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Berry Corp. Second Quarter 2020 Results

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   |    Wednesday,August 05,2020

Berry Corp. reported its Q2 2020 results.

The company reported net loss of $65 million or $0.81 per diluted share and Adjusted Net Incomeof $5 million or $0.06 per diluted share for the second quarter of 2020.

Quarterly Highlights:

  • Kept all employees safe and maintained continuous operations while planning for continued COVID/oil demand uncertainty
  • Reduced Unhedged OpEx 16% quarter over quarter through our cost-savings initiative
  • Generated positive Levered Free Cash Flow(1); began building cash reserves as planned in July
  • Achieved Adjusted EBITDA(1) of $57 million on strong hedge position and cost savings
  • Enhanced 2021 financial hedge portfolio at $46/Bbl Brent; currently over 75% of first half targeted oil production

CEO Trem Smith said: "Our flexible and adaptable business structure and strong culture of teamwork, leadership and communication enabled us to adapt our work processes quickly in response to the challenges posed by COVID-19. We safely transitioned to a work from home environment for our office employees, and then returned to the office, without any problems with operations, accounting, financial reporting or internal controls. In all of our locations, we implemented CDC-aligned safety and health protocols, which have kept employees and their families safe and healthy while successfully supporting continuous operations.

"While market conditions improved over the latter part of the quarter we still anticipate, and have planned for, a prolonged impact of the global demand destruction caused primarily by COVID-19 to continue for the next few quarters. Our experienced Berry management team is successfully managing through this downturn by protecting our cash flow, maintaining our strong liquidity position and positioning the company to thrive when the market returns. Through sustainable cost and cash savings and efficiency improvements, we reduced our Unhedged OpEx costs by 16% quarter over quarter. We also improved our hedge position in 2021 to weather the continued volatility we expect through the first half of next year and we are determined to continue to build cash through the year. We currently plan to recommence drilling with one rig in early October, which would continue to work throughout 2021. As we have said before, the Berry business model is designed to create value in any cycle, and we are confident we will continue to do so in this one."

Second Quarter 2020 Results

Adjusted EBITDA(1), on a hedged basis, was $57 million in the second quarter 2020 compared to $72 million in the first quarter 2020. The decrease was mostly due to historically low oil prices caused by the OPEC+ supply increase and COVID-19 demand destruction Additionally, second quarter greenhouse gas ("GHG") costs were higher as they returned to historical levels following a significant decrease in the first quarter 2020 from a GHG allowance market dislocation which allowed us to purchase significant allowances at low prices. These decreases were largely offset by higher oil hedge settlements received and lower costs including OpEx.

Average daily production decreased 5% for the second quarter of 2020 compared to the first quarter of 2020, largely due to natural declines as a result of ending our drilling activity in April and improved steam management which reduced costs but temporarily increased water disposal needs and consequently caused a slight decrease in production. Inventory also increased in the second quarter. In the second quarter of 2020 we reduced capital 58% and drilled only four wells. The Company's California production of 23.4 MBoe/d for the second quarter of 2020 decreased 6% from the first quarter 2020.

The Company-wide hedged realized oil price for the second quarter 2020 was $54.40 per Boe, only a 5% reduction from the first quarter although the average Brent price declined 34%. The California average oil price before hedges for the second quarter was $29.53/Bbl, or 88% of Brent, which was 39% lower than the $48.38/Bbl in the first quarter 2020, which was 95% of Brent. The financial hedges for oil sales for the second quarter 2020 added $27.78 per Bbl to the California realized price, highlighting the effectiveness of our oil hedge positions.

On an unhedged basis, operating expenses decreased by 16% or $2.90 per Boe to $15.33 for the second quarter 2020, compared to $18.23 for the first quarter 2020. The decrease was driven by the effectiveness of our cost savings and efficiency initiatives which resulted in $2.77 per Boe lower lease operating expense. Additionally, operating expenses, including hedge effects, decreased to $18.11 per Boe in the second quarter 2020 from $19.81 in the first quarter 2020 due to the same factors and $1.20 per Boe higher gas hedge settlement paid 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 decreased by $0.6 million, or 3%, to less than $19 million for the three months ended June 30, 2020, compared to the three months ended March 31, 2020. Adjusted general and administrative expenses(1), which exclude non-cash stock compensation costs and nonrecurring costs, were $14 million for the second quarter 2020 compared to $15 million for the first quarter 2020. The cost reduction reflected various cost savings initiatives partially offset by a slight increase in bonus costs as the cost savings targets are met.

Taxes, other than income taxes were $3.94 per Boe for the second quarter compared to $1.56 per Boe in the first quarter 2020, as market rates for GHG requirements returned to more historic levels from the unsustainable levels experienced in the first quarter.

Net loss for the second quarter 2020 was $65 million compared to $115 million in the first quarter 2020. Adjusted Net Income(1) was $5 million for the second quarter, representing a 75% decrease from the first quarter 2020 due to significantly lower oil prices, as well as higher GHG, DD&A and income tax expenses.

For the second quarter of 2020, capital expenditures were approximately $17 million, on an accrual basis including capitalized overhead but excluding capitalized interest, acquisitions and asset retirement spending. Approximately 96% of this total was directed to California oil operations. In the second quarter of 2020, the vast majority of capital spent was used for activities which had no impact on current production, including capital for facilities, equipping and cogeneration maintenance. We also expended approximately $6 million for plugging and abandonment activities. The Company currently has 185 wells permitted for drilling and nearly 200 more in process at the regulatory agencies.

The Company acquired approximately 740 net acres in the North Midway Sunset Field for approximately $5 million. This property is adjacent to, and extends, our existing producing area in the Potter formation and we have identified numerous future drilling locations.

At June 30, 2020, the Company had $142 million available for borrowings under its RBL Facility which included $1 million of outstanding borrowings and $7 million of letters of credit. The RBL Facility has a $200 million borrowing base with an elected commitment of $200 million, limited to $150 million until the next semi annual redetermination.

Cary Baetz, chief financial officer, EVP and director, commented: "While we have realized substantial market improvements since April, these remain difficult times for our industry. We continue to focus on our cash position in order to provide Berry with the flexibility to move quickly in this cyclical trough. We are continuing to plan for a two-year cyclical low; however, our improved cost structure coupled with oil prices being substantially better than our earlier estimates give us more confidence in putting a drilling rig to work the last quarter of this year and throughout 2021. We have and will continue to live by our financial policy. We achieved positive Levered Free Cash Flow in the second quarter, and even increased it compared to the first quarter. We expect Levered Free Cash Flow for 2020 to be nearly $100 million."

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