10-Q: Berry Corporation (bry) Reports Second Quarter 2024 Results, Impacted by New California Regulations

Berry Corporation (bry) reported a net loss for the second quarter of 2024, primarily due to a non-cash impairment charge related to new California regulations, while also seeing some positive movement in production and adjusted EBITDA.

Summary

• Berry Corporation (bry) reported a net loss of $8.8 million for the second quarter of 2024, or $0.11 per share, compared to a net income of $25.8 million in the same period last year.
• The company's results were significantly impacted by a $44 million non-cash impairment charge on unproved oil and gas properties in California due to new regulations (SB 1137).
• Revenues were $197.8 million, down from $229.4 million in the second quarter of 2023, with oil, natural gas and NGL sales increasing by 7% but service revenue decreasing by 35%.
• Adjusted EBITDA was $74.3 million, up from $69.1 million in the second quarter of 2023.
• The company's average daily production was 25.3 mboe/d, slightly down from 25.9 mboe/d in the same period last year.
• Berry's capital expenditures for the quarter were $42.3 million, with a focus on sidetracks and workovers in California and horizontal development in Utah.
• The company has a 2024 capital expenditure budget between $95 to $110 million and expects 2024 production to be consistent with 2023.

Sentiment

Score: 4

Explanation: The document presents mixed results with a net loss and a significant impairment charge, but also shows positive movement in adjusted EBITDA and production. The regulatory challenges and debt refinancing risks contribute to a negative sentiment, but the company's strategic actions and hedging program provide some optimism.

Positives

• Adjusted EBITDA increased to $74.3 million in Q2 2024, up from $69.1 million in Q2 2023.
• The company has extended the maturity of its ABL Facility to June 5, 2027.
• The company has amended its RBL Facility to extend the permitted tenor of certain commodity hedging agreements to 60 months.
• The company has reduced its borrowings outstanding under the 2021 RBL Facility to $28 million as of July 31, 2024.
• The company has a remaining share repurchase authority of $190 million.

Negatives

• The company reported a net loss of $8.8 million for Q2 2024, compared to a net income of $25.8 million in Q2 2023.
• A $44 million non-cash impairment charge on unproved oil and gas properties in California significantly impacted the results.
• Service revenue decreased by 35% compared to the same period last year.
• The company is facing regulatory uncertainty in California impacting the permitting process.

Risks

• The company is facing regulatory uncertainty in California impacting the permitting process, particularly with the implementation of SB 1137.
• The company may not be successful in refinancing, repaying or extending the maturity of its 2026 Notes or its 2021 RBL Facility.
• The company's operations are subject to complex and stringent federal, state and local laws and regulations.
• The company's results are heavily influenced by commodity prices, which are subject to significant fluctuations.
• The company is exposed to credit risk from its derivative contracts.

Future Outlook

The company expects 2024 production to be consistent with 2023, with a focus on sidetracks and workovers in California and horizontal development in Utah. The company also expects to fund the remainder of its 2024 capital development programs from cash flow from operations.

Management Comments

• Management assesses the efficiency of our E&P field operations by considering core E&P operating expenses together with our cogeneration, marketing and transportation activities.
• Management believes Adjusted Free Cash Flow may be useful in an investor analysis of our ability to generate cash from operating activities from our existing oil and gas asset base after maintaining the existing production volumes of that asset base to return capital to stockholders, fund further business expansion through acquisitions or investments in our existing asset base to increase production volumes and pay other non-discretionary expenses.

Industry Context

The company's results reflect the challenges faced by oil and gas companies in California due to increasing regulatory pressures and volatile commodity prices. The company's focus on low-decline, long-lived assets and strategic hedging is a common approach in the industry to mitigate these risks.

Comparison to Industry Standards

• Berry's production of 25.3 mboe/d is within the range of other small to mid-sized independent oil and gas producers.
• The company's adjusted EBITDA of $74.3 million is a key metric used by the industry to assess operating performance, and is comparable to peers with similar production levels.
• The company's hedging strategy is consistent with industry practices to mitigate commodity price risk, but the effectiveness of the strategy is dependent on market conditions.
• The company's capital expenditure program of $95 to $110 million is in line with other companies focused on maintaining production levels and strategic growth.

Legal Proceedings

• The company is involved in ongoing shareholder derivative actions related to a previous securities class action lawsuit.
• The company received a stockholder litigation demand that the Board of Directors investigate and commence legal proceedings against certain current and former officers and directors based ostensibly on the same claims asserted in the Shareholder Derivative Actions.

Stakeholder Impact

• Shareholders are impacted by the net loss and the non-cash impairment charge.
• Employees are impacted by cost savings initiatives and workforce reductions.
• Customers are impacted by the company's ability to maintain production levels and provide services.
• Creditors are impacted by the company's debt obligations and refinancing plans.

Next Steps

• The company will continue to focus on sidetracks and workovers in California and horizontal development in Utah.
• The company will continue to evaluate prospective financing arrangements to refinance its 2026 Notes and extend the maturity date of the 2021 RBL Facility.
• The company will continue to monitor and engage with regulatory agencies regarding permitting and compliance issues.

Key Dates

Keywords

oil and gas, production, California, Utah, impairment, regulations, EBITDA, hedging, permitting, debt, dividends, capital expenditures