Quarterly / Earnings Reports | Third Quarter (3Q) Update | Financial Results | Capital Markets
Berry Corp. Third Quarter 2020 Results
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Berry Corp. reported its Q3 2020 results.
Berry reported net loss of $19 million or $0.24 per diluted share and Adjusted Net Income(1) of $13 million or $0.17 per diluted share for the third quarter of 2020.
Quarterly Highlights:
- Generated $48 million of Levered Free Cash Flow(1); on pace for more than $100 million for the year
- Built cash reserves of nearly $50 million
- Improved Adjusted EBITDA(1) to $62 million on sustained cost savings and improving price realizations
- Reduced OpEx an additional 6% quarter over quarter
- Welcomed Fernando Araujo as chief operating officer and executive vice president
Trem Smith, Berry board chair and CEO said: "This quarter Berry once again demonstrated its ability to create value even in a down cycle. We believe we are well positioned to emerge from what we anticipate to be a two-year cycle in a strong position for future growth. We are producing affordable energy in an efficient, environmentally sensitive, and safe manner, managing our financials to ensure we will prosper, and building our vision for the future.
"Oil and gas, especially locally produced oil and gas, continues to be a long-term component of any reliable, affordable, and equitable energy future in the developed and developing economies of the world. It is my strong view that the industry can no longer take a business as usual' approach. At Berry, we understand that alignment with a state's environmental goals is critical for the joint success of our organization, the industry, and the communities where we operate. We are committed to the future of affordable energy and have a vision for how we participate meaningfully in the energy transition, which includes innovation, technology and operational excellence," Smith continued.
Third Quarter 2020 Results
Adjusted EBITDA(1), on a hedged basis, was $62 million in the third quarter 2020, 9% higher than $57 million in the second quarter 2020. The increase was mostly due to lower OpEx and better oil price realizations which more than offset the lower production volumes.
Average daily production decreased 5% for the third quarter of 2020 compared to the second quarter of 2020, largely due to natural declines as a result of pausing drilling activity in April. Further, the Company undertook certain operational improvements that caused temporary reductions in our production. Notably, we performed some plugging and abandonment activity that resulted in temporary shut-in of nearby wells. Additionally, improved steam management reduced overall costs but temporarily increased water disposal and well maintenance needs, resulting in a slight decrease in production. The Company's California production of 22.2 MBoe/d for the third quarter of 2020 decreased 5% from the second quarter 2020.
The Company-wide hedged realized oil price for the third quarter 2020 was $56.16/Bbl, a 3% increase from the second quarter. The California average oil price before hedges for the third quarter was $40.02/Bbl, or 92% of Brent, which was 36% higher than the $29.53/Bbl in the second quarter 2020, which was 88% of Brent. The financial hedges for oil sales for the third quarter 2020 added $16.28/Bbl to the realized price, highlighting the effectiveness of the Company's oil hedge positions.
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.
On a hedged basis, operating expenses decreased by 6% or $1.14 per Boe to $16.97 for the third quarter 2020, compared to $18.11 for the second quarter 2020. The decrease was largely due to increased electricity revenues resulting from higher seasonal capacity payments. During the third quarter, the Company sustained the cost savings achieved in the first half of 2020, while hedged fuel and non-fuel costs were essentially flat to the second quarter 2020.
General and administrative expenses increased by $0.4 million, or 2%, to approximately $19 million for the three months ended September 30, 2020, compared to the second quarter 2020. The third quarter 2020 non-recurring costs mainly consisted of costs related to the retirement of the former COO and hiring a new one. Adjusted general and administrative expenses(1), which exclude non-cash stock compensation costs and nonrecurring costs, were $14 million for both the third and second quarter 2020. These cost levels include a slight reduction in headcount since early 2020, although none of these reductions are a result of the current economic environment.
Taxes, other than income taxes were $3.91 per Boe for the third quarter compared to $3.94 per Boe in the second quarter 2020. Greenhouse gas ("GHG") costs were lower in the third quarter of 2020 as the prices remained relatively flat while the emission volumes declined. However, the Company experienced higher property tax rates, as well as higher severance tax rates due to the expiration of certain deductions.
Net loss for the third quarter 2020 was $19 million compared to $65 million in the second quarter 2020. Adjusted Net Income(1) was $13 million for the third quarter, representing a $9 million increase from the second quarter 2020 due to lower OpEx; depreciation, depletion and amortization; taxes other than income taxes; Adjusted general and administrative expenses; and income taxes. Net loss was $0.24 per diluted share and Adjusted Net Income was $0.17 per diluted share for the third quarter of 2020.
For the third quarter 2020, capital expenditures were approximately $4 million on an accrual basis excluding capitalized overhead, capitalized interest, acquisitions and asset retirement spending. Year-to-date capital expenditures were $57 million. In the third quarter 2020, the vast majority of capital spent was used for activities which had no impact on current production, including capital for facilities maintenance and equipping. Berry also spent approximately $4 million for plugging and abandonment activities in the third quarter.
At September 30, 2020, the Company had liquidity of $192 million consisting of $49 million cash in the bank and $143 million available for borrowings under its RBL Facility which had no borrowings and $7 million of letters of credit outstanding. 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 in November at which time it is currently expected the availability will return to this elected commitment amount.
Cary Baetz, chief financial officer, EVP and director, added: "We planned for a two-year downturn earlier this year with a sharp focus on improving efficiencies, reducing costs, building cash and managing our production decline. To date, we have been successful across the board. Our significant cost reductions have resulted in a strong cash position and our 2020 production will be flat to the prior year while holding our capital spending at the planned levels. As we look to 2021, our plan is to maintain our production relatively flat year-over-year and the cash we built this year will support those efforts, and we do not currently expect to need to draw on our revolver through the end of 2021. Obviously, we work in a dynamic environment and market conditions can change rapidly but we are currently optimistic about our financial outlook for 2021."
