ITEM 1A RISK FACTORS
Described below are certain risks and uncertainties that could adversely affect our business, financial condition, results of operations or cash flow. These risks are not the only risks we face. Our business could also be affected materially and adversely by other risks and uncertainties that are not currently known to us or that we currently deem to be insignificant.
Summary:
Risks Related to Our Oil and Gas Business
• Prices for our products are volatile and a substantial decline in prices over an extended period could have a material adverse effect on our financial condition, results of operations, cash flow and ability to invest in our assets.
• Our producing properties are located primarily in California, making us vulnerable to risks associated with having operations concentrated in this geographic area, including drought, earthquake and wildfire risks.
• Drilling for and producing oil and natural gas carries significant operational risks and uncertainty. We may not drill wells at the times we schedule, or at all. Wells we do drill may not yield production in economic quantities or generate the expected payback.
• Our business involves substantial capital investments, and we may be unable to fund these investments which could lead to a decline in our oil and natural gas reserves or production.
• Reductions in California refining and pipeline capacity could adversely affect our ability to market our production and our realized prices.
• We may be negatively impacted by inflation, including through increased operating, capital and financing costs.
• We are subject to economic downturns and the effects of public health events which may materially and adversely affect the demand and the market price for our products.
• The other risk factors described under Risks Related to Our Oil and Gas Business below.
Risks Related to Carbon TerraVault and Our Carbon Management Segment
• We may not be able to grow our Carbon TerraVault business and develop large scale CCS projects.
• Our ability to achieve our emissions goals, including our Responsible Net Zero objective, and other carbon management objectives is subject to significant risks and uncertainties.
• Our Carbon TerraVault business and other CCS projects depend on financial and tax incentives to be economical, and these incentives may be insufficient, unavailable, delayed, reduced or terminated.
• Our Carbon TerraVault JV with Brookfield is subject to inherent uncertainties that could adversely affect our ability to implement our carbon management strategy.
Risk Factors Related to Our Business Generally
• Increasing activism against the industries in which we operate, including the oil and gas industry and our involvement in carbon capture, storage, utilization and sequestration, presents risks to our business.
• Changes in expectations as to ESG matters may adversely impact our business, regulation and access to capital.
• Mergers, acquisitions and dispositions, including continued integration of the Berry Merger completed in December 2025, involve substantial risks.
• The other risks described under Risks Related to Our Business Generally described below.
Risks Related to Regulation and Government Action
• We may face material delays related to our ability to timely obtain permits necessary for our operations, or be unable to secure such permits on favorable terms or at all as a result of numerous California political, regulatory, and legal developments.
• Our operations in Utah are subject to additional regulatory, permitting and legal risks, including risks associated with federal and tribal lands.
• We may face increased local restrictions on oil and gas exploration and production operations or even be prohibited from operating in certain areas as a result of recently enacted California legislation.
• Recent and future actions by the State of California could reduce both the demand for and supply of oil and natural gas within the state and consequently have a material and adverse effect on our business, results of operations and financial condition.
• Our business is highly regulated and government authorities can delay or deny permits and approvals or change requirements governing our operations, including hydraulic fracturing and other well stimulation methods, enhanced production techniques and fluid injection or disposal, that could increase costs, restrict operations and change or delay the implementation of our business plans.
• Our Carbon TerraVault business and our CCS projects are subject to extensive government regulation much of which is still being developed. Failure to comply with these regulations and obtain the necessary permits, or the development of government regulations that are unfavorable to our CCS projects, could have an adverse effect on our business, results of operations and financial condition.
• The other risks described under Risks Related to Regulation and Government Action below.
Risks Related to Our Indebtedness
• We may not be able to amend or refinance our existing debt to create more operating and financial flexibility and to enhance shareholder returns.
• Our existing and future indebtedness may adversely affect our business, financial condition and financial flexibility.
• The other risks described under Risks Related to Our Indebtedness below.
Risks Related to Our Common Stock
• Our ability to pay dividends and repurchase shares of our common stock is subject to certain risks.
• The trading price of our common stock may decline, and you may not be able to resell shares of our common stock at prices equal to or greater than the price you paid or at all.
• The other risks described under Risks Related to Our Common Stock below.
Risks Related to Our Oil and Gas Business
Prices for our products are volatile and a substantial decline in prices over an extended period could have a material adverse effect on our financial condition, results of operations, cash flow and ability to invest in our assets.
Our financial condition, results of operations, cash flow and ability to invest in our assets are highly dependent on oil, natural gas and NGL prices. Prices for these products are volatile and are subject to fluctuations in response to factors beyond our control, including changes in global and regional supply and demand, inventory levels, geopolitical events (including conflicts in Ukraine and Israel and the geopolitical uncertainty in the Middle East and Venezuela), actions by OPEC and other significant producers, economic conditions, public health events, government regulation and policies relating to energy and climate change, weather conditions, natural disasters, transportation and storage constraints, and market speculation. Sustained periods of lower commodity prices could materially and adversely affect our business by reducing our cash flows, limiting our ability to fund capital expenditures, decreasing the value of our proved reserves, reducing our borrowing capacity under our Revolving Credit Facility, limiting our access to capital markets, and impairing our ability to service our indebtedness or comply with financial covenants. While we use commodity price hedging arrangements to manage a portion of our exposure to price volatility, our hedging program does not provide protection for all of our production, may limit our ability to benefit from price increases, and exposes us to counterparty risk. We may be unable to enter into additional hedging arrangements on acceptable terms or at all.
Our producing properties are located primarily in California, making us vulnerable to risks associated with having operations concentrated in this geographic area, including drought, earthquake and wildfire risks.
Our operations are highly concentrated in California. As a result, the success and profitability of our operations may be disproportionately exposed to the effect of regional conditions. Changes in state or regional laws and regulations affecting our operations, local price fluctuations and other regional supply and demand factors, including gathering, pipeline, transportation and storage capacity constraints, limited potential customers, infrastructure capacity and availability of rigs, equipment, oil field services, supplies and labor. Our operations are also exposed to natural disasters and related events common to California, such as wildfires, mudslides, high winds, earthquakes and extreme weather events, and the potential increase to the frequency of drought and flooding. Further, our operations may be exposed to power outages, mechanical failures, industrial accidents or labor difficulties. Certain of our operations depend on a limited number of specialized vendors and service providers in California, and the exit or reduced availability of key suppliers could increase costs, disrupt operations or delay planned activities. Any one of these events has the potential to cause producing wells to be shut in, delay operations and growth plans, decrease cash flows, increase operating and capital costs, prevent development of lease inventory before expiration and limit access to markets for our products.
Drilling for and producing oil and natural gas carries significant operational risks and uncertainty. We may not drill wells at the times we schedule, or at all. Wells we do drill may not yield production in economic quantities or generate the expected payback.
The development of oil and natural gas properties is subject to numerous operational risks, including the risks of permitting or construction delays, equipment failures, accidents, environmental hazards, unusual or unexpected geologic conditions, adverse weather conditions, title or surface access disputes, cost over-runs, and disappointing drilling results or reservoir performance. Development activities also depend in part on our analysis of geophysical, geologic, engineering, production and other technical data and processes, including the interpretation of 3D seismic data. This analysis is often inconclusive or subject to varying interpretations. Any of the foregoing operational risks could cause actual results to differ materially from the expected payback or cause a well or project to become uneconomic or less profitable than forecast.
If future drilling activities do not generate sufficient production and reserves, we may be forced to curtail drilling or development of our assets. We make assumptions about the consistency and accuracy of data when we identify locations for new wells or opportunities for workovers, sidetracks and deepenings, and these assumptions may prove inaccurate. We cannot guarantee that well locations will ever be drilled or if we will be able to produce crude oil or natural gas from these drilling locations or from our other drilling activities. In addition, some of our leases could expire if we do not establish production in the leased acreage. The combined net acreage covered by leases expiring in the next three years represented 2% of our total net undeveloped acreage at December 31, 2025.
Our business involves substantial capital investments, and we may be unable to fund these investments which could lead to a decline in our oil and natural gas reserves or production.
We intend to fund our 2026 capital program using cash flow from operations. Accordingly, a reduction in operating cash flow could require us to reduce, defer or reprioritize capital investments. In general, the ability to execute our capital plan depends on a number of factors, including production levels and commodity prices, regulatory and third-party approvals, our ability to timely drill, complete and stimulate wells, our ability to secure equipment, services and personnel, and our ability to fund capital expenditures.
Access to future capital may be limited by our lenders, capital markets constraints, activist funds or investors, or poor stock price performance. As a result, we may be unable to deploy capital in the manner planned, which could negatively impact our production, development activities and ability to pursue acquisitions or partnerships.
Unless we make sufficient capital investments and conduct successful development and exploration activities or acquire properties containing proved reserves, our proved reserves will decline as those reserves are produced. Over time, a sustained decline in our production and reserves could reduce our cash flows, liquidity and ability to satisfy our debt obligations and the value of our reserves.
Reductions in California refining and pipeline capacity could adversely affect our ability to market our production and our realized prices.
We sell nearly all of our crude oil production into California markets. In recent periods, certain California refineries and interconnected pipelines have announced closures or reductions in operations, and additional reductions in refining capacity may occur in the future. Decreases in in-state refining capacity or in the availability of related pipeline throughput may disrupt our ability to efficiently transport and market our crude oil, increase competition among producers for access to remaining refining outlets and reduce the number of available purchasers for our products. For example, the recent shutdown of the San Pablo Bay Pipeline eliminated pipeline access to Bay Area refineries and has prompted us to modify our marketing, transportation and shipping arrangements to reach alternative markets. See Part I, Item 1 and 2 – Business and Properties, Oil and Natural Gas Segment, Marketing Arrangements, Our Principal Customers. While we seek to manage these risks through marketing arrangements and operational flexibility, reduced refining capacity or related pipeline takeaway could adversely affect our ability to efficiently deliver our production to market, negatively impact pricing dynamics for our crude oil and result in lower realized prices or wider differentials in future periods. Any such impacts could have a material adverse effect on our results of operations and cash flows.
We may be negatively impacted by inflation, including through increased operating, capital and financing costs.
Increases in inflation may have an adverse effect on us. Operating and capital costs in the oil and natural gas industry are heavily influenced by commodity prices, including the prices we pay for electricity, natural gas and steel-based materials used in our operations. For example, we use natural gas and electricity extensively in our operations, including gas to generate steam for steam floods and electricity to power field operations. If we are unable to generate sufficient electricity for use in our operations, we may need to purchase electricity from third parties. Increases in the volumes or prices of commodities used in our operations could cause increases in our operating expenses. We attempt to manage our exposure to commodity price increases through hedging and longer-term fixed price contracts. However, these measures do not fully protect us from inflationary pressures and may not be available on acceptable terms or at all. Inflation could also result in higher interest rates, which could increase our future financing costs.
We are subject to economic downturns and the effects of public health events which may materially and adversely affect the demand and the market price for our products.
The marketing of our oil, natural gas and NGLs depends on the existence of adequate markets for our products. Imbalances between supply and demand, including as a result of economic downturns or public health events, could cause significant market volatility and adversely affect commodity prices. The extent and duration of public health events, governmental responses and resulting economic impacts are hard to predict. This uncertainty could force us to reduce operating expenses or capital expenditures, which could negatively affect future production and our reserves. We may experience labor shortages if our employees are unwilling or unable to come to work because of illness, quarantines, government actions or other restrictions in connection with a pandemic. If our suppliers cannot deliver the materials, supplies and services we need, we may need to suspend operations. In addition, we are exposed to changes in commodity prices which have been and will likely remain volatile. We cannot predict the duration and extent of a pandemic's adverse impact on our operating results.
A public health event that adversely affects global economic conditions could also heighten or exacerbate many of the other risks described in the Risk Factors herein.
The conflicts in Ukraine and Israel and the geopolitical uncertainty in the Middle East and Venezuela have caused price volatility and geopolitical instability which impact our business.
Conflicts and geopolitical tensions have contributed to volatility in the prices of oil, natural gas and NGLs in recent periods. The extent and duration of military actions, sanctions, retaliatory measures and resulting market disruptions are uncertain and could continue to have a substantial impact on the global economy and our business. In addition, any easing, suspension or removal of sanctions on Venezuelan oil production or exports could increase global supply and exert downward pressure on oil prices, which could adversely affect our results of operations and cash flows. In addition, disruptions to global shipping routes, energy infrastructure or transportation corridors, including in or near the Middle East, could further constrain supply, increase costs or contribute to additional price volatility.
Actions by OPEC+ and other producing countries, including decisions to implement, extend, unwind or reinstate production limits, may significantly affect global oil supply and prices. Actual production levels and spare capacity are difficult to assess, and increased production by OPEC+ members or other producing countries could contribute to price declines. These geopolitical developments may also heighten or exacerbate other risks described in this “ Risk Factors ” section.
Some of our competitors have greater resources than us and we may not be able to successfully compete in acquiring and developing new properties.
We face competition in every aspect of our business, including, but not limited to, acquiring reserves and leases, obtaining goods and services and hiring and retaining employees needed to operate and manage our business and marketing oil, natural gas or NGLs. Competitors include a multinational oil company, independent production companies and individual producers and operators. In California, our competitors are few, which may limit available acquisition opportunities. Some of our competitors have greater financial and other resources than we do. As a result, these competitors may be able to address such competitive factors more effectively than we can or withstand industry downturns more easily than we can.
Our hedging activities limit our ability to realize the full benefits of increases in commodity prices.
We enter into hedges to mitigate our economic exposure to commodity price volatility and ensure our financial strength and liquidity by protecting our cash flows. Our Revolving Credit Facility also includes a covenant that would require us to enter into hedges if the ratio of our indebtedness to Consolidated EBITDAX (as defined in the Revolving Credit Facility) exceeds certain levels. These hedges expose us to the risk of financial losses depending on commodity price movements and may prevent us from realizing the full benefits of price increases. Our ability to realize the benefits of our hedges also depends in part upon the counterparties to these contracts honoring their financial obligations. If any of our counterparties are unable to perform their obligations in the future, we could be exposed to increased cash flow volatility that could affect our liquidity. In addition, our level of hedging activity may be impacted by financial regulations that could increase our costs of hedging and/or limit the number of hedging counterparties available to us.
Estimates of proved reserves and related future net cash flows are not precise. The actual quantities of our proved reserves and future net cash flows may differ materially from our estimates.
Estimating proved reserves and related future net cash flows involves significant judgment and uncertainty, and our assumptions may ultimately prove to be inaccurate. In addition, reserve estimates may change over time as additional data becomes available through development and appraisal activities.
Our ability to maintain or increase our reserves, other than through acquisitions, depends on our ability to drill new wells, which may be limited by permitting constraints. See Risks Related to Regulation and Government Action – We may face material delays related to our ability to timely obtain permits necessary for our operations or be unable to secure such permits on favorable terms or at all as a result of numerous California political, regulatory and legal developments.
To the extent we are able to drill new wells, our ability to maintain or increase reserves depends on the success of improved recovery, extension and discovery projects, which are influenced by reservoir characteristics, technology improvements, commodity prices and operating costs. Many of these factors are outside management’s control and will affect whether the historical sources of proved reserves additions continue to provide reserves at similar levels.
Lower commodity prices may reduce the quantity of our proved reserves, particularly those expected to be produced in later years, and may cause certain proved undeveloped reserves to become uneconomic or fail to meet SEC development timing requirements, including the five-year rule. In addition, our reserves information represents estimates prepared by internal engineers. Although a substantial portion of our proved reserve estimates are audited by independent petroleum engineers, we cannot guarantee that the estimates are accurate.
Reserves estimation is a partially subjective process that depends on numerous variables and assumptions, including geology, regulatory approvals, capital availability, development effectiveness and commodity prices, many of which are outside of our control. Actual developments that differ from our expectations could cause us to make significant negative revisions to our reserves which could materially adversely affect our business.
From time to time we may engage in step-out drilling, or drilling in new or emerging plays, which involves heightened uncertainty and may reduce the value of undeveloped acreage if unsuccessful.
The risk profile for step-out drilling or drilling in new or emerging plays is higher than for other locations because we have less geologic and production data and drilling history. The economic success of such drilling depends on numerous variables, including commodity prices, capital availability, drilling results, regulatory approvals, costs and transportation capacity. We may not find commercial amounts of oil or natural gas or actual costs may be higher than initially expected. If future drilling results in these projects do not establish sufficient reserves to achieve an economic return, we may curtail drilling or development of these projects. In either case, the value of our undeveloped acreage may decline and could be impaired.
Risks Related to Carbon TerraVault and Our Carbon Management Segment
We may not be able to grow our Carbon TerraVault business and develop large scale CCS projects.
We are developing a carbon management business in California that relies on CCS projects, an emerging sector with limited large-scale precedent in the state. These projects are in the early-stages of development and therefore face significant operational, technological and regulatory risks, and our ability to successfully develop these projects depends on a number of factors beyond our control, including the following:
• Obtaining Class VI permits for carbon dioxide injection and storage from the EPA is a multi-year process, and the time to obtain permits may vary with the complexity and type of storage reservoir. The analysis of the suitability of a reservoir for carbon sequestration is complex and our permit applications are subject to extensive review by the EPA. There can be no assurances that the EPA will release Class VI permits to us when we expect, if at all, and our efforts to obtain Class VI permits could be subject to legal challenges.
• Because large-scale CCS projects represent an emerging sector, there are limited precedents to assess the economic feasibility or commercial terms of such projects. In addition, any of the operational, regulatory or financial risks described herein could cause actual results to differ materially from expected payback or cause a project to become uneconomic or less profitable than forecast.
• CCS projects may require significant capital investments by us, our joint venture partners and third parties, and sufficient capital or financing may not be available on reasonable terms or at all. In some cases, these projects involve the production of hydrogen, ammonia or other products and markets for some of these products are still emerging.
• CCS projects may require long-term agreements with emitters and other third parties, and we may be unable to secure such agreements on acceptable terms or at all.
• The development and operation of production facilities for hydrogen, ammonia and other products and associated sequestration facilities are highly complex. There can be no assurances that we or our partners will be able to successfully develop, maintain and operate these production and sequestration facilities.
• The performance of certain of our carbon and power-related projects depends in part on the reliable operation of associated power generation facilities, and reduced availability or unplanned outages could adversely affect project economics and expected returns.
• Certain of our CCS projects rely on pore space we do not own, and we may be unable to obtain necessary rights from landowners on acceptable terms or at all.
• Complex recordkeeping and GHG emissions/sequestration accounting may be required in connection with one or more of our projects, which may increase the costs of such operations. Different methodologies may be required for various regulatory and non-regulatory accounts regarding GHG emissions/sequestration at one or more of our projects, including but not limited to compliance with the EPA’s Mandatory Greenhouse Gas Reporting Program.
• Carbon capture may be viewed as a pathway to the continued use of fossil fuels and there may be organized opposition (including lawsuits) to CCS projects from environmental groups, local residents and legislators.
• Other regulatory uncertainties described herein.
There can be no assurances that we will successfully develop our CCS projects, including our cryogenic gas plant CCS project or CalCapture, and a failure to do so could have an adverse effect on our carbon management business and its prospects. We do not expect the failure of a single CCS project to create an impact on our overall financial condition or operations. However, as the scale of our CCS projects grows, so will their impact on our overall financial condition and operations. Moreover, our failure to successfully develop our CCS projects would adversely affect our ability to claim emissions reductions related to our sequestration activities and our ability to meet our carbon management goals, which in turn could have an adverse effect on our business and reputation.
Our ability to achieve our emissions goals, including our Responsible Net Zero objective, and other carbon management objectives is subject to significant risks and uncertainties.
We have adopted various sustainability-related targets and objectives, including our Responsible Net Zero objective, and our efforts to establish, pursue and report on these targets expose us to operational, reputational, financial, legal and other risks. Our Responsible Net Zero objective considers Scope 1 and Scope 2 emissions, reflecting an approach that prioritizes operational emissions reductions and carbon management solutions while recognizing the ongoing role of responsibly produced energy and the practical, regulatory and technological constraints associated with achieving absolute net zero emissions.
Our ability to advance our Responsible Net Zero objective depends in significant part on the successful development of our Carbon TerraVault business and related carbon capture and sequestration projects, as well as continued operational improvements. These efforts are subject to substantial regulatory, technical and commercial uncertainty, including risks related to permitting, financing, third-party participation and evolving regulatory frameworks. If we are unable to successfully develop these projects or achieve anticipated operational improvements, our ability to advance our Responsible Net Zero objective could be materially and adversely affected.
In addition, emissions accounting standards, regulatory requirements and climate science continue to evolve. Changes in applicable laws, regulations, guidance or methodologies could affect our ability to claim emissions reductions, accurately report progress or achieve our stated objectives on the timelines contemplated, if at all.
Our adoption of a Responsible Net Zero objective may increase scrutiny from investors, regulators and other stakeholders, some of whom may have differing views regarding the appropriate scope, pace or methods for achieving emissions reductions. A failure or perceived failure to pursue or accurately describe progress toward our Responsible Net Zero objective, or to align related disclosures with evolving regulatory or market expectations, could expose us to regulatory enforcement actions, litigation, reputational harm, increased costs or reduced access to capital.
Our Carbon TerraVault business and other CCS projects depend on financial and tax incentives to be economical, and these incentives may be insufficient, unavailable, delayed, reduced or terminated .
Our Carbon TerraVault business and other CCS projects depend on financial and tax incentives established under federal and state laws, regulations and governmental programs to be economically viable. Governmental incentives are important to the expected economics of our carbon management business and related projects, including the Section 45Q carbon sequestration credit expanded under the Inflation Reduction Act, the One Big Beautiful Bill Act and LCFS credits under California law. The availability and value of these incentives depend on satisfaction of detailed statutory and regulatory requirements, some of which remain subject to evolving guidance, interpretation, audit and enforcement by the U.S. Department of the Treasury, the Internal Revenue Service, the California Air Resources Board and other federal and California state governmental authorities.
In addition to tax incentives, certain CCS projects may rely on federal grants, loans or other funding programs authorized under the Inflation Reduction Act or the Infrastructure Investment and Jobs Act. Such programs are subject to agency discretion, eligibility criteria, administrative review, funding availability and the risk of delay, modification, reprioritization or cancellation. Changes in federal administration priorities, executive orders, agency rulemaking, enforcement practices or congressional action have and could further modify, delay, limit, condition or repeal grants, funding programs or tax incentives applicable to our carbon management business. For example, the current administration has taken steps to reduce the availability of federal grants for CCS projects, including canceling grants that had been previously awarded.
If incentives such as the Section 45Q credit, LCFS credit or other applicable federal or state programs are eliminated, reduced, delayed, materially restricted or made subject to more burdensome compliance requirements, our Carbon TerraVault projects may become uneconomic or no longer feasible. In addition, the ability to monetize tax credits, including through direct pay, tax equity financing or credit transfers, is uncertain and depends on evolving federal rules, market liquidity, counterparties, pricing dynamics and compliance risk. We cannot assure that we or our partners will be able to efficiently monetize such incentives on acceptable terms or at all.
Many incentives applicable to CCS projects require long-term secure geological storage of captured CO₂ and ongoing compliance with monitoring, reporting and verification requirements. Failure to satisfy these requirements could result in the recapture of tax credits or other incentives, indemnification obligations to partners or counterparties, penalties, increased regulatory scrutiny or other liabilities. Any of the foregoing risks could materially and adversely affect our carbon management business, financial condition, results of operations and prospects.
Our Carbon TerraVault JV with Brookfield is subject to inherent uncertainties that could adversely affect our ability to implement our carbon management strategy.
In August 2022, we entered into the Carbon TerraVault JV with Brookfield to pursue the development of a carbon management segment in California. The management and financing of the joint venture are subject to inherent uncertainties, which could delay or prevent CCS projects, require us to seek alternative sources of capital or otherwise affect our carbon management strategy.
Brookfield has committed an initial $500 million to invest in CCS projects that are jointly approved through Carbon TerraVault JV. The remaining amount of Brookfield's initial investment will depend on the amount of storage capacity that is permitted subject to certain contractual adjustments . Future storage projects for Brookfield’s initial commitment are subject to approval of the joint venture, including Brookfield. There can be no assurances that any of these funding milestones will be achieved so that Brookfield will fund the rest of its commitment. In addition, the parties have certain put and call rights with respect to the 26R reservoir if certain milestones are not met . The exercise of Brookfield’s put right could materially and adversely affect our carbon management business, financial condition, results of operations and prospects.
Although we own a 51% interest in the Carbon TerraVault JV, we share decision making authority with Brookfield on matters that most significantly impact the economic performance of the joint venture. Any failure to reach a decision with Brookfield could potentially prevent or delay our pursuit of CCS projects or cause such projects to be cancelled. Moreover, if Brookfield does not approve a proposed CCS project that we want to pursue, we will have to seek alternative sources of capital to fund the project and there can be no assurances that such sources of capital will be available.
Risk Factors Related to Our Business Generally
Increasing activism against the industries in which we operate, including the oil and gas industry and our involvement in carbon capture, storage, utilization and sequestration, presents risks to our business.
Opposition toward oil and gas drilling and development activity has increased over time, and companies in the oil and gas industry are often the target of efforts by non-governmental organizations and individuals to delay or prevent oil and gas development, including through allegations regarding safety, environmental impacts or compliance and business practices. These efforts include seeking changes to laws, pressuring governmental agencies to engage in rulemaking or pursuing litigation.
This opposition also extends to our carbon management segment as certain activists oppose carbon capture and sequestration efforts by the oil and gas companies. For example, on November 22, 2024, a group of non-governmental organizations filed a Petition for Writ of Mandate and Complaint for Injunctive Relief against Kern County and its Board of Supervisors (CTV I Complaint) in Kern County for our CTV I project. This litigation is ongoing. See Regulation of Carbon Capture, Sequestration and Storage - CCS Project Permitting . Such lawsuits could delay construction or commencement of operations and have a material and adverse effect on our carbon management business and its prospects.
Heightened concerns by certain parties around climate change and GHG emissions have increased pressure on lawmakers, regulators and others to take action, particularly in California, regardless of the merit of these allegations. We may need to incur significant costs associated with responding to these initiatives and such actions may have a material adverse effect on our financial results. Complying with any resulting additional legal or regulatory requirements that are substantial or prevent or interfere with our activities could have a material adverse effect on our business, financial condition and results of operations.
Changes in expectations as to ESG matters may adversely impact our business, reputation and access to capital.
We face increased attention and evolving expectations from investors, regulators and other stakeholders regarding ESG matters, including climate change, environmental and social impacts and voluntary or mandatory ESG disclosures. Increased demand for alternative forms of energy may increase costs, reduce demand for our products and contribute to increased investigations and litigation, any of which could adversely affect our business. Increased attention to climate change and environmental conservation, for example, may result in demand shifts for oil and natural gas products and additional governmental investigations and private litigation against us. In some cases, liability or regulatory action may be pursued without regard to our causation of, or contribution to, the asserted harm. While we may participate in various ESG frameworks and certification programs, we cannot guarantee that such participation or certification will achieve intended outcomes or improve perceptions of our products or business.
Our ESG disclosures may be based on expectations, assumptions or hypothetical scenarios that are uncertain, subject to change and difficult to verify over long time horizons. Such expectations, assumptions or hypothetical scenarios are necessarily uncertain and may be prone to error or subject to misinterpretation given the long timelines involved and the lack of an established approach to identifying, measuring and reporting on many ESG matters. Additionally, while we may also announce various ESG targets, such targets are often aspirational and may be subject to change depending on changed circumstances, methodologies, business forecasts or other factors. We may not be able to meet or make progress against such targets in the manner or on such a timeline as initially contemplated, including, but not limited to as a result of unforeseen costs, inaccurate forecasts or technical difficulties. To the extent we do meet such targets, they may ultimately be achieved through various contractual arrangements, including the purchase of various credits or offsets that may be deemed to mitigate our ESG impact instead of actual changes in our ESG performance. However, we cannot guarantee that there will be sufficient offsets available for purchase given the increased demand from numerous businesses implementing net zero goals, or heightened scrutiny of their methodologies. Some of these arrangements may receive scrutiny from certain constituencies who criticize the methodology of offsets or do not believe offsets should be utilized to neutralize GHG emissions. Also, despite these aspirational goals, we may receive pressure from investors, lenders or other groups to adopt more aggressive climate or other ESG-related goals, but we cannot guarantee that we will be able to pursue or implement such goals, in whole or in part, because of potential costs or technical, inaccurate assumptions or operational obstacles.
Certain public statements regarding ESG matters are subject to increasing regulatory, litigation and political scrutiny, including allegations of “greenwashing” or challenges from so-called “anti-ESG” constituencies, which could result in investigations, enforcement actions, litigation or reputational harm. Additionally, certain employment or business practices and social initiatives are the subject of scrutiny by both those calling for the continued advancement of such policies, as well as those who believe they should be curbed, including government actors, and the complex regulatory and legal frameworks applicable to such initiatives continue to evolve. As a result, we may face increased litigation risks from private parties and governmental authorities related to our ESG efforts. Such ESG-related matters may also impact our customers or suppliers, which may adversely impact our business, financial condition or results of operations.
Mergers, acquisitions and dispositions, including the integration of the Berry Merger completed in December 2025, involve substantial risks.
We engage in acquisition activities from time to time, including the Berry Merger which closed in December 2025. The Berry Merger and other acquisition activities carry risks that we may:
• not fully realize anticipated benefits due to less-than-expected reserves or production or changed circumstances;
• bear unexpected integration costs, experience delays or challenges in integrating assets, systems, personnel or operations (including, in the case of the Berry Merger, drilling services operations), or fail to achieve anticipated synergies;
• assume liabilities that are greater than anticipated; and
• be exposed to currency, political, marketing, labor and other risks.
Although the Berry Merger was completed in December 2025, the integration of Berry’s assets, operations and personnel is ongoing and subject to execution risk, and we may not realize anticipated benefits within expected timeframes or at all.
In connection with mergers and acquisitions, we are often only able to perform limited due diligence, and assessments of reserves, production, costs and liabilities may be inaccurate or incomplete.
Future mergers and acquisitions may require approvals from shareholders, government agencies or other regulatory bodies, and there can be no assurance that such approvals will be obtained on acceptable terms or at all. If we are not able to successfully complete mergers and acquisitions, we may not be able to grow our reserves or production or develop our properties in a timely manner or at all.
We regularly review our property base for the purpose of identifying nonstrategic assets, the disposition of which would increase capital resources available for other activities and create organizational and operational efficiencies. Our disposition activities carry risks that we may:
• not be able to realize reasonable prices or rates of return for assets;
• be required to retain liabilities that are greater than desired or anticipated;
• experience increased operating costs; and
• reduce our cash flows if we cannot replace associated revenue.
There can be no assurance that we will be able to divest assets on financially attractive terms or at all. Our ability to sell assets is also limited by the agreements governing our indebtedness. If we are not able to sell assets as needed, we may not be able to generate proceeds to support our liquidity and capital investments.
In addition, we have expended and will continue to expend significant time and resources in connection with any future acquisition and disposition activities.
We may incur substantial losses and be subject to substantial liability claims as a result of pollution, environmental conditions or catastrophic events such as wildfires. We may not be insured for, or our insurance may be inadequate to protect us against, these risks.
We are not fully insured against all risks. Our business and assets are subject to risks from natural disasters and operating risks associated with oil and natural gas exploration and production activities. Pollution or environmental conditions with respect to our operations or on or from our properties, whether arising from our operations or those of our predecessors or third parties, could expose us to substantial costs and liabilities. Such events may cause operations to cease or be curtailed and could adversely affect our business, workforce and the communities in which we operate. The cost of insurance for natural disasters has increased in recent years. In California, insurance coverage for certain operational and catastrophic risks such as wildfires may be limited, subject to exclusions or available only at significantly increased cost, which could result in greater self-insurance exposure. We may be unable to obtain, or may elect not to obtain, insurance for certain risks if we believe that the cost of available insurance is excessive relative to the risks presented.
Cybersecurity attacks, systems failures, and other disruptions could adversely affect our operations, financial condition and reputation.
We rely on electronic systems and networks to manage our operations, financial reporting, data storage and communications with employees, service providers and customers. Systems failures, data inaccuracies or outages could impair our ability to operate efficiently and make timely business decisions.
Cybersecurity attacks have become more frequent and sophisticated, and we or third parties with whom we interact may be targeted by malicious actors. We utilize various technologies, controls and procedures, as well as internal staff and external specialists to protect our systems and data, to identify and remediate vulnerabilities and to monitor and respond to threats. However, these measures may not prevent security breaches from occurring. If a breach occurs, it may remain undetected for an extended period of time. A cybersecurity incident could result in data loss, business interruption, reputational harm, regulatory scrutiny, litigation, financial loss and significant remediation costs.
Energy-related assets may be at a heightened risk of cybersecurity or other malicious attacks. Such attacks could disrupt energy markets, delay or prevent product delivery, impair accounting or settlement processes or result in environmental or safety incidents.
As cybersecurity threats continue to evolve in sophistication and magnitude, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any cybersecurity vulnerabilities. Further, state and federal cybersecurity and data privacy legislation could result in complex new requirements that increase our cost of doing business.
Risks Related to Regulation and Government Action
We may face material delays related to our ability to timely obtain permits necessary for our operations or be unable to secure such permits on favorable terms or at all as a result of numerous California political, regulatory, and legal developments.
We must obtain various governmental permits to conduct exploration and production activities, as well as other aspects of our operations. Obtaining the necessary governmental permits is often a complex and time-consuming process involving numerous federal, state and local agencies, and the duration and success of each permitting effort is contingent upon many variables not within our control.
In recent years, we experienced significant delays in obtaining new well, sidetrack, deepening and workover permits from CalGEM, including delays attributable to enhanced environmental review requirements, litigation challenging the Kern County environmental impact review process, agency resource constraints and policy developments. In early 2026, following the enactment of Senate Bill 237, CalGEM resumed issuing permits for new oil and gas wells in Kern County, and permitting activity has increased significantly with 31 permits for new wells issued in Kern County as of January 31, 2026. However, we cannot provide assurances that permit issuances will continue at anticipated levels or that future legislative, regulatory, administrative or judicial actions will not again delay or restrict permitting activity.
Although we have historically mitigated permitting risk by maintaining an inventory of approved permits, prolonged permitting delays or renewed uncertainty could limit our ability to execute drilling plans, adversely affect our capital program, reduce our ability to replace reserves and negatively impact our business, financial condition and results of operations.
We may face increased local restrictions on oil and gas exploration and production operations or even be prohibited from operating in certain areas as a result of recently enacted California legislation .
California law authorizes local governments to impose regulations, restrictions or prohibitions on oil and gas operations within their jurisdictions, including with respect to existing operations. While certain local measures have previously been challenged successfully in court, recently enacted legislation has expanded local authority in this area. Although we do not currently operate in certain jurisdictions that have proposed or adopted phase-outs or bans, similar actions by local governments in areas where we do operate could increase operating costs, reduce production or reserves, or otherwise adversely affect our business.
Local restrictions may be adopted notwithstanding state-level permitting frameworks, and the resulting regulatory landscape may vary significantly by jurisdiction, increasing compliance complexity and uncertainty.
Recent and future actions by the State of California could reduce both the demand for and supply of oil and natural gas within the state and consequently have a material adverse effect on our business, results of operations and financial condition.
California continues to pursue policies aimed at reducing greenhouse gas emissions and transitioning the state’s energy system over time. Legislative, regulatory and executive actions may increase compliance costs, restrict development activities, limit infrastructure availability or otherwise adversely affect the production, transportation or consumption of oil and natural gas in the state.
While recent legislation, including Senate Bill 237, has provided greater regulatory clarity for certain permitting activities in Kern County, we cannot predict the scope, timing or cumulative impact of future state actions or whether such actions may offset or limit the benefits of recent legislative developments.
Our business is highly regulated and government authorities can delay or deny permits and approvals or change requirements governing our operations, including hydraulic fracturing and other well stimulation methods, enhanced production techniques and fluid injection or disposal, that could increase costs, restrict operations and change or delay the implementation of our business plans.
Our operations are subject to complex and stringent federal, state, local and other laws and regulations relating to the exploration and development of our properties, as well as the production, transportation, marketing and sale of our products.
To operate in compliance with these laws and regulations, we must obtain and maintain permits, approvals and certificates from federal, state and local government authorities for a variety of activities including siting, drilling, completion, stimulation, operation, inspection, maintenance, transportation, storage, marketing, site remediation, decommissioning, abandonment, protection of habitat and threatened or endangered species, air emissions, disposal of solid and hazardous waste, fluid injection and water disposal and consumption, recycling and reuse.
Failure to obtain the necessary permits, approvals and certificates or comply with these laws and regulations may result in the assessment of administrative, civil and/or criminal fines and penalties, liability for noncompliance, costs of corrective action, cleanup or restoration, compensation for personal injury, property damage or other losses, and the imposition of injunctive or declaratory relief restricting or prohibiting certain operations or our access to property, water, minerals or other necessary resources, and may otherwise delay or restrict our operations and cause us to incur substantial costs. Under certain environmental laws and regulations, we could be subject to strict or joint and several liability for the removal or remediation of contamination, including on properties over which we and our predecessors had no control, without regard to fault, legality of the original activities, or ownership or control by third parties.
Our Carbon TerraVault business and our CCS projects are subject to extensive government regulation much of which is still being developed. Failure to comply with these regulations and obtain the necessary permits, or the development of government regulations that are unfavorable to our CCS projects, could have an adverse effect on our business, financial condition and results of operations.
Successful development of CCS projects in the United States require that we comply with what we anticipate will be a stringent regulatory scheme requiring that we obtain certain permits applicable to subsurface injection of CO 2 for geologic sequestration. Moreover, as the operator of our CCS projects, we must demonstrate and maintain levels of financial assurance sufficient to cover the cost of corrective action, injection well plugging, post injection site care and site closure, and emergency and remedial response. There are no assurances that we will be successful in obtaining or maintaining permits or adequate levels of financial assurance for one or more of our CCS projects or that permits can be obtained on a timely basis, whether due to difficulty with the technical demonstrations required to obtain such permits, public opposition, or otherwise.
Separately, permitting CCS projects requires obtaining a number of other permits and approvals unrelated to subsurface injection from various U.S. federal and state agencies, such as for air emissions or impacts to environmental, natural, historic or cultural resources resulting from the construction and operation of a CCS facility. We cannot guarantee that we will be able to obtain or maintain all applicable permits for CCS activities on a timely basis or on favorable terms, if at all. Moreover, to the extent any of our CCS projects will require any supporting pipeline infrastructure, we could face additional costs and delays obtaining the necessary permits and rights of ways for such infrastructure, and increased risk of opposition to our projects, which may ultimately mean we are unable to successfully pursue certain CCS projects because of these risks.
As CCS and carbon management represent an emerging sector, laws and regulations may evolve rapidly, which could impact the feasibility of one or more of our anticipated projects. To the extent additional legal or regulatory requirements are imposed, are amended, or more stringently enforced, we may incur additional costs in the pursuit of one or more of our carbon capture projects, which costs may be material or may render any one or more of our projects uneconomical.
New and developing regulations related to the CO 2 unitization, permitting and pipeline safety could negatively impact our business, financial condition and results of operations.
Senate Bill No. 905 contemplates the development of unitization, permitting and pipeline safety regulations over a multi-year period to facilitate the development of CCS projects in California, though the legislation does not provide for compulsory unitization. Senate Bill No. 905 also provides for a unified permitting process to simplify the permitting process for CCS projects, although this will be optional for project applicants. Additionally, the law contemplates the implementation of a new regulatory program incorporating standards that are not yet defined and that could affect the timing of future CCS projects in California. The California Air Resources Board has been tasked with developing this proposed framework. We believe our Carbon TerraVault projects will continue to be developed on a timeline consistent with our initial expectations. These initial projects are not reliant on the unitization or permitting regulations being developed. In addition, our Carbon TerraVault projects are expected to either use emitters that are directly sited above these storage facilities or rely on pipelines for transporting CO 2 Senate Bill No. 905 provides that pipelines may be used to transport carbon dioxide to or from a carbon dioxide capture, removal or sequestration project only upon conclusion of PHMSA’s rulemaking strengthening safety requirements for carbon dioxide pipelines. Although PHMSA released a notice of proposed rulemaking to this effect in early January 2025, was subsequently withdrawn by the current administration prior to publication in the Federal Register. The lack of these final pipeline safety regulations may impair or prohibit projects that rely on the transportation of CO 2 .
Senate Bill No. 905 also prohibits CCS projects that utilize and permanently sequester CO 2 in connection with EOR projects. Although we do not have any existing oil and natural gas production or proved reserves associated with EOR projects, this legislation required us to transition our CalCapture project to target CCS and may require us to make other adjustments to projects in the future.
Senate Bill 614 (SB 614), enacted in October 2025, revises the definition of “pipeline” for purposes of the Elder California Pipeline Safety Act of 1981 to include intrastate pipelines used for the transportation of carbon dioxide (CO₂). The law requires the Office of the State Fire Marshal to adopt implementing regulations regarding the safe transportation of CO₂ in pipelines by July 1, 2026, establishing a pathway to lifting the current moratorium on the construction and operation of new CO₂ pipeline operations in the state. The legislation mandates stringent design, routing, and disclosure standards consistent with or exceeding a proposed revision to federal requirements under the Pipeline and Hazardous Materials Safety Administration that was subsequently withdrawn prior to federal enactment (Draft PHMSA Regulations). Under SB 614, CO₂ pipelines within a single facility and for which construction was permitted before July 1, 2025, shall not be required to subsequently comply with those regulations that pertain to design and construction if the pipeline is constructed to meet the standards of the Draft PHMSA Regulations. The CO₂ pipelines comprising our Carbon Terra Vault I (CTV I) project at our Elk Hills field were permitted prior to July 1, 2025, and have been constructed to meet the standards of the Draft PHMSA Regulations. Upon implementation, SB 614 is expected to help enable the development of carbon-capture and storage projects that rely upon capture of carbon dioxide from an emission source that is remote from the facility into which the emissions will be sequestered.
Our operations and financial performance may be negatively affected directly or indirectly by changes in trade policies and tariffs.
The United States government has indicated its intent to adopt a new approach to trade policy and in some cases to renegotiate, or potentially terminate, certain existing trade agreements. It has also initiated or is considering the imposition of tariffs on certain foreign goods and products. This has led to the United States increasing tariffs for certain goods, which triggered other nations to also increase tariffs on certain of their goods. While the extent and duration of the such tariffs remain uncertain, these measures, including 50% tariffs on imported steel, are likely to lead to increased material costs.
Concerns about climate change and other environmental issues may prompt governmental action that could have a material adverse effect on our operations or results.
Governmental, scientific and public concern over the threat of climate change arising from GHG emissions, and regulation of GHGs and other air quality issues, may have a material adverse effect on our business in many ways, including increasing the costs to provide our products and services and reducing demand for, and consumption of, our products and services, and we may be unable to recover or pass through a significant portion of our costs. In addition, legislative and regulatory responses to such issues at the federal, state and local level may increase our capital and operating costs and render certain wells or projects uneconomic, and potentially lower the value of our reserves and other assets. Both the EPA and California have implemented laws, regulations and policies that seek to reduce GHG emissions. California’s cap-and-trade program operates under a market system and the costs of such allowances per metric ton of GHG emissions are expected to increase in the future as the CARB tightens program requirements and annually increases the minimum state auction price of allowances and reduces the state’s GHG emissions cap. As the foregoing requirements become more stringent, we may be unable to implement them in a cost-effective manner, or at all.
In August 2022, President Biden signed the Inflation Reduction Act into law. The Inflation Reduction Act includes a charge on methane emissions that exceed certain thresholds from sources required to report their GHG emissions to the EPA, including certain oil and natural gas operations. In November 2024, the EPA issued a final rule implementing the methane emissions charge, although in February 2025, Congress repealed the rule. Additionally, the One Big Beautiful Bill Act, enacted in July 2025, delays implementation of the methane emissions charge until 2034. We cannot predict if Congress or the current administration may take actions to further repeal or revise the Inflation Reduction Act, including with respect to the methane emissions charge. In fact, the full impact of future climate regulations is uncertain at this time and it is unclear what additional actions may be taken that may have an adverse effect upon our carbon management business and its prospects.
To the extent financial markets view climate change and GHG or other emissions as an increasing financial risk, this could adversely impact our cost of, and access to, capital and the value of our stock and our assets. Current investors in oil and natural gas companies may elect in the future to shift some or all of their investments into other sectors, and institutional lenders may elect not to provide funding for oil and natural gas companies. There is also a risk that financial institutions will be required to adopt policies that have the effect of reducing the funding provided to the fossil fuel sector, although this trend has waned recently and several high-profile banks and institutional investors have withdrawn from various associations that aim to limit financing of industries that emit significant GHG emissions. Additionally, California has enacted new laws requiring additional disclosure with respect to certain climate-related risks and GHG emissions reduction claims. The laws have been challenged and, in November 2025, the United States Court of Appeals for the Ninth Circuit ordered a preliminary injunction on one of the laws (which requires disclosure for certain climate-related risks), which stays enforcement of that law. Oral argument on the laws occurred in January 2026, although the Ninth Circuit has not yet released its decision. (See Part I, Item 1 and 2 – Business and Properties, Regulation of the Industries in Which We Operate, Regulation of Climate Change and Greenhouse Gas (GHG) Emissions for more information). Non-compliance with these new laws may result in the imposition of fines or penalties. Other states are considering similar laws. Any new laws or regulations imposing more stringent requirements on our business related to the disclosure of climate-related risks may result in reputation harms among certain stakeholders if they disagree with our approach to mitigating climate-related risks, additional costs to comply with any such disclosure requirements and increased costs of and restrictions on access to capital.
We believe, but cannot guarantee, that our local production of oil, NGLs and natural gas will remain essential to meeting California’s energy and feedstock needs for the foreseeable future. We have also established 2030 Sustainability Goals for water recycling, renewables integration, methane emission reduction and carbon capture and sequestration in our life-of-field planning in an attempt to align with the state’s long-term goals and support our ability to continue to efficiently implement federal, state and local laws, regulations and policies, including those relating to air quality and climate, in the future. However, there can be no assurances that we will be able to design, permit, fund and implement such projects in a timely and cost-effective manner or at all, or that we, our customers or end users of our products will be able to satisfy long-term environmental, air quality or climate goals if those are applied as enforceable mandates.
The adoption and implementation of new or more stringent international, federal, state or local legislation, regulations or policies that impose more stringent standards for GHG or other emissions from our operations or otherwise restrict the areas in which we may produce oil, natural gas, NGLs or electricity or generate GHG or other emissions could result in increased costs of compliance or costs of consuming, and thereby reduce demand for or the value of our products and services. Additionally, political, litigation and financial risks may result in restricting or canceling oil and natural gas production activities, incurring liability for infrastructure damages or other losses as a result of climate change, or impairing our ability to continue to operate in an economic manner. Moreover, climate change may pose increasing risks of physical impacts to our operations and those of our suppliers, transporters and customers through damage to infrastructure and resources resulting from drought, wildfires, sea level changes, flooding and other natural disasters and other physical disruptions. One or more of these developments could have a material adverse effect on our business, financial condition and results of operations.
Tax law changes could have an adverse effect on our business, financial condition and results of operations.
We are subject to taxation by various tax authorities at the federal, state and local levels where we do business. New legislation could be enacted by any of these government authorities that could adversely affect our business.
In addition, from time to time, legislation has been proposed that would, if enacted into law, make significant changes to U.S. federal income tax laws, including the elimination of certain U.S. federal income tax benefits currently available to oil and natural gas exploration and production companies. Such changes have included, but have not been limited to: (i) the repeal of percentage depletion allowance for oil and natural gas properties; (ii) the elimination of current deductions for intangible drilling and development costs; (iii) an extension of the amortization period for certain geological and geophysical expenditures; (iv) the elimination of certain other tax deductions and relief previously available to oil and natural gas companies; and (v) an increase in the U.S. federal income tax rate applicable to corporations such as us. However, it is unclear whether any such changes will be enacted and, if enacted, how soon any such changes would be effective. Additionally, legislation could be enacted that imposes new fees or increases the taxes on oil and natural gas extraction, which could result in increased operating costs and/or reduced demand for our products. The passage of any such legislation or any other similar change in U.S. federal income tax law could eliminate or postpone certain tax deductions that are currently available with respect to natural gas and oil exploration and development or could increase costs and any such changes could have an adverse effect on our business, financial condition and results of operations. Similarly, legislation could be enacted that changes or terminates the current tax incentives that our CCS projects depend on to be economical. The enactment of any legislation that reduces, eliminates, delays, materially restricts or makes Section 45Q credits subject to more burdensome compliance requirements, could have an adverse effect on our business, financial condition and results of operations.
In California, there have been numerous state and local proposals for additional income, sales, excise and property taxes, including additional taxes on oil and natural gas production and a windfall profits tax on refineries. Although such proposals targeting the oil and natural gas industry have not become law, campaigns by various interest groups could lead to additional future taxes.
Financial assurance requirements related to plugging and abandonment costs, decommissioning, and site restoration on those who acquire the right to operate wells and production facilities could impact our ability to sell or acquire assets in California or increase our costs in connection with the same.
California law imposes stringent financial assurance requirements on persons who acquire the right to operate a well or production facility in California, requiring them to file either an individual indemnity bond for single-well or production facility acquisitions, or a blanket indemnity bond for multiple wells or production facilities. The bond imposed on the acquirer is an amount determined by the state to sufficiently cover plugging and abandonment costs, decommissioning, and site restoration, and California law prohibits the closing of any acquisition of the right to operate a well or production facility until a determination on the appropriate bond amount has been completed by the state and the bond has been filed. This bonding requirement significantly impacts the economic feasibility of transferring the right to operate wells and production facilities, including transfers from smaller, less-capitalized operators to more financially stable operators such as ourselves. As of the year ended December 31, 2025, our asset retirement obligations were $1,033 million. This law will continue to impact our ability to grow or divest our assets within California.
Our operations in Utah are subject to additional regulatory, permitting and legal risks, including risks associated with federal and tribal lands.
As a result of the Berry Merger, we have oil and gas operations and interests in Utah. Certain of these operations are located on federal lands administered by the U.S. Department of the Interior and the Bureau of Land Management, and certain acreage may be subject to tribal jurisdiction. Oil and gas development on federal and tribal lands is subject to regulatory regimes, approval processes and oversight that differ from those applicable to state or private lands and may be more complex, time-consuming or uncertain.
Development activities on federal lands may require compliance with the National Environmental Policy Act (NEPA) and other federal statutes and regulations, which can result in extended permitting timelines, additional environmental review requirements, increased costs, or litigation risk. Changes in federal laws, regulations, policies, enforcement practices or fiscal terms applicable to federal lands, including royalty rates, bonding requirements, leasing terms or permitting standards, could delay or restrict development activities or adversely affect the economics of our operations.
Operations on tribal lands may be subject to additional approvals, contractual requirements and regulatory authority of tribal governments. Disputes relating to tribal lands may be subject to different legal standards, forums or remedies, including limitations arising from tribal sovereign immunity, which could restrict our ability to enforce contractual rights or obtain judicial relief. Any of these factors could delay operations, increase costs, limit development opportunities or otherwise have a material adverse effect on our business, financial condition, results of operations or cash flows.
Risks Related to Our Indebtedness
We may not be able to amend or refinance our existing debt to create more operating and financial flexibility and to enhance shareholder returns .
Our ability to refinance our debt depends on a variety of factors, including our ability to access the commercial banking and debt capital markets. Changes in interest rates could also impact our ability to refinance our debt. If interest rates increase, the interest expense burden of any refinanced debt or other variable rate debt would increase even though the amount borrowed remained the same. There can be no assurances that we will be successful in amending, replacing or refinancing our existing debt on acceptable terms or at all.
Our existing and future indebtedness may adversely affect our business, financial condition and financial flexibility.
As of December 31, 2025, we had $1,283 million of total long-term debt, net and additional borrowing capacity of $1,284 million under the Revolving Credit Facility (after giving effect to $176 million of outstanding letters of credit). The terms of our Revolving Credit Facility and Senior Notes permit us to incur significant additional debt, some of which may be secured. Our level of future indebtedness could affect our business in several ways, including the following:
• limit management’s discretion in operating our business and reacting to changes in market conditions;
• require us to dedicate a significant portion of our cash flow to debt service, thereby reducing funds available for operations, capital expenditures, acquisitions or shareholder returns;
• increase our vulnerability to commodity price volatility, economic downturns and adverse regulatory developments;
• limit our access to capital markets or increase the cost of future financing; and
• expose us to borrowing base reductions or interest rate increases that could adversely affect liquidity.
Our ability to execute our business strategy and satisfy our debt obligations depends on our future operating performance and on economic, financial, competitive and other factors, many of which are beyond our control.
We may not be able to generate sufficient cash to service all of our indebtedness, and may be forced to take other actions to satisfy the obligations under our indebtedness, which may not be successful.
Our earnings and cash flows may vary significantly due to commodity price volatility and other industry factors, and the level of indebtedness that is manageable in some periods may be unsustainable in others. Additionally, our future cash flow may be insufficient to meet our debt obligations and other commitments at that time. Any insufficiency could negatively impact our business. A range of economic, competitive, business and industry factors will affect our future financial performance, and, as a result, our ability to generate cash flow from operations and to pay our debt obligations. Many of these factors, such as oil and natural gas prices, economic and financial conditions in our industry and the global economy and initiatives of our competitors, are beyond our control as discussed in this “ Risk Factors ” section. We may be unable to maintain cash flows sufficient to pay the principal, premium, if any, and interest on our indebtedness.
The lenders under our Revolving Credit Facility could limit our ability to borrow and restrict our use or access to capital.
Our Revolving Credit Facility is an important source of our liquidity. Our ability to borrow under our Revolving Credit Facility is limited by our borrowing base, the size of our lenders’ commitments and our ability to comply with covenants. The borrowing base under our Revolving Credit Facility is redetermined semi-annually by our lenders who review the value of our reserves and other factors that may be deemed appropriate. A reduction in our borrowing base below the aggregate commitment amount of our lenders would have a material adverse effect on our liquidity and may hinder our ability to execute on our business strategy.
Restrictive covenants in our Revolving Credit Facility and the indentures governing our Senior Notes may limit our financial and operating flexibility and adversely affect our ability to execute our business strategy.
Our Revolving Credit Facility and the indentures governing our Senior Notes contain covenants that may adversely effect our business, financial condition or results of operations. These covenants limit our ability to, among other things, incur additional indebtedness, pay dividends or repurchase shares, dispose of assets, or make capital investments. The Revolving Credit Facility also requires us to comply with certain financial maintenance covenants, including a leverage ratio and current ratio. A breach of these covenants could result in a default under the Revolving Credit Facility and/or the Senior Notes. If a default occurs under the Revolving Credit Facility, the lenders may elect to declare all borrowings thereunder outstanding, together with accrued interest and other fees, to be immediately due and payable. If we are unable to repay our indebtedness when due or declared due, the lenders under the Revolving Credit Facility will also have the right to proceed against the collateral pledged to them to secure the indebtedness. An event of default under the Senior Notes may cause all outstanding Senior Notes to become due and payable immediately or give the trustee and the holders the right to declare all outstanding Senior Notes to become due and payable immediately.
Variable rate indebtedness under our Revolving Credit Facility subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.
Borrowings under our Revolving Credit Facility are at variable rates of interest and expose us to interest rate risk. As of December 31, 2025, we had no amounts borrowed under our Revolving Credit Facility. If in the future we borrow under the Revolving Credit Facility, then our results of operations would be sensitive to movements in interest rates. There are many economic factors outside our control that have in the past and may, in the future, impact rates of interest including publicly announced indices that underlie the interest obligations related to our Revolving Credit Facility. Factors that impact interest rates include governmental monetary policies, inflation, economic conditions, changes in unemployment rates, international disorder and instability in domestic and foreign financial markets. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our results of operations would be adversely impacted. Such increases in interest rates could have a material adverse effect on our business, financial condition and results of operations if we borrow under the Revolving Credit Facility in the future.
Risks Related to Our Common Stock
Our ability to pay dividends and repurchase shares of our common stock is subject to certain risks.
We have adopted a cash dividend policy which anticipates a total annual dividend of $1.62 per share, payable to shareholders in quarterly increments of $0.405 per share of common stock, subject to board authorization and declaration each quarter. Our Board of Directors has authorized a share repurchase program to acquire up to $1.78 billion of our common stock through December 31, 2027. After the increase and shares repurchased in January 2026, approximately $600 million remained unused as of February 28, 2026. Any payment of future dividends or repurchasing shares of our common stock will be at the discretion of our Board of Directors and will depend upon, among other things, our earnings, liquidity, capital requirements, financial condition and other factors deemed relevant. Our Revolving Credit Facility and Senior Notes both limit our ability to pay dividends and repurchase shares of our common stock. In addition, cash dividend payments in the future may only be made out of legally available funds and, if we experience substantial losses, such funds may not be available. We can provide no assurances that we will continue to pay dividends at the anticipated rate or repurchase shares of our common stock within the authorized amount or at all.
The trading price of our common stock may decline, and you may not be able to resell shares of our common stock at prices equal to or greater than the price you paid or at all.
The trading price of our common stock may be volatile and may decline for reasons beyond our control. In the event of a drop in the market price of our common stock, you could lose a substantial part or all of your investment in our common stock. Numerous factors, including changes in our operating results, commodity prices, economic conditions, regulatory developments, capital allocation decisions, analyst estimates and market valuations of comparable companies, could adversely affect our stock price.
Future issuances of our common stock could reduce our stock price, and any additional capital raised by us through the sale of equity or convertible securities may dilute your ownership in us.
We may issue shares of common stock or securities convertible into common stock in public or private transactions. We may also issue additional shares of common stock or convertible securities in connection with mergers or acquisitions, such as in December 2025 when we issued 5.6 million shares of common stock in connection with the Berry Merger. We cannot predict the size of other future issuances of our common stock or securities convertible into common stock or the effect, if any, that such other future issuances and sales of shares of our common stock will have on the market price of our common stock. Sales of substantial amounts of our common stock, or the perception that such sales could occur, may adversely affect the market price of our common stock.
The ownership position of certain of our stockholders limits other stockholders’ ability to influence corporate matters and could affect the price of our common stock.
As of December 31, 2025, four of our shareholders owned at least 5% each and collectively owned approximately 41% of our common stock. As a result, each of these stockholders, or any entity to which such stockholders sell their stock, may be able to exercise significant control over matters requiring stockholder approval. Further, because of this large ownership position, if these stockholders sell their stock, the sales could depress our share price.
Sales of shares of our common stock by our executive officers could negatively impact the market price for our common stock.
Sales of our common stock by our executive officers may adversely impact the trading price of our common stock, even when done in compliance with our policies with respect to insider sales. Although we do not expect that the relatively small volume of such sales will itself significantly impact the trading price of our common stock, the market could react negatively to the announcement of such sales, which could in turn affect the trading price of our common stock.
