Executive Summary / Key Takeaways

• Dual-Basin Growth Engine: Berry Corporation is strategically leveraging its mature, high-return California assets, particularly through thermal diatomite sidetracks, while aggressively de-risking and developing its high-potential Uinta Basin acreage in Utah with advanced horizontal drilling techniques.
• Operational Excellence & Cost Advantage: The company demonstrates a clear competitive edge through superior operational efficiencies, including 100%+ rates of return on California sidetracks and a 20% cost advantage on Utah horizontal wells, driven by innovative use of produced gas and water.
• Fortified Financial Position: Despite commodity volatility, Berry's robust hedging strategy (71% of H2 2025 oil production hedged at ~$75/bbl Brent) and proactive debt reduction (on track for $45M paydown in 2025) provide cash flow stability and balance sheet strength.
• Constructive Regulatory Shift: A notable positive shift in California's regulatory environment, including the Kern County EIR approval and state-level reforms, promises to streamline future permitting and enhance the long-term value of Berry's in-state operations.
• Shareholder Value Focus: With a fixed annual dividend of $0.12 per share and a substantial share repurchase authority, Berry is committed to returning capital while funding high-return growth, representing nearly 10% of its enterprise value annually.

A Resilient Foundation in a Dynamic Energy Landscape

Berry Corporation ($BRY), founded in 1909, stands as a seasoned independent upstream energy company with a deep-rooted presence in the western United States. Its operational footprint spans two critical segments: Exploration and Production (E&P) in California's San Joaquin Basin and Utah's Uinta Basin, and Well Servicing and Abandonment (CJWS) in California. This dual-segment structure, coupled with a century-long history, provides a unique blend of stability from mature, low-decline assets and significant growth potential from emerging plays.

The company's strategic narrative is one of resilience and adaptability. Over the past six years, Berry has notably sustained its total production levels, even as California's statewide oil production declined by a substantial 35%. This outperformance underscores the quality of Berry's assets and the strength of its technical teams in navigating a challenging regulatory environment. In a sector where Tier 1 inventory is increasingly scarce, Berry highlights its "inventory rich" position, boasting thousands of locations in California and significant upside in Utah.

Competitive Edge: Technology, Efficiency, and Regional Mastery

Berry's competitive positioning is carved out by its specialized regional expertise and a relentless focus on operational efficiency, particularly through technological differentiation. While larger, more diversified players like EOG Resources (EOG) and ConocoPhillips (COP) leverage vast scale and global reach, Berry thrives in its niche by optimizing conventional resource development and pioneering cost-effective techniques. This focused approach allows Berry to achieve cost leadership in its core operating areas, a critical moat against broader industry competition.

In California, Berry's expertise in thermal diatomite sidetracks is a prime example of its technological edge. These projects consistently yield rates of return exceeding 100%, a testament to their capital efficiency and the company's deep understanding of these reservoirs. This contrasts with the broader portfolios of competitors, where such high-return, low-capital intensity opportunities may be less prevalent or require greater upfront investment. The company has identified 115 sidetrack opportunities in thermal diatomite and another 110 across other California assets, providing a robust, multi-year drilling inventory.

Utah's Uinta Basin represents Berry's frontier, where its horizontal drilling program is rapidly advancing with significant technological and cost advantages. The company's first operated four-well horizontal pad, targeting the Uteland Butte reservoir, was drilled ahead of schedule and on budget. This achievement was underpinned by innovative operational choices: utilizing produced gas to fuel drilling operations, lowering fuel costs by roughly 25% per well, and employing 50% produced water in frac operations, which contributed to approximately $500,000 in completion cost savings per well. This translates to an estimated $680 per lateral foot, approximately 20% lower than the average of its six non-operated horizontal wells in the basin. This cost efficiency positions Berry favorably against competitors like Devon Energy (DVN) and Occidental Petroleum (OXY), who, despite their scale, may not possess the same localized infrastructure leverage or fuel cost advantages in this specific basin.

Furthermore, Berry's CJ Well Services (CJWS) segment provides a crucial competitive advantage. As one of California's largest well servicing and abandonment providers, CJWS offers Berry "access and control over an important part of our supply chain." This vertical integration ensures operational continuity and cost control for Berry's E&P activities, a benefit not always available to other operators who rely solely on third-party services. The segment is also poised to capitalize on increased demand for plugging and abandonment services driven by new California regulations, potentially leading to margin expansion.

Financial Performance and Strategic Capital Allocation

Berry's financial performance in the first half of 2025 reflects both market dynamics and its strategic responses. For the three months ended June 30, 2025, total revenues and other increased by 5% year-over-year to $210.08 million, primarily driven by a significant increase in gains on oil and gas sales derivatives. However, oil, natural gas, and NGL sales decreased by 26% year-over-year to $125.64 million, largely due to $33 million lower oil prices and $10 million lower oil volumes, impacted by natural decline and temporary curtailments from sidetrack drilling.

Despite these revenue headwinds, Berry demonstrated strong cost management. Lease operating expenses (LOE) decreased by 1% year-over-year in Q2 2025, driven by lower non-fuel costs, partially offset by increased natural gas fuel costs. For the six months ended June 30, 2025, LOE decreased by 4% to $110.48 million. The company's hedging program proved vital, with derivative gains significantly offsetting lower realized prices. Realized gains on oil sales derivatives were $8.59 million in Q2 2025, a stark contrast to losses of $9.80 million in Q2 2024.

A notable event in Q1 2025 was a non-cash pre-tax asset impairment charge of $158 million on certain non-thermal diatomite proved properties in California. This was attributed to changes in reserve recoverability estimates and commodity price volatility, compounded by U.S. domestic policy shifts and increased natural gas prices. Management views this as a one-off event, expecting net income to rebound without further impairments.

Berry's liquidity remains robust, with $101 million as of June 30, 2025, including $20 million in cash and $49 million in available borrowing capacity. The company's capital allocation strategy prioritizes debt reduction and shareholder returns. Berry paid down $11 million of debt in Q2 2025, bringing its year-to-date reduction to $23 million, and is on track to pay down at least $45 million for the full year. This commitment, combined with a fixed annual dividend of $0.12 per share, represents nearly 10% of the company's enterprise value, underscoring its dedication to shareholder value.

Outlook and Strategic Momentum

Berry Corporation has reaffirmed its full-year 2025 guidance, projecting total production volumes consistent with 2024, with approximately 93% oil content. The 2025 capital expenditure budget is set between $110 million and $120 million, with the majority of spending front-loaded to the first three quarters. A significant strategic shift is the allocation of approximately 40% of 2025 EP capital to Utah, up from 25% in 2024, signaling a strong commitment to de-risking and developing its Uinta Basin assets.

In California, production is expected to increase in the second half of 2025 as thermal diatomite sidetrack drilling activity, which caused temporary curtailments, fully comes online in Q3. The company's deep inventory of high-return sidetrack opportunities ensures a clear line of sight for stable production through 2026 and beyond, irrespective of broader permitting challenges.

Utah is poised to be a "transformational value creator" for Berry. Flowback commenced on two of the four operated horizontal wells in early August 2025, with all four expected online within the month. The success of non-operated wells, exceeding pre-drilled estimates with an average Estimated Ultimate Recovery (EUR) of 55 to 60 barrels of oil per lateral foot, further supports the significant upside of Berry's 100,000-acre position. An additional non-operated well targeting the Castle Peak reservoir is expected online in Q4 2025, potentially unlocking multi-bench cube development opportunities. Berry is actively evaluating joint venture partners to accelerate this development, aiming to mitigate capital requirements while maximizing growth.

The California regulatory landscape is showing a "most constructive tone in at least 5 years." The Kern County Board of Supervisors' approval of a new oil and gas ordinance and certification of a revised Environmental Impact Report (EIR) on June 26, 2025, is a pivotal step towards resuming new drill permits. Further, the California Energy Commission's proposal in mid-August 2025 to codify the Kern County EIR into state law could significantly improve permitting and de-risk litigation. While Berry has permits in hand to support development into 2027, these reforms offer additional optionality and long-term stability, reinforcing the growing consensus that in-state oil production is vital for California's energy security.

Risks and Considerations

Despite the positive outlook, Berry faces inherent risks. Commodity price volatility remains a primary concern, directly impacting revenues and cash flows. While the company's robust hedging program mitigates this risk in the near term (71% of H2 2025 oil production hedged at ~$75/bbl Brent), prolonged weakness in oil prices could affect long-term Free Cash Flow generation. As a net gas purchaser, Berry's operating costs are also sensitive to natural gas price fluctuations.

Regulatory uncertainty in California, though currently showing a constructive shift, could still pose challenges if the Kern County EIR court approval is delayed or if new regulations emerge. The company's smaller operational scale and regional concentration, while offering niche advantages, could limit access to capital or expose it to localized market disruptions more acutely than larger, globally diversified competitors. Inflationary pressures on goods, services, and personnel costs could also impact capital expenditures and operating expenses, potentially affecting margins.

Conclusion

Berry Corporation stands at a compelling juncture, strategically positioned to capitalize on both the enduring value of its California assets and the significant growth potential of its Utah acreage. The company's century-long operational history, coupled with its proven ability to innovate and optimize production in challenging environments, forms a robust foundation. Its technological prowess in thermal diatomite sidetracks and cost-efficient horizontal drilling in Utah provides a tangible competitive edge, translating directly into high rates of return and lower operational costs.

With a fortified balance sheet, a disciplined capital allocation strategy prioritizing debt reduction and consistent shareholder returns, and a constructive shift in California's regulatory landscape, Berry is well-equipped to execute its 2025 plan and beyond. The ongoing development in the Uinta Basin, with its substantial upside potential, serves as a powerful long-term catalyst. For discerning investors, Berry Corporation offers a unique blend of resilient cash flow, strategic growth, and a clear commitment to shareholder value, making it a compelling consideration in the evolving energy sector.