Berry Corporation (BRY) is a value-driven independent upstream energy company focused on onshore, low geologic risk, low decline, long-lived oil and gas reserves in the western United States. The company operates in two key business segments: exploration and production (E&P) and well servicing and abandonment.
Business Overview and History
Berry Corporation was founded in 1909 and has a rich history of over 100 years of oil and gas production. The company's roots trace back to the San Joaquin basin in California, where it has maintained a strong presence, leveraging the basin's over 150 years of production history and well-understood reservoir characteristics.
Throughout its long history, Berry has demonstrated remarkable resilience in the face of numerous industry challenges, including volatile commodity prices, increased environmental regulations, and shifting market dynamics. In the early 2000s, the company underwent a period of restructuring and divestment to streamline its operations and focus on its core assets.
A significant milestone in Berry's recent history was the completion of a private issuance of $400 million in senior unsecured notes due in 2026, which took place in 2018. This provided the company with essential capital to support its development plans. Later that same year, Berry conducted its initial public offering, which not only raised additional funds but also increased the company's public profile.
Berry's commitment to responsible operations has been a consistent theme throughout its history. The company has successfully navigated complex regulatory environments, particularly in California, and has invested in technologies and practices to enhance environmental stewardship and worker safety. Its long-standing presence in its core operating regions has enabled Berry to build strong community relationships and become a reliable partner for royalty owners and mineral rights holders.
In recent years, Berry has strategically expanded its footprint, acquiring high-quality, low-decline assets in the Uinta basin of Utah in 2018. This acquisition diversified the company's portfolio and provided significant upside potential through the development of the basin's prolific reservoirs.
Today, Berry's E&P assets are primarily located in California's San Joaquin basin, which produces 100% oil, and in Utah's Uinta basin, which is a liquids-rich play. The company's California assets are characterized by high oil content and are predominantly situated in rural areas with low population density. Berry's Utah acreage, which totals approximately 99,000 net acres, is largely held by production, providing the company with significant flexibility and control over its development plans.
Financials and Key Metrics
Berry has demonstrated a strong financial profile, with a focus on maintaining a healthy balance sheet and generating sustainable free cash flow. For the fiscal year 2023, Berry reported annual revenue of $863.45 million and net income of $37.40 million. The company's operating cash flow for the year totaled $198.66 million, while free cash flow reached $117.59 million.
In the most recent quarter (Q3 2024), Berry reported revenue of $184.35 million, representing a 17% year-over-year decrease primarily due to lower realized oil prices. However, net income for the quarter increased by 55% to $69.86 million. Quarterly free cash flow stood at $44.82 million.
Berry's capital structure is anchored by a $545 million term loan credit facility, which the company recently utilized to refinance its existing debt, including the $400 million in senior unsecured notes due in 2026. This refinancing has extended the company's debt maturities, providing it with the financial flexibility to pursue strategic growth opportunities while maintaining its focus on deleveraging and returning capital to shareholders.
Key financial metrics for Berry include a debt-to-equity ratio of 0.55, a current ratio of 0.80, and a quick ratio of 0.80, indicating a solid liquidity position. The company's return on assets and return on equity stand at 5.5% and 11.7%, respectively, reflecting its ability to generate strong returns on its asset base and deployed capital.
Liquidity
Berry's liquidity position remains strong, supported by its robust cash flow generation and prudent financial management. As of Q3 2024, the company had a cash balance of $9.47 million. Additionally, Berry has access to $88 million under its 2021 RBL Facility and $7 million under its 2022 ABL Facility, providing a total liquidity of $104 million.
The company's recent refinancing efforts have further bolstered its liquidity profile, providing ample resources to fund its operations and pursue growth opportunities. With a well-structured debt maturity profile and access to capital markets, Berry is well-positioned to navigate market fluctuations and maintain financial flexibility.
Operational Highlights and Growth Potential
Berry's operational performance has been steadfast, with the company consistently delivering on its production targets. In 2024, the company's total production averaged 25,200 barrels of oil equivalent per day (boepd), with oil accounting for approximately 93% of the total.
The company's California assets, particularly the thermal diatomite reservoirs, have been a key driver of this operational success. Berry has been able to increase production from these assets by 19% over the past four years through enhanced steam injection and workover activities. More recently, the company has further optimized its operations by undertaking targeted sidetrack drilling in the thermal diatomite, which has yielded exceptional results with rates of return exceeding 100%.
Looking ahead, Berry's Uinta basin assets present a significant growth opportunity. The company's strategic farm-in agreements have allowed it to accelerate the appraisal and development of its Uinta acreage, which is almost entirely held by production. The four horizontal wells that Berry has brought online in the basin have performed better than expected, with average peak production rates of approximately 1,100 boepd per well.
Building on this momentum, Berry is actively evaluating potential joint venture partnerships to further accelerate the development of its Uinta assets. The company's low-cost advantage, existing infrastructure, and access to fuel gas in the basin position it well to unlock the significant value inherent in these assets.
Berry's Well Servicing and Abandonment segment, operated through its CJ Well Services (CJWS) subsidiary, provides wellsite services in California to oil and natural gas production companies. This segment offers a competitive advantage by giving Berry control over an important part of its supply chain. As one of the largest upstream well servicing and abandonment businesses in California, CJWS presents an upside opportunity based on the significant inventory of idle wells within the state and existing/new regulations expected to increase operators' obligations regarding those idle wells.
Risks and Outlook
As with any energy company, Berry is exposed to the inherent volatility of commodity prices, which can impact its financial performance and cash flows. The company mitigates this risk through a robust hedging program, with approximately 75% of its anticipated 2025 oil production currently hedged.
Additionally, the regulatory environment in California, where the majority of Berry's operations are located, presents challenges due to the state's stringent environmental regulations. The company has, however, demonstrated its ability to navigate these complexities, maintaining production levels through a combination of workovers, sidetracks, and selective new drilling in areas with existing environmental approvals.
In November 2020, a putative securities class action was filed against Berry Corp. and certain of its current and former directors and officers, alleging false and misleading statements. The parties reached a $2.5 million settlement in February 2024, which was approved by the court. Certain related shareholder derivative actions remain pending.
Looking ahead, Berry is well-positioned to continue delivering strong operational and financial results. The company has reiterated that it is on track to reach the midpoint of its full-year 2024 production guidance. For the past six years, Berry has successfully maintained stable production year-over-year, net of divestitures, despite challenging regulatory and permitting environments.
Regarding 2025 plans, Berry has already secured approximately one-third of the permits necessary to complete its entire 2025 California drilling program. The company expects to remain within its full-year 2024 capital expenditure guidance of $95 million to $110 million.
Berry's focus on disciplined capital allocation, combined with its strategic refinancing and the potential unlocking of value in the Uinta basin, bodes well for the company's future growth and shareholder returns. The company is confident in its ability to continue executing its strategy to maintain production for the next few years while generating sustainable free cash flow.
Conclusion
Berry Corporation has a long history of responsible oil and gas development, and the company's diverse asset base, operational expertise, and financial discipline position it well for continued success. With a keen focus on maximizing the value of its world-class assets in California and the promising growth potential of its Uinta basin holdings, Berry is poised to navigate the volatility of the energy industry and create sustainable value for its shareholders.
The company's two-pronged strategy of maintaining its low-declining, oil-weighted production base in California and Utah, while selectively acquiring accretive, producing bolt-on properties, has enabled Berry to generate steady cash flow and maintain relatively flat production levels in recent years. This approach, coupled with the competitive advantage provided by its well servicing and abandonment business, positions Berry favorably within the U.S. upstream oil and gas industry, which has seen a compound annual growth rate of 5-7% over the past five years.
As Berry continues to execute its strategic plans and capitalize on the opportunities presented by its diverse asset portfolio, the company remains well-equipped to deliver value to its shareholders while navigating the evolving landscape of the energy sector.