UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934 (Amendment No.         )

Filed by the Registrant ☒

Filed by a Party other than the Registrant ☐

Check the appropriate box:

CALIFORNIA RESOURCES CORPORATION

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

Letter to Shareholders from the Chairman of the Board

Dear Shareholders,

At its 2014 spinoff, California Resources was structured to create an industry-leading E&P company focused exclusively on California. Conditions at launch were less than ideal with steeply declining commodity prices and a leveraged capital structure that CRC inherited from Occidental. While the substantial debt on our balance sheet from the spinoff along with the severe decline in commodity prices had a significant negative impact on CRC’s stock price, the management team concentrated on the items that were within its control. Entering into 2016, as the cyclical downturn continued and crude oil prices plummeted to the mid-$20 per barrel level, management preemptively focused on managing the business within cash flow, cutting investments by 80% (again), and continuing to strengthen the balance sheet through its liability management program.

Management focused on the items within its control by protecting base production, focusing on cost reduction and operating margins, and building an inventory for investment when cash flows increase as prices begin to normalize. These actions prevented the destruction of capital and helped preserve shareholder value through our long-life low-decline assets. Importantly, despite significant reductions in investment capital and expenses, we stayed true to our safety and environmental principles, registering one of our best environmental, health, and safety years ever.

Management also reduced outstanding debt by nearly $900 million in 2016.  They have now achieved nearly $1.5 billion in debt reduction from the post-spin peak of almost $6.8 billion, at a small comparative cost of $31 million of additional interest expense. Our team accomplished this significant reduction in outstanding debt with minimal dilution, and without monetizing significant infrastructure or other assets at the bottom of the commodity price cycle.

Our management team made many difficult decisions throughout 2016, and I salute their efforts to preserve shareholder value through the depths of the price trough, and to avoid sacrificing the long-term value of the company. The Board and I recognize the near term challenges we face, but also the opportunity set associated with CRC. We continue to believe we have a world-class underexploited resource base in California, and have the management team and strategy to grow shareholder value over the long term.  

In addition to our capital structure, our former parent also constructed our initial executive compensation program. As outlined in detail in this proxy statement, the Board and Compensation Committee have taken numerous significant actions since the spinoff to transition to an improved compensation program that better aligns our executive pay practices with shareholders’ interests. The Compensation Committee has actively worked to ensure that management is rewarded for taking prudent steps to create long-term value for shareholders in a very challenging environment. Finally, we have taken into account the laudatory actions of the management team since the spinoff to manage through the downturn, and drive long-term value and returns for the shareholder.

CRC has an active board that is committed to increasing shareholder value. Each of our directors is fully engaged and brings something unique to furthering our objective of increasing shareholder value.

I am confident that CRC’s strategy is sound, that Todd and his management team are executing this strategy effectively, and that we are focused on adding long-term value for our shareholders. Furthermore, we are firmly committed to strong corporate governance.

CRC has accomplished much in a very challenging year, such as expanding an impressive inventory of resources, implementing process improvements and ingraining a value-based culture. The Board and I believe that CRC’s world-class assets, operational and financial flexibility, and experienced management team provide a powerful combination for shareholders.  

Regards,

William “Bill” Albrecht, Chairman

IMPORTANT VOTING INFORMATION

If you owned shares of our common stock at the close of business on March 13, 2017, you are entitled to one vote per share upon each matter presented at our 2017 annual meeting of stockholders to be held on May 10, 2017. Stockholders whose shares are held in an account at a brokerage firm, bank or other nominee (i.e., in “street name”) will need to obtain a proxy from the broker, bank or other nominee that holds their shares authorizing them to vote at the annual meeting.

Your broker is not permitted to vote on your behalf on the election of directors and other matters to be considered at the annual meeting, except on ratification of the appointment of KPMG LLP as our independent registered public accounting firm for fiscal 2017, unless you provide specific instructions by completing and returning the voting instruction form or following the instructions provided to you to vote your shares via telephone or the Internet. For your vote to be counted, you will need to communicate your voting decisions to your broker, bank or other nominee before the date of the annual meeting.

YOUR VOTE IS IMPORTANT

Your vote is important. Our Board of Directors strongly encourages you to exercise your right to vote. Voting early helps ensure that we receive a quorum of shares necessary to hold the annual meeting.

QUESTIONS

If you have any questions about the proxy voting process, please contact the broker, bank or other nominee where you hold your shares. The Securities and Exchange Commission also has a website (www.sec.gov/spotlight/proxymatters.shtml) with more information about your rights as a stockholder. You also may contact our Investor Relations Department by phone at 818-661-6010 or by e-mail at IR@crc.com.

ATTENDING THE ANNUAL MEETING IN PERSON

Only stockholders of record or their legal proxy holders as of March 13, 2017 or our invited guests may attend the annual meeting in person. If you plan to attend the annual meeting in person, you must present a valid form of government-issued photo identification, such as a driver’s license or passport. In addition to such personal identification, you will need an admission ticket or proof of ownership of CRC stock to enter the annual meeting. If your shares are registered in your name, you will find an admission ticket attached to the notice regarding the internet availability of proxy materials or the proxy card sent to you. If your shares are held in street name with a broker, bank or other nominee, you will need to bring a copy of your brokerage statement or other documentation reflecting your stock ownership as of the record date for the meeting.

IMPORTANT NOTICE REGARDING THE INTERNET AVAILABILITY OF

PROXY MATERIALS FOR THE STOCKHOLDER MEETING

TO BE HELD ON MAY 10, 2017

The Notice of the 2017 Annual Meeting of Stockholders, the Proxy Statement for the 2017 Annual Meeting of Stockholders and the 2016 Annual Report to Stockholders (which includes the Annual Report on Form 10-K for the fiscal year ended December 31, 2016) of California Resources Corporation are available at http://www.astproxyportal.com/ast/20758/.

Table of Contents

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Proxy Statement Summary

This summary highlights information contained in the proxy statement. This summary does not contain all of the information you should consider, and you should read the entire proxy statement carefully before voting.

2017 Annual Meeting of Stockholders

Agenda and the Board’s Recommendation on Voting Matters

The following table summarizes the items that will be brought for a vote of our stockholders at the annual meeting, along with the recommendation of our Board of Directors as to how stockholders should vote on each item.

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Directors

The Board of Directors is comprised of eight independent directors, our Chairman, and our President and CEO. The following table provides summary information about each director, including the director nominees and whether the Board of Directors considers each director to be independent under the New York Stock Exchange’s independence standards. We have adopted a majority voting policy with respect to the election of directors to the Board of Directors. See “Required Vote and Method of Counting–Majority Voting for Directors” below.

* Ms. Kehr is not standing for reelection, and her term will expire at the 2017 Annual Meeting.

At the time of the spinoff, our Board of Directors was temporarily divided into three classes. One of the three classes has been elected each year on a rotating basis to succeed the directors of the subject class whose terms are expiring. The directors originally designated as Class I and II were last elected in 2015 and 2016, respectively. The term of the directors in the class originally designated as Class III expire in 2017. After this year’s election of directors, the terms of each of the directors will all expire in 2018. Commencing with the election of the directors at the 2018 annual meeting, the Board of Directors will cease to be classified, and the directors elected at the 2018 annual meeting (and each annual meeting thereafter) will be elected for a one year term.

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Corporate Governance Highlights

Business Performance Highlights

In 2016, our management team delivered significant accomplishments against our strategic priorities.

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Compensation Program Highlights

The cyclical downturn in crude oil prices that began in the second half of 2014 continued into 2016, disproportionately affecting CRC’s stock price performance compared to our peers due to the highly leveraged balance sheet our management team inherited from Occidental at our spin-off on       November 30, 2014 and our higher relative cost structure. Our poor stock performance, driven in large part by factors beyond our management’s control, have led to retention challenges due to the significant reduction in realizable compensation for our previously granted long-term incentive awards, which were entirely stock-based.  

2016 Compensation Actions

In 2016, the Compensation Committee continued to refine CRC’s compensation program and made adjustments with a continued focus on paying for performance in the context of a depressed commodity price environment and the significant debt burden the management team inherited at the Spin-off.  Specifically, the Compensation Committee took the following actions in 2016:

Compensation Program Practices

Our executive compensation program is designed to motivate our executives to take actions that are aligned with our short- and long-term strategic objectives, appropriately balancing risk versus potential reward. It is well designed, incorporating best practices, and is governed by an engaged Compensation Committee. Our short-term and long-term incentive plans are performance-based and are intended to align with the long-term best interests of shareholders.

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The Compensation Committee has engaged in best practices to align executive pay with Company performance and to ensure good governance in the following ways:

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Notice of the 2017 Annual Meeting of Stockholders

Purposes of the 2017 annual meeting of stockholders:

Information relevant to these matters is set forth in the accompanying proxy statement.

The close of business on March 13, 2017 was fixed as the record date for the determination of stockholders entitled to receive notice of and to vote at the annual meeting or any adjournment or postponement thereof. Only our stockholders or their legal proxy holders as of the record date or our invited guests may attend the annual meeting in person.

Beginning on or about March 28, 2017, we mailed a Notice of Internet Availability of Proxy Materials to our stockholders containing instructions on how to access the proxy statement and vote online and made our proxy materials available to our stockholders over the Internet.

By Order of the Board of Directors,

Michael L. Preston

Executive Vice President, General Counsel and Corporate Secretary

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2017 PROXY STATEMENT

This proxy statement is furnished to you in connection with the solicitation of proxies by and on behalf of the Board of Directors of California Resources Corporation (together with its subsidiaries, referred to herein as “we,” “our,” “us,” the “Company” or “CRC”) for use at the 2017 annual meeting of stockholders to be held on May 10, 2017 at 11:00 a.m., local time, at the Bakersfield Marriott at the Convention Center, 801 Truxtun Avenue, Bakersfield, California 93301, or at any adjournment or postponement thereof (the “Annual Meeting”).

Purposes of the Annual Meeting; Board Recommendations

The agenda for the Annual Meeting includes the following items:

Notice of Internet Availability of Proxy Materials

On or about March 28, 2017, we mailed a Notice of Internet Availability of Proxy Materials to our stockholders of record and beneficial owners who owned shares of our common stock at the close of business on March 13, 2017. The Notice of Internet Availability of Proxy Materials contained instructions on how to access the proxy materials and vote online. We have made these proxy materials available to you over the Internet or, upon your request, have delivered paper versions of these materials to you by mail, in connection with the solicitation of proxies by our Board of Directors for the Annual Meeting.

Choosing to receive your future proxy materials by e-mail will save us the cost of printing and mailing documents to you. If you choose to receive future proxy materials by e-mail, you will receive an e-mail next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to receive proxy materials by e-mail will remain in effect until you terminate it.

Voting Procedures

Record Date

At the close of business on March 13, 2017, the “Record Date” for the determination of stockholders entitled to receive notice of and to vote at the Annual Meeting, there were 42,551,169 shares of common stock outstanding, each share of which is entitled to one vote. Common stock is the only class of our outstanding securities entitled to receive notice of and to vote at the Annual Meeting.

Appointment of Proxy Holders

Our Board of Directors asks you to appoint Todd A. Stevens and William E. Albrecht as your proxy holders (“Proxy Holders”) to vote your shares at the Annual Meeting. You make this appointment by using one of the voting methods described below.

Quorum and Discretionary Authority

The presence at the Annual Meeting of a majority of shares of our common stock issued and outstanding and entitled to vote, present in person or by proxy, is necessary to constitute a quorum in

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order to transact business at the Annual Meeting. Your shares are counted as present at the Annual Meeting if you attend the Annual Meeting and vote in person or if you properly return a proxy by Internet, telephone or mail. Abstentions and broker non-votes will be counted as present for purposes of determining whether a quorum is present at the Annual Meeting.

The Chairman of the Annual Meeting or, if directed by the chairperson of the Annual Meeting, a majority of the shares so represented, may adjourn the Annual Meeting from time to time, whether or not there is a quorum represented, and the Proxy Holders will vote the proxies they have been authorized to vote at the Annual Meeting in favor of such an adjournment. In the event a quorum is present at the Annual Meeting but sufficient votes to approve any of the items proposed by our Board of Directors have not been received, the Chairman of the meeting or the Proxy Holders may propose one or more adjournments of the Annual Meeting to permit further solicitation of proxies. A stockholder vote may be taken on one or more of the proposals in this proxy statement prior to such adjournment if sufficient proxies have been received and it is otherwise appropriate.

Our Board of Directors does not know of any other matters that are to be presented for action at the Annual Meeting. However, if other matters properly come before the Annual Meeting, the proxies solicited by the Board of Directors will provide the Proxy Holders with the authority to vote on those matters and nominees in accordance with such persons’ discretion. Where a stockholder has appropriately specified how a proxy is to be voted, it will be voted by the Proxy Holders in accordance with the specification.

How to Vote Shares Registered in Your Name

If you own shares that are registered in your own name, you are a “registered stockholder” and you may attend the Annual Meeting and vote in person. You also may vote by proxy without attending the Annual Meeting in any of the following ways:

For stockholders who have their shares voted by duly submitting a proxy by Internet, telephone or mail, the Proxy Holders will vote all shares represented by such valid proxies in accordance with the Board of Directors’ recommendations as set forth above, unless a stockholder appropriately specifies otherwise.

If you received more than one Notice of Internet Availability of Proxy Materials, your shares are likely registered in different names or with different addresses or are in more than one account. You must separately vote the shares shown on each Notice of Internet Availability of Proxy Materials that you receive in order for all of your shares to be voted at the Annual Meeting.

How to Vote Shares Held in “Street Name”

If you hold shares through a brokerage firm, trustee, bank, other financial intermediary or nominee (known as shares held in “street name”), you will receive from that broker, trustee, bank, financial intermediary or other nominee (the “intermediary”) a voting instruction form that will explain how to direct the voting of your shares through the intermediary, which may include the ability to provide voting instructions via the Internet or by telephone.

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If your shares are held in street name through a brokerage firm that is a member of the NYSE and you want to vote on any of the proposals to be submitted to a vote at the Annual Meeting (except as to Proposal 2), you MUST indicate how you wish your shares to be voted. The broker will vote shares held by you in street name in accordance with your voting instructions, as indicated on your signed voting instruction form or by the instructions you provide via the Internet or by telephone. Absent such instructions, the proxy submitted by the broker with respect to your shares will indicate that the broker is not able to cast a vote with respect to the matter, which is commonly referred to as a “broker non-vote.” Accordingly, if your shares are held in street name, it is important that you provide voting instructions to the broker or other intermediary so that your vote will be counted. Under NYSE rules, Proposal 2 is considered a “routine matter,” and thus a broker is permitted in its discretion to cast a vote on this proposal as to your shares in the event that you do not provide the broker with voting instructions.

If you hold shares in street name and wish to vote your shares in person at the Annual Meeting, you must first obtain a valid proxy from the intermediary. To attend the Annual Meeting in person (regardless of whether you intend to vote your shares in person at the Annual Meeting), you should follow the instructions under “Attending the Annual Meeting in Person” below.

If you received more than one voting instruction form, your shares are likely registered in different names or with different addresses or are in more than one account. You must separately follow the foregoing voting procedures for each voting instruction form that you receive in order for all of your shares to be voted at the Annual Meeting.

Revoking or Changing a Proxy

If you are a registered stockholder, you may revoke your proxy at any time before your shares are voted at the Annual Meeting by:

If you are a street-name stockholder and you vote by proxy, you may change your vote by submitting new voting instructions to your broker, bank or other nominee in accordance with that entity’s procedures.

Required Vote and Method of Counting

Proposal 1. Election of Directors

We have adopted a majority voting policy with respect to the election of directors to the Board of Directors. See “Majority Voting for Directors” below. The election of directors involves a matter on which a broker (or other nominee) does not have “discretionary” authority to vote. If you do not instruct your broker how to vote with respect to this item, your broker may not vote your shares with respect to this proposal. In such case, a broker non-vote may occur. Abstentions and broker non-votes are not considered votes cast and will have no effect on the outcome of the election of directors.

Proposal 2. Ratification of the Appointment of the Independent Registered Public Accounting Firm

The affirmative vote of a majority of the shares present in person, or represented by proxy at the Annual Meeting, and entitled to vote on the matter at the Annual Meeting, is required to approve Proposal 2. Proposal 2 involves a matter on which a broker (or other nominee) does have “discretionary” authority to vote. Even if you do not instruct your broker how to vote with respect to this item, your broker may vote your shares with respect to this proposal in its discretion. With respect to Proposal 2, a vote of “ABSTAIN” will have the same effect as a vote “AGAINST.”

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Proposal 3. Advisory Vote to Approve Named Executive Officer Compensation

The affirmative vote of a majority of the shares present in person, or represented by proxy at the Annual Meeting, and entitled to vote on the matter at the Annual Meeting, is required to approve the recommendations in Proposal 3. Such proposal involves matters on which a broker (or other nominee) does not have “discretionary” authority to vote. If you do not instruct your broker how to vote with respect to this item, your broker may not vote your shares with respect to this proposal. In such case, a broker non-vote may occur. Broker non-votes are not considered to be entitled to vote and will have no effect on the outcome of Proposal 3. Abstentions are treated as present or represented and voting and will have the same effect as a vote “AGAINST.”

With respect to Proposal 3, while this vote is required by law, it will neither be binding on the Company or the Board of Directors nor will it create or imply any change in the fiduciary duties of, or impose any additional fiduciary duty on, the Company or the Board of Directors. However, the views of our stockholders are important to us, and our Compensation Committee will take into account the outcome of the vote when considering future executive compensation decisions. We urge you to read the section entitled “Compensation Discussion and Analysis,” including the compensation tables that follow, which discusses in detail how our executive compensation program implements our compensation philosophy.

Majority Voting for Directors

We have adopted a majority voting policy with respect to the election of directors to the Board of Directors. In accordance with our Bylaws, in order to be elected as a director, a director nominee must receive more votes cast “FOR” than “AGAINST” his or her election. This policy does not apply if the number of nominees for director exceeds the number of directors to be elected on or after the tenth day preceding the date we first mail the Notice of Annual Meeting, in which case directors shall be elected by a plurality of shares present in person, or represented by proxy at the Annual Meeting.

Unless the election is by plurality vote as set forth above, if an incumbent nominee for director receives an equal or greater number of votes cast “AGAINST” than votes cast “FOR” his or her election, the nominee shall promptly tender his or her resignation to the Board of Directors. Such director resignation will become effective upon acceptance by the Board of Directors of such resignation based on any factors deemed relevant by the Board of Directors. The foregoing summary is qualified by the terms of our majority voting policy, which are included in our Bylaws.

Method and Cost of Soliciting and Tabulating Votes

The Board of Directors is providing these proxy materials to you in connection with the solicitation by the Board of Directors of proxies to be voted at the Annual Meeting. In addition to solicitation by mail, our officers, directors and employees may solicit proxies personally or by telephone, facsimile or electronic means. These officers, directors and employees will not receive any extra compensation for these services. In addition, we will make arrangements with brokerage houses, custodians, nominees and other fiduciaries to send proxy materials to the beneficial owners of our stock, and we will reimburse them for postage and clerical expenses. We will bear the costs of the solicitation, including the cost of the preparation, assembly, printing and, where applicable, mailing of the Notice of Internet Availability of Proxy Materials, the Notice of the 2017 Annual Meeting of Stockholders, this proxy statement, the proxy card and any additional information furnished by us to our stockholders. In addition, we have hired D.F. King & Co., Inc. to assist us in soliciting proxies, which it may do by telephone or in person. We will pay D.F. King & Co. a fee of $7,500, plus expenses.

Attending the Annual Meeting in Person

Only stockholders of record or their legal proxy holders as of the Record Date or our invited guests may attend the Annual Meeting in person. If you plan to attend the Annual Meeting in person, you must present a valid form of government-issued photo identification, such as a driver’s license or passport. In addition to such personal identification, you will need an admission ticket or proof of ownership of CRC stock to enter the annual meeting. If your shares are registered in your name, you will find an admission ticket attached to the notice regarding the internet availability of proxy materials or the proxy card sent to you. If your shares are held in street name with a broker, bank or other nominee, you will need to bring a copy of your brokerage statement or other documentation reflecting your stock ownership as of the Record Date.

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No cameras, telephones, recording equipment, electronic devices, large bags, briefcases or packages will be permitted at the Annual Meeting. No banners, signs, firearms or weapons will be allowed in the meeting room. We reserve the right to inspect all items entering the meeting room.

The Annual Meeting will be held at the Bakersfield Marriott at the Convention Center, located at 801 Truxtun Avenue, Bakersfield, California 93301.

Spin-off from Occidental

On November 30, 2014, Occidental Petroleum Corporation (“Occidental”) completed the spin-off (the “Spin-off”) of its California oil and gas operations and related assets, liabilities and obligations, which we assumed in connection with the Spin-off from Occidental. As a result, we became a separate, publicly-traded company. The Spin-off was effected through a pro rata distribution to Occidental stockholders of our common stock. Occidental retained 18.5% of our common stock, which it distributed to Occidental’s stockholders on March 24, 2016.

Corporate Governance

General Overview

We are committed to good corporate governance. In furtherance thereof, the Board of Directors has adopted governance documents to guide the operation and direction of the Board and its committees, which include Corporate Governance Guidelines, a Business Ethics Policy (which applies to all directors and employees, including the Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer) and charters for the Audit, Compensation, Nominating and Governance and Health, Safety and Environmental Committees. Each of these documents is available on our website (www.crc.com), and stockholders may obtain a printed copy, free of charge, by sending a written request to California Resources Corporation, Attention: Corporate Secretary, 9200 Oakdale Avenue, Suite 900, Los Angeles, California 91311. We will also promptly post on our website any amendments to these documents and any waivers from the Business Ethics Policy for our directors and principal executive, financial and accounting officers.

Our Board of Directors

At the time of the Spin-off, our Board of Directors was temporarily divided into three classes. One of the three classes has been elected each year on a rotating basis to succeed the directors of the subject class whose terms are expiring. The directors originally designated as Classes I and II were last elected in 2015 and 2016, respectively. The term of the directors in the class originally designated as Class III expires in 2017. After this year’s election of directors, the terms of each of the directors will expire in 2018. Commencing with the election of the directors at the 2018 annual meeting, the Board of Directors will cease to be classified, and the directors elected at the 2018 annual meeting (and each annual meeting thereafter) shall be elected for a one year term.

Ms. Kehr, who is one of the directors in the class originally designated as Class III, is not standing for reelection to the Board of Directors due to her increased responsibilities on another board and other time constraints. As a result, Ms. Kehr’s term will expire at the 2017 Annual Meeting, at which time the size of the Board of Directors will be reduced from ten to nine directors. The Board of Directors values diversity in its membership, and is actively pursuing steps to improve diversity after Ms. Kehr leaves the Board.

Mr. Timothy Sloan resigned from the Company’s Board of Directors effective as of February 28, 2017, as a result of his recent appointment as President and CEO and election to the board of Wells Fargo & Company. At the time of his resignation, Mr. Sloan served on the Compensation Committee and Health, Safety and Environmental Committee of the Board. Mr. Sloan’s decision to resign from the Company’s Board was not related to any disagreement with the Company regarding its operations, policies or practices. The Board elected Mr. Harry McMahon to fill the vacancy resulting from the departure of Mr. Sloan, effective as of March 1, 2017. Mr. McMahon will serve the remaining term of Mr. Sloan (expiring in 2018) as an independent director, and will serve on the Audit Committee and the Compensation Committee of the Board.

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Set forth below is biographical information regarding each of our directors as well as the specific experience, qualifications, attributes and skills that led to the conclusion that such individual should serve as director. There are no family relationships between any of our directors and executive officers. In addition, there are no arrangements or understandings between any of our executive officers or directors and any other person pursuant to which any person was selected as a director or an executive officer, respectively.

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Board Leadership Structure

Chairman

The Board of Directors’ leadership structure separates the CEO and Chairman of the Board positions. Mr. Stevens currently serves as our President and CEO. Mr. Albrecht previously held the position of Executive Chairman and transitioned to the role of non-executive Chairman as of the 2016 annual meeting.

The Board of Directors believes that there is no single, generally accepted approach to providing board leadership and that each of the possible leadership structures for a board must be considered in the context of the individuals involved and the specific circumstances facing a company, as the right leadership structure may vary as circumstances change. The Board of Directors believes it is in the best interest of the Company and its stockholders at this time to have separate CEO and Chairman positions, and have an independent director serve as Lead Independent Director working in conjunction with the Chairman. The Board of Directors has found that this structure enables the CEO to focus on operation of the Company’s business, while the Chairman and Lead Independent Director focus on leading the Board of Directors in its oversight role.

Lead Independent Director

The Board of Directors has created the position of Lead Independent Director, selected annually by the Board from among the independent directors. Mr. Korell has served as Lead Independent Director

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since December 2014 when he was selected in connection with the first meeting of the Board after the Spin-off, and the Board selected him to continue in this position at the meeting in February 2017. The Board of Directors believes that the Lead Independent Director position provides additional independent oversight for the Board and management. The responsibilities of the Lead Independent Director include acting as chair at meetings of the Board of Directors when the Chairman is not present, and preparing the agenda and presiding over executive sessions of the non-management directors of the Board of Directors.

Board Meetings and Attendance

During 2016, the Board of Directors held seven meetings, and each of the standing committees held the number of meetings included in the description of the committees set forth below. Each director attended at least 75% of the meetings of the Board of Directors and the standing committees on which he or she served that occurred during such directors’ terms in 2016 other than Mr. Sinnott. However, Mr. Sinnott met the 75% threshold after removing from consideration the two board meetings and one committee meeting held in early May that he could not attend due to an unexpected family emergency.

Pursuant to our Corporate Governance Guidelines, directors are encouraged to attend our annual meetings of stockholders.  Eight incumbent directors attended the annual meeting in early May 2016.  Mr. Sinnott did not attend due to the unexpected family emergency referenced above.

Executive Sessions of the Board

The Board of Directors intends to hold regularly scheduled meetings of independent directors in executive session without management present in conjunction with each regular board meeting. In addition to these regularly scheduled meetings, executive sessions may be called upon the request of any independent director. In 2016, the Board of Directors held executive sessions on the day of four of the regularly scheduled board meetings.

Committees of the Board

As of the date of this proxy statement, our Board of Directors has four separately designated standing committees. The membership and purposes of each of the committees are described below. Each of the committees operates under a written charter adopted by the Board. The Board of Directors and each committee has the power to hire independent legal, financial or other experts and advisors as it may deem necessary, without consulting or obtaining the approval of any officers of the Company in advance.

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Director Independence Determinations

To qualify as “independent” under the NYSE listing standards, the Board of Directors must affirmatively determine that the director has no material relationship with us (either directly or as a partner, stockholder or officer of an organization that has a relationship with us) that would interfere with his or her exercise of independent judgment in carrying out his or her responsibilities as a director. The NYSE independent director criteria include that the director not be our employee and not have engaged in various types of business dealings with us.

The Board of Directors has reviewed all direct or indirect business relationships of which it is aware between each director (including his or her immediate family) and us, including those relationships described under “Related Party Transactions” below, as well as each director’s relationships with charitable organizations, to assess director independence as defined in the listing standards of the NYSE. Based on this evaluation, the Board of Directors has determined that Messrs. Gannon, Havner, Korell, McMahon, Moncrief, Poladian and Sinnott and Ms. Kehr are independent directors as that term is defined in the listing standards of the NYSE. Neither Mr. Albrecht, the Chairman of the Board, nor Mr. Stevens, the President and Chief Executive Officer, is considered by the Board of Directors to be an independent director because of his prior or current employment with CRC.

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Director Overboarding Policy

In response to the low reelection vote for Mr. Havner in 2016 (compared to other director nominees) and the concerns shared with the Company by certain shareholders and shareholder advisory firms, the Board amended its overboarding policy to restrict directors who are currently sitting CEOs of public companies from serving on more than two other public company boards without approval of the Nominating and Governance Committee. Where such boards are for related companies or for companies in the same fund complex, the Board determined that such service will be counted as service on one board, unless the Nominating and Governance Committee determines otherwise.

In applying this newly amended policy, the Nominating and Governance Committee considered whether Mr. Havner’s role on the boards of Public Storage, PS Business Parks and Avalon Bay would enable him to commit sufficient focus and time to perform responsibly his duties as a director of CRC. The Nominating and Governance Committee determined that Mr. Havner’s service on the boards of Public Storage and PS Business Parks, which are related companies, should be counted as service on one board. In making this determination, the Nominating and Governance Committee considered the substantial overlap between his duties as chief executive officer and chairman of Public Storage and his duties as a director of PS Business Parks, particularly given Public Storage’s 42% ownership of PS Business Parks, the fact that PS Business Parks’ financial results are reflected in Public Storage’s financial statements under the equity method of accounting, and the contractual relationships between Public Storage and PS Business Parks, including the management agreement, property management agreement, license agreement and cost sharing and administration services agreement. In addition, Mr. Havner has a lengthy term of service with both related companies, working as an executive at Public Storage from 1986 to the present, including as CEO since 2002, and acting as the President and CEO of PS Business Parks from 1997 to 2002.  As a result, Mr. Havner has a great familiarity with both businesses. The Nominating and Governance Committee views the time commitment required for the boards of Public Storage and PS Business Parks to be similar to that required for a single board. The Nominating and Governance Committee believes that Mr. Havner’s active participation and attendance at the 2016 meetings of the CRC Board of Directors and the standing committees on which he served further evidence that the time commitments required for these other boards still allow Mr. Havner to commit sufficient time and focus to his CRC director duties.

Compensation Committee Interlocks and Insider Participation

No member of our Compensation Committee is now, or at any time since the beginning of 2016 has been, employed by or served as an officer of CRC or any of its subsidiaries or had any business relationship requiring disclosure with CRC or any of its subsidiaries. None of our executive officers is now, or at any time has been, since the beginning of 2016, a member of the compensation committee or board of directors of another entity one of whose executive officers has been a member of our Board of Directors or Compensation Committee.

Communications with Directors

Our Board of Directors welcomes communications from our stockholders and other interested parties. Communications to our Board of Directors, to any committee of our board, to the Lead Independent Director (who presides over the executive sessions of our independent and non-management directors), or to any director in particular, should be sent to:

Board of Directors, Committee Name or director’s name, as appropriate

California Resources Corporation

9200 Oakdale Avenue, Suite 900

Los Angeles, California 91311

We will forward all correspondence directly to the committee or individual director, as appropriate. Our independent directors approved our process for collecting and organizing stockholder communications to the Board of Directors.

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If any stockholder or third party has a complaint or concern regarding accounting, internal accounting controls or auditing matters at CRC, they should send their complaint in writing to Mr. Gannon, the Chairman of the Audit Committee, at the address listed above.

The Board’s Role in Risk Oversight

Our Company’s management is responsible for the day-to-day management of risks to the Company. The Board of Directors has broad oversight responsibility for our risk management programs.

Consideration of Director Nominees

Identifying and Evaluating Nominees for Directors

Our Nominating and Governance Committee is responsible for leading the search for individuals qualified to serve as directors and for recommending to the Board nominees as directors to be presented for election at meetings of the stockholders or of the Board of Directors. Our Nominating and Governance Committee evaluates candidates for nomination to the Board of Directors, including those recommended by stockholders, and conducts appropriate inquiries into the backgrounds and qualifications of possible candidates. The Nominating and Governance Committee may retain outside consultants to assist in identifying director candidates in its sole discretion, but it did not engage any outside consultants in connection with selecting the nominees for election at the Annual Meeting.

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Director Criteria, Qualifications, Experience and Diversity

Our Corporate Governance Guidelines contain qualifications that apply to director nominees recommended by our Nominating and Governance Committee. In the event that a vacancy on the Board of Directors arises, the Nominating and Governance Committee will consider and review the candidate’s following qualifications:

The Nominating and Governance Committee also will consider the diversity of, and the optimal enhancement of the current mix of talent and experience on, the Board of Directors.

With respect to the reelection of an existing director, the Nominating and Governance Committee will consider and review the director’s:

Certain Relationships and Related Transactions

Policies and Procedures

Our Board of Directors adopted policies restricting related party transactions. We review all relationships and transactions in which we and our directors and executive officers or their immediate family members are participants to determine whether such persons have a direct or indirect material interest. Our Corporate Secretary’s office implements procedures to obtain information from the directors and executive officers with respect to related party transactions. The Audit Committee reviews and discusses with management and the independent registered public accounting firm any material related party transactions as defined by, and required to be disclosed under, the rules of the Securities and Exchange Commission (“SEC”) and the NYSE. Agreements that embody transactions that are material in amount or significance are filed with the SEC as required.

Our business ethics and corporate policies prohibit significant conflicts of interest. Any waivers of these policies require approval by the compliance officer, or in the case of conflicts of our executive officers or directors, the Board of Directors. Under our Business Ethics and Corporate Policies, conflicts of interest generally are deemed to occur when private or family interests do not appear impartial, interfere or compete with the interests of our Company.

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We have multiple processes for reporting conflicts of interests, including related party transactions. Under our Business Ethics and Corporate Policies, all of our directors and employees are required to report any known or apparent conflict of interest, or potential conflict of interest, to their supervisors, the compliance officer, a member of the corporate compliance committee, our legal counsel, human resources, or the Board of Directors, as appropriate. As part of any review, the following factors are generally considered:

We also have other policies and procedures to prevent conflicts of interest, including related person transactions. For example, the charter of our Nominating and Governance Committee requires that the committee members assess the independence of the non-management directors at least annually, including a requirement that it determine whether any such directors have a material relationship with us, either directly or indirectly, as defined therein and as further described above under “Director Independence Determinations.”

Arrangements between CRC and Occidental

Separation and Distribution Agreement

The Separation and Distribution Agreement governs the terms of the separation of Occidental’s California oil and gas exploration and production operations and related assets, liabilities and obligations (the “California business”) from Occidental’s other businesses. Generally, the Separation and Distribution Agreement includes the agreements of Occidental and us on the steps taken to complete the separation, including the assets and rights transferred, liabilities assumed or retained, contracts assigned and related matters. The Separation and Distribution Agreement provided for Occidental and us to transfer specified assets and liabilities between the two companies to separate the California business from Occidental’s remaining businesses. As a result of this transfer, we own all assets exclusively related to the California business and certain other assets related to the California business specifically allocated to us. We are also responsible for all liabilities, including environmental liabilities, to the extent relating to the operation or ownership of the California business or any of the assets allocated to us in the separation, as well as all liabilities arising out of, relating to or resulting from certain financing arrangements made in connection with the separation. Occidental retained all other assets and liabilities, including assets and liabilities related to discontinued businesses (other than those businesses that were a part of the California business prior to being discontinued).

Unless otherwise provided in the Separation and Distribution Agreement or any of the related ancillary agreements, all assets were transferred on an “as is, where is” basis.

The Separation and Distribution Agreement also governs the treatment of all aspects relating to indemnification and insurance, and generally provides for cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of our business with us and financial responsibility for the obligations and liabilities of the remaining Occidental business with Occidental. The Separation and Distribution Agreement also established procedures for handling claims subject to indemnification and related matters. We and Occidental generally released each other from all claims arising prior to the Spin-off other than claims arising under the transaction agreements, including the indemnification provisions described above.

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Transition Services Agreement

The Transition Services Agreement sets forth the terms on which Occidental provided to us, and we provided to Occidental, on an as-needed basis for 12 to 18 months from the Spin-off, certain services or functions that the companies historically shared.

Tax Sharing Agreement

The Tax Sharing Agreement governs the respective rights, responsibilities, and obligations of Occidental and us with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings, and other matters regarding taxes. The Tax Sharing Agreement will remain in effect until the parties agree in writing to its termination; however, notwithstanding such termination, the Tax Sharing Agreement will remain in effect with respect to any payments or indemnification due for all taxable periods prior to such termination during which the agreement was in effect.

The Tax Sharing Agreement provides, among other things, that:

Occidental received a private letter ruling from the IRS substantially to the effect that certain aspects of the transactions that were undertaken in preparation for, or in connection with, the Spin-off will not cause the distribution to be taxable to Occidental or its affiliates for federal income tax purposes.

CRC agreed to certain restrictions intended to preserve the tax-free status of certain transactions taken in preparation for, or in connection with, the Spin-off. During the two-year period following March 24, 2016, these covenants restrict CRC’s ability to: (a) voluntarily liquidate or dissolve; (b) merge, convert or consolidate with or into another entity; (c) issue any capital stock or other equity interests, options or rights to acquire capital stock or other equity interests, or any other instruments convertible into or exchangeable for, or that could otherwise result in the issuance of, capital stock or other equity interests; (d) redeem or otherwise repurchase any outstanding capital stock or other equity interests, rights or instruments, other than pursuant to open market stock repurchase programs meeting certain requirements; (e) recapitalize, reclassify, or alter the voting rights of one or more shares of capital stock or other equity interests, rights or instruments; (f) take certain other actions inconsistent with any representation made in any materials provided in connection with any private letter ruling request or opinions of Occidental’s outside tax advisors; (g) increase or decrease the number of members of the Board of Directors of CRC or any pre-Spin-off CRC subsidiary, alter in any way the procedures for the nomination, election, and termination of members of the board, or expand, contract, or otherwise modify the rights of the board to govern the affairs of CRC except in certain circumstances; (h) sell, exchange, distribute, or otherwise dispose of any pre-Spin-off CRC subsidiary or all or a substantial part of the assets of any of the trades or businesses conducted by CRC and the pre-Spin-off CRC subsidiaries (other than sales or transfers of inventory in the ordinary course of business) before the Spin-off except in

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certain circumstances; (i) take, or fail to take, any action that causes the trades or businesses conducted by CRC or any pre-Spin-off CRC subsidiary to cease to be actively conducted in substantially the manner conducted pre-Spin-off; (j) sell, transfer or agree to sell or transfer to any corporate subsidiary any assets held by certain Occidental subsidiaries before Occidental’s internal reorganization in connection with the Spin-off; (k) enter into any negotiations, agreements, understandings, or arrangements with respect to any of the foregoing; and (l) take, or fail to take, any action that could reasonably be expected to cause the Spin-off to fail to qualify as a tax-free transaction under Sections 355, 361 and/or 368(a)(1)(D) of the Code. CRC may take certain actions otherwise subject to these restrictions only if Occidental consents to the taking of such action or if CRC obtains, and provides to Occidental, a private letter ruling from the IRS and/or an opinion from an independent law firm or accounting firm, in either case, reasonably acceptable to Occidental, to the effect that such action would not jeopardize the tax-free status of certain transactions related to the Spin-off.

Employee Matters Agreement

The Employee Matters Agreement governs Occidental’s and our compensation and employee benefit obligations with respect to the current and former employees of each company, and generally allocates liabilities and responsibilities relating to employee compensation and benefit plans and programs. The Employee Matters Agreement provides for, among other things:

AMI Agreement

The Area of Mutual Interest Agreement (“AMI Agreement”) has a five-year term and sets forth the terms upon which Occidental may acquire an interest in and rights with respect to certain oil and gas properties (the “AMI Interests”) in the United States (excluding California and federal waters offshore California) (the “AMI Area”). Pursuant to the terms of the AMI Agreement, for a period of one year after notice from us, Occidental may elect to exercise an option to acquire an interest in the AMI Interests. Upon exercise, Occidental will acquire an undivided 51% interest in the subject AMI Interests for consideration equal to the sum of (i) 51% of the net acquisition price paid by us for such AMI Interests and (ii) 51% of the drilling and/or operating costs paid by us (net of any reimbursements) in respect of such AMI Interests attributable to any periods after the date of our acquisition of such AMI Interests, and less (iii) 51% of the revenue attributable to such AMI Interests after the date of our acquisition of such AMI Interests, subject to certain limited exceptions. If applicable, in connection with the exercise of Occidental’s option, we will resign as operator and vote for Occidental or its designee as the replacement operator.

Confidentiality and Trade Secret Protection Agreement

Pursuant to the Confidentiality and Trade Secret Protection Agreement, we agreed to keep confidential certain information we learned about Occidental prior to the Spin-off. In order to preserve Occidental’s trade secrets and confidential information and to protect the goodwill transferred to us in connection with the Spin-off, among other things, CRC and Occidental agreed (i) not to hire the other party’s employees for a period of one year following the completion of the Spin-off and (ii) not to solicit the other party’s employees for an additional four years following the expiration of the non-hire restrictions.

Intellectual Property License Agreement

The Intellectual Property License Agreement sets forth the terms on which Occidental, on behalf of itself and its affiliates, licensed certain intellectual property and documentation to us and our affiliates, including software owned by Occidental and its affiliates. We have the right to create derivative works of the software and documentation and use them for our internal business purposes. The Intellectual Property License Agreement also sets forth the terms on which we licensed Occidental and its affiliates certain data and documentation. Occidental and its affiliates have the right to create derivative works of such data and documentation and use them for their internal business purposes.

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Other Related Party Transactions

In addition to the related party transactions described in “Arrangements between CRC and Occidental” above, this section discusses other transactions and relationships with related persons since the beginning of our most recently completed fiscal year.

Marketing Transactions

We sell and purchase products with subsidiaries of Plains All American Pipeline, L.P. (“Plains”). Occidental owns approximately 12% of the general partner of Plains. Funds managed by Kayne Anderson Capital Advisors L.P. and affiliates (“Kayne Anderson”) own approximately 12% of the general partner of Plains, approximately 2.95% of the limited partner units of Plains and an additional approximately 7.71% general partner interest in Plains GP Holdings, L.P. (the public portion of the general partner). Occidental appoints a director, and Mr. Sinnott serves as a director, for the general partner of Plains. For the year ended December 31, 2016, transactions with Plains accounted for approximately $131 million of our net sales.

Transactions with Related Persons, Promoters and Certain Control Persons

Certain funds controlled by Kayne Anderson Investment Management, Inc. (“Kayne Anderson Investment”), of which Mr. Sinnott serves as President, purchased in 2015 and sold in 2016, approximately $63 million in aggregate principal amount of our 6% senior notes due 2024. During 2016, certain funds controlled by Kayne Anderson Investment purchased and as of January 24, 2017 continued to hold, approximately $63.4 million in aggregate principal amount of our 8% senior notes due 2022, and approximately $7.5 million in aggregate principal amount of our first-lien, second-out term loan credit facility. Mr. Sinnott did not participate in Kayne Anderson’s decision-making process with respect to these transactions.

Wells Fargo & Company, of which Mr. Sloan currently serves as President and Chief Executive Officer, or its affiliates (“Wells”) acted as a Joint Book-Running Manager for, and initial purchaser for approximately $430 million in aggregate principal amount of, our senior unsecured notes in 2014. As of January 26, 2017, Wells no longer held any of such notes. Wells is a lender and Documentation Agent under our Revolving Credit Facility and Term Loan Facility. Wells’ portion of the total commitments as of December 31, 2016, and the maximum aggregate principal amount outstanding in 2016, under our Revolving Credit Facility and Term Loan collectively was approximately $127.4 million and $149.8 million, respectively. Wells received interest of approximately $4.4 million under the Revolving Credit Facility and Term Loan in 2016 at interest rates varying between 2.65% and 5.75%. Wells also received fees of approximately $900,000 under the Revolving Credit Facility and Term Loan. Wells also acted as trustee under the senior unsecured notes indenture until March 2016, after which responsibility was transitioned to a new trustee. Mr. Sloan did not participate in Wells’ decision-making process with respect to these transactions.

Audit Committee Report

The Audit Committee of the Board of Directors of California Resources Corporation (“CRC”) approves the appointment and services of the independent registered public accounting firm, and monitors (1) the integrity of the financial statements of CRC; (2) the independent registered public accounting firm’s qualifications, independence and performance; (3) the effectiveness and performance of CRC’s internal audit function; (4) CRC’s system of disclosure controls and procedures, internal control structure over financial reporting and compliance with ethical standards; and (5) the compliance by CRC with legal and regulatory requirements related to financial statements.

The Board of Directors has determined that each of the members of the Audit Committee satisfies the standards of independence established under the SEC’s rules and regulations and listing standards of the NYSE. The Board of Directors has further determined that each of the members of the Audit Committee is financially literate and that Mr. Gannon is an “audit committee financial expert” as defined by the rules and regulations of the SEC.

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In connection with our financial statements for the year ended December 31, 2016, the Audit Committee has:

Based on the review and discussions with CRC’s management and independent registered public accounting firm, as set forth above, the Audit Committee recommended to CRC’s Board of Directors that the audited consolidated financial statements be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, for filing with the SEC.

Audit Committee,

Justin A. Gannon

Ronald L. Havner, Jr.

Catherine A. Kehr

Richard W. Moncrief

February 24, 2017

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Compensation Discussion and Analysis

This Compensation Discussion and Analysis (“CD&A”) provides a description of the elements and key features of our compensation program, as well as context and rationale for decisions made with respect to the compensation for our “named executive officers” or “NEOs” for the year ended December 31, 2016, who are identified below:

Stockholder Approval of Executive Compensation

As recommended by our Board of Directors, a majority of stockholders expressed their preference in an advisory vote in 2015 for an advisory vote on executive compensation occurring every year, and we have implemented that recommendation. In 2016, we held our stockholder advisory vote on the compensation paid to our named executive officers in 2015, which resulted in a 95% approval of such compensation. The Compensation Committee considered the results of last year’s advisory vote on executive compensation and many other factors in designing our executive compensation programs as discussed below in this CD&A, including the Compensation Committee's assessment of the interaction of our compensation programs with our corporate business objectives, evaluations of our programs by the Compensation Committee's independent compensation consultant, and review of data relating to pay practices of our compensation peer group.

Historical Perspective and 2016 Business Highlights

The severe and extended downturn in oil prices that began in the second half of 2014 and continued into 2016 created a very challenging environment for oil and gas companies.

CRC was spun off from our former parent, Occidental Petroleum Corporation, on November 30, 2014. Occidental initially capitalized CRC with $6 billion of debt and also left CRC with additional debt relating to financing costs and negative working capital of nearly $300 million, burdening CRC with a substantial debt load of $6.3 billion. This capitalization and Spin-off occurred just as the downturn in commodity prices began.

Occidental formed CRC to hold all of Occidental’s oil and gas operations in California. These oil and gas fields utilize higher levels of secondary and tertiary recovery extraction methods and have a higher absolute number of wells than many of our oil and gas peer companies. These factors result in a higher cost structure relative to peer companies in our industry.

Our highly debt-burdened balance sheet, combined with substantially lower EBITDAX realized since the Spin-off due to the sustained low oil price environment, resulted in a significantly higher debt to EBITDAX ratio than our industry peers. This highly leveraged position, resulting from decisions made by Occidental prior to the Spin-off along with the relatively higher cost structure of our assets, has been a significant factor disproportionately affecting our stock price performance in a negative manner compared to our industry peers. For perspective, CRC’s equity market capitalization decreased almost 70%, from $2.8 billion at the Spin-off to $0.9 billion at December 31, 2016. The tables below compare CRC’s leverage ratio, cost structure and stock performance to peers.

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Leverage Ratio                       Cost Structure                            Equity Performance

¹ Calculations of Adjusted EBITDAX, Net Debt (debt less cash), Production Cost and G&A for the Peers have been made using publicly available data and may not be comparable across companies presented due to differences in methods used between companies or availability of specific elements.

CRC’s management team responded aggressively after the Spin-off to address the challenges faced by the Company as a result of the depressed commodity price environment and the leveraged capital structure placed on CRC prior to the Spin-off by Occidental. Our priorities have been to deleverage our balance sheet, focus on cash margins and cost containment, maintain our base production, build our inventory and operate within our cash flow. As a result of these priorities, CRC has had very limited capital available to invest and, as a result, production has declined, compared to CRC’s peers who had greater access to capital because of their lower leverage.

To address stockholder concerns regarding CRC’s leverage, our management team focused on the difficult task of reducing our debt in the low commodity price environment. Since the second quarter following the Spin-off, when our debt level reached its peak, management has achieved significant reductions in our debt without unduly increasing our interest costs or significantly diluting our equity. Certain of these reductions required amendments to our credit facility, which were successfully negotiated by management. The table below outlines the different mechanisms our management team employed to reduce CRC’s outstanding debt, as well as the progress our management team made in 2016 in addressing our strategic priorities.

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In 2016, our management team delivered significant accomplishments against our strategic priorities.

In summary, our stock price performance has been largely driven by factors outside of our management’s control. Occidental determined the amount of leverage on CRC’s balance sheet prior to the Spin-off from Occidental. These high debt levels and the prolonged downturn in oil prices have been the primary factors in our stock price performance relative to our peers. Our management team has made significant accomplishments in 2016 in deleveraging our balance sheet and strengthening CRC’s strategic position for an oil price recovery.

Compensation Philosophy

The following core principles form the foundation of our compensation program:

First, compensation programs should motivate our executives to take actions that are aligned with our short- and long-term strategic objectives, and appropriately balance risk versus potential reward.

Second, a high percentage of senior executives’ pay should be based on performance to ensure the highest level of accountability to stockholders.

Third, performance pay should offer an opportunity for above average compensation when our performance exceeds our goals balanced by the risk of below average compensation when it does not.

Fourth, our compensation programs should focus our executives on the long-term performance of the Company, thereby more closely aligning our executives’ interests with those of our stockholders.

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Evolution of Our Compensation Program

To provide the context for our 2016 compensation program, below is a description of the evolution of our program and the changes made from our initial program at the Spin-off in 2014 through our 2016 program. On May 31, 2016, we completed a reverse stock split using a ratio of one share of common stock for every ten shares then outstanding. Share and per share amounts included herein have been adjusted to reflect this reverse stock split.

2014 Compensation Program

CRC’s 2014 compensation program was developed by Occidental’s management and Occidental’s Compensation Committee prior to the Spin-off. Occidental considered the following matters important to the development of our 2014 compensation program:

2014 CEO Compensation Program Elements

Our 2014 compensation program for our CEO was comprised of the following elements, which are discussed in more detail below:  

2014 Peer Companies

The compensation decisions made by Occidental considered the market practices of a group of peer companies that were generally similar in operations and scope to CRC, as measured by expected market capitalization and expected revenue for CRC following the Spin-off. Because the peer companies were selected by Occidental in early 2014, prior to the finalization of the Spin-off terms and the severe downturn in oil prices, CRC’s expected market capitalization and revenue used to determine comparable peer companies were significantly higher than the actual market capitalization and revenue realized following the Spin-off. This resulted in compensation targets that were higher than the peer group used in 2015 and 2016 by CRC’s Compensation Committee.

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Occidental set 2014 compensation levels generally targeted to market median for the peer companies it selected.

2014 Annual Incentive Results

Due to the timing of the Spin-off in December 2014, CRC’s management and Compensation Committee had very little influence on the 2014 compensation program, and were only responsible for determination of the payout of the annual incentive. In determining the payouts under the 2014 annual incentive, CRC’s Compensation Committee recognized the strong financial and operational performance achieved for the year, in addition to the successful execution of the Spin-off, despite the dramatic downturn in oil prices. However, in early 2015, the CRC Compensation Committee exercised discretion in determining the payouts of the 2014 annual incentive to recognize the adverse impact of the oil price decline on the financial results and shareholder value and set payouts in the range (100 – 113%) of the target incentive amounts for the senior executives despite the strong operational and individual performance in 2014 that warranted higher above-target payouts.

2014 Long-Term Incentives

The 2014 compensation program set by Occidental included the following types of long-term incentives, which were intended to align interests of management with those of stockholders by linking realized compensation over the long term to appreciation in CRC’s stock price:

The CEO Realizable Pay discussion on page 44 illustrates the high degree of alignment between the 2014 long-term incentives and shareholder performance. The stock price at the time of the Spin-off was $73.70 compared to $21.29 as of December 31, 2016, an approximate 71% decrease. As a result of the leverage burden from Occidental at the time of the Spin-off, the realizable value of the 2014 long-term incentives has decreased by 90% from the target grant values. 60% of the target value of the 2014 long-term incentives was provided in the form of stock options that have an exercise price of $81.10, requiring a 380% increase in the stock price before value is realized from those awards. The decline in the stock price as a result of the leverage burden from Occidental has reduced the realizable value of the 2014 compensation program for our CEO and other members of the management team to 30% of the intended value, in line with the 71% decrease in the stock price.

2014 Conversions and Payouts of Prior Occidental Compensation Arrangements

All prior unvested Occidental long-term incentive awards held by our named executive officers were converted to CRC long-term incentive awards at the time of the Spin-off, as discussed on page 51. The CEO Realizable Pay discussion on page 44 illustrates the impact the decrease in stock price has had on the realizable value of those pre-CRC awards, reducing their value by over 70% for the CEO, further aligning interests of management with stockholders. While the decline in realizable values of long-term compensation aligns our management’s interests with stockholders, the factors which contributed to this decline were largely outside of management’s control.

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The 2014 compensation shown in the Summary Compensation Table on page 53 includes amounts related to compensation arrangements and programs entered between the executives and Occidental prior to the Spin-off. For Mr. Stevens, $850,000 was paid in settlement of an Occidental Retention Agreement and $565,000 was paid in settlement of an Occidental Return on Assets award granted in 2009. For Mr. Smith, $500,000 was paid as a one-time cash sign-on award and $2,500,000 was provided in the form of a one-time sign-on grant of Occidental restricted stock. For Mr. Williams, $600,000 was paid as a one-time cash sign-on award and $600,000 was provided in the form of a one-time sign-on grant of Occidental restricted stock.  The Occidental restricted stock grants were converted to CRC long-term incentive awards at the time of the Spin-off, as discussed on page 51.

2015 Compensation Program

In January 2015, immediately following the Spin-off, the newly-formed CRC Compensation Committee engaged Meridian Compensation Partners (“Meridian”) as its independent compensation consultant to assist with the review and development of the 2015 compensation program.

2015 CEO Compensation Program Elements

Our 2015 compensation program for our CEO was comprised of the following elements, which are discussed in more detail below:  

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2015 Peer Group

The CRC Compensation Committee updated the compensation peer group, selecting oil and gas exploration and production companies that had similar operating and financial characteristics to CRC, as measured by enterprise value, asset value and equity market capitalization as shown below (in millions):

The Compensation Committee believed that this group of peer companies was more comparable to CRC with respect to the complexity, assets, total capitalization and scope of CRC’s operations than peer companies that would be selected based on equity market capitalization alone. Due to our highly leveraged balance sheet and resulting depressed equity market capitalization (see Historical Perspective and 2016 Business Highlights on page 29), companies with similar equity market capitalization tended to be much smaller in size, scope, and complexity than CRC. The Compensation Committee did not believe executives at these smaller companies faced comparable responsibilities and challenges.  

The target value or our CEO’s 2015 compensation was evaluated by CRC’s Compensation Committee using this new peer group and our CEO’s target value was generally targeted near the new peer group median.

2015 Base Salary

The CRC Compensation Committee made no changes to the named executive officers’ base salaries in 2015, due to the position of current base salaries relative to the 2015 peer companies.

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2015 Annual Incentive Design and Result

The CRC Compensation Committee then designed the annual incentive for 2015, with performance measures that focused on achievement of financial, operating and strategic goals that were aligned with creation of shareholder value. 60% of the 2015 bonus opportunity was based on key quantitative Company metrics and 40% on individual operational and strategic goals focused on activities intended to increase shareholder value as shown below.

The CRC Compensation Committee’s assessment of the 2015 annual incentive performance concluded that results were at or above target for all of the financial and operating performance measures, producing potential payouts well above the target incentive amounts. Despite our management team’s strong performance with respect to the 2015 performance measures, the CRC Compensation Committee exercised negative discretion in determining the bonus payouts by recognizing only the portion of the incentive for the quantitative Company Performance Measures, with no payouts associated with the Strategic and Individual Objectives portion. As a result, the payouts were reduced to 91.7% of the target bonus amount from potential payouts of 131.7% to 171.7%. The Compensation Committee’s decision not to attribute any portion of the bonus payout to the Strategic and Individual Objectives was primarily the result of CRC’s stock price performance and the desire to further align pay with stockholder interests and preserve cash during a very challenging commodity price environment. However, as discussed above under Historical Perspective and 2016 Business Highlights on page 29, CRC’s stock price performance was driven in large part by Occidental’s decision to spin off the Company with a highly leveraged balance sheet.

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2015 Long-Term Incentives

The 2015 long-term incentives were redesigned to use three types of awards which were all share-based, aligning interests of management with those of stockholders:

As illustrated in the CEO Realizable Pay discussion on page 44, the 2015 long-term incentives are strongly aligned with stockholder interests. The stock price at the time of the grant of the 2015 awards was $42.00. With the stock price as of December 31, 2016 down to $21.29, an approximate 50% decrease, the realizable value of the 2015 long-term incentives has decreased over 57%.

2016 Compensation Program

In 2016, the CRC Compensation Committee continued to refine the compensation program and made adjustments with a continued focus on paying for performance in the context of a depressed commodity price environment and the significant debt burden the management team inherited at the Spin-off. In making changes to the 2016 compensation program, the Compensation Committee also considered the potential shareholder dilution effects of the 2016 program due to the severely depressed stock price had the prior program continued. To provide grant date values of share-based awards similar to those provided in 2014 and 2015, shareholder dilution would have been close to 9%.  

Occidental’s decision to spin off CRC with a highly leveraged balance sheet, and the resulting impact on the share price due to the sustained downturn in oil prices, has also led to retention challenges due to the significant reduction in realizable compensation under our previously granted long-term awards (see Realizable Pay Analysis on page 44). The Compensation Committee believes it is in the stockholders’ best interests to retain the current management team and provide a compensation program that does not have the same risk profile and volatility as the share price while the management team continues to work to reduce leverage.

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2016 CEO Compensation Program Elements

Our 2016 compensation program for our CEO was comprised of the following elements, which are discussed in more detail below:  

2016 Peer Group

The Compensation Committee reviewed our 2015 compensation peer companies and affirmed that they were still appropriate to use as our 2016 compensation peer companies (see 2015 Peer Companies on page 35). The Compensation Committee believes that this group of peer companies continues to be more similar to CRC with respect to the complexity, assets, total capitalization and scope of CRC’s operations than peer companies that would be selected based on equity market capitalization alone. For the reasons described above relating to our highly leveraged balance sheet and oil fields that by their nature have a higher cost to operate, the sustained depressed oil price environment has had a larger impact on our stock price compared to other oil and gas companies (see Historical Perspective and 2016 Business Highlights on page 2929). Companies with similar equity market capitalization tend to be much smaller in size, scope, and complexity than CRC due to our depressed equity market capitalization. The Compensation Committee does not believe executives at these smaller companies face comparable responsibilities and challenges.  Further, the Compensation Committee does not believe that smaller companies represent the competitive market for our executive team’s skills and experience and that setting CRC compensation levels consistent with these companies would penalize our management team for factors beyond their control, causing substantial retention problems at a time when CRC needs an experienced management team.

2016 Base Salaries

Responding to the industry downturn, and to conserve cash, in March 2016 the Compensation Committee approved a temporary reduction of the base salaries of the NEOs by 10% during the severe downturn in oil prices. The Compensation Committee acted to restore the salaries of the NEOs on a prospective basis to their previous levels in October of 2016, after a modest recovery in oil prices, resulting in an overall 6% reduction in base salaries for 2016 compared to 2015.

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2016 Annual Incentive Design

The annual incentive component of our 2016 compensation program was designed to promote the achievement of financial, operating and strategic results that are aligned with creation of shareholder value. The performance measures are comprised of quantitative Company measures for 60% of the target annual incentive and qualitative individual objective measures for 40% of the target annual incentive.

To further align our strategic areas of focus for the year, the CRC Compensation Committee made adjustments to the performance measures for the 2016 annual incentive to address CRC’s liquidity challenges, including debt reduction and the leverage covenants in our bank agreements. The table below provides the weightings for each performance measure and the threshold, target, and maximum performance criteria as established by the Compensation Committee in March 2016. Also shown in the table are the actual 2016 results under each quantitative performance measure and the resulting percentage of target bonus payout.

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All executives were given the same Investment, Operations, and Liquidity quantitative measures. The actual 2016 results against these goals yielded a payout of 131.25% of target for the quantitative measures portion of the annual incentive.

2016 Annual Incentive Result

For each of our NEOs, the Compensation Committee considered the executive’s performance in 2016 against the individual’s strategic and individual objectives in determination of the payout amounts under the 2016 Annual Incentive. Each of the NEOs had individual objectives covering the following areas:

Based on the performance assessments of our CEO and the other NEOs against their respective Strategic and Individual objectives by our CEO, and reflecting the business and commodity price challenges the management team effectively dealt with in 2016 (see Historical Perspective and 2016 Business Highlights on page 29), the Compensation Committee approved the following 2016 annual incentive payouts:

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2016 Long-Term Incentives

The extraordinarily severe industry conditions (discussed in the Historical Perspective and 2016 Business Highlights section on page 29) continued into 2016 and prompted the Compensation Committee to redesign the performance-based long-term incentive awards to address the following objectives:

In 2016, our long-term incentives continued to be provided in a mix of time-vested restricted stock unit awards and performance-based awards, to promote retention and pay for performance. The total grant values were allocated half to time-vested restricted stock unit awards and half to performance-based awards, which are described under 2016 Performance Incentive Award below. We did not grant any stock options in 2016.

The Compensation Committee decided to reduce the grant date target values of our 2016 long-term incentives by 30% from 2015 levels based on industry conditions and anticipated changes in competitive compensation levels among our peers. The reductions in the long-term incentive values for 2016 were expected to be in line with anticipated reductions by CRC’s peer companies and were not indicative of any decreased executive performance.

2016 Restricted Stock Unit Award – The 2016 Restricted Stock Unit Award (RSU Award) is a stock-based, stock-settled long-term incentive award intended to primarily promote retention and enhance alignment with stockholder interests through development of ownership in the Company with time-vested payouts, with one-third of the units vesting at the end of each year during the three-year period commencing at the grant date.

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2016 Performance Incentive Award – The 2016 Performance Incentive Award (PIA Award) is a cash-based, cash-settled long-term performance award with performance measures based 50% on CRC’s unit costs per BOE relative to industry peers with similar cost structures and 50% on VCI, both measured over a three-year period. The PIA Award vests, subject to attainment of the performance measures, three years after the grant date. This award structure addressed the above concerns as follows:

The peer companies chosen for the relative unit cost performance measures under these awards were selected based upon companies with similar asset and operating cost characteristics to CRC, rather than similar size to CRC as used for compensation benchmarking purposes. The peer companies selected by the CRC Compensation Committee for the 2016 PIA are: Anadarko Petroleum Corporation, BP p.l.c., Canadian Natural Resources Limited, Cenovus Energy Inc., Chevron Corporation, ConocoPhillips Company, Denbury Resources Inc., Exxon Mobil Corporation, Hess Corporation, Husky Energy Inc., Imperial Oil Limited, Marathon Oil Company, Occidental Petroleum Corporation, Royal Dutch Shell plc, and Suncor Energy Inc. This peer group was not used for compensation benchmarking purposes.

Grant amounts related to the 2016 PIA Award do not appear in the SCT for 2016 on page 53, since they are not equity-based awards.  Rather, the cash amounts earned, if any, under the awards will appear in the SCT for 2019, the year the award will be paid.

The PIA Award will vest at the end of three years from the grant date based on achieved performance against pre-determined performance criteria. The following table summarizes key features of the PIA Award granted to our named executive officers.  

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Key Terms of the 2016 Performance Incentive Award

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Linkage Between Pay and Performance

Our compensation program is well designed to link the pay realized by our executives to the performance of CRC and the returns to our stockholders, while also providing retention incentives necessary to retain our executives through this challenging period.  

2016 Pay Mix is Performance Based

The pay mix at target grant date values for our chief executive officer and other named executive officers for 2016 was primarily long-term and performance-based.

Realizable Pay Analysis

As discussed in the Historical Perspective and 2016 Business Highlights on page 29, we believe that factors beyond CRC management’s control, the significant debt burden placed on CRC by Occidental and the sustained severe downturn in oil prices, have been largely responsible for CRC’s stock price performance. CRC’s Compensation Committee has worked diligently to adjust the compensation program each year since the Spin-off giving consideration to management’s performance, alignment with stockholder interests, competitive market practice, and the desire to retain the management team through this critical period.

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The chart below illustrates the degree to which our CEO’s realizable pay has been impacted by the decline in the stock price since the Spin-off.  

Notes regarding the CEO Realizable Pay:

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Target Compensation for Our NEOs

Set forth below are the individual components of the 2016, 2015 and 2014 annual compensation programs for our named executive officers, if they were named executive officers for the relevant period. Long-term incentives reflect the target grant date values of awards. The 2016 long-term incentive levels, as discussed on page 41, reflect the Compensation Committee’s decision that the grant date values of our 2016 long-term incentives be reduced by 30% from 2015 levels based on industry conditions at the time and anticipated changes in competitive compensation levels among our peers. The reductions in the long-term incentive values for 2016 were expected to be in line with anticipated reductions by CRC’s peer companies and were not indicative of any decreased executive performance.

Todd A. Stevens–President and Chief Executive Officer

Marshall (Mark) D. Smith–Senior Executive Vice President and Chief Financial Officer

Robert A. Barnes–Executive Vice President–Operations

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Charles F. Weiss–Executive Vice President–Public Affairs

Darren Williams–Executive Vice President–Exploration

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Our Executive Compensation Process

Role of Compensation Committee

Our executive compensation program is overseen by our Compensation Committee, with input from our management and outside compensation consultant. In its oversight role, the committee is responsible for making compensation decisions involving our CEO and other executive officers and evaluating performance for compensatory purposes.

Role of Management

Our CEO, Chairman and Vice President of Compensation and Benefits provided input to the Compensation Committee with respect to executive compensation, key job responsibilities, achievement of performance objectives and compensation program design. We believe these individuals provide helpful support to the Compensation Committee in these areas given their understanding of our business and personnel, compensation programs and competitive environment. The Compensation Committee is not obligated to accept management’s recommendations with respect to executive compensation matters, and meets in executive session to discuss such matters outside of the presence of our management. During 2016, the Compensation Committee held seven executive sessions.

Role of Independent Compensation Consultants

The Compensation Committee retained Meridian Compensation Partners, LLC (“Meridian”) as its independent compensation consultant in January 2015, after considering all factors relevant to Meridian’s independence from our management and members of our Compensation Committee and determining that it was independent and without conflicts of interest under the Securities and Exchange Commission rules and the NYSE Listed Company Manual standards.

In 2016, the compensation consultant was responsible for reviewing our executive compensation program, assisting in the design of our annual and long-term incentive programs and providing comparative market data and trends on compensation practices and programs based on an analysis of our peer companies and other factors. Representatives of the compensation consultant participated in all meetings of the committee during 2016, including executive sessions without management. The compensation consultant provided no other services to CRC.

Use of Compensation Data

Over the course of the year, our Compensation Committee analyzed the comparative total compensation of our executive officers. To facilitate this analysis, the compensation consultant provided the committee with comparative compensation data that included base salaries, annual incentive opportunities, and long-term incentive opportunities. This information reflected recent publicly available information and other market data. We believe that it provided our Compensation Committee with a sufficient basis to analyze the comparative total compensation of our executive officers.

Compensation Program Best Practices

Our executive compensation program is well-designed, incorporates best practices and is governed by an engaged Compensation Committee. Our short-term and long-term incentive plans are primarily performance-based and are intended to align with the long-term best interests of shareholders. The Compensation Committee has engaged in best practices to further align executive pay with Company performance and to ensure good governance in the following ways:

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