Oil and gas producer California Resources (NYSE: CRC) announced better-than-expected revenue in Q2 CY2026, with sales up 58% year on year to $1.3 billion. Its non-GAAP profit of $0.99 per share was 28% below analysts’ consensus estimates.

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Company Overview

Operating some of California's most productive oil fields including Elk Hills and Belridge, California Resources (NYSE: CRC) explores for and produces crude oil, natural gas, and natural gas liquids from fields across California.

Revenue Growth

A company’s long-term performance can give signals about its business quality. Even a bad business, especially in a cyclical industry, can shine for a year or so, but a top-tier one should exhibit resilience through cycles. Luckily, California Resources’s sales grew at a decent 10.8% compounded annual growth rate over the last five years. Its growth was slightly above the average energy upstream and integrated energy company and shows its offerings resonate with customers.

Energy cycles can be long enough that a single five-year period can still reflect one price environment, which is why an additional, decade-long view can help capture through-cycle performance. California Resources’s annualized revenue growth of 5.4% over the last ten years is below its five-year trend, but we still think the results were good.

While looking at revenue is important, it can also introduce noise around commodity prices and M&A. Analyzing production, on the other hand, highlights what is happening inside the asset base and whether the economic footprint of a company is expanding. Over the last two years, California Resources’s oil production per day averaged 65.3% year-on-year growth. On the other hand, its natural gas production per day averaged 2% year-on-year declines.

This quarter, California Resources reported magnificent year-on-year revenue growth of 58%, and its $1.3 billion of revenue beat Wall Street’s estimates by 36.4%. This quarter, California Resources reported year-on-year Oil production per day growth of 10.1%.

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Adjusted EBITDA Margin

Adjusted EBITDA margin is an important measure of profitability for the sector and accounts for the gross margins and operating costs mentioned previously. Unlike operating margin, it is not distorted by accounting conventions around reserves, drilling costs, and assumptions on commodity consumption from the well or basin. Adjusted EBITDA highlights the economic reality of how much cash the rock produces before the capital structure (debt service) and the drilling budget (capex) are considered.

California Resources has done a decent job managing its cost base over the last five years. The company has produced an average EBITDA margin of 32.5%, higher than the broader energy upstream and integrated energy sector.

Looking at the trend in its profitability, California Resources’s EBITDA margin decreased by 20.5 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, California Resources generated an EBITDA margin profit margin of 49.5%, up 12.7 percentage points year on year. This increase was a welcome development and shows it was more efficient. This adjusted EBITDA beat Wall Street’s estimates by 85.5%.

Cash Is King

Adjusted EBITDA shows how profitable a company’s existing wells are before financing and reinvestment decisions, but free cash flow shows how much value remains after paying the cost of replacing those wells. In upstream energy, production naturally declines over time, so companies must continuously reinvest just to stand still. A producer can report strong EBITDA margins yet generate little or no free cash flow if its wells decline quickly or if new drilling is expensive. Free cash flow therefore captures not only how efficiently a company produces hydrocarbons today, but also how costly it is to sustain that production into the future.

California Resources has shown robust cash profitability, driven by its attractive business model that enables it to reinvest or return capital to investors. The company’s free cash flow margin averaged 13.3% over the last five years, quite impressive for an upstream and integrated energy business.

Absolute FCF margin levels matter but so does stability of free cash flow. All else equal, we’d prefer a 25.0% average free cash flow margin that is quite steady no matter how commodity prices behave rather than extremely high margins when times are good and negative ones when they’re tough.

California Resources’s ratio of quarterly free cash flow volatility to WTI crude price volatility over the past five years was 4.1 (lower is better), indicating excellent insulation from commodity swings. This stability supports superior capital access in downturns and positions California Resources to act as a consolidator when weaker peers are forced to retrench.

You may be asking why we wait until the free cash flow line to perform this stability analysis versus commodity prices. Why not compare revenue or EBITDA to WTI Crude prices in the case of California Resources? Because what ultimately matters is not how much revenue or profit you earn when prices are high but how much cash you can generate when prices are low. Free cash flow is the superior metric because it includes everything from hedging prowess to growth and maintenance capex to management behavior during good times and bad.

California Resources’s free cash flow clocked in at $114 million in Q2, equivalent to a 8.8% margin. The company’s cash profitability regressed as it was 4.5 percentage points lower than in the same quarter last year, which isn’t ideal considering its longer-term trend.

Key Takeaways from California Resources’s Q2 Results

We were impressed by how significantly California Resources blew past analysts’ revenue expectations this quarter. On the other hand, its EPS missed. Overall, this was a weaker quarter. The stock traded down 6% to $48.96 immediately following the results.

California Resources may have had a tough quarter, but does that actually create an opportunity to invest right now? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here (it’s free).