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Berry Corp. First Quarter 2020 Results

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   |    Wednesday,May 06,2020

Berry Corporation reported its Q1 2020 results.

Berry reported net loss of $115 million or $1.45 per diluted share and Adjusted Net Income of $18 million or $0.23 per diluted share for the first quarter of 2020.

Current Highlights

  • Measures were taken to address the risks caused by the COVID-19 pandemic coupled with OPEC+ dynamics, with a focus on three priorities: taking care of our employees and communities, ensuring business continuity, and protecting the Company's liquidity
  • Adjusted EBITDA(1) of $72 million and Unhedged Adjusted EBITDA(1) of $52 million
  • First quarter production of 30,800 Boe/d with oil production comprising 89%
    Capital expenditures of $39 million with no changes to our current guidance
  • Enhanced hedge portfolio with nearly 100% of estimated California oil production hedged in 2020 and additional 2021 hedge positions, resulting in a current oil hedge book worth approximately $211 million as of May 1, 2020
  • Approximately 515,000 Bbls of total oil storage with an option for 315,000 Bbls
  • Ample liquidity, at quarter end, including $382 million available under $400 million revolver and currently expecting to generate $90-$110 million of excess Levered Free Cash Flow(1) by year end 2020

Trem Smith, CEO, said: "The Berry team continues to work tirelessly during this unprecedented and dynamic market environment. We are proud of our team's proactive response to both the COVID-19 situation and the events impacting the global oil markets, and believe that through our decisive actions, our Company and employees are well positioned to weather this storm and emerge in a strong competitive position in the future. The health and safety of our employees and their families is our number one priority. We are closely monitoring the COVID-19 situation and following the guidelines from the Federal Government, Centers for Disease Control and Prevention (CDC), and the state and local governments where we operate.

"The dual impact of COVID-19 related global demand destruction coupled with a supply surge resulting from the price war between Saudi Arabia and Russia has had an unprecedented negative impact on economies around the world and the oil and gas industry. It has created excess supply across the globe intensified by dwindling storage capacity driving oil prices to lows not seen since the 90's. Although our first quarter results were not significantly impacted by the convergence of these events, we anticipate that the consequences of these two issues could affect our business well into 2021 and therefore have strategically implemented a plan to help mitigate the impact. We believe Berry has the balance sheet and operational flexibility to successfully manage through the current oil price environment and we have taken actions to protect our cash flow and maintain our strong liquidity position.

"The seasoned Berry management team has led organizations and teams through several downturns. We will use our past experience to navigate Berry through this one. We understand that, by definition, plans are dynamic and must be modified as evolution of the data requires. Berry's key characteristics of quick decision making, adaptability, flexibility and resiliency make it especially well-positioned to succeed in this unique, dynamic world. To that end, we continue to reduce costs and improve our efficiency providing value in the short, medium, and long-term. We will maximize our cash position to ensure we have maximum flexibility regardless of market fluctuations. Managing cash flow is nothing new for Berry, and as we have historically demonstrated, we will manage the company to ensure it is strongly positioned to capitalize on the eventual market improvements."

First Quarter 2020 Results

Adjusted EBITDA(1), on a hedged basis, was $72 million in the first quarter compared to $87 million in the fourth quarter 2019. The decrease was largely due to lower unhedged oil and gas prices, partially offset by higher oil hedge settlements received and lower costs including OpEx and taxes other than income taxes. Adjusted EBITDA(1), on an unhedged basis, was $52 million in the first quarter compared to $72 million in the fourth quarter 2019. Additionally, Adjusted EBITDA(1) in the first quarter 2020 was 5% higher than the same quarter in 2019, although Brent prices were 20% lower in 2020, demonstrating strong annual growth.

Average daily production decreased 2% for the first quarter of 2020 compared to the fourth quarter 2019, largely due to natural decline, partially offset by the impact of Berry's development program in late December and into the first quarter of this year. In the first quarter of 2020, a large portion of the capital spent was used for activities which have no impact on current production, including for facilities, permitting costs for future developments and drilling for delineation and injector wells. The Company's California production of 24.9 MBoe/d for the first quarter of 2020 decreased 2% from the fourth quarter 2019.

California oil prices before hedges for the first quarter averaged 95% of Brent, or $48.38/Bbl, which were 20% lower than the $60.20/Bbl in the fourth quarter 2019, which was 96% of Brent. The financial hedges for oil sales for the first quarter 2020 added $10.61 per Bbl to the California realized price, highlighting the effectiveness of our oil hedge positions. Total Company realized oil prices before hedges of $47.61/Bbl were 20% lower than the fourth quarter 2019 average of $59.28/Bbl.

On an unhedged basis, operating expenses decreased by $2.45 per Boe to $18.23 for the first quarter 2020, compared to $20.68 for the fourth quarter 2019. The decrease was driven by $2.55 per Boe lower lease operating expenses, largely due to lower unhedged fuel costs related to our California steam operations. Additionally, operating expenses, including hedge effects, decreased to $19.81 per Boe in the first quarter 2020 from $20.37 in the fourth quarter 2019 due to the same factors and $1.89 per Boe higher gas hedge settlement losses period-over-period.

OpEx consists of lease operating expenses ("LOE"), third-party revenues and expenses from electricity generation, transportation and marketing activities, as well as the effect of derivative settlements (received or paid) for gas purchases, and excludes taxes other than income taxes.

General and administrative expenses were $6.91 per Boe for the first quarter compared to $5.46 per Boe for the fourth quarter 2019. Adjusted general and administrative expenses(1) were $5.20 per Boe for the first quarter compared to $4.66 per Boe for the fourth quarter 2019, primarily due to higher accrued annual performance incentive costs in 2020 compared to the fourth quarter 2019 as prior year performance targets were not fully met.

Taxes, other than income taxes were $1.56 per Boe for the first quarter compared to $4.16 per Boe in the fourth quarter 2019, due to lower market rates for greenhouse gas allowance requirements.

Due to the significant decline in oil prices and in accordance with accounting rules, Berry recorded a non-cash, pre-tax asset impairment charge of $289 million on properties in Utah and certain California locations.

For the first quarter, capital expenditures were approximately $39 million, on an accrual basis including capitalized labor but excluding capitalized interest, acquisitions and asset retirement spending. Approximately 97% of this total was directed to California oil operations. In the first quarter of 2020 a significant portion of our capital expenditures was used for activities which have no impact on current production, including approximately 50% of such costs for facilities, equipping and permitting for future development. Of the 19 wells drilled in the first quarter, nine were delineation and two were injector wells, while eight were producing wells. We also expended approximately $4 million for plugging and abandonment activities. The Company currently has more than 100 wells permitted for drilling.

Net loss for the first quarter 2020 was $115 million compared to $7 million in the fourth quarter 2019. Adjusted Net Income(1) was $18 million for the first quarter, representing a 45% decrease from the fourth quarter 2019.

At March 31, 2020, the Company had $382 million available for borrowings under its RBL Facility which included $11 million of outstanding borrowings and $7 million of letters of credit. The RBL Facility had a $500 million borrowing base with an elected commitment of $400 million.

Cary Baetz, chief financial officer, EVP and director, said: "These are unprecedented times for our industry. Therefore, it is critical that we focus our cash position to provide Berry with the flexibility to endure the bottom of this cycle. Until we see demand improving and a substantial reduction in supply, we will manage our business to maximize our cash position and maintain flexibility. We are continuing to focus on reducing our costs, improving on our efficiencies and staying in close communication with our banking relationships We have a solid balance sheet, with no near-term maturities as our bonds are maturing out in 2026, our RBL has minimal draws, and we were over-collateralized in the Fall 2019 borrowing base redetermination. We are exceedingly focused on weathering this storm and emerging on the other side by utilizing all of the tools available to us to achieve that goal."


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