8-K: Berry Corporation Reports Solid Q1 2024 Results, Declares Fixed Dividend

Berry Corporation announced its first quarter 2024 financial and operating results, reporting production above guidance and declaring a fixed dividend of $0.12 per share.

Summary

• Berry Corporation (bry) announced its first quarter 2024 results, with production averaging 25,400 boe/d, exceeding the midpoint of their 2024 annual guidance.
• The company declared a fixed dividend of $0.12 per share for the first quarter.
• Berry acquired all necessary 2024 California Greenhouse Gas allowances at a 7% discount to projected costs.
• They also signed an agreement to farm into four horizontal wells in the Uinta Basin, expected to be producing by June 2024.
• A follow-on working interest acquisition of approximately 100 boe/d in Kern County, CA is in process.
• The company reported zero recordable incidents, zero lost-time incidents, and no reportable spills for the second consecutive quarter.
• Berry issued its 2023 Sustainable Business Report, which includes a goal to reduce methane emissions by 80% by the end of 2025.
• First quarter revenues were $166 million, net loss was $40 million, and adjusted EBITDA was $69 million.
• Adjusted free cash flow was $1 million, and capital expenditures were $17 million.
• The company finished the quarter with $149 million in liquidity.
• Berry's management expects full-year results to be in line with previously provided guidance.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive. While the company reported a net loss, they exceeded production guidance, declared a dividend, and demonstrated cost control. The forward-looking statements are cautiously optimistic, but there are also risks and challenges mentioned.

Positives

• Production exceeded the midpoint of annual guidance, indicating strong operational performance.
• The declaration of a fixed dividend provides a return to shareholders.
• The 7% discount on greenhouse gas allowances demonstrates effective cost management and environmental responsibility.
• The farm-in agreement for horizontal wells in the Uinta Basin offers potential for future production growth.
• The company's safety record is excellent, with zero recordable incidents and spills for two consecutive quarters.
• The 80% methane emissions reduction goal shows a commitment to sustainability.
• Adjusted EBITDA remained strong at $69 million despite lower oil prices and production compared to the previous quarter.
• Lease operating expenses were reduced by 10%, showcasing effective cost control.
• The company has a solid liquidity position of $149 million.

Negatives

• The company reported a net loss of $40 million for the first quarter.
• Oil, natural gas and NGL revenues decreased by 3% compared to the fourth quarter of 2023.
• Adjusted free cash flow was only $1 million, significantly lower than the previous quarter's $55 million.
• Cash flow from operations decreased compared to the fourth quarter of 2023 due to typical first quarter working capital usage.
• The net loss for the first quarter included unrealized hedge losses.

Risks

• The company is exposed to commodity price volatility, which can impact revenues and profitability.
• Legislative and regulatory actions, particularly in California, could restrict the company's ability to drill and develop assets.
• The ongoing Kern County EIR litigation could impact the issuance of new drill permits.
• There are risks associated with integrating acquired assets and achieving anticipated synergies.
• The company faces competition from other energy sources.
• There are uncertainties inherent in estimating natural gas and oil reserves and projecting future production rates.
• The company is exposed to environmental, health and safety risks.
• Disruptions to third-party transportation infrastructure could impact the delivery of oil and natural gas.
• The company is exposed to overall domestic and global political and economic conditions, including inflation and interest rate changes.

Future Outlook

The company expects full-year results to be in line with previously reported guidance, with capital expenditures anticipated to increase in the second and third quarters of 2024 and an expected uptick in their well services business. They will also maintain focus on debt reduction and look to opportunistically refinance their notes, which mature in early 2026.

Management Comments

• Fernando Araujo, Berry's CEO, stated that the company's 2024 development activity and production plan does not depend on the issuance of new drill permits.
• Fernando Araujo emphasized the company's focus on maximizing enterprise value by generating sustainable free cash flow through operational excellence.
• Mike Helm, Berry's CFO, stated that the company finished the first quarter with Adjusted EBITDA of $69 million despite slightly lower oil prices and production than the fourth quarter of 2023.
• Mike Helm also mentioned that the company demonstrated resilience through strategic cost management, resulting in a 10% reduction in lease operating expenses.

Industry Context

This announcement comes amid ongoing discussions about energy production and environmental regulations, particularly in California. Berry's focus on cost management and sustainability aligns with broader industry trends, while their ability to maintain production despite regulatory challenges is noteworthy. The company's strategic acquisitions and farm-in agreements also reflect a common approach in the oil and gas sector to enhance production and reserves.

Comparison to Industry Standards

• Berry's production of 25,400 boe/d is a moderate level compared to larger independent oil and gas producers like EOG Resources or Pioneer Natural Resources, which often produce hundreds of thousands of boe/d.
• The company's adjusted EBITDA of $69 million is relatively modest compared to larger peers, but it is a positive result given the current market conditions and the company's size.
• The 10% reduction in lease operating expenses is a positive sign of cost control, which is a key focus for many oil and gas companies in the current environment. Companies like Devon Energy and ConocoPhillips have also emphasized cost efficiency in their recent reports.
• Berry's focus on sustainability, including the 80% methane emissions reduction goal, aligns with increasing industry pressure to address environmental concerns. Companies like Occidental Petroleum and Chevron have also set ambitious emissions reduction targets.
• The company's hedging strategy is a common practice in the industry to mitigate price volatility, similar to strategies employed by many other oil and gas producers.
• The fixed dividend of $0.12 per share is a typical approach for companies to return capital to shareholders, although the yield may vary compared to other dividend-paying companies in the sector.

Stakeholder Impact

• Shareholders will receive a fixed dividend of $0.12 per share.
• Employees are expected to continue to focus on operational excellence and cost management.
• Customers will continue to receive oil and gas products from the company.
• Suppliers will continue to provide goods and services to the company.
• Creditors will be impacted by the company's debt reduction efforts and potential refinancing.

Next Steps

• The company will continue to focus on maximizing enterprise value by generating sustainable free cash flow.
• They will continue to focus on debt reduction and look to opportunistically refinance their notes.
• The company will monitor the Kern County EIR litigation and its potential impact on future drilling permits.
• They will continue to integrate acquired assets and pursue strategic bolt-on acquisitions.
• The company will continue to implement its ESG strategy and work towards its methane emissions reduction goal.

Key Dates

Keywords

oil and gas, production, dividends, EBITDA, greenhouse gas, California, Utah, drilling, acquisitions, sustainability, hedging, financial results