lien Collateral Agent is executing and delivering this Agreement solely in its capacity as such and pursuant to direction set forth in the Second Lien Collateral Agency Agreement; and in so doing, the Second Lien Collateral Agent shall not be responsible for the terms or sufficiency of this Agreement for any purpose. The Second Lien Collateral Agent shall have no duties or obligations under or pursuant to this Agreement other than such duties and obligations as may be expressly set forth in this Agreement as duties and obligations on its part to be performed or observed. In entering into this Agreement, or in taking (or forbearing from) any action under or pursuant to this Agreement, the Second Lien Collateral Agent shall have and be protected by all of the rights, immunities, indemnities and other protections granted to it under the Original Second Lien Agreement and the other Second Lien Documents (including without limitation [____________] of the [Second Lien Collateral Agency Agreement]).

Section 9.14Certain Terms Concerning the Priority Lien Agent and the Second Lien Collateral Agent. Neither of the Priority Lien Agent nor the Second Lien Collateral Agent shall have any liability or responsibility for the actions or omissions of any other Secured Party, or for any other Secured Party’s compliance with (or failure to comply with) the terms of this Agreement. None of the Priority Lien Agent or the Second Lien Collateral Agent shall have individual liability to any Person if it shall mistakenly pay over or distribute to any Secured Party (or the Borrower) any amounts in violation of the terms of this Agreement, so long as the Priority Lien Agent or the Second Lien Collateral Agent, as the case may be, is acting in good faith. Each party hereto hereby acknowledges and agrees that each of the Priority Lien Agent and the Second Lien Collateral Agent is entering into this Agreement solely in its capacity under the Priority Lien Documents and the Second Lien Documents, respectively, and not in its individual capacity. (a) The Priority Lien Agent shall not be deemed to owe any fiduciary duty to the Second Lien Collateral Agent or any other Second Lien Representative or any other Second Lien Secured Party and (b) the Second Lien Collateral Agent shall not be deemed to owe any fiduciary duty to the Priority Lien Agent or any other Priority Lien Secured Party.

Section 9.15Authorization of Secured Agents. By accepting the benefits of this Agreement and the other Priority Lien Security Documents, each Priority Lien Secured Party authorizes the Priority Lien Agent to enter into this Agreement and to act on its behalf as collateral agent hereunder and in connection

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herewith. By accepting the benefits of this Agreement and the other Second Lien Security Documents, each Second Lien Secured Party authorizes the Second Lien Collateral Agent to enter into this Agreement and to act on its behalf as collateral agent hereunder and in connection herewith.

Section 9.16Further Assurances. Each of the Priority Lien Agent, for itself and on behalf of the other Priority Lien Secured Party and the Second Lien Collateral Agent, for itself and on behalf of the other Second Lien Secured Parties, and each Grantor party hereto, for itself and on behalf of its subsidiaries, agrees that it will execute, or will cause to be executed, any and all further documents, agreements and instruments, and take all such further actions, as may be required under any applicable law, or which the Priority Lien Agent or the Second Lien Collateral Agent may reasonably request, to effectuate the terms of this Agreement, including the relative Lien priorities provided for herein.

Section 9.17Relationship of Secured Parties. Nothing set forth herein shall create or evidence a joint venture, partnership or an agency or fiduciary relationship among the Secured Parties. None of the Secured Parties nor any of their respective directors, officers, agents or employees shall be responsible to any other Secured Party or to any other Person for any Grantor’s solvency, financial condition or ability to repay the Priority Lien Obligations or the Second Lien Obligations, or for statements of any Grantor, oral or written, or for the validity, sufficiency or enforceability of the Priority Lien Documents or the Second Lien Documents, or any security interests granted by any Grantor to any Secured Party in connection therewith. Each Secured Party has entered into its respective financing agreements with the Grantors based upon its own independent investigation, and neither of the Priority Lien Agent nor the Second Lien Collateral Agent makes any warranty or representation to the other Secured Debt Representatives or the Secured Parties for which it acts as agent nor does it rely upon any representation of the other agents or the Secured Parties for which it acts as agent with respect to matters identified or referred to in this Agreement.

[SIGNATURES BEGIN NEXT PAGE]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

JPMORGAN CHASE BANK, N.A., as Priority Lien Agent

By:

Name:

Title:

Signature Page
Intercreditor Agreement

[______________________________],

as Second Lien Collateral Agent

By:

Name:

Title:

Signature Page
Intercreditor Agreement

ACKNOWLEDGED AND AGREED AS OF THE DATE FIRST ABOVE WRITTEN:

CALIFORNIA RESOURCES CORPORATION

By:

Name:

Title:

[OTHER GUARANTORS]

By:
Name:

Title: [__________________], for and on behalf of each of the foregoing Guarantors

Signature Page
Intercreditor Agreement

ANNEX I

Provision for any Additional Second Lien Credit Facility and the Second Lien Documents

Reference is made to the Intercreditor Agreement, dated as of [ ], between JPMORGAN CHASE BANK, N.A., as Priority Lien Agent (as defined therein), and [ ], as Second Lien Collateral Agent (as defined therein) and acknowledged and agreed by California Resources Corporation and certain of its subsidiaries (as amended, supplemented, amended and restated or otherwise modified and in effect from time to time, the “Intercreditor Agreement”). Each holder of Additional Second Lien Obligations (as defined therein), by its acceptance of such Additional Second Lien Obligations (i) consents to the subordination of Liens provided for in the Intercreditor Agreement, (ii) agrees that it will be bound by, and will take no actions contrary to, the provisions of the Intercreditor Agreement and (iii) authorizes and instructs the Second Lien Collateral Agent (as defined therein) on behalf of each Second Lien Secured Party (as defined therein) to enter into the Intercreditor Agreement as Second Lien Collateral Agent on behalf of such Second Lien Secured Parties. The foregoing provisions are intended as an inducement to the lenders under the Priority Lien Documents (as defined in the Intercreditor Agreement) to extend credit to the Borrower and such lenders are intended third party beneficiaries of such provisions and the provisions of the Intercreditor Agreement.

Provision for all Second Lien Security Documents that Grant a Security Interest in Collateral

Reference is made to the Intercreditor Agreement, dated as of [____________], 201[_], between JPMORGAN CHASE BANK, N.A., as Priority Lien Agent (as defined therein), and [________________________], as Second Lien Collateral Agent (as defined therein) (the “Intercreditor Agreement”). Each Person that is secured hereunder, by accepting the benefits of the security provided hereby, (i) consents (or is deemed to consent), to the subordination of Liens provided for in the Intercreditor Agreement, (ii) agrees (or is deemed to agree) that it will be bound by, and will take no actions contrary to, the provisions of the Intercreditor Agreement, (iii) authorizes (or is deemed to authorize) the Second Lien Collateral Agent on behalf of such Person to enter into, and perform under, the Intercreditor Agreement and (iv) acknowledges (or is deemed to acknowledge) that a copy of the Intercreditor Agreement was delivered, or made available, to such Person.

Notwithstanding any other provision contained herein, this Agreement, the Liens created hereby and the rights, remedies, duties and obligations provided for herein are subject in all respects to the provisions of the Intercreditor Agreement and, to the extent provided therein, the applicable Security Documents (as defined in the Intercreditor Agreement). In the event of any conflict or inconsistency between the provisions of this Agreement and the Intercreditor Agreement, the provisions of the Intercreditor Agreement shall control.

Annex I - 1

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EXHIBIT A
to Intercreditor Agreement

[FORM OF]
PRIORITY CONFIRMATION JOINDER

Reference is made to the Intercreditor Agreement, dated as of [__________], 201[_] (as amended, supplemented, amended and restated or otherwise modified and in effect from time to time, the “Intercreditor Agreement”) between JPMORGAN CHASE BANK, N.A., as Priority Lien Agent for the Priority Lien Secured Parties (as defined therein), and [___________________], as Second Lien Collateral Agent for the Second Lien Secured Parties (as defined therein).

Capitalized terms used but not otherwise defined herein shall have the meaning set forth in the Intercreditor Agreement. This Priority Confirmation Joinder is being executed and delivered pursuant to Section 4.04[(a)][(b)] of the Intercreditor Agreement as a condition precedent to the debt for which the undersigned is acting as representative being entitled to the rights and obligations of being [Priority/Second/Additional Second] Obligations under the Intercreditor Agreement.

1. Joinder. The undersigned, [_______________], a [_______________], (the “New Representative”) as [trustee] [collateral trustee] [administrative agent] [collateral agent] under that certain [describe applicable indenture, credit agreement or other document governing the Priority Substitute Credit Facility, Second Lien Substitute Facility or Additional Second Lien Credit Facility] hereby:

(a)    represents that the New Representative has been authorized to become a party to the Intercreditor Agreement on behalf of the [Priority Lien Secured Parties under a Priority Substitute Credit Facility] [Second Lien Secured Parties under the Second Lien Substitute Facility] Additional Second Lien Secured Parties under the Additional Second Lien Credit Facility] as [a Priority Lien Agent under a Priority Substitute Credit Facility] [a Second Lien Agent under a Second Lien Substitute Facility] [Second Lien Representative] under the Intercreditor Agreement for all purposes thereof on the terms set forth therein, and to be bound by the terms of the Intercreditor Agreement as fully as if the undersigned had executed and delivered the Intercreditor Agreement as of the date thereof; and

(b)    agrees that its address for receiving notices pursuant to the Intercreditor Agreement shall be as follows:

[Address];

2.    Priority Confirmation.

[Option A: to be used if additional debt constitutes replacement Priority Debt] The undersigned New Representative, on behalf of itself and each Priority Lien Secured Party for which the undersigned is acting as Priority Lien Agent hereby agrees, for the benefit of all Secured Parties and each future Secured Debt Representative, and as a condition to being treated as Priority Lien Obligations under the Intercreditor Agreement, that the New Representative is bound by the provisions of the Intercreditor Agreement, including the provisions relating to the ranking of Priority Liens. [or]

[Option B: to be used if additional debt constitutes Second Lien Substitute Facility or an Additional Second Lien Credit Facility] The undersigned New Representative, on behalf of itself and each holder of Obligations in respect of the Series of Second Lien Debt [that constitutes Second Lien Substitute Facility] for which the undersigned is acting as [Second Lien Representative] [Second Lien Collateral Agent] hereby agrees, for the benefit of all Secured Parties and each future Secured Debt Representative, and as a condition to being treated as Secured Obligations under the Intercreditor Agreement, that:

Exhibit A - 1

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(a)    all Second Lien Obligations will be and are secured equally and ratably by all Second Liens at any time granted by the Borrower or any other Grantor to secure any Obligations in respect of such Second Lien Debt, whether or not upon property otherwise constituting Collateral for such Second Lien Debt, and that all such Second Liens will be enforceable by the Second Lien Collateral Agent with respect to such Second Lien Debt for the benefit of all Second Lien Secured Parties equally and ratably;

(b)    the New Representative and each holder of Obligations in respect of the Series of Second Lien Debt for which the undersigned is acting as [Second Lien Representative] [Second Lien Agent] are bound by the provisions of the Intercreditor Agreement, including the provisions relating to the ranking of Priority Liens and Second Liens and the order of application of proceeds from enforcement of Priority Liens and Second Liens; and

(c)    the New Representative and each holder of Obligations in respect of the Series of Second Lien Debt for which the undersigned is acting as [Second Lien Representative] [Second Lien Agent] appoints the Second Lien Collateral Agent and consents to the terms of the Intercreditor Agreement and the performance by the Second Lien Collateral Agent of, and directs the Second Lien Collateral Agent to perform, its obligations under the Intercreditor Agreement and the Second Lien Collateral Agency Agreement, together with all such powers as are reasonably incidental thereto.

3.    Full Force and Effect of Intercreditor Agreement. Except as expressly supplemented hereby, the Intercreditor Agreement shall remain in full force and effect.

4.    Governing Law and Miscellaneous Provisions. The provisions of Article IX of the Intercreditor Agreement will apply with like effect to this Priority Confirmation Joinder.

5.    Expenses. The Borrower agree to reimburse each Secured Debt Representative for its reasonable out of pocket expenses in connection with this Priority Confirmation Joinder, including the reasonable fees, other charges and disbursements of counsel.

Exhibit A - 2

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IN WITNESS WHEREOF, the parties hereto have caused this Priority Confirmation Joinder to be executed by their respective officers or representatives as of [______________], 20[_].

[insert name of New Representative]

By:

Name:

Title:

The Priority Lien Agent hereby acknowledges receipt of this Priority Confirmation Joinder:

as Priority Lien Agent

By:

Name:

Title:

The Second Lien Collateral Agent hereby acknowledges receipt of this Priority Confirmation Joinder:

as Second Lien Collateral Agent

By:

Name:

Title:

Exhibit A - 3

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Acknowledged and Agreed to by:

CALIFORNIA RESOURCES CORPORATION, as Borrower

By:

Name:

Title:

Exhibit A - 4

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EXHIBIT B
to Intercreditor Agreement

SECURITY DOCUMENTS

PART A.

List of Priority Lien Security Documents

1.    

2.    

3.    

PART B.

List of Second Lien Security Documents

1.    

2.    

3.    

Exhibit B - 1

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EX-10.2

EXHIBIT 10.2

CALIFORNIA RESOURCES CORPORATION

LONG-TERM INCENTIVE PLAN

PERFORMANCE STOCK UNIT AWARD
TERMS AND CONDITIONS

Date of Grant: August 5, 2015

Performance Stock Units: See Morgan Stanley Stock Plan Connect “Restricted Stock/Performance Stock & Cash Units/Target”

Vesting Date: August 4, 2018

Performance Period: July 1, 2015 through June 30, 2018

The following Terms and Conditions (these “Terms and Conditions”) are set forth as of the Date of Grant between CALIFORNIA RESOURCES CORPORATION, a Delaware corporation (“CRC” and, with its subsidiaries, the “Company”), and the eligible employee receiving this award (the “Grantee”).

1.Grant of Performance Stock Units. In accordance with these Terms and Conditions and the California Resources Corporation Long-Term Incentive Plan, as the same may be amended from time to time (the “Plan”), CRC grants, subject to Section 8, to the Grantee as of the Date of Grant, up to 200% of the number of Performance Stock Units (“PS Units”) set forth above, subject to adjustment under the Plan and Section 7 of these Terms and Conditions. Subject to the provisions of Section 5, a PS Unit is a bookkeeping entry that represents the right to receive upon achievement of the Performance Goal, as set forth in Section 4, one share of CRC Common Stock, $0.01 par value (the “Common Stock”). PS Units are not Common Stock and have no voting rights or, except as stated in Section 6, dividend rights.

2.Restrictions on Transfer. Neither these Terms and Conditions nor any right to receive Common Stock or cash pursuant to these Terms and Conditions may be transferred or assigned by the Grantee other than (i) to a beneficiary designated on a form approved by the Company (if enforceable under local law), by will or, if the Grantee dies without designating a beneficiary of a valid will, by the laws of descent and distribution, or (ii) pursuant to any applicable domestic relations order (if approved or ratified by the Committee).

3.Performance Goal. The Performance Goal is based 50% on Total Shareholder Return (defined as Total Stockholder Return in the Plan) of the Peer Companies listed below, as set forth on Exhibit 1 and 50% on Cumulative Value Creation Index, as set forth in Exhibit 2. The Performance Payout Factor shall be the sum of (a) 50% times the TSR Performance Factor, determined as set forth on Exhibit 1, and (b) 50% times the VCI Performance Factor, determined as set forth in Exhibit 2. Total Shareholder Return shall be calculated for each Peer Company, assuming reinvestment of all dividends, using the average of its last reported sale price per share of common stock on the New York Stock Exchange - Composite Transactions for the trading days during the 30 calendar day period immediately preceding and excluding the first day of the Performance Period and the average of its last reported sale price per share of common stock on the New York Stock Exchange - Composite Transactions for the trading days during the 30 calendar day period ending with and including the last day of the applicable Performance Period. In addition to CRC, the Peer Companies are: Cabot Oil and Gas Corporation, Cimarex Energy

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Co., Concho Resources. Inc., Denbury Resources, Inc., Energen Corporation, Energy XXI, Ltd., EP Energy Corporation, Murphy Oil Corporation, Newfield Exploration Company, Noble Energy, Inc., Oasis Petroleum Inc., Parsley Energy, Inc., Pioneer Natural Resources Company, QEP Resources Inc., Range Resources Corporation, SM Energy Company, Whiting Petroleum Corporation, and WPX Energy Inc. (collectively, the “Peer Companies” and individually, a “Peer Company”); provided however, that consistent with Section 162(m), if at any time during the Performance Period, a Peer Company is acquired, then such company will be removed and treated as if it had never been a Peer Company and the achievement of the Performance Goal will be determined with respect to the remaining Peer Companies as set forth on Exhibit 1.

4.Vesting and Forfeiture of Performance Stock Unit Award.

(a)If the Grantee fails to accept this award prior to October 1, 2015, then, notwithstanding any other provision of this award, the Grantee shall forfeit this award and all rights under this award and this award will become null and void. For purposes of these Terms and Conditions, acceptance of the award shall occur on the date the Grantee accepts this Performance Stock Unit Award through Morgan Stanley Stock Plan Connect or any replacement on-line system designated by the Company.

(b)The Grantee must remain in the continuous employ of the Company through the Vesting Date to receive payment under this award. The continuous employment of the Grantee will not be deemed to have been interrupted by reason of the transfer of the Grantee’s employment among the Company and its affiliates or an approved leave of absence. However, if the Grantee dies or becomes permanently disabled while in the employ of the Company and terminates employment as a result thereof, retires with the consent of the Company, or terminates employment without cause (as determined by the Company in its sole discretion) for the convenience of the Company (each of the foregoing, a “Forfeiture Event”), then the number of unvested PS Units will be reduced on a pro rata basis to the number obtained by multiplying the total number of PS Units granted by a fraction, the numerator of which is the number of days between and including the Date of Grant and the Forfeiture Event, and the denominator of which is the number of days between and including the Date of Grant and the Vesting Date. If the Forfeiture Event is death or permanent disability, such pro rata unvested PS Units shall vest as of the date (the “Unscheduled Vesting Date”)of the Forfeiture Event and, subject to Section 24 of these Terms and Conditions, become immediately payable, and all other PS Units shall be forfeited as of the date of the Forfeiture Event. If the Grantee terminates employment voluntarily or the Grantee’s employment is terminated for cause (as determined by the Company in its sole discretion), then the Grantee shall forfeit this award and all remaining rights hereunder and this award will become null and void.

(c)Subject to satisfaction of these Terms and Conditions including Section 4(d), the Grantee shall have the right to receive payment of this award in an amount equal to the product of the PS Units multiplied by the Performance Payout Factor, rounded up to the nearest whole unit, which right shall be based on, and become nonforfeitable upon, the Committee’s certification of the attainment of the Performance Goal.

(d)If a Change in Control occurs prior to the Vesting Date and the Grantee’s employment is terminated by the Company (or its successor) on or after the date of such event and as a result of such event (a “CIC Event”), then the Grantee shall have the right to receive payment of this award in an amount equal to the product of the PS Units

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multiplied by the Performance Payout Factor (calculated using 100% for the VCI Performance Factor and actual performance through the termination date for the TSR Performance Factor), rounded up to the nearest whole unit, unless, prior to the occurrence of the CIC Event, the Committee, as provided in Section 7.1 of the Plan, decides in its sole discretion that such event will not accelerate vesting of any of these PS Units. Any such decision by the Committee is binding on the Grantee. Any such vesting of PS Units due to a CIC Event shall be in lieu of payment of this award under Section 4(c).

5.Payment of Awards. Payment for vested PS Units, as adjusted pursuant to Sections 4 and 7 of these Terms and Conditions, will be made in the form of shares of Common Stock equal in number to the number of PS Units with respect to which payment is being made on the applicable date. Payment will be made to the Grantee as promptly as practicable after the Committee’s certification of attainment of the Performance Goal, CIC Event, or Unscheduled Vesting Date, as the case may be, and in any event no later than the 15th day of the third month following the end of the first taxable year in which the award is no longer subject to a substantial risk of forfeiture. Notwithstanding the preceding provisions of this Section 5, payment for a vested PS Unit shall be made at the time provided above solely in cash (in lieu of in the form of shares of Common Stock as provided above) in an amount equal to the Plan Value if (a) such PS Unit becomes vested prior to the 2016 Annual Meeting (as herein defined) or (b) stockholder approval is not obtained at the 2016 Annual Meeting to make additional shares of Common Stock subject to the Plan in an amount sufficient so that all outstanding awards under the Plan as of the date of the 2016 Annual Meeting that may be paid in shares of Common Stock (including this award and other awards under the Plan that are similar to this award (to the extent outstanding as of such date)) may be so paid. As used herein: (i) “2016 Annual Meeting” means the annual meeting of CRC’s stockholders that occurs in calendar year 2016; and (ii) “Plan Value” means the last reported sale price of a share of Common Stock on the New York Stock Exchange Composite Transactions on the date of the Committee’s certification of attainment of the Performance Goal, CIC Event, or Unscheduled Vesting Date, as applicable.

6.Crediting and Payment of Dividend Equivalents. With respect to each PS Unit listed above, the Grantee will be credited on the books and records of CRC with an amount (the “Dividend Equivalent”) per PS Unit equal to the amount per share of any cash dividends declared by the Board on the outstanding Common Stock as and when declared during the period beginning on the Date of Grant and ending, with respect to such PS Unit, on the date on which the Grantee’s right to receive such portion becomes nonforfeitable, or, if earlier, the date on which the Grantee forfeits the right to receive such PS Unit. CRC will pay in cash to the Grantee an amount equal to the Dividend Equivalents credited to the Grantee, adjusted, if applicable, to reflect the same payment percentage that is used to determine the payout of the PS Units following certification of the attainment of the Performance Goal, the CIC Event, or Unscheduled Vesting Date, as the case may be, as promptly as may be practicable following such certification, CIC Event, or Unscheduled Vesting Date but, in any event, no later than the 15^th day of the third month following the end of the first taxable year in which the award is no longer subject to substantial risk of forfeiture.

7.Adjustments. The number of PS Units covered by these Terms and Conditions may be adjusted as the Committee determines, pursuant to Section 7.2 of the Plan, in order to prevent dilution or expansion of the Grantee’s rights under these Terms and Conditions as a result of events such as stock dividends, stock splits, or other change in the capital structure of CRC, or any merger, consolidation, spin-off, liquidation or other corporate transaction or event having

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a similar effect. If any such adjustment occurs, the Company will give the Grantee written notice of the adjustment containing an explanation of the nature of the adjustment. In addition, the Committee may adjust the Performance Goal or other features of this award as permitted by Section 5.2.1 of the Plan.

8.Compensation Recoupment. The Grantee’s receipt of this award is expressly conditioned on the Grantee’s agreement to the terms and provisions of this Section, and the Grantee acknowledges that the Grantee would not have received this award in the absence of such agreement. By accepting this award, the Grantee acknowledges and agrees that:

(a)    the compensation (or any portion thereof) payable pursuant to this award and any other award granted to the Grantee under the Plan (whether granted before, on or after the Date of Grant) shall be subject to recovery, revocation, recoupment or “clawback” by the Company or any of its Affiliates pursuant to (i) the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”), (ii) any rules or regulations promulgated under the Act or by any stock exchange on which the Common Stock is listed (collectively, the “Rules”), or (iii) any compensation recoupment or clawback policies or procedures adopted by the Company or any of its Affiliates, in each case with respect to clauses (i), (ii) and (iii) above as such provisions, rules, regulations, policies and procedures may be adopted and amended from time to time (including with retroactive effect); and

(b)    any other compensation or benefit (or any portion thereof) payable to or on behalf of the Grantee from the Company or any of its Affiliates (whether payable before, on or after the Date of Grant, but excluding any compensation or benefit payable pursuant to an award granted under the Plan) shall be subject to recovery, revocation, recoupment or clawback by the Company or any of its Affiliates pursuant to the Act, the Rules or any compensation recoupment or clawback policies or procedures adopted by the Company or any of its Affiliates in accordance with the requirements of the Act and the Rules, in each case as the Act, the Rules and such policies and procedures may be adopted and amended from time to time (including with retroactive effect).

In addition, the Grantee hereby agrees (on behalf of the Grantee and any other individual, entity or other person claiming under or through the Grantee) that: (a) compensation payable pursuant to this award and any other compensation or benefit payable to or on behalf of the Grantee (whether under the Plan or otherwise) shall be subject to recovery, revocation, recoupment or clawback as provided in the preceding provisions of this Section; and (b) the Grantee (or any such individual, entity or other person) shall not seek indemnification or contribution from the Company or any of its Affiliates with respect to any amount so recovered, revoked, recouped or clawed back.

9.No Employment Contract. Nothing in these Terms and Conditions confers upon the Grantee any right with respect to continued employment by the Company, nor limits in any manner the right of the Company to terminate the employment or adjust the compensation of the Grantee. Unless otherwise agreed in a writing signed by the Grantee and an authorized representative of the Company, the Grantee’s employment with the Company is at will and may be terminated at any time by the Grantee or the Company. For purposes of these Terms and Conditions, the Grantee shall be considered to be in the employment of the Company as long as the Grantee remains an employee of any of the Company, an Affiliate, or a corporation or other entity or a parent or subsidiary of such corporation or other entity assuming, or that provides a

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new award in substitution for, this award. Without limiting the scope of the preceding sentence, it is expressly provided that the Grantee shall be considered to have terminated employment with the Company at the time of the termination of the “Affiliate” status under the Plan of the entity or other organization that employs the Grantee.

10.Taxes and Withholding. Regardless of any action the Company takes with respect to any or all income tax (including U.S. federal, state and local tax and non-U.S. tax), social insurance, payroll tax, payment on account or other tax-related items related to the Grantee’s participation in the Plan and legally applicable to the Grantee (“Tax-Related Items”), the Grantee acknowledges that the ultimate liability for all Tax-Related Items is and remains the Grantee’s responsibility and may exceed the amount actually withheld by the Company. The Grantee further acknowledges that the Company (i) makes no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of this Performance Stock Unit Award, including the grant or vesting of the Performance Stock Unit Award and the receipt of Dividend Equivalents; and (ii) does not commit to and is under no obligation to structure the terms of the grant or any aspect of the Performance Stock Unit Award to reduce or eliminate the Grantee’s liability for Tax-Related Items or achieve any particular tax result. Further, if the Grantee has become subject to tax in more than one jurisdiction between the Date of Grant and the date of any relevant taxable event, the Grantee acknowledges that the Company may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

Prior to the relevant taxable event, the Grantee shall pay or make adequate arrangements satisfactory to the Company to satisfy all Tax-Related Items. To facilitate compliance with this obligation, the Grantee authorizes the Company to, and, unless the Committee instructs the Company otherwise, the Company shall, withhold all applicable Tax-Related Items legally payable by the Grantee first from the shares of Common Stock or cash payable pursuant to this Performance Stock Unit Award (including Dividend Equivalents) and, if not sufficient, from the Grantee’s wages or other cash compensation. The Grantee shall pay to the Company any amount of Tax-Related Items that the Company may be required to withhold as a result of the Grantee’s receipt of this Performance Stock Unit Award that cannot be satisfied by the means previously described.

11.Compliance with Law. The Company will make reasonable efforts to comply with all federal, state and non-U.S. laws applicable to awards of this type. However, if it is not feasible for the Company to comply with these laws with respect to the grant or settlement of these awards, then the awards may be cancelled without any compensation or additional benefits provided to the Grantee as a result of the cancellation.

12.Relation to Other Benefits. The benefits received by the Grantee under these Terms and Conditions will not be taken into account in determining any benefits to which the Grantee may be entitled under any profit sharing, retirement or other benefit or compensation plan maintained by the Company, including the amount of any life insurance coverage available to any beneficiary of the Grantee under any life insurance plan covering employees of the Company. Additionally, this Performance Stock Unit Award is not part of normal or expected compensation or salary for any purposes, including, but not limited to calculation of any severance, resignation, termination, redundancy, end of service payments, bonuses or long-service awards. The grant of this Performance Stock Unit Award does not create any contractual or other right to receive future grants of Performance Stock Unit Awards or benefits in lieu of

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Performance Stock Unit Awards, even if the Grantee has a history of receiving Performance Stock Unit Awards or other cash or stock awards.

13.Amendments. The Plan may be modified, amended, suspended or terminated by the Board at any time, as provided in the Plan. Any amendment to the Plan will be deemed to be an amendment to these Terms and Conditions to the extent it is applicable to these Terms and Conditions; however, except to the extent necessary to comply with applicable law, no amendment will adversely affect the rights of the Grantee under these Terms and Conditions in any material respect without the Grantee’s consent. Notwithstanding the foregoing, Attachment B may only be modified or revoked pursuant to the terms set forth in its Paragraph 14, and Attachment B shall survive the termination of Employee’s employment relationship with the Company, the termination of the Plan and the termination of the Terms and Conditions.

14.Severability. Subject to the provisions set forth in Paragraph 15 of Attachment B, if one or more of the provisions of these Terms and Conditions is invalidated for any reason by any tribunal, the invalidated provisions shall be deemed to be separable from the other provisions of these Terms and Conditions, and the remaining provisions of these Terms and Conditions will continue to be valid and fully enforceable.

15.Entire Agreement; Relation to Plan; Interpretation. Except as specifically provided in this Section, these Terms and Conditions and the Attachments incorporated in these Terms and Conditions constitute the entire agreement between the Company and the Grantee with respect to this Performance Stock Unit Award; provided, however, that the terms of these Terms and Conditions shall not modify and shall be subject to the terms and conditions of any employment and/or severance agreement between the Company (or an Affiliate) and the Grantee in effect as of the date a determination is to be made under these Terms and Conditions. Without limiting the scope of the preceding sentence, except as provided therein, all prior understandings and agreements, if any, among the parties hereto relating to the subject matter hereof are hereby null and void and of no further force and effect. These Terms and Conditions are subject to the terms and conditions of the Plan. In the event of any inconsistent provisions between these Terms and Conditions and the Plan, the provisions of the Plan control. Capitalized terms used in these Terms and Conditions without definitions have the meanings assigned to them in the Plan. References to Sections and Attachments are to Sections of, and Attachments incorporated in, these Terms and Conditions unless otherwise noted.

16.Successors and Assigns. Subject to Sections 2 and 4, the provisions of these Terms and Conditions shall be for the benefit of, and be binding upon, the successors, administrators, heirs, legal representatives and assigns of the Grantee, and the successors and assigns of the Company.

17.Governing Law. Except as provided by Paragraphs 10 and 11 of Attachment B, the laws of the State of Delaware govern the interpretation, performance, and enforcement of these Terms and Conditions.

18.Notices. Any notices or other communications provided for in these Terms and Conditions shall be sufficient if in writing. In the case of the Grantee, such notices or communications shall be effectively delivered if hand delivered to the Grantee at the Grantee’s principal place of employment or if sent by certified mail, return receipt requested, to the Grantee at the last address the Grantee has filed with the Company. In the case of the Company, such

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notices or communications shall be effectively delivered if sent by certified mail, return receipt requested, to CRC at its principal executive offices.

19.Privacy Rights. By accepting this Performance Stock Unit Award, the Grantee explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Grantee’s Data (as defined below) by and among, as applicable, the Company and its affiliates for the exclusive purpose of implementing, administering and managing the Grantee’s participation in the Plan. The Grantee understands that the Company holds, or may receive from any agent designated by the Company, certain personal information about the Grantee, including, but not limited to, the Grantee’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of this Performance Stock Unit Award or any other entitlement to cash or shares of stock awarded, canceled, exercised, vested, unvested or outstanding in the Grantee’s favor, for the purpose of implementing, administering and managing the Plan, including complying with applicable tax and securities laws (“Data”). Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan. These recipients may be located in the Grantee’s country of residence or elsewhere, and may have different data privacy laws and protections than the Grantee’s country of residence. By accepting these Terms and Conditions, the Grantee authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes described above. The Grantee may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting the Committee in writing. Refusing or withdrawing consent may affect the Grantee’s ability to participate in the Plan.

20.Electronic Delivery and Acceptance. The Company may, in its sole discretion, decide to deliver any documents related to this Performance Stock Unit Award granted under the Plan or future awards that may be granted under the Plan (if any) by electronic means or to request the Grantee’s consent to participate in the Plan by electronic means. The Grantee hereby consents to receive such documents by electronic delivery and, if requested, to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.

21.Grantee’s Representations and Releases. By accepting this Performance Stock Unit Award, the Grantee acknowledges that the Grantee has read these Terms and Conditions and understands that (i) the grant of this Performance Stock Unit Award is made voluntarily by CRC in its discretion with no liability on the part of any of its direct or indirect subsidiaries and that, if the Grantee is not an employee of CRC, the Grantee is not, and will not be considered, an employee of CRC, but that the Grantee is a third party (i.e. an employee of a subsidiary) to whom this Performance Stock Unit Award is granted; (ii) all decisions with respect to future awards, if any, will be at the sole discretion of CRC; (iii) the Grantee’s participation in the Plan is voluntary; (iv) this Performance Stock Unit Award is an extraordinary item that does not constitute a regular and recurring item of base compensation; (v) the future amount of any payment pursuant to this Performance Stock Unit Award cannot be predicted and CRC does not assume liability in the event this Performance Stock Unit Award has no value; (vi) subject to the terms of any tax equalization agreement between the Grantee and the entity employing the Grantee, the Grantee will be solely responsible for the payment or nonpayment of taxes imposed or threatened to be imposed by any authority of any jurisdiction; and (vii) CRC is not providing

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any tax, legal or financial advice with respect to this Performance Stock Unit Award or the Grantee’s participation in the Plan.

In consideration of the grant of this Performance Stock Unit Award, no claim or entitlement to compensation or damages shall arise from termination of this Performance Stock Unit Award or diminution in value of this Performance Stock Unit Award resulting from termination of the Grantee’s employment by the Company (for any reason whatsoever) and, to the extent permitted by law, the Grantee irrevocably releases the Company from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a tribunal to have arisen, then, by accepting this Performance Stock Unit Award, the Grantee shall be deemed irrevocably to have waived his or her entitlement to pursue such claim.

22.Grantee’s Agreement to General Terms of Employment and Mutual Agreement to Arbitrate. By accepting this Performance Stock Unit Award, the Grantee agrees, to the extent not contrary to applicable law, to the General Terms of Employment set out on Attachment 1 and to be bound by the Mutual Agreement to Arbitrate set out on Attachment 2, which, in each case, are incorporated in these Terms and Conditions by reference.

23.Imposition of Other Requirements. CRC reserves the right to impose other requirements on the Grantee’s participation in the Plan and on this Performance Stock Unit Award, to the extent CRC determines it is necessary or advisable in order to comply with local law or facilitate the administration of the Plan, and to require the Grantee to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

24.Compliance with Section 409A of the Code. All amounts payable under these Terms and Conditions are intended to comply with the “short term deferral” exception from Section 409A of the U.S. Internal Revenue Code (“Section 409A”) specified in Treas. Reg. § 1.409A-1(b)(4) (or any successor provision) and shall be paid within the period necessary to qualify for such exception. Notwithstanding the foregoing, to the extent that it is determined that the Plan or this award is subject to Section 409A, these Terms and Conditions shall be interpreted and administered in such a way as to comply with the applicable provisions of Section 409A to the maximum extent possible. In addition, if this award is subject to Section 409A, then (i) if the Grantee must be treated as a “specified employee” within the meaning of Section 409A, any payment made on account of the Grantee’s separation from service (as defined for purposes of Section 409A) (other than by reason of death) will be made at the time specified above in these Terms and Conditions or, if later, on the date that is six (6) months and one (1) day following the date of the Grantee’s separation from service; (ii) any payment on a Change in Control event will be made only if the Change in Control also qualifies as a change of control event within the meaning of Section 409A; and (iii) any determination by the Committee not to accelerate the award on a Change in Control shall be made only to the extent such determination is consistent with Section 409A. To the extent that the Committee determines that the Plan or this award is subject to Section 409A and fails to comply with the requirements of Section 409A, the Committee reserves the right (without any obligation to do so) to amend or terminate the Plan and/or amend, restructure, terminate or replace this award in order to cause this award either to not be subject to Section 409A or to comply with the applicable provisions of such section.

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EXHIBIT 1

California Resources Corporation Long-Term Incentive Plan

Performance Stock Unit Award

TSR Performance Factor

Relative TSR Percentile Rank (1)	TSR Performance Factor (2) (3)
90th or higher	200%
50th	100%
25th	25%
Less than 25th	0%

⁽¹⁾ Relative TSR Percentile Rank shall be calculated based on the Total Shareholder Return for CRC as compared to the Peer Companies for the applicable Performance Period. Total Shareholder Return shall be calculated for each Peer Company, assuming reinvestment of all dividends, using the average of its last reported sale price per share of common stock on the New York Stock Exchange - Composite Transactions for the trading days during the 30 calendar day period immediately preceding and excluding the first day of the Performance Period and the average of its last reported sale price per share of common stock on the New York Stock Exchange - Composite Transactions for the trading days during the 30 calendar day period ending with and including the last day of the applicable Performance Period.

⁽²⁾ TSR Performance Factor shall be linearly interpolated between indicated values for Relative TSR Percentile Rank between values indicated in table.

⁽³⁾TSR Performance Factor shall not exceed 75%, regardless of the Relative TSR Percentile Rank, if CRC’s Total Shareholder Return for the applicable Performance Period is negative.

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EXHIBIT 2

California Resources Corporation Long-Term Incentive Plan

Performance Stock Unit Award

VCI Performance Factor

Cumulative Value Creation Index (1)	VCI Performance Factor (2)
1.4 or greater	200%
1.2	100%
1.0	25%
Less than 1.0	0%

⁽¹⁾ Cumulative Value Creation Index shall be calculated as the weighted average of the Value Creation Index results for the full calendar years 2016 and 2017, weighted based on discounted capital invested for the plan year. Value Creation Index is the present value added per discounted dollar of investment, calculated as A divided by B where “A” is the discounted expected future revenue from production of reserves added during the plan year net of production operating expenses and taxes other than income taxes, but before any general and administrative charges and income taxes, and “B” is the discounted capital invested for the plan year. The future revenue calculations will be based on the five-year Brent strip (including impact of any hedges), with prices held stable after five years. Discounting shall be at 10% (consistent with SEC requirements). Except as otherwise stated, all values shall be determined consistently with SEC regulations.

⁽²⁾ VCI Performance Factor shall be linearly interpolated between indicated values for Cumulative Value Creation Index results between values indicated in table.

Attachment 1GENERAL TERMS OF EMPLOYMENT

A.Except as otherwise required by law or legal process, the Grantee will not publish or divulge to any person, firm, corporation or institution and will not use to the detriment of CRC, or any of its subsidiaries or other affiliates, or any of their respective officers, directors, employees or stockholders (collectively, “CRC Parties”), at any time during or after the Grantee’s employment by any of them, any trade secrets or confidential information of any of them (whether generated by them or as a result of any of their business relationships), including such information as described in CRC’s ethics code and other corporate policies, without first obtaining the written permission of a CRC officer.

B.At the time of terminating employment with the Company, the Grantee will deliver to the Company, and not keep or deliver to anyone else, any and all credit cards, drawings, blueprints, specifications, devices, notes, notebooks, memoranda, reports, studies, correspondence and other documents, and, in general, any and all materials relating to the CRC Parties (whether generated by them or as a result of their business relationships), including any copies (whether in paper or electronic form), that the Grantee has in the Grantee’s possession or control.

C.The Grantee will, during the Grantee’s employment by the Company, comply with the provisions of CRC’s ethics code and other policies.

D.Except as otherwise required by the Grantee’s job or permitted by law, the Grantee will not make statements about any CRC Parties (1) to the press, electronic media, to any part of the investment community, to the public, or to any person connected with, employed by or having a relationship with any of them without permission of a CRC officer or (2) that are derogatory, defamatory or negative. Nothing herein, however, shall prevent Grantee from making a good faith report or complaint to appropriate governmental authorities. To the fullest extent permitted by law, Grantee will not interfere with or disrupt any of the Company’s operations or otherwise take actions intended directly to harm any of the CRC Parties.

E.All inventions, developments, designs, improvements, discoveries and ideas that the Grantee makes or conceives in the course of employment by the Company, whether or not during regular working hours, relating to any design, article of manufacture, machine, apparatus, process, method, composition of matter, product or any improvement or component thereof, that are manufactured, sold, leased, used or under development by, or pertain to the present or possible future business of the Company shall be works-for-hire and become and remain the property of CRC, its successors and assigns.

The provisions of this Section do not apply to an invention that qualifies fully under the provisions of Section 2870 of the California Labor Code, which provides in substance that provisions in an employment agreement providing that an employee shall assign or offer to assign rights in an invention to his or her employer do not apply to an invention for which no equipment, supplies, facilities, or trade secret information of the employer was used and which was developed entirely on the employee’s own time, except for those inventions that either (a) relate, at the time of conception or reduction to practice of the invention, (1) to the business of the employer or (2) to the employer’s actual or demonstrably anticipated research or development, or (b) result from any work performed by the employee for the employer.

F.The foregoing General Terms of Employment are not intended to be an exclusive list of the employment terms and conditions that apply to the Grantee. The Company, in its sole discretion, may at any time amend or supplement the foregoing terms. The Grantee’s breach of the foregoing General Terms of Employment will entitle the Company to take appropriate disciplinary action, including, without limitation, reduction of the Performance Stock Unit Award granted pursuant to these Terms and Conditions and termination of employment.

Attachment 2

MUTUAL AGREEMENT TO ARBITRATE

The Grantee under the Terms and Conditions (“Employee”) and California Resources Corporation (“Company”) hereby enter into this Mutual Agreement to Arbitrate (“Agreement”).

In recognition of the fact that differences may arise out of or relating to certain aspects of Employee’s employment relationship or the termination of that relationship, and in recognition of the fact that resolution of any differences in the courts is rarely timely or cost effective for either party, Employee and Company have entered into this Agreement in order to establish and gain the benefits of a speedy, impartial and cost-effective dispute resolution procedure.

1.Claims Subject to Arbitration. Except as expressly set forth in Paragraph 2 below, both Company and Employee mutually consent to resolve by final and binding arbitration any and all disputes, claims or controversies of any kind or nature, including but not limited to such matters arising from, related to or in connection with Employee seeking employment with, Employee’s employment relationship by or the termination of Employee’s employment with any one or more of the Company, its predecessors and each of their respective past and present parents, affiliates and subsidiaries (collectively referred to herein as “Company Group”) that either Employee may have against one or more Company Group entity (and/or each of their respective past and present employees, independent contractors, owners, agents, officers, directors, board members, shareholders, successors, assigns, benefit plans and sponsors, fiduciaries, administrators or insurers) or that any Company Group entity may have against Employee (collectively, “Claims”). The term Company Group includes, but is not limited to, Occidental Petroleum Corporation and its past and present affiliates and subsidiaries. The Claims subject to arbitration include, without limitation, (a) any Claims by Employee arising from, related to or in connection with: (i) any federal, state or local law or regulation prohibiting discrimination, harassment or retaliation based on race, color, religion, national origin, sex, age, disability or any other condition or characteristic protected by law; (ii) any alleged breach of contract or covenant, whether express or implied, including but not limited to a breach of the Terms and Conditions; (iii) any alleged violation of any federal, state, local, or other constitution, statute, ordinance, regulation, common law, or public policy; (iv) any dispute regarding wages, hours, bonuses or other compensation or payment; and/or (v) any personal, emotional, physical, economic, property or any other injury, loss or harm; and (b) any Claims that a Company Group entity may have against Employee, including, without limitation, any alleged trade secret violations.

2.Claims Not Subject to Arbitration. This Agreement does not apply to any Claims by Employee: (a) for state Workers’ Compensation benefits; (b) for unemployment insurance benefits filed with the appropriate government entity; (c) arising under a benefit plan where the plan expressly specifies a separate arbitration procedure; (d) arising under the National Labor Relations Act and filed through a charge with the National Labor Relations Board; or (e) which are otherwise expressly prohibited by law from being subject to arbitration under this Agreement, provided such prohibition is not preempted under the Federal Arbitration Act or any other federal law. This Agreement does not preclude filing an administrative charge or complaint with the appropriate government entity if such filing is protected or required by law. However, to the full extent permitted by law, any Claims seeking monetary relief must be asserted in arbitration pursuant to this Agreement.

3.Class, Collective and Representative Action Waivers. To the fullest extent permitted by law, and notwithstanding anything else in this Agreement, Employee and Company agree that any Claims brought by a Company Group entity, by Employee or on Employee’s behalf shall be decided by the arbitrator on an individual basis and not on a class, collective or representative basis. Accordingly, class, collective and representative actions are not permitted under this Agreement. The arbitrator shall not have the authority or jurisdiction to hear the arbitration as a class, collective or representative action or to join or consolidate causes of action of different parties into one proceeding. To the fullest extent permitted by law, Company Group and Employee agree that they have waived, to the maximum extent possible, any of their rights to bring or participate in class, collective or representative actions with respect to any Claims. Notwithstanding the foregoing, if and to the extent applicable law precludes Employee and/or any Company Group entity from waiving any right to bring California Private Attorney General Act (“PAGA”) class, collective or representative claims, and provided that the applicable law is not preempted by the Federal Arbitration Act or other federal law, then the Parties agree that such PAGA class, collective or representative claims shall not be subject to the terms of this Agreement and shall be heard by a court of competent jurisdiction.

4.Procedure. Any arbitration will be filed with and conducted by JAMS. The arbitration shall be held at the closest office of JAMS to where Employee does/did report to work or at a location mutually agreed to by the parties, pursuant to the JAMS Employment Arbitration Rules and Procedures (“Rules”) in effect at the time the demand for arbitration is filed, except as modified by this Agreement (including, without limitation, as modified in Paragraph 12). Employee understands that he or she may obtain a copy of the most current Rules by visiting JAMS’ website, currently located at http://www.jamsadr.com/rules-employment-arbitration/, or by contacting Human Resources at crchumanresources@crc.com. A copy of the Rules currently in effect is attached to this agreement as Exhibit A. If JAMS is unable or unwilling to accept the matter for any reason, the parties will submit the matter to a comparable arbitration service, which will apply the then-current Rules unless otherwise agreed to by the parties to the arbitration and as modified by this Agreement. Arbitration shall be initiated and all Claims shall be decided by a single, neutral arbitrator.

5.Discovery and Motions. The parties to the arbitration shall be entitled to conduct reasonable discovery and the arbitrator shall have the authority to determine what constitutes reasonable discovery. The arbitrator will have the authority to hear and grant motions, including but not limited to motions for summary judgment and summary adjudication.

6.Remedies. The arbitrator may award any form of remedy or relief (including injunctive relief) that would otherwise be available in court and any such form of remedy or relief awarded must comply with applicable state and federal law.

7.Decision. The arbitrator shall issue a written and signed decision within thirty (30) days of the deadline for submission of post-hearing briefs. The arbitrator’s award shall be final and binding and shall contain the essential findings of fact and conclusions of law on which the decision is based. Judgment upon the award may be entered, and enforcement may be sought, only in a California state court of competent jurisdiction.

8.Right of Appeal. The arbitrator shall not have the power to commit errors of law or legal reasoning. The arbitrator’s final award is subject to review for legal error, confirmation, correction or vacatur only in a California state court of competent jurisdiction. Solely in the event that a court should find that it does not have legal authority, or otherwise refuses, to review the arbitrator’s decision for legal error, then any party to the arbitration shall have a right to appeal the arbitrator’s final award pursuant to the rules and procedures set forth in the JAMS Optional Arbitration Appeal Procedure ("Appeal Rules") in effect at the time the appeal is served, except as modified by this Agreement. Employee understands that he or she may obtain a copy of the most current Appeal Rules by visiting JAMS' website, currently located at http://www.jamsadr.com/appeal/, or by contacting Human Resources at crchumanresources@crc.com. A copy of the Appeal Rules currently in effect is attached to this Agreement as Exhibit B. The appeal must be filed with JAMS within thirty (30) days of the court’s decision to not review the arbitrator’s final award for legal error, provided that the deadline shall be tolled in the event a party seeks appellate review of the court’s decision.

9.Arbitration Fees and Costs. To the extent required by law, Company shall bear all reasonable and necessary fees and costs of the arbitration forum that Employee would not otherwise be required to bear if the Claims were brought in court. In all other circumstances, Company and Employee will each pay fifty percent (50%) of the fees and costs of the arbitration forum. The parties shall be responsible for their own attorneys’ fees and costs, except that the arbitrator shall have the authority to award attorneys’ fees and costs to the prevailing party in accordance with the substantive law governing the Claims. Any controversy regarding the payment of fees and costs under this Agreement shall be decided by the arbitrator.

10.Law Governing Claims. Except for Claims relating to or arising out of the interpretation, performance and/or enforcement of the Terms and Conditions to which this Agreement is attached, which shall be governed by Section 16 of the Terms and Conditions, the arbitrator shall apply California and federal law, as applicable, to any Claims and defenses asserted by the parties.

11.Law Governing This Agreement. Notwithstanding any other provision of this Agreement, the Federal Arbitration Act shall govern the interpretation and enforcement of this Agreement, the procedures for the arbitration, and the substantive governing law for review for legal error, confirmation, correction or vacatur of the arbitrator’s final award, with the sole exception that the California Arbitration Act shall apply for purposes of permitting review of the final arbitration award for legal error.

12.Determination of Arbitrability. A California state court with jurisdiction over a party’s Claims, and not the arbitrator, shall have the exclusive authority and jurisdiction to resolve any issue relating to the formation or enforceability of this Agreement, or any issue relating to whether a Claim is subject to arbitration under this Agreement. Employee and Company agree that they are subject to the jurisdiction of California state courts for these purposes.

13.At-Will Employment. This Agreement is not, and shall not be construed to create, any contract of employment, express or implied. This Agreement shall not be construed in any way to change Employee’s employment status from at-will or to modify, nullify or otherwise affect the at-will agreement between Employee and Company.

14.Revocation and Modification. This Agreement shall survive the termination of Employee’s employment relationship, the termination of the California Resources Corporation Long-Term Incentive Plan, and the termination of the Terms and Conditions to which this Agreement is attached. The Agreement shall apply to any Claims whether they arise or are asserted during or after termination of that relationship. This Agreement can be modified or revoked only by a writing signed by Employee and an executive of the Company that references this Agreement and specifically states an intent to modify or revoke this Agreement.

15.Reformation and Severability. If any clause or provision of this Agreement is declared void or unenforceable by any tribunal, then such clause or provision shall be modified or, if modification is not possible, stricken to the extent necessary to allow enforcement of this Agreement, and the remaining provisions shall remain in full force and effect. However, in no event shall the arbitrator hear any Claims as class, collective or representative actions, even if Paragraph 3 of this Agreement, or any clause or provision contained therein, is adjudged void or is otherwise unenforceable. In other words, if one or more of the class, collective and/or representative action waivers in Paragraph 3 are found to be unenforceable, the specific type of waiver(s) found to be unenforceable shall be stricken from the Agreement and the respective action(s) that were the subject of the stricken waiver(s) shall be heard and determined through an appropriate court proceeding, and not in arbitration. All remaining Claims shall proceed in individual arbitration.

16.Entire Agreement. This Agreement constitutes the entire understanding between the parties with respect to the subject matter hereof, and it revokes and supersedes all prior or contemporaneous oral or written agreements or understandings on the subject of arbitration of the Claims; however, it does not supersede any arbitration agreement in connection with Company’s benefit plans, if any. Neither party is relying or shall rely on any representations (whether oral or written) on the subject of the effect, enforceability or meaning of this Agreement, except as specifically set forth in this Agreement. A scanned, copied or facsimile version of signatures on this Agreement is to be effective as original signatures.

PLEASE READ THIS AGREEMENT CAREFULLY. By entering into this Agreement, you agree to final and binding arbitration of any and all disputes between you and any Company Group entity including, without limitation, disputes related to your employment relationship and the termination thereof, and claims of discrimination and harassment. You also are agreeing to waive your right to a jury trial and to bring a claim on a class, collective or representative basis.

You also acknowledge that you have read this Agreement, understand its terms and have been given the opportunity to discuss this Agreement with an advisor of your choice, including your own legal counsel, and have taken advantage of that opportunity to the extent you wish to do so.

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EXHIBIT A

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EXHIBIT B

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EX-10.3

EXHIBIT 10.3

CALIFORNIA RESOURCES CORPORATION

LONG-TERM INCENTIVE PLAN

RESTRICTED STOCK UNIT AWARD
TERMS AND CONDITIONS

Date of Grant: August 5, 2015

Restricted Stock Units: See Morgan Stanley Stock Plan Connect “Restricted Stock/Restricted Stock & Cash Units/Awarded”

Vesting Date Schedule: One-third of the Restricted Stock Units on August 4, 2016; One-third of the Restricted Stock Units on August 4, 2017; One-third of the Restricted Stock Units on August 4, 2018; (each being a “Vesting Date”)

The following Terms and Conditions (these “Terms and Conditions”) are set forth as of the Date of Grant between CALIFORNIA RESOURCES CORPORATION, a Delaware corporation (“CRC” and, with its subsidiaries, the “Company”), and the eligible employee receiving this award (the “Grantee”).

1.Grant of Restricted Stock Units. In accordance with these Terms and Conditions and the California Resources Corporation Long-Term Incentive Plan, as the same may be amended from time to time (the “Plan”), CRC grants to the Grantee as of the Date of Grant, the number of Restricted Stock Units (“RS Units”) set forth above, subject to adjustment under the Plan and Section 6 of these Terms and Conditions. Subject to the provisions of Section 4, a RS Unit is a bookkeeping entry that represents the right to receive upon vesting, as set forth in Section 3, one share of CRC Common Stock, $0.01 par value (the “Common Stock”). RS Units are not Common Stock and have no voting rights or, except as stated in Section 5, dividend rights. “Plan Value” means the last reported sale price of a share of Common Stock on the New York Stock Exchange Composite Transactions on the applicable scheduled Vesting Date, Forfeiture Event, or vesting date described in Section 3(b), as applicable.

2.Restrictions on Transfer. Neither these Terms and Conditions nor any right to receive Common Stock or cash pursuant to these Terms and Conditions may be transferred or assigned by the Grantee other than (i) to a beneficiary designated on a form approved by the Company (if enforceable under local law), by will or, if the Grantee dies without designating a beneficiary of a valid will, by the laws of descent and distribution, or (ii) pursuant to any applicable domestic relations order (if approved or ratified by the Committee).

3.Vesting and Forfeiture of Restricted Stock Unit Award.

(a)If the Grantee fails to accept this award prior to October 1, 2015, then, notwithstanding any other provision of this award, the Grantee shall forfeit this award and all rights hereunder and this award will become null and void. For purposes of these Terms and Conditions, acceptance of the award shall occur on the date the Grantee accepts this

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Restricted Stock Unit Award through Morgan Stanley Stock Plan Connect or any replacement on-line system designated by the Company.

(b)The Grantee must remain in the continuous employ of the Company through the applicable Vesting Date to receive payment of this award in the number of RS Units shown for such Vesting Date. The continuous employment of the Grantee will not be deemed to have been interrupted by reason of the transfer of the Grantee’s employment among the Company and its affiliates or an approved leave of absence. However, if, prior to any Vesting Date, the Grantee dies, becomes permanently disabled while in the employ of the Company and terminates employment as a result thereof, retires with the consent of the Company, or terminates employment without cause (as determined by the Company) for the convenience of the Company (each of the foregoing, a “Forfeiture Event”), then the number of unvested RS Units will be reduced on a pro rata basis to the number obtained by (i) multiplying the total number of RS Units granted by a fraction, the numerator of which is the number of days between the Date of Grant and the Forfeiture Event, and the denominator of which is the number of days between the Date of Grant and the final Vesting Date and (ii) subtracting from the product the number of RS Units, if any, that vested prior to the Forfeiture Event. Such pro rata unvested RS Units shall vest as of the date of the Forfeiture Event and, subject to Section 22 of these Terms and Conditions, become immediately payable, and all other RS Units shall be forfeited as of the date of the Forfeiture Event. If the Grantee terminates employment voluntarily or the Grantee’s employment is terminated for cause (as determined by the Company) before the last scheduled Vesting Date, then the Grantee shall forfeit the RS Units that have not vested prior to the Grantee’s termination date and the right to receive payment with respect thereto.

(c)If a Change in Control event occurs prior to the last scheduled Vesting Date and the Grantee’s employment is terminated by the Company on or after the date of such event and as a result of such event, then all unvested RS Units shall immediately vest and become nonforfeitable as of the date of such termination of employment unless, prior to the occurrence of the Change in Control event, the Committee, as provided in Section 7.1 of the Plan, determines that such event will not accelerate vesting of any of these RS Units. Any such determination by the Committee is binding on the Grantee.

4.Payment of Awards. Payment for vested RS Units, as adjusted pursuant to Sections 3 and 6 of these Terms and Conditions, will be made in the form of shares of Common Stock equal in number to the number of RS Units with respect to which payment is being made on the applicable date, plus cash for any fractional share unit based on the Plan Value (as herein defined). Payment will be made to the Grantee as promptly as practicable after the applicable scheduled Vesting Date, Forfeiture Event, or vesting date described in Section 3(c), as the case may be, and in any event no later than the 15th day of the third month following the end of the first taxable year in which the award is no longer subject to a substantial risk of forfeiture. Notwithstanding the preceding provisions of this Section 4, payment for a vested RS Unit shall be made at the time provided above solely in cash (in lieu of in the form of shares of Common Stock as provided above) in an amount equal to the Plan Value if (a) such RS Unit becomes vested prior to the 2016 Annual Meeting (as herein defined) or (b) stockholder approval is not obtained at the 2016 Annual Meeting to make

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additional shares of Common Stock subject to the Plan in an amount sufficient so that all outstanding awards under the Plan as of the date of the 2016 Annual Meeting that may be paid in shares of Common Stock (including this award and other awards under the Plan that are similar to this award (to the extent outstanding as of such date)) may be so paid. As used herein: (i) “2016 Annual Meeting” means the annual meeting of CRC’s stockholders that occurs in calendar year 2016; and (ii) “Plan Value” means the last reported sale price of a share of Common Stock on the New York Stock Exchange Composite Transactions on the applicable scheduled Vesting Date, Forfeiture Event, or vesting date described in Section 3(c), as applicable.

5.Crediting and Payment of Dividend Equivalents. With respect to the number of RS Units listed above, the Grantee will be credited on the books and records of CRC with an amount (the “Dividend Equivalent”) equal to the amount per share of any cash dividends declared by the Board on the outstanding Common Stock as and when declared during the period beginning on the Date of Grant and ending, with respect to any portion of the RS Units covered by these Terms and Conditions, on the date on which the Grantee’s right to receive such portion becomes nonforfeitable, or, if earlier, the date on which the Grantee forfeits the right to receive such portion. CRC will pay in cash to the Grantee an amount equal to the Dividend Equivalents credited to the Grantee as promptly as may be practicable after the Grantee has been credited with a Dividend Equivalent, and within 70 days of the relevant record date.

6.Adjustments. The number of RS Units covered by these Terms and Conditions may be adjusted as the Committee determines, pursuant to Section 7.2 of the Plan, in order to prevent dilution or expansion of the Grantee’s rights under these Terms and Conditions as a result of events such as stock dividends, stock splits, or other change in the capital structure of CRC, or any merger, consolidation, spin-off, liquidation or other corporate transaction or event having a similar effect. If any such adjustment occurs, the Company will give the Grantee written notice of the adjustment containing an explanation of the nature of the adjustment.

7.Compensation Recoupment. Grantee’s receipt of this award is expressly conditioned on Grantee’s agreement to the terms and provisions of this Section, and Grantee acknowledges that Grantee would not have received this award in the absence of such agreement. By accepting this award, Grantee acknowledges and agrees that:

(a)    the compensation (or any portion thereof) payable pursuant to this award and any other award granted to Grantee under the Plan (whether granted before, on or after the Date of Grant) shall be subject to recovery, revocation, recoupment or “clawback” by the Company or any of its Affiliates pursuant to (i) the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”), (ii) any rules or regulations promulgated under the Act or by any stock exchange on which the Company’s common stock is listed (collectively, the “Rules”), or (iii) any compensation recoupment or clawback policies or procedures adopted by CRC or any of its Affiliates, in each case with respect to clauses (i), (ii) and (iii) above as such provisions, rules, regulations, policies and procedures may be adopted and amended from time to time (including with retroactive effect); and

(b)    any other compensation or benefit (or any portion thereof) payable to or on behalf of Grantee from the Company or any of its Affiliates (whether payable before, on or

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after the Date of Grant, but excluding any compensation or benefit payable pursuant to an award granted under the Plan) shall be subject to recovery, revocation, recoupment or clawback by the Company or any of its Affiliates pursuant to the Act, the Rules or any compensation recoupment or clawback policies or procedures adopted by CRC or any of its Affiliates in accordance with the requirements of the Act and the Rules, in each case as the Act, the Rules and such policies and procedures may be adopted and amended from time to time (including with retroactive effect).

In addition, Grantee hereby agrees (on behalf of Grantee and any other individual, entity or other person claiming under or through Grantee) that: (a) compensation payable pursuant to this award and any other compensation or benefit payable to or on behalf of Grantee (whether under the Plan or otherwise) shall be subject to recovery, revocation, recoupment or clawback as provided in the preceding provisions of this Section; and (b) Grantee (or any such individual, entity or other person) shall not seek indemnification or contribution from the Company or any of its Affiliates with respect to any amount so recovered, revoked, recouped or clawed back.

8.No Employment Contract. Nothing in these Terms and Conditions confers upon the Grantee any right with respect to continued employment by the Company, nor limits in any manner the right of the Company to terminate the employment or adjust the compensation of the Grantee. Unless otherwise agreed in a writing signed by the Grantee and an authorized representative of the Company, the Grantee’s employment with the Company is at will and may be terminated at any time by the Grantee or the Company. For purposes of these Terms and Conditions, the Grantee shall be considered to be in the employment of the Company as long as the Grantee remains an employee of any of the Company, an Affiliate, or a corporation or other entity or a parent or subsidiary of such corporation or other entity assuming or substituting a new award for this award. Without limiting the scope of the preceding sentence, it is expressly provided that the Grantee shall be considered to have terminated employment with the Company at the time of the termination of the “Affiliate” status under the Plan of the entity or other organization that employs the Grantee.

9.Taxes and Withholding. Regardless of any action the Company takes with respect to any or all income tax (including U.S. federal, state and local tax and non-U.S. tax), social insurance, payroll tax, payment on account or other tax-related items related to the Grantee’s participation in the Plan and legally applicable to the Grantee (“Tax-Related Items”), the Grantee acknowledges that the ultimate liability for all Tax-Related Items is and remains the Grantee’s responsibility and may exceed the amount actually withheld by the Company. The Grantee further acknowledges that the Company (i) makes no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of this Restricted Stock Unit Award, including the grant or vesting of the Restricted Stock Unit Award and the receipt of Dividend Equivalents; and (ii) does not commit to and is under no obligation to structure the terms of the grant or any aspect of the Restricted Stock Unit Award to reduce or eliminate the Grantee’s liability for Tax-Related Items or achieve any particular tax result. Further, if the Grantee has become subject to tax in more than one jurisdiction between the Date of Grant and the date of any relevant taxable event, the Grantee acknowledges that the Company may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

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Prior to the relevant taxable event, the Grantee shall pay or make adequate arrangements satisfactory to the Company to satisfy all Tax-Related Items. In this regard, the Grantee authorizes the Company to withhold all applicable Tax-Related Items legally payable by the Grantee first from the shares of Common Stock or cash payable pursuant to this Restricted Stock Unit Award (including Dividend Equivalents) and, if not sufficient, from the Grantee’s wages or other cash compensation. The Grantee shall pay to the Company any amount of Tax-Related Items that the Company may be required to withhold as a result of the Grantee’s receipt of this Restricted Stock Unit Award that cannot be satisfied by the means previously described.

10.Compliance With Law. The Company will make reasonable efforts to comply with all federal, state and non-U.S. laws applicable to awards of this type. However, if it is not feasible for the Company to comply with these laws with respect to the grant or settlement of these awards, then the awards may be cancelled without any compensation or additional benefits provided to the Grantee as a result of the cancellation.

11.Relation to Other Benefits. The benefits received by the Grantee under these Terms and Conditions will not be taken into account in determining any benefits to which the Grantee may be entitled under any profit sharing, retirement or other benefit or compensation plan maintained by the Company, including the amount of any life insurance coverage available to any beneficiary of the Grantee under any life insurance plan covering employees of the Company. Additionally, this Restricted Stock Unit Award is not part of normal or expected compensation or salary for any purposes, including, but not limited to calculation of any severance, resignation, termination, redundancy, end of service payments, bonuses or long-service awards. The grant of this Restricted Stock Unit Award does not create any contractual or other right to receive future grants of Restricted Stock Unit Awards or benefits in lieu of Restricted Stock Unit Awards, even if the Grantee has a history of receiving Restricted Stock Unit Awards or other cash or stock awards.

12.Amendments. The Plan may be modified, amended, suspended or terminated by the Board at any time, as provided in the Plan. Any amendment to the Plan will be deemed to be an amendment to these Terms and Conditions to the extent it is applicable to these Terms and Conditions; however, except to the extent necessary to comply with applicable law, no amendment will adversely affect the rights of the Grantee under these Terms and Conditions in any material respect without the Grantee’s consent. Notwithstanding the foregoing, Attachment B may only be modified or revoked pursuant to the terms set forth in its Paragraph 14, and Attachment B shall survive the termination of Employee’s employment relationship with the Company, the termination of the Plan and the termination of the Terms and Conditions.

13.Severability. Subject to the provisions set forth in Paragraph 15 of Attachment B, if one or more of the provisions of these Terms and Conditions is invalidated for any reason by any tribunal, the invalidated provisions shall be deemed to be separable from the other provisions of these Terms and Conditions, and the remaining provisions of these Terms and Conditions will continue to be valid and fully enforceable.

14.Entire Agreement; Relation to Plan; Interpretation. Except as specifically provided in this Section, these Terms and Conditions and the Attachments incorporated in these Terms and Conditions constitute the entire agreement between the Company and the Grantee with

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respect to this Restricted Stock Unit Award. These Terms and Conditions are subject to the terms and conditions of the Plan. In the event of any inconsistent provisions between these Terms and Conditions and the Plan, the provisions of the Plan control. Capitalized terms used in these Terms and Conditions without definitions have the meanings assigned to them in the Plan. References to Sections and Attachments are to Sections of, and Attachments incorporated in, these Terms and Conditions unless otherwise noted.

15.Successors and Assigns. Subject to Sections 2 and 3, the provisions of these Terms and Conditions shall be for the benefit of, and be binding upon, the successors, administrators, heirs, legal representatives and assigns of the Grantee, and the successors and assigns of the Company.

16.Governing Law. Except as provided by Paragraphs 10 and 11 of Attachment B, the laws of the State of Delaware govern the interpretation, performance, and enforcement of these Terms and Conditions.

17.Privacy Rights. By accepting this Restricted Stock Unit Award, the Grantee explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Grantee’s Data (as defined below) by and among, as applicable, the Company and its affiliates for the exclusive purpose of implementing, administering and managing the Grantee’s participation in the Plan. The Grantee understands that the Company holds, or may receive from any agent designated by the Company, certain personal information about the Grantee, including, but not limited to, the Grantee’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of this Restricted Stock Unit Award or any other entitlement to cash or shares of stock awarded, canceled, exercised, vested, unvested or outstanding in the Grantee’s favor, for the purpose of implementing, administering and managing the Plan, including complying with applicable tax and securities laws (“Data”). Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan. These recipients may be located in the Grantee’s country or elsewhere, and may have different data privacy laws and protections than the Grantee’s country. By accepting these Terms and Conditions, the Grantee authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes described above. The Grantee may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting the Committee in writing. Refusing or withdrawing consent may affect the Grantee’s ability to participate in the Plan.

18.Electronic Delivery and Acceptance. The Company may, in its sole discretion, decide to deliver any documents related to this Restricted Stock Unit Award granted under the Plan or future awards that may be granted under the Plan (if any) by electronic means or to request the Grantee’s consent to participate in the Plan by electronic means. The Grantee hereby consents to receive such documents by electronic delivery and, if requested, to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.

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19.Grantee’s Representations and Releases. By accepting this Restricted Stock Unit Award, the Grantee acknowledges that the Grantee has read these Terms and Conditions and understands that (i) the grant of this Restricted Stock Unit Award is made voluntarily by CRC in its discretion with no liability on the part of any of its direct or indirect subsidiaries and that, if the Grantee is not an employee of CRC, the Grantee is not, and will not be considered, an employee of CRC but the Grantee is a third party (employee of a subsidiary) to whom this Restricted Stock Unit Award is granted; (ii) all decisions with respect to future awards, if any, will be at the sole discretion of CRC; (iii) the Grantee’s participation in the Plan is voluntary; (iv) this Restricted Stock Unit Award is an extraordinary item that does not constitute a regular and recurring item of base compensation; (v) the future amount of any payment pursuant to this Restricted Stock Unit Award cannot be predicted and CRC does not assume liability in the event this Restricted Stock Unit Award has no value in the future; (vi) subject to the terms of any tax equalization agreement between the Grantee and the entity employing the Grantee, the Grantee will be solely responsible for the payment or nonpayment of taxes imposed or threatened to be imposed by any authority of any jurisdiction; and (vii) CRC is not providing any tax, legal or financial advice with respect to this Restricted Stock Unit Award or the Grantee’s participation in the Plan.

In consideration of the grant of this Restricted Stock Unit Award, no claim or entitlement to compensation or damages shall arise from termination of this Restricted Stock Unit Award or diminution in value of this Restricted Stock Unit Award resulting from termination of the Grantee’s employment by the Company (for any reason whatsoever) and, to the extent permitted by law, the Grantee irrevocably releases the Company from any such claim that may arise; if, notwithstanding the foregoing, any such claim is found by a tribunal to have arisen, then, by accepting this Restricted Stock Unit Award, the Grantee shall be deemed irrevocably to have waived his or her entitlement to pursue such claim.

20.Grantee’s Agreement to General Terms of Employment and Mutual Agreement to Arbitrate. By accepting this Restricted Stock Unit Award, the Grantee agrees, to the extent not contrary to applicable law, to the General Terms of Employment set out on Attachment 1 and to be bound by the Mutual Agreement to Arbitrate set out on Attachment 2, which, in each case, are incorporated in these Terms and Conditions by reference.

21.Imposition of Other Requirements. CRC reserves the right to impose other requirements on the Grantee’s participation in the Plan and on this Restricted Stock Unit Award, to the extent CRC determines it is necessary or advisable in order to comply with local law or facilitate the administration of the Plan, and to require the Grantee to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

22.Compliance With Section 409A of the Code. All amounts payable under these Terms and Conditions are intended to comply with the “short term deferral” exception from Section 409A of the U.S. Internal Revenue Code (“Section 409A”) specified in Treas. Reg. § 1.409A-1(b)(4) (or any successor provision) and shall be paid within the period necessary to qualify for such exception. Notwithstanding the foregoing, to the extent that it is determined that the Plan or this award is subject to Section 409A, these Terms and Conditions shall be interpreted and administered in such a way as to comply with the applicable provisions of Section 409A to the

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maximum extent possible. In addition, if this award is subject to Section 409A, then (i) if the Grantee must be treated as a “specified employee” within the meaning of Section 409A, any payment made on account of the Grantee’s separation from service (as defined for purposes of Section 409A) (other than by reason of death) will be made at the time specified above in these Terms and Conditions or, if later, on the date that is six (6) months and one (1) day following the date of the Grantee’s separation from service; (ii) any payment on a Change in Control event will be made only if the Change in Control also qualifies as a change of control event within the meaning of Section 409A; and (iii) any determination by the Committee not to accelerate the award on a Change in Control shall be made only to the extent such determination is consistent with Section 409A. To the extent that the Committee determines that the Plan or this award is subject to Section 409A and fails to comply with the requirements of Section 409A, the Committee reserves the right (without any obligation to do so) to amend or terminate the Plan and/or amend, restructure, terminate or replace this award in order to cause this award either to not be subject to Section 409A or to comply with the applicable provisions of such section.

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Attachment 1GENERAL TERMS OF EMPLOYMENT

A.Except as otherwise required by law or legal process, the Grantee will not publish or divulge to any person, firm, corporation or institution and will not use to the detriment of CRC, or any of its subsidiaries or other affiliates, or any of their respective officers, directors, employees or stockholders (collectively, “CRC Parties”), at any time during or after the Grantee’s employment by any of them, any trade secrets or confidential information of any of them (whether generated by them or as a result of any of their business relationships), including such information as described in CRC’s ethics code and other corporate policies, without first obtaining the written permission of an officer of the Company.

B.At the time of leaving employment with the Company, the Grantee will deliver to the Company, and not keep or deliver to anyone else, any and all credit cards, drawings, blueprints, specifications, devices, notes, notebooks, memoranda, reports, studies, correspondence and other documents, and, in general, any and all materials relating to the CRC Parties (whether generated by them or as a result of their business relationships), including any copies (whether in paper or electronic form), that the Grantee has in the Grantee’s possession or control.

C.The Grantee will, during the Grantee’s employment by the Company, comply with the provisions of CRC’s ethics code.

D.Except as otherwise required by the Grantee’s job or permitted by law, the Grantee will not make statements about any CRC Parties (1) to the press, electronic media, to any part of the investment community, to the public, or to any person connected with, employed by or having a relationship with any of them without permission of an officer of the Company or (2) that are derogatory, defamatory or negative. Nothing herein, however, shall prevent Grantee from making a good faith report or complaint to appropriate governmental authorities. To the fullest extent permitted by law, Grantee will not interfere with or disrupt any of the Company’s operations or otherwise take actions intended directly to harm any of the CRC Parties.

E.All inventions, developments, designs, improvements, discoveries and ideas that the Grantee makes or conceives in the course of employment by the Company, whether or not during regular working hours, relating to any design, article of manufacture, machine, apparatus, process, method, composition of matter, product or any improvement or component thereof, that are manufactured, sold, leased, used or under development by, or pertain to the present or possible future business of the Company shall be a work-for-hire and become and remain the property of CRC, its successors and assigns.

The provisions of this Section do not apply to an invention that qualifies fully under the provisions of Section 2870 of the California Labor Code, which provides in substance that provisions in an employment agreement providing that an employee shall assign or offer to assign rights in an invention to his or her employer do not apply to an invention for which no equipment, supplies, facilities, or trade secret information of the employer was used and which was developed entirely on the employee’s own time, except for those inventions that either (a) relate, at the time of conception or reduction to practice of the invention, (1) to the business of the employer or (2) to the employer’s actual or demonstrably anticipated research or development, or (b) result from any work performed by the employee for the employer.

F.The foregoing General Terms of Employment are not intended to be an exclusive list of the employment terms and conditions that apply to the Grantee. The Company, in its sole discretion, may at any time amend or supplement the foregoing terms. The Grantee’s breach of the foregoing General Terms of Employment will entitle the Company to take appropriate disciplinary action, including, without limitation, reduction of the Restricted Stock Unit Award granted pursuant to these Terms and Conditions and termination of employment.

Attachment 2MUTUAL AGREEMENT TO ARBITRATE

The Grantee under the Terms and Conditions (“Employee”) and California Resources Corporation (“Company”) hereby enter into this Mutual Agreement to Arbitrate (“Agreement”).

In recognition of the fact that differences may arise out of or relating to certain aspects of Employee’s employment relationship or the termination of that relationship, and in recognition of the fact that resolution of any differences in the courts is rarely timely or cost effective for either party, Employee and Company have entered into this Agreement in order to establish and gain the benefits of a speedy, impartial and cost-effective dispute resolution procedure.

1.Claims Subject to Arbitration. Except as expressly set forth in Paragraph 2 below, both Company and Employee mutually consent to resolve by final and binding arbitration any and all disputes, claims or controversies of any kind or nature, including but not limited to such matters arising from, related to or in connection with Employee seeking employment with, Employee’s employment relationship by or the termination of Employee’s employment with any one or more of the Company, its predecessors and each of their respective past and present parents, affiliates and subsidiaries (collectively referred to herein as “Company Group”) that either Employee may have against one or more Company Group entity (and/or each of their respective past and present employees, independent contractors, owners, agents, officers, directors, board members, shareholders, successors, assigns, benefit plans and sponsors, fiduciaries, administrators or insurers) or that any Company Group entity may have against Employee (collectively, “Claims”). The term Company Group includes, but is not limited to, Occidental Petroleum Corporation and its past and present affiliates and subsidiaries. The Claims subject to arbitration include, without limitation, (a) any Claims by Employee arising from, related to or in connection with: (i) any federal, state or local law or regulation prohibiting discrimination, harassment or retaliation based on race, color, religion, national origin, sex, age, disability or any other condition or characteristic protected by law; (ii) any alleged breach of contract or covenant, whether express or implied, including but not limited to a breach of the Terms and Conditions; (iii) any alleged violation of any federal, state, local, or other constitution, statute, ordinance, regulation, common law, or public policy; (iv) any dispute regarding wages, hours, bonuses or other compensation or payment; and/or (v) any personal, emotional, physical, economic, property or any other injury, loss or harm; and (b) any Claims that a Company Group entity may have against Employee, including, without limitation, any alleged trade secret violations.

2.Claims Not Subject to Arbitration. This Agreement does not apply to any Claims by Employee: (a) for state Workers’ Compensation benefits; (b) for unemployment insurance benefits filed with the appropriate government entity; (c) arising under a benefit plan where the plan expressly specifies a separate arbitration procedure; (d) arising under the National Labor Relations Act and filed through a charge with the National Labor Relations Board; or (e) which are otherwise expressly prohibited by law from being subject to arbitration under this Agreement, provided such prohibition is not preempted under the Federal Arbitration Act or any other federal law. This Agreement does not preclude filing an administrative charge or complaint with the appropriate government entity if such filing is protected or required by law. However, to the full extent permitted by law, any Claims seeking monetary relief must be asserted in arbitration pursuant to this Agreement.

3.Class, Collective and Representative Action Waivers. To the fullest extent permitted by law, and notwithstanding anything else in this Agreement, Employee and Company agree that any Claims brought by a Company Group entity, by Employee or on Employee’s behalf shall be decided by the arbitrator on an individual basis and not on a class, collective or representative basis. Accordingly, class, collective and representative actions are not permitted under this Agreement. The arbitrator shall not have the authority or jurisdiction to hear the arbitration as a class, collective or representative action or to join or consolidate causes of action of different parties into one proceeding. To the fullest extent permitted by law, Company Group and Employee agree that they have waived, to the maximum extent possible, any of their rights to bring or participate in class, collective or representative actions with respect to any Claims. Notwithstanding the foregoing, if and to the extent applicable law precludes Employee and/or any Company Group entity from waiving any right to bring California Private Attorney General Act (“PAGA”) class, collective or representative claims, and provided that the applicable law is not preempted by the Federal Arbitration Act or other federal law, then the Parties agree that such PAGA class, collective or representative claims shall not be subject to the terms of this Agreement and shall be heard by a court of competent jurisdiction.

4.Procedure. Any arbitration will be filed with and conducted by JAMS. The arbitration shall be held at the closest office of JAMS to where Employee does/did report to work or at a location mutually agreed to by the parties, pursuant to the JAMS Employment Arbitration Rules and Procedures (“Rules”) in effect at the time the demand for arbitration is filed, except as modified by this Agreement (including, without limitation, as modified in Paragraph 12). Employee understands that he or she may obtain a copy of the most current Rules by visiting JAMS’ website, currently located at http://www.jamsadr.com/rules-employment-arbitration/, or by contacting Human Resources at crchumanresources@crc.com. A copy of the Rules currently in effect is attached to this agreement as Exhibit A. If JAMS is unable or unwilling to accept the matter for any reason, the parties will submit the matter to a comparable arbitration service, which will apply the then-current Rules unless otherwise agreed to by the parties to the arbitration and as modified by this Agreement. Arbitration shall be initiated and all Claims shall be decided by a single, neutral arbitrator.

5.Discovery and Motions. The parties to the arbitration shall be entitled to conduct reasonable discovery and the arbitrator shall have the authority to determine what constitutes reasonable discovery. The arbitrator will have the authority to hear and grant motions, including but not limited to motions for summary judgment and summary adjudication.

6.Remedies. The arbitrator may award any form of remedy or relief (including injunctive relief) that would otherwise be available in court and any such form of remedy or relief awarded must comply with applicable state and federal law.

7.Decision. The arbitrator shall issue a written and signed decision within thirty (30) days of the deadline for submission of post-hearing briefs. The arbitrator’s award shall be final and binding and shall contain the essential findings of fact and conclusions of law on which the decision is based. Judgment upon the award may be entered, and enforcement may be sought, only in a California state court of competent jurisdiction.

8.Right of Appeal. The arbitrator shall not have the power to commit errors of law or legal reasoning. The arbitrator’s final award is subject to review for legal error, confirmation, correction or vacatur only in a California state court of competent jurisdiction. Solely in the event that a court should find that it does not have legal authority, or otherwise refuses, to review the arbitrator’s decision for legal error, then any party to the arbitration shall have a right to appeal the arbitrator’s final award pursuant to the rules and procedures set forth in the JAMS Optional Arbitration Appeal Procedure ("Appeal Rules") in effect at the time the appeal is served, except as modified by this Agreement. Employee understands that he or she may obtain a copy of the most current Appeal Rules by visiting JAMS' website, currently located at http://www.jamsadr.com/appeal/, or by contacting Human Resources at crchumanresources@crc.com. A copy of the Appeal Rules currently in effect is attached to this Agreement as Exhibit B. The appeal must be filed with JAMS within thirty (30) days of the court’s decision to not review the arbitrator’s final award for legal error, provided that the deadline shall be tolled in the event a party seeks appellate review of the court’s decision.

9.Arbitration Fees and Costs. To the extent required by law, Company shall bear all reasonable and necessary fees and costs of the arbitration forum that Employee would not otherwise be required to bear if the Claims were brought in court. In all other circumstances, Company and Employee will each pay fifty percent (50%) of the fees and costs of the arbitration forum. The parties shall be responsible for their own attorneys’ fees and costs, except that the arbitrator shall have the authority to award attorneys’ fees and costs to the prevailing party in accordance with the substantive law governing the Claims. Any controversy regarding the payment of fees and costs under this Agreement shall be decided by the arbitrator.

10.Law Governing Claims. Except for Claims relating to or arising out of the interpretation, performance and/or enforcement of the Terms and Conditions to which this Agreement is attached, which shall be governed by Section 16 of the Terms and Conditions, the arbitrator shall apply California and federal law, as applicable, to any Claims and defenses asserted by the parties.

11.Law Governing This Agreement. Notwithstanding any other provision of this Agreement, the Federal Arbitration Act shall govern the interpretation and enforcement of this Agreement, the procedures for the arbitration, and the substantive governing law for review for legal error, confirmation, correction or vacatur of the arbitrator’s final award, with the sole exception that the California Arbitration Act shall apply for purposes of permitting review of the final arbitration award for legal error.

12.Determination of Arbitrability. A California state court with jurisdiction over a party’s Claims, and not the arbitrator, shall have the exclusive authority and jurisdiction to resolve any issue relating to the formation or enforceability of this Agreement, or any issue relating to whether a Claim is subject to arbitration under this Agreement. Employee and Company agree that they are subject to the jurisdiction of California state courts for these purposes.

13.At-Will Employment. This Agreement is not, and shall not be construed to create, any contract of employment, express or implied. This Agreement shall not be construed in any way to change Employee’s employment status from at-will or to modify, nullify or otherwise affect the at-will agreement between Employee and Company.

14.Revocation and Modification. This Agreement shall survive the termination of Employee’s employment relationship, the termination of the California Resources Corporation Long-Term Incentive Plan, and the termination of the Terms and Conditions to which this Agreement is attached. The Agreement shall apply to any Claims whether they arise or are asserted during or after termination of that relationship. This Agreement can be modified or revoked only by a writing signed by Employee and an executive of the Company that references this Agreement and specifically states an intent to modify or revoke this Agreement.

15.Reformation and Severability. If any clause or provision of this Agreement is declared void or unenforceable by any tribunal, then such clause or provision shall be modified or, if modification is not possible, stricken to the extent necessary to allow enforcement of this Agreement, and the remaining provisions shall remain in full force and effect. However, in no event shall the arbitrator hear any Claims as class, collective or representative actions, even if Paragraph 3 of this Agreement, or any clause or provision contained therein, is adjudged void or is otherwise unenforceable. In other words, if one or more of the class, collective and/or representative action waivers in Paragraph 3 are found to be unenforceable, the specific type of waiver(s) found to be unenforceable shall be stricken from the Agreement and the respective action(s) that were the subject of the stricken waiver(s) shall be heard and determined through an appropriate court proceeding, and not in arbitration. All remaining Claims shall proceed in individual arbitration.

16.Entire Agreement. This Agreement constitutes the entire understanding between the parties with respect to the subject matter hereof, and it revokes and supersedes all prior or contemporaneous oral or written agreements or understandings on the subject of arbitration of the Claims; however, it does not supersede any arbitration agreement in connection with Company’s benefit plans, if any. Neither party is relying or shall rely on any representations (whether oral or written) on the subject of the effect, enforceability or meaning of this Agreement, except as specifically set forth in this Agreement. A scanned, copied or facsimile version of signatures on this Agreement is to be effective as original signatures.

PLEASE READ THIS AGREEMENT CAREFULLY. By entering into this Agreement, you agree to final and binding arbitration of any and all disputes between you and any Company Group entity including, without limitation, disputes related to your employment relationship and the termination thereof, and claims of discrimination and harassment. You also are agreeing to waive your right to a jury trial and to bring a claim on a class, collective or representative basis.

You also acknowledge that you have read this Agreement, understand its terms and have been given the opportunity to discuss this Agreement with an advisor of your choice, including your own legal counsel, and have taken advantage of that opportunity to the extent you wish to do so.

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2015 Restricted Stock Unit Award

EXHIBIT A

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2015 Restricted Stock Unit Award

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EXHIBIT B

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EX-10.4

EXHIBIT 10.4

CALIFORNIA RESOURCES CORPORATION

LONG-TERM INCENTIVE PLAN

NONSTATUTORY STOCK OPTION AWARD TERMS AND CONDITIONS

DATE OF GRANT: August 5, 2015

SHARES OF COMMON STOCK

SUBJECT TO THIS OPTION: See Morgan Stanley Stock Plan Connect “Stock Options /Granted”

VESTING SCHEDULE: One-third of the Options on August 4, 2016;      One-third of the Options on August 4, 2017; One-third of the Options on August 4, 2018; (each being a “Vesting Date”)

PURCHASE PRICE PER SHARE: $4.20

The following Terms and Conditions (these “Terms and Conditions”) are set forth as of the Date of Grant between CALIFORNIA RESOURCES CORPORATION, a Delaware corporation (“CRC” and, with its subsidiaries, the “Company”), and the eligible employee receiving this award (the “Grantee”).

1.Grant of Option. In accordance with these Terms and Conditions and the California Resources Corporation Long-Term Incentive Plan, as the same may be amended from time to time (the “Plan”), CRC hereby grants to the Grantee the right and option (“Option”) to purchase all or any part of the aggregate number of shares of CRC common stock, $0.01 par value (“Common Stock”), set forth above. In the event of any conflict between the terms of these Terms and Conditions and the Plan, the Plan shall control. Capitalized terms used but not defined in these Terms and Conditions shall have the meanings attributed to such terms under the Plan, unless the context requires otherwise. This Option shall not be treated as an incentive stock option within the meaning of section 422(b) of the Code.

If the Grantee fails to accept this award prior to October 1, 2015, then, notwithstanding any other provision of this award, the Grantee shall forfeit this Option and all rights under this award and this award will become null and void. For purposes of these Terms and Conditions, acceptance of the award shall occur on the date the Grantee accepts this Nonstatutory Stock Option Award through Morgan Stanley Stock Plan Connect or any replacement on-line system designated by the Company.

2.Purchase Price. The purchase price of Common Stock purchased pursuant to the exercise of this Option shall be the purchase price per share set forth above, which has been determined to be not less than the Fair Market Value of a share of Common Stock at the Date of Grant. For all purposes of these Terms and Conditions, the Fair Market Value of a share of Common Stock shall be determined in accordance with the provisions of the Plan.

3.Vesting and Exercise of Option. Subject to the earlier expiration of this Option as herein provided, this Option may be exercised, by written notice to CRC at its principal executive office addressed to the attention of its corporate secretary (or such other officer, employee or designee of the Company as CRC may designate from time to time), at any time and from time to time after the Date of Grant, but, except as otherwise provided below, this Option shall not be exercisable for more than that portion of the aggregate number of shares of Common Stock offered by this Option determined under the vesting schedule set forth above.

This Option may be exercised only while the Grantee remains an employee of the Company and will terminate and cease to be exercisable upon the Grantee’s termination of employment with the Company, except that:

(a)If, prior to the final Vesting Date, the Grantee dies, becomes permanently disabled while in the employ of the Company and terminates employment as a result thereof, or retires with the consent of the Company (each of the foregoing, a “Forfeiture Event”), then the unvested portion of this Option shall become vested and exercisable with respect to such unvested shares of Common Stock offered by this Option as of the date of the Forfeiture Event (and shall remain exercisable for the remaining term of this Option with respect to such shares as well as the shares with respect to which this Option became vested and exercisable prior to the Forfeiture Event). If the Grantee terminates employment voluntarily or the Grantee’s employment is terminated for cause (as determined by the Company) before the final Vesting Date, then (i) the Grantee shall forfeit the portion of this Option that has not become vested and exercisable prior to the Grantee’s termination date and (ii) this Option may be exercised by the Grantee (or the person who acquires this Option by will or the laws of descent and distribution or otherwise by reason of the death of Grantee) at any time during the period ending at the earlier 60 days following such termination or the term of this Option, but only as to the number of shares the Grantee was entitled to purchase hereunder as of the date the Grantee’s employment so terminates.

(b)If, prior to the final vesting date, a Change in Control occurs and the Grantee’s employment is terminated by the Company on or after the date of such event and as a result of such event, or the Grantee terminates employment without cause (as determined by the Company) for the convenience of the Company (each of the foregoing, a “Forfeiture Event”), then the unvested portion of this Option will be reduced on a pro rata basis based upon the number obtained by (i) multiplying the aggregate number of shares of Common Stock offered by this Option by a fraction, the numerator of which is the number of days between and including the Date of Grant and the Forfeiture Event, and the denominator of which is the number of days between and including the Date of Grant and the final Vesting Date, and (ii) subtracting from the product the number of shares of Common Stock with respect to which this Option became vested and exercisable prior to the Forfeiture Event. This Option shall become vested and exercisable with respect to such pro rata unvested shares of Common Stock offered by this Option as of the date of the Forfeiture Event (and shall remain exercisable for the lesser of the remaining term of this Option or 180 days with respect to such shares as well as the shares with respect to which this Option became vested and exercisable prior to the Forfeiture Event), and this Option shall cease to be exercisable as of such date with respect to any other shares of Common Stock offered under this Option that have not become vested and exercisable on or prior to such date. Any such determination by the Committee is binding on the Grantee.

Notwithstanding anything herein to the contrary, in no event will this Option be exercisable after the expiration of seven years from the Date of Grant. The purchase price of shares as to which this Option is exercised shall be paid in full at the time of exercise (i) in cash, cash equivalent, or by electronic funds transfer, (ii) if permitted by the Committee in its sole discretion, by delivering or constructively tendering to CRC shares of Common Stock having a Fair Market Value equal to the purchase price (provided such shares used for this purpose must have been held by the Grantee for such minimum period of time as may be established from time to time by the Committee), (iii) if the Common Stock is readily tradable on a national securities exchange, through a “cashless exercise” in accordance with a Company established policy or program for the same, or (iv) in any other legal consideration the Committee deems appropriate. No fraction of a share of Common Stock shall be issued by CRC upon exercise of an Option or accepted by CRC in payment of the exercise price thereof; rather, the Grantee shall provide a cash payment for such amount as is necessary to effect the issuance and acceptance of only whole shares of Common Stock. Unless and until a certificate or certificates representing such shares shall have been issued by CRC to the Grantee, the Grantee (or the person permitted to exercise this Option in the event of the Grantee’s death) shall not be or have any of the rights or privileges of a stockholder of CRC with respect to shares acquirable upon an exercise of this Option.

4.Taxes and Withholding. Regardless of any action the Company takes with respect to any or all income tax (including U.S. federal, state and local tax and non-U.S. tax), social insurance, payroll tax, payment on account or other tax-related items related to the Grantee’s participation in the Plan and legally applicable to the Grantee (“Tax-Related Items”), the Grantee acknowledges that the ultimate liability for all Tax-Related Items is and remains the Grantee’s responsibility and may exceed the amount actually withheld by the Company. The Grantee further acknowledges that the Company (i) makes no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of this Nonstatutory Stock Option Award, including the grant, vesting or exercise of the Nonstatutory Stock Option Award; and (ii) does not commit to and is under no obligation to structure the terms of the grant or any aspect of the Nonstatutory Stock Option Award to reduce or eliminate the Grantee’s liability for Tax-Related Items or achieve any particular tax result. Further, if the Grantee has become subject to tax in more than one jurisdiction between the Date of Grant and the date of any relevant taxable event, the Grantee acknowledges that the Company may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

Prior to the relevant taxable event, the Grantee shall pay or make adequate arrangements satisfactory to the Company to satisfy all Tax-Related Items. In this regard, the Grantee authorizes the Company to withhold all applicable Tax-Related Items legally payable by the Grantee, first, from the shares purchased upon exercise of this Nonstatutory Stock Option Award and, if not sufficient, from the Grantee’s wages or other cash compensation. The Grantee shall pay to the Company any amount of Tax-Related Items that the Company may be required to withhold as a result of the Grantee’s receipt, vesting or exercise of this Nonstatutory Stock Option Award that cannot be satisfied by the means previously described.

5.Compensation Recoupment. Grantee’s receipt of this award is expressly conditioned on Grantee’s agreement to the terms and provisions of this Section, and Grantee acknowledges that Grantee would not have received this award in the absence of such agreement. By accepting this award, Grantee acknowledges and agrees that:

(a)    the compensation (or any portion thereof) payable pursuant to this award and any other award granted to Grantee under the Plan (whether granted before, on or after the Date of Grant) shall be subject to recovery, revocation, recoupment or “clawback” by the Company or any of its Affiliates pursuant to (i) the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”), (ii) any rules or regulations promulgated under the Act or by any stock exchange on which the Company’s common stock is listed (collectively, the “Rules”), or (iii) any compensation recoupment or clawback policies or procedures adopted by CRC or any of its Affiliates, in each case with respect to clauses (i), (ii) and (iii) above as such provisions, rules, regulations, policies and procedures may be adopted and amended from time to time (including with retroactive effect); and

(b)    any other compensation or benefit (or any portion thereof) payable to or on behalf of Grantee from the Company or any of its Affiliates (whether payable before, on or after the Date of Grant, but excluding any compensation or benefit payable pursuant to an award granted under the Plan) shall be subject to recovery, revocation, recoupment or clawback by the Company or any of its Affiliates pursuant to the Act, the Rules or any compensation recoupment or clawback policies or procedures adopted by CRC or any of its Affiliates in accordance with the requirements of the Act and the Rules, in each case as the Act, the Rules and such policies and procedures may be adopted and amended from time to time (including with retroactive effect).

In addition, Grantee hereby agrees (on behalf of Grantee and any other individual, entity or other person claiming under or through Grantee) that: (a) compensation payable pursuant to this award and any other compensation or benefit payable to or on behalf of Grantee (whether under the Plan or otherwise) shall be subject to recovery, revocation, recoupment or clawback as provided in the preceding provisions of this Section; and (b) Grantee (or any such individual, entity or other person) shall not seek indemnification or contribution from the Company or any of its Affiliates with respect to any amount so recovered, revoked, recouped or clawed back.

6.Employment Relationship. For purposes of these Terms and Conditions, the Grantee shall be considered to be in the employment of the Company as long as the Grantee remains an employee of any of the Company, an Affiliate, or a corporation or other entity or a parent or subsidiary of such corporation or other entity assuming or substituting a new option for this Option. Without limiting the scope of the preceding sentence, it is expressly provided that the Grantee shall be considered to have terminated employment with the Company at the time of the termination of the “Affiliate” status under the Plan of the entity or other organization that employs the Grantee. Nothing in the adoption of the Plan, nor the award of this Option thereunder pursuant to these Terms and Conditions, shall affect in any way the right of the Grantee or the Company or any such Affiliate or other entity to terminate such employment at any time. Unless otherwise provided in a written employment agreement or by applicable law, the Grantee’s employment by the Company or any such Affiliate or other entity shall be on an at-will basis, and the employment relationship may be terminated at any time by either the Grantee or the Company or any such Affiliate or other entity for any reason whatsoever, with or without cause or notice. Any question as to whether and when there has been a termination of the Grantee’s employment with the Company or any such Affiliate or other entity, and the cause of such termination, shall be determined by the Committee, and its determination shall be final.

7.Acknowledgements Regarding Section 409A of the Code. The Grantee understands that if the purchase price of the Common Stock under this Option is less than the fair market value of such Common Stock on the date of grant of this Option, then the Grantee may incur adverse tax consequences under section 409A of the Code. The Grantee acknowledges and agrees that (a) he is not relying upon any determination by the Company, any Affiliate, or any of their respective employees, directors, managers, officers, attorneys or agents (collectively, the “Company Parties”) of the fair market value of the Common Stock on the date of grant of this Option, (b) he is not relying upon any written or oral statement or representation of the Company Parties regarding the tax effects associated with the Grantee’s acceptance of these Terms and Conditions and his receipt, holding and exercise of this Option, and (c) in deciding to accept these Terms and Conditions, the Grantee is relying on his own judgment and the judgment of the professionals of his choice with whom he has consulted. The Grantee hereby releases, acquits and forever discharges the Company Parties from all actions, causes of actions, suits, debts, obligations, liabilities, claims, damages, losses, costs and expenses of any nature whatsoever, known or unknown, on account of, arising out of, or in any way related to the tax effects associated with the Grantee’s acceptance of these Terms and Conditions and his receipt, holding and exercise of this Option.

8.Notices. Any notices or other communications provided for in these Terms and Conditions shall be sufficient if in writing. In the case of the Grantee, such notices or communications shall be effectively delivered if hand delivered to the Grantee at the Grantee’s principal place of employment or if sent by certified mail, return receipt requested, to the Grantee at the last address the Grantee has filed with the Company. In the case of the Company, such notices or communications shall be effectively delivered if sent by certified mail, return receipt requested, to CRC at its principal executive offices.

9.Privacy Rights. By accepting this Award, the Grantee explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Grantee’s Data (as defined below) by and among, as applicable, the Company and its affiliates for the exclusive purpose of implementing, administering and managing the Grantee’s participation in the Plan. The Company holds or may receive from any agent designated by the Company certain personal information about the Grantee, including, but not limited to, the Grantee’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of this Nonstatutory Stock Option Award or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in the Grantee’s favor, for the purpose of implementing, administering and managing the Plan, including complying with applicable tax and securities laws (“Data”). Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan. These recipients may be located in the Grantee’s country or elsewhere, and may have different data privacy laws and protections than the Grantee’s country. By accepting these Terms and Conditions, the Grantee authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes described above. The Grantee may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting the administrator in writing. Refusing or withdrawing consent may affect the Grantee’s ability to participate in the Plan.

10.Electronic Delivery. The Company may, in its sole discretion, decide to deliver any documents related to this Nonstatutory Stock Option Award granted under the Plan or future awards that may be granted under the Plan (if any) by electronic means or to request the Grantee’s consent to participate in the Plan by electronic means. The Grantee hereby consents to receive such documents by electronic delivery and, if requested, to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.

11.Binding Effect. These Terms and Conditions shall be binding upon and inure to the benefit of any successors to the Company and all persons lawfully claiming under the Grantee.

12.Entire Agreement; Amendment. These Terms and Conditions constitute the entire agreement of the parties with regard to the subject matter hereof, and contains all the covenants, promises, representations, warranties and agreements between the parties with respect to this Option; provided, however, that the terms of these Terms and Conditions shall not modify and shall be subject to the terms and conditions of any employment and/or severance agreement between the Company (or an Affiliate) and the Grantee in effect as of the date a determination is to be made under these Terms and Conditions. Without limiting the scope of the preceding sentence, except as provided therein, all prior understandings and agreements, if any, among the parties hereto relating to the subject matter hereof are hereby null and void and of no further force and effect. The Committee may, in its sole discretion, amend these Terms and Conditions from time to time in any manner that is not inconsistent with the Plan; provided, however, that except as otherwise provided in the Plan or these Terms and Conditions, no amendment will adversely affect the rights of the Grantee under these Terms and Conditions in any material respect without the Grantee’s consent. Notwithstanding the foregoing, Attachment B may only be modified or revoked pursuant to the terms set forth in its Paragraph 14, and Attachment B shall survive the termination of Employee’s employment relationship with the Company, the termination of the Plan and the termination of the Terms and Conditions.

13.Grantee’s Agreement to General Terms of Employment and Mutual Agreement to Arbitrate. By accepting this Nonstatutory Stock Option Award, the Grantee agrees, to the extent not contrary to applicable law, to the General Terms of Employment set out on Attachment 1 and to be bound by the Mutual Agreement to Arbitrate set out on Attachment 2, which, in each case, are incorporated in these Terms and Conditions by reference

14.Governing Law.Except as provided by Paragraphs 10 and 11 of Attachment B, the laws of the State of Delaware govern the interpretation, performance, and enforcement of these Terms and Conditions.

Attachment 1
GENERAL TERMS OF EMPLOYMENT

A.Except as otherwise required by law or legal process, the Grantee will not publish or divulge to any person, firm, corporation or institution and will not use to the detriment of CRC, or any of its subsidiaries or other affiliates, or any of their respective officers, directors, employees or stockholders (collectively, “CRC Parties”), at any time during or after the Grantee’s employment by any of them, any trade secrets or confidential information of any of them (whether generated by them or as a result of any of their business relationships), including such information as described in CRC’s ethics code and other corporate policies, without first obtaining the written permission of an officer of the Company.

B.At the time of leaving employment with the Company, the Grantee will deliver to the Company, and not keep or deliver to anyone else, any and all credit cards, drawings, blueprints, specifications, devices, notes, notebooks, memoranda, reports, studies, correspondence and other documents, and, in general, any and all materials relating to the CRC Parties (whether generated by them or as a result of their business relationships), including any copies (whether in paper or electronic form), that the Grantee has in the Grantee’s possession or control.

C.The Grantee will, during the Grantee’s employment by the Company, comply with the provisions of CRC’s ethics code.

D.Except as otherwise required by the Grantee’s job or permitted by law, the Grantee will not make statements about any CRC Parties (1) to the press, electronic media, to any part of the investment community, to the public, or to any person connected with, employed by or having a relationship with any of them without permission of an officer of the Company or (2) that are derogatory, defamatory or negative. Nothing herein, however, shall prevent Grantee from making a good faith report or complaint to appropriate governmental authorities. To the fullest extent permitted by law, Grantee will not interfere with or disrupt any of the Company’s operations or otherwise take actions intended directly to harm any of the CRC Parties.

E.All inventions, developments, designs, improvements, discoveries and ideas that the Grantee makes or conceives in the course of employment by the Company, whether or not during regular working hours, relating to any design, article of manufacture, machine, apparatus, process, method, composition of matter, product or any improvement or component thereof, that are manufactured, sold, leased, used or under development by, or pertain to the present or possible future business of the Company shall be a work-for-hire and become and remain the property of CRC, its successors and assigns.

The provisions of this Section do not apply to an invention that qualifies fully under the provisions of Section 2870 of the California Labor Code, which provides in substance that provisions in an employment agreement providing that an employee shall assign or offer to assign rights in an invention to his or her employer do not apply to an invention for which no equipment, supplies, facilities, or trade secret information of the employer was used and which was developed entirely on the employee’s own time, except for those inventions that either (a) relate, at the time of conception or reduction to practice of the invention, (1) to the business of the employer or (2) to the employer’s actual or demonstrably anticipated research or development, or (b) result from any work performed by the employee for the employer.

F.The foregoing General Terms of Employment are not intended to be an exclusive list of the employment terms and conditions that apply to the Grantee. The Company, in its sole discretion, may at any time amend or supplement the foregoing terms. The Grantee’s breach of the foregoing General Terms of Employment will entitle the Company to take appropriate disciplinary action, including, without limitation, reduction of the Nonstatutory Stock Option Award granted pursuant to these Terms and Conditions and termination of employment.

Attachment 2MUTUAL AGREEMENT TO ARBITRATE

The Grantee under the Terms and Conditions (“Employee”) and California Resources Corporation (“Company”) hereby enter into this Mutual Agreement to Arbitrate (“Agreement”).

In recognition of the fact that differences may arise out of or relating to certain aspects of Employee’s employment relationship or the termination of that relationship, and in recognition of the fact that resolution of any differences in the courts is rarely timely or cost effective for either party, Employee and Company have entered into this Agreement in order to establish and gain the benefits of a speedy, impartial and cost-effective dispute resolution procedure.

1.Claims Subject to Arbitration. Except as expressly set forth in Paragraph 2 below, both Company and Employee mutually consent to resolve by final and binding arbitration any and all disputes, claims or controversies of any kind or nature, including but not limited to such matters arising from, related to or in connection with Employee seeking employment with, Employee’s employment relationship by or the termination of Employee’s employment with any one or more of the Company, its predecessors and each of their respective past and present parents, affiliates and subsidiaries (collectively referred to herein as “Company Group”) that either Employee may have against one or more Company Group entity (and/or each of their respective past and present employees, independent contractors, owners, agents, officers, directors, board members, shareholders, successors, assigns, benefit plans and sponsors, fiduciaries, administrators or insurers) or that any Company Group entity may have against Employee (collectively, “Claims”). The term Company Group includes, but is not limited to, Occidental Petroleum Corporation and its past and present affiliates and subsidiaries. The Claims subject to arbitration include, without limitation, (a) any Claims by Employee arising from, related to or in connection with: (i) any federal, state or local law or regulation prohibiting discrimination, harassment or retaliation based on race, color, religion, national origin, sex, age, disability or any other condition or characteristic protected by law; (ii) any alleged breach of contract or covenant, whether express or implied, including but not limited to a breach of the Terms and Conditions; (iii) any alleged violation of any federal, state, local, or other constitution, statute, ordinance, regulation, common law, or public policy; (iv) any dispute regarding wages, hours, bonuses or other compensation or payment; and/or (v) any personal, emotional, physical, economic, property or any other injury, loss or harm; and (b) any Claims that a Company Group entity may have against Employee, including, without limitation, any alleged trade secret violations.

2.Claims Not Subject to Arbitration. This Agreement does not apply to any Claims by Employee: (a) for state Workers’ Compensation benefits; (b) for unemployment insurance benefits filed with the appropriate government entity; (c) arising under a benefit plan where the plan expressly specifies a separate arbitration procedure; (d) arising under the National Labor Relations Act and filed through a charge with the National Labor Relations Board; or (e) which are otherwise expressly prohibited by law from being subject to arbitration under this Agreement, provided such prohibition is not preempted under the Federal Arbitration Act or any other federal law. This Agreement does not preclude filing an administrative charge or complaint with the appropriate government entity if such filing is protected or required by law. However, to the full extent permitted by law, any Claims seeking monetary relief must be asserted in arbitration pursuant to this Agreement.

3.Class, Collective and Representative Action Waivers. To the fullest extent permitted by law, and notwithstanding anything else in this Agreement, Employee and Company agree that any Claims brought by a Company Group entity, by Employee or on Employee’s behalf shall be decided by the arbitrator on an individual basis and not on a class, collective or representative basis. Accordingly, class, collective and representative actions are not permitted under this Agreement. The arbitrator shall not have the authority or jurisdiction to hear the arbitration as a class, collective or representative action or to join or consolidate causes of action of different parties into one proceeding. To the fullest extent permitted by law, Company Group and Employee agree that they have waived, to the maximum extent possible, any of their rights to bring or participate in class, collective or representative actions with respect to any Claims. Notwithstanding the foregoing, if and to the extent applicable law precludes Employee and/or any Company Group entity from waiving any right to bring California Private Attorney General Act (“PAGA”) class, collective or representative claims, and provided that the applicable law is not preempted by the Federal Arbitration Act or other federal law, then the Parties agree that such PAGA class, collective or representative claims shall not be subject to the terms of this Agreement and shall be heard by a court of competent jurisdiction.

4.Procedure. Any arbitration will be filed with and conducted by JAMS. The arbitration shall be held at the closest office of JAMS to where Employee does/did report to work or at a location mutually agreed to by the parties, pursuant to the JAMS Employment Arbitration Rules and Procedures (“Rules”) in effect at the time the demand for arbitration is filed, except as modified by this Agreement (including, without limitation, as modified in Paragraph 12). Employee understands that he or she may obtain a copy of the most current Rules by visiting JAMS’ website, currently located at http://www.jamsadr.com/rules-employment-arbitration/, or by contacting Human Resources at crchumanresources@crc.com. A copy of the Rules currently in effect is attached to this agreement as Exhibit A. If JAMS is unable or unwilling to accept the matter for any reason, the parties will submit the matter to a comparable arbitration service, which will apply the then-current Rules unless otherwise agreed to by the parties to the arbitration and as modified by this Agreement. Arbitration shall be initiated and all Claims shall be decided by a single, neutral arbitrator.

5.Discovery and Motions. The parties to the arbitration shall be entitled to conduct reasonable discovery and the arbitrator shall have the authority to determine what constitutes reasonable discovery. The arbitrator will have the authority to hear and grant motions, including but not limited to motions for summary judgment and summary adjudication.

6.Remedies. The arbitrator may award any form of remedy or relief (including injunctive relief) that would otherwise be available in court and any such form of remedy or relief awarded must comply with applicable state and federal law.

7.Decision. The arbitrator shall issue a written and signed decision within thirty (30) days of the deadline for submission of post-hearing briefs. The arbitrator’s award shall be final and binding and shall contain the essential findings of fact and conclusions of law on which the decision is based. Judgment upon the award may be entered, and enforcement may be sought, only in a California state court of competent jurisdiction.

8.Right of Appeal. The arbitrator shall not have the power to commit errors of law or legal reasoning. The arbitrator’s final award is subject to review for legal error, confirmation, correction or vacatur only in a California state court of competent jurisdiction. Solely in the event that a court should find that it does not have legal authority, or otherwise refuses, to review the arbitrator’s decision for legal error, then any party to the arbitration shall have a right to appeal the arbitrator’s final award pursuant to the rules and procedures set forth in the JAMS Optional Arbitration Appeal Procedure ("Appeal Rules") in effect at the time the appeal is served, except as modified by this Agreement. Employee understands that he or she may obtain a copy of the most current Appeal Rules by visiting JAMS' website, currently located at http://www.jamsadr.com/appeal/, or by contacting Human Resources at crchumanresources@crc.com. A copy of the Appeal Rules currently in effect is attached to this Agreement as Exhibit B. The appeal must be filed with JAMS within thirty (30) days of the court’s decision to not review the arbitrator’s final award for legal error, provided that the deadline shall be tolled in the event a party seeks appellate review of the court’s decision.

9.Arbitration Fees and Costs. To the extent required by law, Company shall bear all reasonable and necessary fees and costs of the arbitration forum that Employee would not otherwise be required to bear if the Claims were brought in court. In all other circumstances, Company and Employee will each pay fifty percent (50%) of the fees and costs of the arbitration forum. The parties shall be responsible for their own attorneys’ fees and costs, except that the arbitrator shall have the authority to award attorneys’ fees and costs to the prevailing party in accordance with the substantive law governing the Claims. Any controversy regarding the payment of fees and costs under this Agreement shall be decided by the arbitrator.

10.Law Governing Claims. Except for Claims relating to or arising out of the interpretation, performance and/or enforcement of the Terms and Conditions to which this Agreement is attached, which shall be governed by Section 16 of the Terms and Conditions, the arbitrator shall apply California and federal law, as applicable, to any Claims and defenses asserted by the parties.

11.Law Governing This Agreement. Notwithstanding any other provision of this Agreement, the Federal Arbitration Act shall govern the interpretation and enforcement of this Agreement, the procedures for the arbitration, and the substantive governing law for review for legal error, confirmation, correction or vacatur of the arbitrator’s final award, with the sole exception that the California Arbitration Act shall apply for purposes of permitting review of the final arbitration award for legal error.

12.Determination of Arbitrability. A California state court with jurisdiction over a party’s Claims, and not the arbitrator, shall have the exclusive authority and jurisdiction to resolve any issue relating to the formation or enforceability of this Agreement, or any issue relating to whether a Claim is subject to arbitration under this Agreement. Employee and Company agree that they are subject to the jurisdiction of California state courts for these purposes.

13.At-Will Employment. This Agreement is not, and shall not be construed to create, any contract of employment, express or implied. This Agreement shall not be construed in any way to change Employee’s employment status from at-will or to modify, nullify or otherwise affect the at-will agreement between Employee and Company.

14.Revocation and Modification. This Agreement shall survive the termination of Employee’s employment relationship, the termination of the California Resources Corporation Long-Term Incentive Plan, and the termination of the Terms and Conditions to which this Agreement is attached. The Agreement shall apply to any Claims whether they arise or are asserted during or after termination of that relationship. This Agreement can be modified or revoked only by a writing signed by Employee and an executive of the Company that references this Agreement and specifically states an intent to modify or revoke this Agreement.

15.Reformation and Severability. If any clause or provision of this Agreement is declared void or unenforceable by any tribunal, then such clause or provision shall be modified or, if modification is not possible, stricken to the extent necessary to allow enforcement of this Agreement, and the remaining provisions shall remain in full force and effect. However, in no event shall the arbitrator hear any Claims as class, collective or representative actions, even if Paragraph 3 of this Agreement, or any clause or provision contained therein, is adjudged void or is otherwise unenforceable. In other words, if one or more of the class, collective and/or representative action waivers in Paragraph 3 are found to be unenforceable, the specific type of waiver(s) found to be unenforceable shall be stricken from the Agreement and the respective action(s) that were the subject of the stricken waiver(s) shall be heard and determined through an appropriate court proceeding, and not in arbitration. All remaining Claims shall proceed in individual arbitration.

16.Entire Agreement. This Agreement constitutes the entire understanding between the parties with respect to the subject matter hereof, and it revokes and supersedes all prior or contemporaneous oral or written agreements or understandings on the subject of arbitration of the Claims; however, it does not supersede any arbitration agreement in connection with Company’s benefit plans, if any. Neither party is relying or shall rely on any representations (whether oral or written) on the subject of the effect, enforceability or meaning of this Agreement, except as specifically set forth in this Agreement. A scanned, copied or facsimile version of signatures on this Agreement is to be effective as original signatures.

PLEASE READ THIS AGREEMENT CAREFULLY. By entering into this Agreement, you agree to final and binding arbitration of any and all disputes between you and any Company Group entity including, without limitation, disputes related to your employment relationship and the termination thereof, and claims of discrimination and harassment. You also are agreeing to waive your right to a jury trial and to bring a claim on a class, collective or representative basis.

You also acknowledge that you have read this Agreement, understand its terms and have been given the opportunity to discuss this Agreement with an advisor of your choice, including your own legal counsel, and have taken advantage of that opportunity to the extent you wish to do so.

EXHIBIT A

2

2015 Stock Option Award

3

2015 Stock Option Award

4

2015 Stock Option Award

5

2015 Stock Option Award

6

2015 Stock Option Award

7

2015 Stock Option Award

8

2015 Stock Option Award

9

2015 Stock Option Award

10

2015 Stock Option Award

11

2015 Stock Option Award

12

2015 Stock Option Award

13

2015 Stock Option Award

14

2015 Stock Option Award

15

2015 Stock Option Award

16

2015 Stock Option Award

17

2015 Stock Option Award

EXHIBIT B

18

2015 Stock Option Award

19

2015 Stock Option Award

20

2015 Stock Option Award

21

2015 Stock Option Award

EX-12

EXHIBIT 12

CALIFORNIA RESOURCES CORPORATION AND SUBSIDIARIES

COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES

(Amounts in millions, except ratios)

The following table sets forth our historical ratios of earnings to fixed charges for the periods indicated. You should read these ratios of earnings to fixed charges in connection with our consolidated financial statements, including the notes to those statements.

	Nine Months Ended September 30,					Year Ended December 31,
	2015			2014		2014				2013		2012		2011		2010
Income / (loss) before income taxes	$	(437	)	$	1,101	$	(2,421	)	(a)	$	1,447	$	1,181	$	1,641	$	1,129
Add:
Interest expense and amortization of debt issuance costs	244			—		72				—		—		—		—
Portion of lease rentals representative of the interest factor	3			2		3				4		4		3		3
Earnings / (loss) before fixed charges	$	(190	)	$	1,103	$	(2,346	)		$	1,451	$	1,185	$	1,644	$	1,132
Fixed charges:
Interest expense and amortization of debt issuance costs, including capitalized interest	$	252		$	—	$	76			$	—	$	—	$	—	$	—
Portion of lease rentals representative of the interest factor	3			2		3				4		4		3		3
Total fixed charges	$	255		$	2	$	79			$	4	$	4	$	3	$	3
Ratio of earnings to fixed charges	n/a			552		n/a			(b)	363		296		548		377
Insufficient coverage	$	445		$	—	$	2,425			$	—	$	—	$	—	$	—

Note: Had we been a stand-alone company for the full year 2014, and had the same level of debt throughout the year as we did on December 31, 2014, of approximately $6.4 billion, we would have incurred $314 million of pre-tax interest expense, on a pro-forma basis, for the year ended December 31, 2014, compared to the $72 million pre-tax interest expense reported on our statement of operations for the year then ended. Therefore, the insufficient coverage on a pro-forma basis would have been approximately $2,437 million.
(a)	The 2014 amount includes non-cash charges consisting of $3.4 billion of asset impairments, $52 million of rig termination and other price-related costs, and $55 million of Spin-off and transition related costs. Excluding these items, our income before income taxes for the year ended December 31, 2014 would have been approximately $1.1 billion, and the ratio of earnings to fixed charges would have been 14.
(b)	Takes into consideration interest on the debt associated with the Spin-off which we entered into during the last half of 2014.

EX-31.1

EXHIBIT 31.1

RULE 13a – 14(a) / 15d – 14(a)

CERTIFICATION

PURSUANT TO §302 OF THE SARBANES-OXLEY ACT OF 2002

I, Todd A. Stevens, certify that:

1. I have reviewed this quarterly report on Form 10-Q of California Resources Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  November 5, 2015

/s/ Todd A. Stevens

Todd A. Stevens

President and Chief Executive Officer

(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

RULE 13a – 14(a) / 15d – 14(a)

CERTIFICATION

PURSUANT TO §302 OF THE SARBANES-OXLEY ACT OF 2002

I, Marshall D. Smith, certify that:

1. I have reviewed this quarterly report on Form 10-Q of California Resources Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  November 5, 2015

/s/ Marshall D. Smith

Marshall D. Smith

Senior Executive Vice President and

Chief Financial Officer

(Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CEO AND CFO PURSUANT TO

18 U.S.C.§1350,

AS ADOPTED PURSUANT TO

§906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of California Resources Corporation (the “Company”) for the fiscal period ended September 30, 2015, as filed with the Securities and Exchange Commission onNovember 5, 2015(the “Report”), Todd A. Stevens, as Chief Executive Officer of the Company, and Marshall D. Smith, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Todd A. Stevens
Name:	Todd A. Stevens
Title:	President and Chief Executive Officer (Principal Executive Officer)
Date:	November 5, 2015

/s/ Marshall D. Smith
Name:	Marshall D. Smith
Title:	Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer)
Date:	November 5, 2015

A signed original of this written statement required by Section 906 has been provided to California Resources Corporation and will be retained by California Resources Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

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DERIVATIVES (Details 2) - USD ($) $ in Millions	Sep. 30, 2015	Dec. 31, 2014
Gross and net fair values of outstanding derivatives (in millions)
Total gross and net fair value, asset	$ 66	$ 24
Total gross and net fair value, liability	(4)
Commodity Contracts | Other current assets.
Gross and net fair values of outstanding derivatives (in millions)
Commodity contract derivative asset, gross	66	$ 24
Commodity Contracts | Accrued liabilities
Gross and net fair values of outstanding derivatives (in millions)
Commodity contract derivative liability, gross	$ (4)

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RETIREMENT AND POSTRETIREMENT BENEFIT PLANS (Tables)

9 Months Ended

Sep. 30, 2015

RETIREMENT AND POSTRETIREMENT BENEFIT PLANS

Components of the net periodic benefit cost

	Three months ended September 30,
	2015		2014
	Pension Benefit	Postretirement Benefit	Pension Benefit	Postretirement Benefit
	(in millions)
Service cost	$        1	$        1	$        1	$        1
Interest cost	1	1	1	—
Expected return on plan assets	(1)	—	(1)	—
Recognized actuarial loss	1	—	—	1
Settlements / Curtailments	10	10	—	—
Total	$      12	$      12	$        1	$        2

	Nine months ended September 30,
	2015		2014
	Pension Benefit	Postretirement Benefit	Pension Benefit	Postretirement Benefit
	(in millions)
Service cost	$        3	$        3	$        3	$        3
Interest cost	3	3	3	2
Expected return on plan assets	(3)	—	(4)	—
Recognized actuarial loss	2	—	1	1
Settlements / Curtailments	18	10	—	—
Total	$      23	$      16	$        3	$        6

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RELATED-PARTY TRANSACTIONS (Details) - USD ($) $ in Millions	3 Months Ended	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2014
Sales	$ 421	$ 2,560
Occidental Petroleum And Subsidiaries
Purchases	45	165
Occidental Petroleum And Subsidiaries | General and Administrative Expense
Charges for services provided by Occidental prior to the spin-off	43	120
Occidental Petroleum And Subsidiaries | Oil and natural gas
Sales	421	2,560
Occidental Petroleum And Subsidiaries | Power | other revenue
Sales	$ 25	$ 90

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ACCOUNTING AND DISCLOSURE CHANGES

9 Months Ended

Sep. 30, 2015

ACCOUNTING AND DISCLOSURE CHANGES

ACCOUNTING AND DISCLOSURE CHANGES

NOTE 2ACCOUNTING AND DISCLOSURE CHANGES

In July 2015, the Financial Accounting Standards Board (FASB) issued rules requiring entities to measure inventory within the scope of these rules at the lower of cost and net realizable value.  These new rules will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, and must be applied prospectively with earlier application permitted. We do not expect these new rules to have a significant impact on our financial statements.

In May 2015, the FASB issued rules to remove the requirements to categorize within the fair value hierarchy all investments for which the fair value is measured using the net asset value (NAV) per share practical expedient.  The new rules also limit disclosures to investments for which the entity has elected to measure the fair value using that practical expedient, rather than for all investments that are eligible to be measured at fair value using the NAV per share.  These rules will be effective for annual periods beginning after December 15, 2015, and interim periods within those fiscal years, with early adoption of the rules permitted.  We do not expect the disclosure changes to have a significant impact on our financial statements.

In April 2015, the FASB issued rules to simplify the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with the presentation of debt discounts. These rules will be effective for annual periods beginning after December 15, 2015 and interim periods within those fiscal years, with early adoption of the rules permitted for financial statements which have not been previously issued. We earlyadopted the new rule in the first quarter of 2015 and retrospectively reclassified unamortized debt issuance costs of $68 million at December 31, 2014. The amount was previously reflected in other assets.

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INVENTORIES (Details) - USD ($) $ in Millions	Sep. 30, 2015	Dec. 31, 2014
INVENTORIES
Materials and supplies	$ 69	$ 66
Finished goods	4	5
Total	$ 73	$ 71

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OTHER INFORMATION (Details) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Dec. 31, 2014
OTHER INFORMATION
Amount due from joint interest partners, other current assets	$ 110		$ 120
Deferred tax assets, other current assets	55		60
Greenhouse gas emission assets, other current assets	40		65
Accrued compensation-related costs, accrued liabilities	130		95
Interest payable, accrued liabilities	65		70
Greenhouse gas liabilities, accrued liabilities	75		65
Voluntary retirement and employee reduction charges, accrued liabilities	40
Asset Retirement Obligations, other long-term liabilities	397		$ 397
Interest Paid	$ 248	$ 0

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DEBT (Details) $ in Millions	Nov. 02, 2015 USD ($) item	Oct. 01, 2014 USD ($)	Sep. 24, 2014	Sep. 30, 2015 USD ($)	Dec. 31, 2014 USD ($)
Debt
Debt				$ 6,481	$ 6,360
Less: Current maturities of long-term debt				(75)
Less: Deferred financing costs				(61)	(68)
Total long-term debt, net				6,345	6,292
Senior Notes
Debt
Aggregate principal amount		$ 5,000
Net Proceeds from private placement		4,950
Cash distribution to Occidental in October 2014		$ 4,950
Semi annual interest payment		semi-annually
Percentage of principal amount at which senior notes can be redeemed		101.00%
5.00% Senior notes due 2020
Debt
Debt		$ 1,000		$ 1,000	$ 1,000
Debt Instrument, Interest Rate, Stated Percentage		5.00%		5.00%	5.00%
5.50% Senior notes due 2021
Debt
Debt		$ 1,750		$ 1,750	$ 1,750
Debt Instrument, Interest Rate, Stated Percentage		5.50%		5.50%	5.50%
6.00% Senior notes due 2024
Debt
Debt		$ 2,250		$ 2,250	$ 2,250
Debt Instrument, Interest Rate, Stated Percentage		6.00%		6.00%	6.00%
Credit Facilities | Second amendment to credit facilities | Subsequent event
Debt
Initial Borrowing Base, Credit Facilities	$ 3,000
Percent of commitment required to be held by lenders in order to request a special redetermination	66.67%
Number of special redeterminations permitted between scheduled borrowing base redeterminations | item	1
Percentage of proceeds from certain transactions required to be used to repay the term loan	50.00%
Maximum dividend payable or other distributions to common stockholders	$ 20
Credit Facilities | Second amendment to credit facilities | LIBOR | Subsequent event
Debt
Variable rate basis	LIBOR
Credit Facilities | Second amendment to credit facilities | Alternate Base Rate | Subsequent event
Debt
Variable rate basis	alternate base rate
Variable rate basis	one-month LIBOR
Interest rate added to variable rate basis(as a percent)	1.00%
Credit Facilities | Second amendment to credit facilities | Prime Rate | Subsequent event
Debt
Variable rate basis	agent's prime rate
Credit Facilities | Second amendment to credit facilities | Federal fund rate | Subsequent event
Debt
Variable rate basis	federal funds effective rate
Interest rate added to variable rate basis(as a percent)	0.50%
Credit Facilities | Minimum | Second amendment to credit facilities | Subsequent event
Debt
Cash on hand in excess of this amount must be used to pay off outstanding debt under the revolving credit facility	$ 250
Credit agreement interest expense ratio	2.00
Credit Facilities | Minimum | Second amendment to credit facilities | LIBOR | Subsequent event
Debt
Interest rate added to variable rate basis(as a percent)	1.50%
Credit Facilities | Minimum | Second amendment to credit facilities | Alternate Base Rate | Subsequent event
Debt
Interest rate added to variable rate basis(as a percent)	0.50%
Credit Facilities | Maximum | Second amendment to credit facilities | Subsequent event
Debt
Credit agreement leverage ratio	2.25
Credit Facilities | Maximum | Second amendment to credit facilities | LIBOR | Subsequent event
Debt
Interest rate added to variable rate basis(as a percent)	2.75%
Credit Facilities | Maximum | Second amendment to credit facilities | Alternate Base Rate | Subsequent event
Debt
Interest rate added to variable rate basis(as a percent)	1.75%
Term loan facility
Debt
Debt				$ 1,000	$ 1,000
Senior term loan facility and senior revolving credit facility			5 years
Term loan facility | Second amendment to credit facilities | Subsequent event
Debt
Maximum borrowing capacity	$ 1,000
Quarterly installment payment beginning March 31, 2016	25
Revolving credit facility
Debt
Debt				$ 481	$ 360
Senior term loan facility and senior revolving credit facility			5 years
Revolving credit facility | Second amendment to credit facilities | Subsequent event
Debt
Maximum borrowing capacity	$ 2,000
Commitment fees on unused portion of the Revolving Credit Facility	0.50%
Revolving credit facility | Maximum | Second amendment to credit facilities | Subsequent event
Debt
Amount available for additional borrowings if the second amendment had been in place on September 30, 2015	$ 1,523
Letter of Credit | Second amendment to credit facilities | Subsequent event
Debt
Maximum borrowing capacity	$ 400

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DEBT (Details 2) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2015	Dec. 31, 2014
Other Fixed-Rate and Variable-Rate Debt Disclosures
Estimated fair value of long-term debt, including current maturities	$ 4,500	$ 5,600
Net carrying value of long term debt including current maturities	6,400	6,300
Aggregate letters of credit issued	$ 23	$ 25
Pro Forma
Other Variable-Rate Debt Disclosures
Percentage of change in the variable interest rates	0.125%
Effect of 1/8 percent change in interest rates	$ 2

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THE SPIN-OFF AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2015

THE SPIN-OFF AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE SPIN-OFF AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1THE SPIN-OFF AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Separation and Spin-off

We are an independent oil and natural gas exploration and production company operating properties exclusively within the State of California. We were incorporated in Delaware as a wholly-owned subsidiary of Occidental Petroleum Corporation (Occidental) on April 23, 2014, and remained a wholly-owned subsidiary of Occidental until November 30, 2014.  Prior to November 30, 2014, all material existing assets, operations and liabilities of the California business were consolidated under us.  On November 30, 2014, Occidental distributed shares of our common stock on a pro rata basis to Occidental stockholders and we became an independent, publicly traded company (the Spin-off).  Occidental retained approximately 18.5% of our outstanding shares of common stock, which it has stated it intends to divest within 18 months of the Spin-off.

Except when the context otherwise requires or where otherwise indicated, (1) all references to CRC, the Company, we, us and our refer to California Resources Corporation and its subsidiaries or the California business, (2) all references to the California business refer to Occidental’s California oil and gas exploration and production operations and related assets, liabilities and obligations, which we assumed in connection with the Spin-off, and (3) all references to Occidental refer to Occidental Petroleum Corporation, our former parent, and its subsidiaries.

Basis of Presentation

Until the Spin-off, the accompanying financial statements were derived from the consolidated financial statements and accounting records of Occidental and were presented on a combined basis for the pre-Spin-off periods.  These financial statements reflect the historical results of operations, financial position and cash flows of the California business.  We account for our share of oil and gas exploration and production ventures, in which we have a direct working interest, by reporting our proportionate share of assets, liabilities, revenues, costs and cash flows within the relevant lines on the balance sheets and statements of income and cash flows.

The statements of income for periods prior to the Spin-off included expense allocations for certain corporate functions and centrally-located activities historically performed by Occidental. These functions include executive oversight, accounting, treasury, tax, financial reporting, finance, internal audit, legal, risk management, information technology, government relations, public relations, investor relations, human resources, procurement, engineering, drilling, exploration, marketing, ethics and compliance, and certain other shared services.  These allocations were based primarily on specific identification of time or activities associated with us, employee headcount or our relative size compared to Occidental.  Our management believes the assumptions underlying the financial statements, including the assumptions regarding allocating expenses from Occidental, are reasonable.  However, the financial statements for the pre-Spin-off periods may not include all of the actual expenses that would have been incurred,  may include duplicative costs and may not reflect our results of operations, financial position and cash flows had we operated as a stand-alone public company during the periods presented.  Actual costs that would have been incurred if we had been a stand-alone company prior to the Spin-off would have depended on multiple factors, including organizational structure and strategic and operating decisions.

The assets and liabilities in the pre-Spin-off financial statements are presented on a historical cost basis.  We have eliminated all of our significant intercompany transactions and accounts.  Prior to the Spin-off, we participated in Occidental’s centralized treasury management program and had not incurred any debt.  Excess cash generated by our business was distributed to Occidental, and likewise our cash needs were provided by Occidental, in the form of contributions.

All financial information presented after the Spin-off represents our financial position, results of operations and cash flows, as follows:

" Our consolidated statements of operations, comprehensive income and cash flows for the three and nine months ended September 30, 2015, as applicable, consist of our stand-alone consolidated results following the Spin-off, and the three and nine months ended September 30, 2014 consist of the combined results of the California business.

" Our consolidated balance sheets at September 30, 2015 and December 31, 2014 consist of our consolidated balances.

In the opinion of our management, the accompanying financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to fairly present our financial position as of September 30, 2015, and the statements of operations, comprehensive income, and cash flows for the three and nine months ended September 30, 2015 and 2014, as applicable.  The income / (loss) and cash flows for the periods ended September 30, 2015 and 2014 are not necessarily indicative of the income / (loss) or cash flows you should expect for the full year.

Certain prior year amounts have been reclassified to conform to the 2015 presentation.  In the second quarter of 2015, we changed the classification of certain employee-related costs from general and administrative expenses to production costs to better align these costs with the functions performed by those employees.  Prior period amounts have been changed to conform to the current year classification.

We have prepared this report pursuant to the rules and regulations of the United States Securities and Exchange Commission applicable to interim financial information, which permit omission of certain disclosures to the extent they have not changed materially since the latest annual financial statements.  We believe our disclosures are adequate to make the information not misleading.   You should read this Form 10-Q in conjunction with the consolidated and combined financial statements and the notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2014.

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DERIVATIVES (Details) $ in Millions	1 Months Ended	3 Months Ended	9 Months Ended
	Oct. 31, 2015 $ / bbl bbl	Sep. 30, 2015 USD ($) item $ / MMBTU $ / bbl bbl	Sep. 30, 2015 USD ($) MMBTU item $ / MMBTU $ / bbl bbl	Sep. 30, 2014 item	Mar. 31, 2014 ft³ / d $ / ft³
Derivatives
Net derivative gains recognized in net sales (in dollars) | $		$ 53	$ 33
Daily Volume (in cubic feet) | ft³ / d					50,000,000
Weighted-average strike price (in dollars per cubic foot) | $ / ft³					0.00430
Crude Oil - Put Option January 2015 through June 2015
Derivatives
Crude oil production per day (in barrels per day) | bbl			100,000
Hedge price (in dollars per barrel)		50	50
Crude Oil Call Option March Through June 2015
Derivatives
Crude oil production per day associated with the call option (in barrels per day) | bbl			30,000
Hedge price (in dollars per barrel)		75	75
Crude Oil Hedge - Fourth Quarter 2015
Derivatives
Daily volume (in barrels per day) | bbl			40,000
Weighted average floor price		61.25	61.25
Weighted Average ceiling price		73.88	73.88
Crude Oil Hedge - January through June 2016
Derivatives
Daily volume (in barrels per day) | bbl			12,500
Floor price		55	55
Ceiling price		70	70
Crude oil total hedge for first half 2016 - Ceiling | Subsequent event
Derivatives
Daily volume (in barrels per day) | bbl	35,500
Ceiling price	66.15
Crude oil total hedge for first half 2016 - Floor | Subsequent event
Derivatives
Daily volume (in barrels per day) | bbl	30,500
Weighted average floor price	52.38
Crude Oil Brent Based Hedge - July through December 2016
Derivatives
Daily volume (in barrels per day) | bbl			3,000
Floor price		50	50
Weighted Average ceiling price		74.42	74.42
Natural Gas Index Based Hedge - Fourth Quarter 2015 Member
Derivatives
Daily volume (in Mmbtu) | MMBTU			40,000
Hedges average price | $ / MMBTU		3.01	3.01
Natural Gas Collars Based Hedge - Fourth Quarter 2015 Member
Derivatives
Daily volume (in Mmbtu) | MMBTU			20,000
Weighted average floor price | $ / MMBTU		2.80	2.80
Weighted Average ceiling price | $ / MMBTU		3.17	3.17
Crude Oil Average Brent Based Hedge - Third Quarter 2015
Derivatives
Daily volume (in barrels per day) | bbl		70,000
Weighted average floor price		52.14	52.14
Crude Oil Brent Based Hedge - Third Quarter 2015
Derivatives
Daily volume (in barrels per day) | bbl		30,000
Ceiling price		72.12	72.12
Fair Value Hedges
Derivatives
Number of hedges | item		0	0	0

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Consolidated Condensed Balance Sheets - USD ($) $ in Millions	Sep. 30, 2015	Dec. 31, 2014
CURRENT ASSETS
Cash and cash equivalents	$ 4	$ 14
Trade receivables, net	217	308
Inventories	73	71
Other current assets	308	308
Total current assets	602	701
PROPERTY, PLANT AND EQUIPMENT	20,845	20,536
Accumulated depreciation, depletion and amortization	(9,588)	(8,851)
TOTAL PROPERTY, PLANT AND EQUIPMENT, NET	11,257	11,685
OTHER ASSETS	54	43
TOTAL ASSETS	11,913	12,429
CURRENT LIABILITIES
Current maturities of long-term debt	75
Accounts payable	280	588
Accrued liabilities	393	334
Total current liabilities	748	922
LONG-TERM DEBT, NET	6,345	6,292
DEFERRED INCOME TAXES	1,886	2,055
OTHER LONG-TERM LIABILITIES	$ 579	$ 549
EQUITY
Preferred stock (200 million shares authorized at $0.01 par value) no shares outstanding at September 30, 2015 and December 31, 2014
Common stock (2.0 billion shares authorized at $0.01 par value) outstanding shares (September 30, 2015 - 387,837,645 and December 31, 2014 - 385,639,582)	$ 4	$ 4
Additional paid-in capital	4,772	4,748
Accumulated deficit	(2,401)	(2,117)
Accumulated other comprehensive income / (loss)	(20)	(24)
Total equity	2,355	2,611
TOTAL LIABILITIES AND EQUITY	$ 11,913	$ 12,429

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Consolidated Condensed Statements of Comprehensive Income (Parenthetical) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Consolidated Condensed Statements of Comprehensive Income
Unrealized losses on derivatives, tax	$ 0	$ 0	$ 0	$ 1
Pension and postretirement (losses) / gains, tax	3	0	5	0
Reclassification to income of realized losses on derivatives, tax	0	0	0	(2)
Reclassification to income of realized losses on pension and postretirement, tax	$ (4)	$ 0	$ (7)	$ 0

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EARNINGS PER SHARE (Details) - USD ($) $ / shares in Units, $ in Millions	1 Months Ended		3 Months Ended		9 Months Ended
	Dec. 31, 2014	Nov. 30, 2014	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Basic EPS calculation
Net income / (loss)			$ (104)	$ 188	$ (272)	$ 657
Net income / (loss) allocated to participating securities				(3)		(11)
Net income / (loss) available to common stockholders			$ (104)	$ 185	$ (272)	$ 646
Weighed average common shares outstanding - basic			383.1	381.8	382.7	381.8
Basic EPS (in dollars per share)			$ (0.27)	$ 0.48	$ (0.71)	$ 1.69
Diluted EPS calculation
Net income / (loss)			$ (104)	$ 188	$ (272)	$ 657
Net income / (loss) allocated to participating securities				(3)		(11)
Net income / (loss) available to common stockholders			$ (104)	$ 185	$ (272)	$ 646
Weighed average common shares outstanding - basic			383.1	381.8	382.7	381.8
Dilutive effect of potentially dilutive securities
Weighted average common shares outstanding - diluted			383.1	381.8	382.7	381.8
Diluted EPS (in dollars per share)			$ (0.27)	$ 0.48	$ (0.71)	$ 1.69
Employee Stock Purchase Plan
Diluted EPS calculation
Common stock issued under employee stock purchase plan			792,000		1,500,000
Occidental Petroleum And Subsidiaries | Spinoff - CRC
Diluted EPS calculation
Common stock issued upon Spin-off		381,400,000
Weighted average basic share count for periods presented prior to Spin-off	381,800,000

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DERIVATIVES (Tables)

9 Months Ended

Sep. 30, 2015

DERIVATIVES

Gross and net fair values of outstanding derivatives (in millions)

	Asset Derivatives			Liability Derivatives
September 30, 2015	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Commodity contracts	Other current assets	$	66	Accrued Liabilities	$	(4)
Total gross and net fair value		$	66		$	(4)

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RETIREMENT AND POSTRETIREMENT BENEFIT PLANS (Details) - USD ($)	3 Months Ended			9 Months Ended
	Dec. 31, 2015	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Net periodic benefit costs:
Employer contributions		$ 0	$ 0	$ 3,000,000	$ 0
Fourth Quarter 2015 Forecast
Net periodic benefit costs:
Employer contributions	$ 10,000,000
Pension Benefit
Net periodic benefit costs:
Service cost		1,000,000	1,000,000	3,000,000	3,000,000
Interest cost		1,000,000	1,000,000	3,000,000	3,000,000
Expected return on plan assets		(1,000,000)	(1,000,000)	(3,000,000)	(4,000,000)
Recognized actuarial loss		1,000,000		2,000,000	1,000,000
Settlements / Curtailments		10,000,000		18,000,000
Net periodic benefit cost		12,000,000	1,000,000	23,000,000	3,000,000
Postretirement Benefit
Net periodic benefit costs:
Service cost		1,000,000	1,000,000	3,000,000	3,000,000
Interest cost		1,000,000		3,000,000	2,000,000
Recognized actuarial loss			1,000,000		1,000,000
Settlements / Curtailments		10,000,000		10,000,000
Net periodic benefit cost		$ 12,000,000	$ 2,000,000	$ 16,000,000	$ 6,000,000

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EARNINGS PER SHARE (Tables)

9 Months Ended

Sep. 30, 2015

EARNINGS PER SHARE

Calculation of basic and diluted EPS

	Three months ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in millions, except per-share amounts)
Basic EPS calculation
Net income / (loss)	$	(104)	$	188	$	(272)	$	657
Net income / (loss) allocated to participating securities	—		(3)		—		(11)
Net income / (loss) available to common stockholders	$	(104)	$	185	$	(272)	$	646
Weighted-average common shares outstanding - basic	383.1		381.8		382.7		381.8
Basic EPS	$	(0.27)	$	0.48	$	(0.71)	$	1.69
Diluted EPS calculation
Net income / (loss)	$	(104)	$	188	$	(272)	$	657
Net income / (loss) allocated to participating securities	—		(3)		—		(11)
Net income / (loss) available to common stockholders	$	(104)	$	185	$	(272)	$	646
Weighted average common shares outstanding - basic	383.1		381.8		382.7		381.8
Dilutive effect of potentially dilutive securities	—		—		—		—
Weighted-average common shares outstanding - diluted	383.1		381.8		382.7		381.8
Diluted EPS	$	(0.27)	$	0.48	$	(0.71)	$	1.69

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Consolidated Condensed Statements of Cash Flows - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
CASH FLOW FROM OPERATING ACTIVITIES
Net income / (loss)	$ (272)	$ 657
Adjustments to reconcile net income / (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization	757	886
Deferred income tax expense / (benefit)	(165)	262
Other noncash charges to income	126	22
Dry hole expenses	9	52
Changes in operating assets and liabilities, net	(43)	(12)
Net cash provided by operating activities	412	1,867
CASH FLOW FROM INVESTING ACTIVITIES
Capital investments	(323)	(1,569)
Changes in capital investment accruals	(202)	24
Acquisitions and other	(17)	(69)
Net cash used by investing activities	(542)	(1,614)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from revolving credit facility	1,345
Repayments of revolving credit facility	(1,224)
Proceeds from issuance of common stock	7
Cash dividends paid	(8)
Distributions to Occidental, net		(148)
Net cash provided / (used) by financing activities	120	(148)
Increase / (decrease) in cash and cash equivalents	(10)	105
Cash and cash equivalents - beginning of period	14
Cash and cash equivalents - end of period	$ 4	$ 105

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Consolidated Condensed Balance Sheets (Parenthetical) - $ / shares	Sep. 30, 2015	Dec. 31, 2014
Consolidated Condensed Balance Sheets
Preferred stock, outstanding shares	0	0
Preferred stock, authorized shares	200,000,000	200,000,000
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, authorized shares	2,000,000,000	2,000,000,000
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common Stock, Shares, Outstanding	387,837,645	385,639,582

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RETIREMENT AND POSTRETIREMENT BENEFIT PLANS

9 Months Ended

Sep. 30, 2015

RETIREMENT AND POSTRETIREMENT BENEFIT PLANS

RETIREMENT AND POSTRETIREMENT BENEFIT PLANS

NOTE 10RETIREMENT AND POSTRETIREMENT BENEFIT PLANS

The following table sets forth the components of the net periodic benefit costs for our defined benefit pension and postretirement benefit plans:

	Three months ended September 30,
	2015		2014
	Pension Benefit	Postretirement Benefit	Pension Benefit	Postretirement Benefit
	(in millions)
Service cost	$        1	$        1	$        1	$        1
Interest cost	1	1	1	—
Expected return on plan assets	(1)	—	(1)	—
Recognized actuarial loss	1	—	—	1
Settlements / Curtailments	10	10	—	—
Total	$      12	$      12	$        1	$        2

	Nine months ended September 30,
	2015		2014
	Pension Benefit	Postretirement Benefit	Pension Benefit	Postretirement Benefit
	(in millions)
Service cost	$        3	$        3	$        3	$        3
Interest cost	3	3	3	2
Expected return on plan assets	(3)	—	(4)	—
Recognized actuarial loss	2	—	1	1
Settlements / Curtailments	18	10	—	—
Total	$      23	$      16	$        3	$        6

We contributed $3 million to our defined benefit pension plans during the nine months ended September 30, 2015.  We expect to contribute $10 million to our defined benefit pension plans in the fourth quarter of 2015.  We did not make any contributions during the three-month period ended September 30, 2015, or either of the three- or nine-month periods ended September 30, 2014.  The 2015 settlements / curtailments were associated with early retirements.

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Document and Entity Information	9 Months Ended
	Sep. 30, 2015 shares
Document and Entity Information
Entity Registrant Name	California Resources Corp
Entity Central Index Key	0001609253
Document Type	10-Q
Document Period End Date	Sep. 30, 2015
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding	387,837,645
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q3

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RELATED-PARTY TRANSACTIONS

9 Months Ended

Sep. 30, 2015

RELATED-PARTY TRANSACTIONS

RELATED-PARTY TRANSACTIONS

NOTE 11RELATED-PARTY TRANSACTIONS

Through July 2014, substantially all of our products were sold to Occidental’s marketing subsidiaries at market prices and were settled at the time of sale to those entities.  Beginning August 2014, we started marketing our own products directly to third parties.  For the three and nine months ended September 30, 2014, related party sales included oil and natural gas products of approximately $421 million and $2,560 million, respectively, and power (reflected in other revenue) of approximately $25 million and $90 million, respectively.

Purchases from related parties reflect products purchased at market prices from Occidental’s subsidiaries prior to the Spin-off and used in our operations.  These purchases were approximately $45 million and $165 million for the three and nine months ended September 30, 2014, respectively, and were included in production costs.  There were no significant related-party receivable or payable balances at September 30, 2015 and December 31, 2014.

Prior to the Spin-off, the statement of operations included expense allocations for certain corporate functions and centrally-located activities historically performed by Occidental.  Charges from Occidental for these services of approximately $43 million and $120 million for the three and nine months ended September 30, 2014, respectively, are reflected in general and administrative expenses.

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Consolidated Condensed Statements of Operations - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
REVENUES
Oil and natural gas net sales to third parties	$ 596	$ 630	$ 1,754	$ 678
Oil and natural gas net sales to related parties		421		2,560
Other revenue	30	41	83	115
TOTAL REVENUES	626	1,092	1,837	3,353
COSTS AND OTHER DEDUCTIONS
Production costs	246	271	730	805
General and administrative expenses	129	78	290	218
Depreciation, depletion and amortization	253	304	757	886
Taxes other than on income	42	56	150	163
Exploration expense	5	25	29	71
Interest and debt expense, net	82		244
Other expenses	23	39	74	109
TOTAL COSTS AND OTHER DEDUCTIONS	780	773	2,274	2,252
INCOME / (LOSS) BEFORE INCOME TAXES	(154)	319	(437)	1,101
Income tax (expense) / benefit	50	(131)	165	(444)
NET INCOME / (LOSS)	$ (104)	$ 188	$ (272)	$ 657
Net income / (loss) per share of common stock
Basic (in dollars per share)	$ (0.27)	$ 0.48	$ (0.71)	$ 1.69
Diluted (in dollars per share)	(0.27)	$ 0.48	(0.71)	$ 1.69
Dividends per common share	$ 0.01		$ 0.03

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DEBT

9 Months Ended

Sep. 30, 2015

DEBT

DEBT

NOTE 5DEBT

Debt as of September 30, 2015 and December 31, 2014, consisted of the following:

	2015		2014
	(in millions)
Revolving Credit Facility	$	481	$	360
Term Loan Facility	1,000		1,000
5% notes due 2020	1,000		1,000
5 1/2% notes due 2021	1,750		1,750
6% notes due 2024	2,250		2,250
Total debt	6,481		6,360
Less: Current maturities of long-term debt	(75)		—
Less: Deferred financing costs	(61)		(68)
Total long-term debt, net	$	6,345	$	6,292

Credit Facilities

We have a credit agreement with a syndicate of lenders that provides for (i) a five-year senior term loan facility (the Term Loan Facility) and (ii) a five-year senior revolving loan facility (the Revolving Credit Facility and, together with the Term Loan Facility, the Credit Facilities).  All borrowings under these facilities are subject to certain customary conditions.  During the third quarter of 2015, our corporate ratings from Moody’s Investors Service (Moody’s) and Standard & Poor’s Ratings Services (S&P) were downgraded to B1 and BB-, respectively, resulting in the imposition of a borrowing base and the requirement to grant security on a first-lien basis in our oil and gas reserves under our Credit Facilities.  In addition, we amended the Credit Facilities effective as of November 2, 2015, to change certain of our financial and other covenants. The following describes the terms of our facilities after giving effect to this amendment.

The aggregate commitments of the lenders are $2.0 billion under the Revolving Credit Facility and $1.0 billion under Term Loan Facility, respectively.  The Revolving Credit Facility includes a sub-limit of $400 million for the issuance of letters of credit.  We will be required to repay the Term Loan Facility in $25 million quarterly installments beginning on March 31, 2016.  As of September 30, 2015, we had $481 million outstanding under our Revolving Credit Facility.  Had the November 2, 2015 amendment been in place at September 30, 2015, we would have had borrowing availability of up to an additional $1,523 million, taking into account our cash balance at that time, subject to compliance with our quarterly financial covenants described below, which would have limited our ability to utilize the full amount.

Borrowings under the Credit Facilities bear interest, at our election, at either a LIBOR rate or an alternate base rate (ABR) (equal to the greatest of (i) the administrative agent’s prime rate, (ii) the one-month LIBOR rate plus 1.00% and (iii) the federal funds effective rate plus 0.50%), in each case plus an applicable margin.  This applicable margin is based on our borrowing base utilization or our most current leverage ratio and will vary from (a) in the case of LIBOR loans, 1.50% to 2.75% and (b) in the case of ABR loans, 0.50% to 1.75%.  The unused portion of the Revolving Credit Facility is subject to a commitment fee equal to 0.50% per annum.  We also pay customary fees and expenses under the Credit Facilities.  Interest on ABR loans is payable quarterly in arrears.  Interest on LIBOR loans is payable at the end of each LIBOR period, but not less than quarterly.

All obligations under the Credit Facilities are guaranteed jointly and severally by all of our wholly-owned material subsidiaries.  The assets and liabilities of subsidiaries not guaranteeing the debt are de minimis.  Our ability to borrow under the Credit Facilities is subject to a borrowing base.  Our initial borrowing base was set at $3.0 billion and is subject to redetermination on or around January 15, 2016, and thereafter will be redetermined annually by our lenders each May, commencing May 1, 2016.  Between scheduled borrowing base redeterminations, we and the lenders (requiring a request from the lenders holding 66 2/3 percent of ourcommitments), may each request one special redetermination.  We will be permitted to have security released when both (i) our credit ratings are at least Baa3 from Moody’s and BBB- from S&P, in each case with a stable or better outlook, and (ii) certain permitted liens securing other debt are released.

The Credit Facilities require us to apply 50% of the proceeds from certain transactions, including certain deleveraging transactions, to repay the Term Loan.  We must also apply cash on hand in excess of $250 million to repay certain amounts outstanding under the Revolving Credit Facility.  In addition, our ability to pay dividends or make other distributions to common stockholders is limited to $20 million per year.  While we are subject to the borrowing base, the Credit Facilities require us to maintain the following financial covenants for the trailing twelve months ended as of the last day of each fiscal quarter: (a) a first lien senior secured leverage ratio of no more than 2.25 to 1.00 and (b) an interest expense ratio of no less than 2.00 to 1.00.  At September 30, 2015, we were in compliance with the financial and other covenants under our Credit Facilities as they existed at that time.  If we were to breach any of these covenants, our lenders would be permitted to accelerate the principal amount due under the facilities.  If payment were accelerated it would result in a default under our notes described below.

Senior Notes

On October 1, 2014, we issued $5.00 billion in aggregate principal amount of our senior notes, including $1.00 billion of 5% senior notes due January 15, 2020 (the 2020 notes), $1.75 billion of 5 1/2% senior notes due September 15, 2021 (the 2021 notes) and $2.25 billion of 6% senior notes due November 15, 2024 (the 2024 notes and together with the 2020 notes and the 2021 notes, the notes).  The notes were issued at par and are fully and unconditionally guaranteed on a senior unsecured basis by all of our material subsidiaries.  We used the net proceeds from the notes to make a $4.95 billion cash distribution to Occidental in October 2014.

We pay interest on the 2020 notes semi-annually in cash in arrears on January 15 and July 15 of each year, beginning on July 15, 2015.  We pay interest on the 2021 notes semi-annually in cash in arrears on March 15 and September 15 of each year, beginning on March 15, 2015.  We pay interest on the 2024 notes semi-annually in cash in arrears on May 15 and November 15 of each year, beginning on May 15, 2015.

The indenture governing the notes includes covenants that, among other things, limit our and our restricted subsidiaries’ ability to incur debt secured by liens.  These covenants also restrict our ability to merge or consolidate with, or transfer all or substantially all of our assets to, another entity.  These covenants are subject to a number of important qualifications and limitations that are set forth in the indenture.  The covenants are not, however, directly linked to measures of our financial performance.  In addition, if we experience a change of control coupled with a credit rating decline below investment grade, we will be required to offer to purchase the notes at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest or to have exercised our redemption right.

We estimate the fair value of fixed-rate debt based on prices from known market transactions for our instruments.  The estimated fair value of our debt at September 30, 2015 and December 31, 2014, the fixed rate portion of which was classified as Level 1, and the variable rate portion of which approximated fair value, was approximately $4.5 billion and $5.6 billion, respectively, compared to a net carrying value of approximately $6.4 billion and $6.3 billion, respectively.  A one-eighth percent change in the variable interest rates on the borrowings under our Term Loan Facility and Revolving Credit Facility on September 30, 2015, would result in an approximately $2 million change in annual interest expense.

As of September 30, 2015 and December 31, 2014, we had letters of credit in the aggregate amount of approximately $23 million and $25 million, respectively, that were issued to support ordinary course marketing and other matters.

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INVENTORIES

9 Months Ended

Sep. 30, 2015

INVENTORIES

INVENTORIES

NOTE 4INVENTORIES

Inventories as of September 30, 2015 and December 31, 2014, consisted of the following:

	2015		2014
	(in millions)
Materials and supplies	$	69	$	66
Finished goods	4		5
Total	$	73	$	71

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FAIR VALUE MEASUREMENTS (Tables)

9 Months Ended

Sep. 30, 2015

FAIR VALUE MEASUREMENTS

Assets and liabilities accounted for at fair value on a recurring basis (in millions)

	September 30, 2015
	Level 1		Level 2		Level 3		Collateral		Total
Assets:
Commodity derivative instruments, other current assets	$	—	$	66	$	—	$	—	$	66
Liabilities:
Commodity derivative instruments, accrued liabilities	$	—	$	4	$	—	$	—	$	4

	December 31, 2014
	Level 1		Level 2		Level 3		Collateral		Total
Assets:
Commodity derivative instruments, other current assets	$	—	$	24	$	—	$	—	$	24

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THE SPIN-OFF AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2015

THE SPIN-OFF AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Basis of Presentation

Until the Spin-off, the accompanying financial statements were derived from the consolidated financial statements and accounting records of Occidental and were presented on a combined basis for the pre-Spin-off periods.  These financial statements reflect the historical results of operations, financial position and cash flows of the California business.  We account for our share of oil and gas exploration and production ventures, in which we have a direct working interest, by reporting our proportionate share of assets, liabilities, revenues, costs and cash flows within the relevant lines on the balance sheets and statements of income and cash flows.

The statements of income for periods prior to the Spin-off included expense allocations for certain corporate functions and centrally-located activities historically performed by Occidental. These functions include executive oversight, accounting, treasury, tax, financial reporting, finance, internal audit, legal, risk management, information technology, government relations, public relations, investor relations, human resources, procurement, engineering, drilling, exploration, marketing, ethics and compliance, and certain other shared services.  These allocations were based primarily on specific identification of time or activities associated with us, employee headcount or our relative size compared to Occidental.  Our management believes the assumptions underlying the financial statements, including the assumptions regarding allocating expenses from Occidental, are reasonable.  However, the financial statements for the pre-Spin-off periods may not include all of the actual expenses that would have been incurred,  may include duplicative costs and may not reflect our results of operations, financial position and cash flows had we operated as a stand-alone public company during the periods presented.  Actual costs that would have been incurred if we had been a stand-alone company prior to the Spin-off would have depended on multiple factors, including organizational structure and strategic and operating decisions.

The assets and liabilities in the pre-Spin-off financial statements are presented on a historical cost basis.  We have eliminated all of our significant intercompany transactions and accounts.  Prior to the Spin-off, we participated in Occidental’s centralized treasury management program and had not incurred any debt.  Excess cash generated by our business was distributed to Occidental, and likewise our cash needs were provided by Occidental, in the form of contributions.

All financial information presented after the Spin-off represents our financial position, results of operations and cash flows, as follows:

" Our consolidated statements of operations, comprehensive income and cash flows for the three and nine months ended September 30, 2015, as applicable, consist of our stand-alone consolidated results following the Spin-off, and the three and nine months ended September 30, 2014 consist of the combined results of the California business.

" Our consolidated balance sheets at September 30, 2015 and December 31, 2014 consist of our consolidated balances.

In the opinion of our management, the accompanying financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to fairly present our financial position as of September 30, 2015, and the statements of operations, comprehensive income, and cash flows for the three and nine months ended September 30, 2015 and 2014, as applicable.  The income / (loss) and cash flows for the periods ended September 30, 2015 and 2014 are not necessarily indicative of the income / (loss) or cash flows you should expect for the full year.

Certain prior year amounts have been reclassified to conform to the 2015 presentation.  In the second quarter of 2015, we changed the classification of certain employee-related costs from general and administrative expenses to production costs to better align these costs with the functions performed by those employees.  Prior period amounts have been changed to conform to the current year classification.

We have prepared this report pursuant to the rules and regulations of the United States Securities and Exchange Commission applicable to interim financial information, which permit omission of certain disclosures to the extent they have not changed materially since the latest annual financial statements.  We believe our disclosures are adequate to make the information not misleading.   You should read this Form 10-Q in conjunction with the consolidated and combined financial statements and the notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2014.

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FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2015

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

NOTE 8FAIR VALUE MEASUREMENTS

We have categorized our assets and liabilities that are measured at fair value in a three-level fair value hierarchy, based on the inputs to the valuation techniques: Level 1 - using quoted prices in active markets for identical assets or liabilities; Level 2 - using observable inputs, such as quoted prices for similar assets and liabilities; and Level 3 - using unobservable inputs.  Transfers between levels, if any, are reported at the end of each reporting period.

Fair Values - Recurring

The following tables present assets and liabilities accounted for at fair value on a recurring basis as of September 30, 2015 and December 31, 2014 (in millions):

	September 30, 2015
	Level 1		Level 2		Level 3		Collateral		Total
Assets:
Commodity derivative instruments, other current assets	$	—	$	66	$	—	$	—	$	66
Liabilities:
Commodity derivative instruments, accrued liabilities	$	—	$	4	$	—	$	—	$	4

	December 31, 2014
	Level 1		Level 2		Level 3		Collateral		Total
Assets:
Commodity derivative instruments, other current assets	$	—	$	24	$	—	$	—	$	24

Fair Values - Nonrecurring

During the nine months ended September 30, 2015 and 2014, we did not have any assets or liabilities measured at fair value on a non-recurring basis.

Financial Instruments Fair Value

The carrying amounts of cash and other on-balance sheet financial instruments, other than fixed-rate debt, approximate fair value.

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LAWSUITS, CLAIMS, COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2015

LAWSUITS, CLAIMS, COMMITMENTS AND CONTINGENCIES

LAWSUITS, CLAIMS, COMMITMENTS AND CONTINGENCIES

NOTE 6LAWSUITS, CLAIMS, COMMITMENTS AND CONTINGENCIES

We, or certain of our subsidiaries, are involved, in the normal course of business, in lawsuits, environmental and other claims and other contingencies that seek, among other things, compensation for alleged personal injury, breach of contract, property damage or other losses, punitive damages, civil penalties, or injunctive or declaratory relief.  We accrue reserves for currently outstanding lawsuits, claims and proceedings when it is probable that a liability has been incurred and the liability can be reasonably estimated.  Reserve balances at September 30, 2015 and December 31, 2014 were not material to our balance sheets as of such dates.  We also evaluate the amount of reasonably possible losses that we could incur as a result of these matters.  We believe that reasonably possible losses that we could incur in excess of reserves accrued on our balance sheet would not be material to our consolidated financial position or results of operations.

We, our subsidiaries, or both, have indemnified various parties against specific liabilities those parties might incur in the future in connection with the Spin-off, purchases and other transactions that they have entered into with us.  These indemnities include indemnities made to Occidental against certain tax-related liabilities that may be incurred by Occidental relating to the Spin-off and liabilities related to the operation of our business while it was still owned by Occidental.  As of September 30, 2015, we are not aware of circumstances that we believe would reasonably be expected to lead to indemnity claims that would result in payments materially in excess of reserves.

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DERIVATIVES

9 Months Ended

Sep. 30, 2015

DERIVATIVES

DERIVATIVES

NOTE 7DERIVATIVES

General

From time to time, we use a variety of derivative instruments intended to establish, as of the date of production, the price we receive, to improve the effective realized prices for oil and gas, and to protect our capital program in case of price deterioration.  Derivatives are carried at fair value and on a net basis when a legal right of offset exists with the same counterparty.  We apply hedge accounting when transactions meet specified criteria for cash-flow hedge treatment and management elects and documents such treatment.  Otherwise, we recognize any fair value gains or losses, over the remaining term of the hedge instrument, in earnings in the current period.  We recognized approximately $53 million and $33 million of derivative gains from marking these contracts to market, which were included in net sales, for the three and nine months ended September 30, 2015, respectively.

As of September 30, 2015, our existing hedge positions, the initial values of which were not material, were as follows:

" Weighted average Brent-based floors and ceilings of $61.25 per barrel and $73.88 per barrel, respectively, for 40,000 barrels per day of our fourth quarter 2015 oil production;

" Brent-based hedges with a floor of $55 per barrel and a ceiling of $70 per barrel for 12,500 barrels per day of our January through June 2016 crude oil production;

" Brent-based hedges with a floor of $50 per barrel and a weighted average ceiling of $74.42 per barrel for 3,000 barrels per day of our July through December 2016 oil production;

" Index-based hedges at an average price of $3.01 per million British thermal units (MMBtu) for 40,000 MMBtu per day and weighted average floors and ceilings of $2.80 per MMBtu and $3.17 per MMBtu, respectively, for 20,000 MMBtu per day of our fourth quarter 2015 natural gas production.  These same hedges were also in place for our third quarter 2015 natural gas production.

Subsequent to September 30, 2015, we entered into additional hedges for our first half 2016 crude oil production, bringing our first half 2016 hedging program to a total of 30,500 barrels per day with a weighted average floor of $52.38 per barrel and 35,500 barrels per day with a ceiling of $66.15 per barrel.  The initial value of these hedges was not material.

For our third quarter 2015 oil production, we had hedged 70,000 barrels per day at weighted average Brent-based floors of $52.14 per barrel and 30,000 barrels per day at Brent-based ceilings of $72.12 per barrel.  The initial value of these hedges was not material.

From January through June 2015 we had purchased options for 100,000 barrels of our crude oil production per day, at $50 per barrel Brent and sold options for 30,000 barrels per day for March through June 2015 at $75 per barrel Brent.  The initial intrinsic and time values were deferred and subsequent changes were included in the net derivative losses reported in net sales.  The initial intrinsic value, which was accounted for as a cash flow hedge, was insignificant.

Going forward, we will continue to be strategic and opportunistic in implementing any hedging program.  Our objective is to protect against the cyclical nature of commodity prices to provide a level of certainty around our cash flows and margins necessary to implement our capital investment program and protect our ability to comply with our credit facility covenants.

For the first quarter of 2014 we had hedged 50 MMcf per day of our natural gas production, which qualified as cash-flow hedges.  The weighted average strike price of these swaps was $4.30 per Mcf.

The after-tax gains and losses recognized in, and reclassified to income from, Accumulated Other Comprehensive Income (AOCI) for derivative instruments classified as cash-flow hedges for the three- and nine-month periods ended September 30, 2015 and 2014, and the ending AOCI balances at those dates were not material.

There were no fair value hedges as of and during the three- and nine-month periods ended September 30, 2015 and 2014.

Fair Value of Derivatives

Our commodity derivatives are measured at fair value with the changes recognized in the statement of operations using industry-standard models with various inputs, including quoted forward prices.  The initial value of our 100,000 barrel put options from January through June 2015 was approximately $24 million on a gross and net basis, which approximated the time value of the instruments as of December 31, 2014.

The following table presents the gross and net fair values of our outstanding derivatives as of September 30, 2015 (in millions):

	Asset Derivatives			Liability Derivatives
September 30, 2015	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Commodity contracts	Other current assets	$	66	Accrued Liabilities	$	(4)
Total gross and net fair value		$	66		$	(4)

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EARNINGS PER SHARE

9 Months Ended

Sep. 30, 2015

EARNINGS PER SHARE

EARNINGS PER SHARE

NOTE 9EARNINGS PER SHARE

We compute earnings per share (EPS) using the two-class method required for participating securities.  Undistributed earnings allocated to participating securities are subtracted from net income in determining net income attributable to common stockholders.  Restricted stock awards are considered participating securities because holders of such shares have non-forfeitable dividend rights in the event of our declaration of a dividend for common shares.

The denominator of basic EPS is the sum of the daily weighted-average number of common shares outstanding during the periods presented and vested stock awards that have not yet been issued as common stock; however, it excludes outstanding shares related to unvested stock awards.  The denominator of diluted EPS is based on the basic shares outstanding, adjusted for the effect of outstanding option awards, to the extent they are dilutive.

On the Spin-off date, we issued 381.4 million shares of our common stock.  For comparative purposes, and to provide a more meaningful calculation of weighted-average shares outstanding, we have assumed this amount to be outstanding as of the beginning of each period prior to the Spin-off presented in the calculation of weighted-average shares.  In addition, we have assumed the vested stock awards granted in December 2014 were also outstanding for each of the periods presented prior to the Spin-off, resulting in a weighted-average basic share count of 381.8 million shares.  The effect of stock options granted in December 2014 was anti-dilutive for the periods presented.  For the three and nine months ended September 30, 2015, we issued approximately 792,000 shares and 1.5 million shares, respectively, of common stock in connection with our employee stock purchase plan.The effect of the employee stock purchase plan was anti-dilutive for the three and nine months ended September 30, 2015.

The following table presents the calculation of basic and diluted EPS for the three- and nine-month periods ended September 30, 2015 and 2014:

	Three months ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
	(in millions, except per-share amounts)
Basic EPS calculation
Net income / (loss)	$	(104)	$	188	$	(272)	$	657
Net income / (loss) allocated to participating securities	—		(3)		—		(11)
Net income / (loss) available to common stockholders	$	(104)	$	185	$	(272)	$	646
Weighted-average common shares outstanding - basic	383.1		381.8		382.7		381.8
Basic EPS	$	(0.27)	$	0.48	$	(0.71)	$	1.69
Diluted EPS calculation
Net income / (loss)	$	(104)	$	188	$	(272)	$	657
Net income / (loss) allocated to participating securities	—		(3)		—		(11)
Net income / (loss) available to common stockholders	$	(104)	$	185	$	(272)	$	646
Weighted average common shares outstanding - basic	383.1		381.8		382.7		381.8
Dilutive effect of potentially dilutive securities	—		—		—		—
Weighted-average common shares outstanding - diluted	383.1		381.8		382.7		381.8
Diluted EPS	$	(0.27)	$	0.48	$	(0.71)	$	1.69

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FAIR VALUE MEASUREMENTS (Details) - Recurring - USD ($) $ in Millions	Sep. 30, 2015	Dec. 31, 2014
Level 2
Assets
Commodity derivative instruments, other current assets	$ 66	$ 24
Liabilities:
Commodity derivative instruments, accrued liabilities	4
Total Fair Value
Assets
Commodity derivative instruments, other current assets	66	$ 24
Liabilities:
Commodity derivative instruments, accrued liabilities	$ 4

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DEBT (Tables)

9 Months Ended

Sep. 30, 2015

DEBT

Debt

	2015		2014
	(in millions)
Revolving Credit Facility	$	481	$	360
Term Loan Facility	1,000		1,000
5% notes due 2020	1,000		1,000
5 1/2% notes due 2021	1,750		1,750
6% notes due 2024	2,250		2,250
Total debt	6,481		6,360
Less: Current maturities of long-term debt	(75)		—
Less: Deferred financing costs	(61)		(68)
Total long-term debt, net	$	6,345	$	6,292

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THE SPIN-OFF AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Spinoff - CRC - Occidental Petroleum And Subsidiaries	Nov. 30, 2014
Separation and Spin Off Transactions
Percentage of outstanding shares of common stock retained by Occidental	18.50%
Number of months from spin off date for divestment of common stock by Occidental	18 months

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Consolidated Condensed Statements of Comprehensive Income - USD ($) $ in Millions		3 Months Ended		9 Months Ended
		Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Consolidated Condensed Statements of Comprehensive Income
Net income / (loss)		$ (104)	$ 188	$ (272)	$ 657
Other comprehensive income / (loss) items:
Unrealized losses on derivatives	[1]				(2)
Pension and postretirement (losses) / gains	[2]	(4)		(7)	1
Reclassification to income of realized losses on derivatives	[3]				3
Reclassification to income of realized losses on pension and postretirement	[4]	6		11
Other comprehensive income / (loss), net of tax		2		4	2
Comprehensive income/(loss)		$ (102)	$ 188	$ (268)	$ 659

[1] No tax for the three months ended September 30, 2015 and 2014. Net of tax of zero and $1 million for the nine months ended September 30, 2015 and 2014, respectively.

[2] Net of tax of $3 million and zero for the three months ended September 30, 2015 and 2014, respectively. Net of tax of $5 million and zero for the nine months ended September 30, 2015 and 2014, respectively. See Note 10, Retirement and Postretirement Benefit Plans, for additional information.

[3] No tax for the three months ended September 30, 2015 and 2014. Net of tax of zero and ($2) million for the nine months ended September 30, 2015 and 2014, respectively.

[4] Net of tax of ($4) million and zero for the three months ended September 30, 2015 and 2014, respectively. Net of tax of ($7) million and zero for the nine months ended September 30, 2015 and 2014, respectively. See Note 10, Retirement and Postretirement Benefit Plans, for additional information.

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OTHER INFORMATION

9 Months Ended

Sep. 30, 2015

OTHER INFORMATION

OTHER INFORMATION

NOTE 3OTHER INFORMATION

Other current assets at September 30, 2015 and December 31, 2014, include amounts due from joint interest partners of approximately $110 million and $120 million, deferred tax assets of $55 million and $60 million, and greenhouse gas emission credits of $40 million and $65 million, respectively.

Accrued liabilities at September 30, 2015 and December 31, 2014, include accrued compensation-related costs of approximately $130 million and $95 million, interest payable of $65 million and $70 million and greenhouse gas liabilities of $75 million and $65 million, respectively.  Of the $130 million accrued compensation-related costs at September 30, 2015, $40 million relates to third quarter voluntary retirement and employee reduction charges.  Other long-term liabilities include asset retirement obligations of $397 million each at September 30, 2015 and December 31, 2014.

Other revenue and other expenses mainly comprise sales and the associated costs, respectively, of the portion of electricity generated by our power plant that is sold to third parties.

Supplemental Cash Flow Information

Prior to the Spin-off we did not make any United States federal and state income tax payments directly to taxing jurisdictions.  During that period, our share of Occidental’s tax payments or refunds were paid or received, as applicable, by our former parent.  We did not make any United States federal or state income tax payments during the nine-month period ended September 30, 2015.  Interest paid totaled approximately $248 million and zero for the nine months ended September 30, 2015 and 2014, respectively.

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ACCOUNTING AND DISCLOSURE CHANGES (Details) $ in Millions	Dec. 31, 2014 USD ($)
ACCOUNTING AND DISCLOSURE CHANGES
Unamortized debt issuance costs	$ 68

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INVENTORIES (Tables)

9 Months Ended

Sep. 30, 2015

INVENTORIES

Inventories

	2015		2014
	(in millions)
Materials and supplies	$	69	$	66
Finished goods	4		5
Total	$	73	$	71