Berry (bry)(BRY) - 2023 Q3 - Quarterly Report

Part I – Financial Information Item 1. Financial Statements (unaudited) The company's unaudited statements show a net loss of $25.2 million for the nine months ended Sep 30, 2023 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total current assets | $157,691 | $218,055 | | Total assets | $1,613,925 | $1,631,030 | | Total current liabilities | $220,062 | $234,207 | | Long-term debt | $453,667 | $395,735 | | Total stockholders' equity | $708,119 | $800,485 | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Total revenues and other | $603,133 | $723,658 | | Net (loss) income | $(25,151) | $178,204 | | Diluted (loss) income per share | $(0.33) | $2.13 | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $119,639 | $255,534 | | Net cash used in investing activities | $(126,450) | $(109,664) | | Net cash used in financing activities | $(22,239) | $(119,680) | | Net (decrease) increase in cash | $(29,050) | $26,190 | Note 2—Debt The company's total long-term debt principal was $457 million as of September 30, 2023 Outstanding Debt as of September 30, 2023 (in thousands) | Facility | Principal Amount | Interest Rate | Maturity | | :--- | :--- | :--- | :--- | | 2021 RBL Facility | $57,000 | Variable (10.75%) | Aug 2025 | | 2026 Notes | $400,000 | 7.0% | Feb 2026 | | Total Principal | $457,000 | | | - On May 10, 2023, the 2021 RBL Facility's borrowing base was decreased from $250 million to $200 million, and the maximum consolidated leverage ratio covenant was tightened to 2.75x[156] - As of September 30, 2023, the company had $133 million of available borrowing capacity under the 2021 RBL Facility and $13 million under the 2022 ABL Facility[158][161] Note 3—Derivatives The company uses derivative instruments for hedging, resulting in a net liability fair value of $72.1 million - The company's hedging strategy targets covering operating expenses and a majority of fixed charges for up to three years out[165] Net Fair Value of Derivative Instruments (in thousands) | Date | Classification | Net Fair Value | | :--- | :--- | :--- | | Sep 30, 2023 | Net Liability | $(72,127) | | Dec 31, 2022 | Net Liability | $(8,305) | Note 4—Lawsuits, Claims, Commitments and Contingencies The company reached an agreement-in-principle to settle a Securities Class Action lawsuit for $2.5 million - An agreement-in-principle was reached to settle the Securities Class Action for $2.5 million, with a final settlement approval hearing scheduled for February 6, 2024[27][205] - Two shareholder derivative lawsuits, which piggy-back on the claims in the class action, have been filed and are currently stayed[178][206] Note 7—Acquisition and Divestiture The company acquired Macpherson Energy Corporation for approximately $70 million to add low-decline oil properties - The total purchase price for Macpherson Energy is approximately $70 million, with a deferred payment of about $20 million due in July 2024[216] - The acquisition is expected to provide near-term production enhancement and development opportunities[220] Preliminary Purchase Price Allocation (in thousands) | Category | Fair Value | | :--- | :--- | | Total assets acquired | $96,417 | | Total liabilities assumed | $(23,358) | | Net assets acquired | $73,059 | Note 10—Segment Information The company operates in two segments, with the E&P segment generating the majority of Adjusted EBITDA Segment Adjusted EBITDA (Nine Months Ended Sep 30, 2023, in thousands) | Segment | Adjusted EBITDA | | :--- | :--- | | E&P | $233,562 | | Well Servicing and Abandonment | $19,981 | | Corporate/Eliminations | $(55,322) | | Consolidated Company | $198,221 | - Adjusted EBITDA is the measure reported to the chief operating decision maker (CODM) for allocating resources and assessing performance[255] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses declining performance due to lower commodity prices and regulatory challenges in California Business Environment and Recent Developments The company faces volatile commodity prices, permitting delays, and new legislation impacting operations - The shareholder return model for 2023 allocates 80% of Adjusted Free Cash Flow to debt/stock repurchases and strategic growth, and 20% to variable dividends[1][263] - The Macpherson Acquisition was closed in September 2023, with a portion of the purchase price funded by reallocating $30-$35 million of the 2023 capital budget[1][296] - Significant delays in obtaining new drill permits in Kern County persist, and the company is assessing the impact of new legislation like AB 1167[319][345] Results of Operations Total revenues decreased 17% year-over-year, leading to a net loss of $25.2 million for the nine-month period Production and Realized Prices (Nine Months Ended) | Metric | Sep 30, 2023 | Sep 30, 2022 | | :--- | :--- | :--- | | Total Production (mboe) | 6,874 | 7,160 | | Avg. Daily Production (mboe/d) | 25.2 | 26.2 | | Realized Oil Price w/o hedges ($/bbl) | $74.72 | $95.83 | - Oil, natural gas, and NGL sales decreased by $157 million (24%) for the nine months ended Sep 30, 2023, compared to 2022, driven by lower prices and volumes[437] - Lease operating expenses for the nine months ended Sep 30, 2023, increased by $35 million (16%) compared to 2022, with 68% of the increase due to higher natural gas fuel prices[111] Non-GAAP Financial Measures Key non-GAAP metrics like Adjusted EBITDA, Adjusted Free Cash Flow, and Adjusted Net Income all declined significantly Key Non-GAAP Financial Measures (Nine Months Ended, in thousands) | Metric | Sep 30, 2023 | Sep 30, 2022 | | :--- | :--- | :--- | | Adjusted EBITDA | $198,221 | $302,440 | | Adjusted Free Cash Flow | $42,500 | $143,963 | | Adjusted Net Income | $28,804 | $150,015 | - Adjusted Free Cash Flow is defined as cash flow from operations less regular fixed dividends and maintenance capital, and is the basis for the shareholder return model[299][482] Liquidity and Capital Resources The company maintained total liquidity of $163 million and executed its shareholder return model - Total liquidity was $163 million as of September 30, 2023, consisting of $17 million cash and available credit[494] - In February 2023, the quarterly fixed dividend was doubled to $0.12 per share, and the company also paid variable dividends during the year[1][502] - The company has a stock repurchase program with $190 million of remaining authority as of September 30, 2023[504] - The company maintains an extensive commodity hedging program to protect cash flows from price volatility, with positions extending into 2026[8][118] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is commodity price volatility, which it mitigates through a derivative hedging program - The most significant market risk is from commodity prices, which management expects to remain unpredictable and volatile[558] Derivative Fair Value Sensitivity Analysis (as of Sep 30, 2023) | Price Scenario | Net Fair Value of Hedges | | :--- | :--- | | 10% Price Increase | $(167) million | | Base Case | $(72) million | | 10% Price Decrease | $9 million | Controls and Procedures Management concluded that disclosure controls and procedures were effective as of the end of the reporting period - Management concluded that disclosure controls and procedures were effective as of September 30, 2023[590] - No changes materially affected, or were reasonably likely to materially affect, the Company's internal control over financial reporting during Q3 2023[25] Part II – Other Information Legal Proceedings The company has an agreement-in-principle to settle its primary Securities Class Action lawsuit for $2.5 million - The parties in the Securities Class Action executed a Memorandum of Understanding for an agreement-in-principle to settle all claims for $2.5 million[27] - The court granted preliminary approval of the settlement on October 18, 2023, with a final approval hearing scheduled for February 6, 2024[27] Risk Factors The company faces new risks from California legislation regarding well bonding and climate-related disclosures - New California law AB 1167 imposes stricter bonding requirements on well acquisitions, which could delay or add costs to future transactions[568][596] - New California laws (SB 253 and SB 261) will require extensive public disclosure of GHG emissions and climate-related financial risks starting in 2026, which may increase compliance costs and litigation risk[31][569] Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Purchases of Equity Securities No shares were repurchased during Q3 2023, with $190 million remaining under the repurchase authorization - The company did not repurchase any shares during the three months ended September 30, 2023[570] - In February 2023, the Board increased the stock repurchase authorization, leaving a remaining authority of $190 million as of September 30, 2023[632] Other Information No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the third quarter - No director or officer adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the three months ended September 30, 2023[33] Exhibits The report includes standard exhibits such as corporate governance documents and required officer certifications - The report includes standard exhibits such as corporate governance documents and officer certifications (302 and 906)[572] Glossary of Terms This section defines key abbreviations and technical terms used in the oil and gas industry and financial reporting - Defines 'Adjusted EBITDA' as earnings before interest, taxes, DD&A, certain derivative impacts, impairments, stock compensation, and unusual items[35] - Defines 'Adjusted Free Cash Flow' as cash flow from operations less regular fixed dividends and maintenance capital[602] - Defines 'boe' (barrel of oil equivalent) as a ratio of one barrel of oil to six mcf of natural gas[636]