Q3 2020 Berry Corporation (Bry) Earnings Call
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Keith Please go ahead Sir.
Thank you Suzanne and welcome to everyone. This morning. Thank you for joining us for berries third quarter earnings teleconference. Yesterday afternoon, Barry issued an earnings release, highlighting 2023rd quarter results.
In response to the financial and operating uncertainties caused by COVID-19, addressing these and other issues will be Travelsmith Board chair and CEO Fernando Alonso various new Chief operating officer, and Executive Vice President and CFO rebate, Chief Financial Officer, and Executive Vice President DRAM will discuss.
<unk> berries continued response to these unprecedented times and the company's plans for the remainder of the year Fernando and then carry will share further details on how we are addressing the operational and financial aspects of our business before turning it over to questions trim will make a few concluding remarks before we begin I want to call your attention to the safe Harbor.
The language found in our earnings release, the earnings release, and todays discussion contains certain projections and other forward looking statements within the meaning of federal security laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements. These include risks and other factors outlined in our fight.
Filings with the FCC.
Our web site <unk> Dot Com has a link to the earnings release and our most recent investor presentation any information, including forward looking statements made on this call or contained in the earnings release and that presentation reflect our analysis as of the date made we have no plans or duty to update them, except as required by law. Please refer to the table.
In our earnings release and on our website for a reconciliation between all adjusted measures mentioned during today's call and the related GAAP measures. We will also post the replay link of this call and the transcript on our website I.
I will now turn the call over to trim Smith.
Thank you Todd good morning, everyone and thank you for joining us today.
I would be remiss, if I didnt acknowledge that yesterday, the United States held a critically important selection for our nation and our industry I can't tell you what the election results will mean to the industry Norbury, specifically, but I can tell you that we have designed barry to grow value in various political and economic environments and despite whatever head.
Wins, we may face.
We are resolutely focused on the business producing energy efficiently and environmentally sensitive manner, managing our financials to ensure we will prosper and building our vision for the future which includes our apart in the energy transition.
I'm proud and humbled to say that the very team has done an exceptional job executing our plan without being distracted and ensuring we come out of this cycle in a strong position it for growth.
We're fully confident that oil and gas, especially locally produced oil and gas will be a long term component, if any reliable affordable and equitable and energy future.
In short oil as an energy source is not irrelevant in both the developed and developing economies of the world.
We continue to operate in all the ways I discussed in various first and second quarter earnings calls since the onset of cold at 19.
First our employees and the communities, where we operate remain a top priority.
We employ strict COVID-19 protocols in keeping with CDC guidelines.
We have not had a workplace outbreak and our offices had been open for business for more than five months.
Our employees and the workplaces remain safe healthy and productive.
Second Barry is unique in the oil and gas business for several reasons, our fundamental principle of living out of Levered free cash flow has never changed nor will.
We still expect to generate more than 100 million in levered free cash flow this year.
We continue to create value as we always have even in this downturn, we will end the year with a strong cash position our cash opex cost structure is down more than $3 per be always since the end of last year and we believe most of this is sustainable for the long term.
Finally, we have entered the newest chapter of various evolution into a top value generator in the oil and gas space.
I am truly excited about this an extremely confident very will be successful in achieving it.
The remainder of my comments will be around this vision and looking forward into 2021.
Most recently, we hired our new COO Fernando Rahho, whose career in character demonstrates our core values of leadership entrepreneurship accountability ownership and communication.
He comes to us from the Great energy technology firms Slumber, J, where he managed more than 260000 barrels of oil per day in seven countries in the western hemisphere.
Prior to slumber J, he managed apache's assets in Egypt, Argentina, and Canada for more than 18 years, his breadth of international and technical experience and his experience managing hundreds of thousands of barrels of production per day are perfect for achieving our vision you will hear from Fernando.
A few minutes.
Simply put our vision is to be part of the energy transition in whatever form it may take.
We have been aligning ourselves with the goals of each state where we operate since our emergence in 2017.
We know that any success towards an energy transition will require all parties to come to the table to work together for that transition it.
It will require a diversified energy market, including renewables and oil and gas and it must be reliable affordable and equitable for all citizens of California, Colorado, and Utah, where we currently operate.
Oil and gas are and will continue to be a significant relative realm relevant part of the solution.
Barry we believed at home grown production is a much more environmentally and socially socially favorable source of energy than imported tankard oil from foreign countries, including OPEC plus we're today more than 60% of California is substantial oil needs per day are sourced to the disadvantage.
<unk> of its citizens.
For our industry and very specific leases my strong view that the industry can no longer take a business as usual approach.
There is convinced that alignment with the states environmental goals such as those in California makes sense and is required by all parties. Similarly governments must recognize that oil and gas can be safely produced locally and without harming citizens Hill.
We are aligned with the current leadership of call, Jim who is driving me effort to find the critical balanced between the immediate energy demands of today and the path forward to a more sustainable future.
Our goals for the energy transition, our first grow local oil and gas production, while reducing dependence on OPEC plus and other foreign countries, which currently make up 16 more than 60% of the more than 1.8 million barrels of oil, California uses every day.
Second grow diverse sources of affordable energy, including renewables.
And third promote California's climate objectives to increased zero emission vehicles and electrification and finally do all of this safely.
By achieving these goals through operational excellence innovation and application of technology, and utilizing joint ventures and public private partnerships as appropriate we will be supporting the social goals of the state as well for example, we will help address homelessness and poverty by providing great paying and stable jobs along with.
Other social benefits, we can and will contribute.
What is very doing to prepare for the energy transition.
Earlier this year, we created a strategic initiative in partnership role, which has the sole purpose of helping us develop the partnerships, both public and private necessary to achieve our goals and success.
Some of these include strategies for best use of produced water.
Well abandonment programs to reduce GHG gases, such as methane leakage into the atmosphere.
As well as making land available in mature areas for appropriate land use such as habitat housing et cetera.
Electrification of our vehicle fleet and the use of renewable power to enhance our oil producing operations.
To capture our progress in these areas, we have created a proactive working group to provide much more clarity and transparency to our SG reporting.
The first task at hand, which is well underway is to establish our baseline everywhere. We operate were driven to obligated to and can reduce our C O two footprint.
We must grow the size of Berry to have a more effective seat at the table with state and local governments and to grow shareholder value.
We are actively reviewing all opportunities to grow the company.
For example, with more than 400 operators in California consolidation is key for the state and Barry to achieve our mutual goals.
We're only looking at transactions that are value, adding and accretive to our shareholders. While also providing benefit to our many stakeholders, including the state.
Finally to do any of this we must take care of our core business. We will continue to develop and strengthen relationships with all government regulatory and political stakeholders as we have been doing over the past two years and we will continue to focus relentlessly on operational excellence, we will strive to flawlessly execute.
Our strategic plan and show the world that oil and gas can be produced safely and economically bringing benefits without harm to our communities and the states. We're committed to the future of affordable energy and have a vision for how we participate meaningfully in the meaningfully in the energy transition.
I will now turn it over to our new COO Fernando.
Thank you tram and thank you for the very nice introduction, it's really good to be here and I'm excited to be part of the team and part of this company's vision.
I'd like to start my comments my thinking Gary for this flu transition as I move into this role I am picking up right, where Gary left off with safety protection of the environment and operational excellence as our top priorities.
Let me introduce myself.
I've mentioned before joining Barry in mid September I was the executive director for his numbers. These western hemisphere assets before that I worked with Apache Corporation for more than 18 years, where I managed to patches assets in Canada and Egypt.
But actually started my career, almost 30 years ago with shell right here in Bakers field working steam flood properties.
I'm happy to be back in California, and look forward to addressing the challenges that we face and capitalizing on the opportunities.
We will continue to optimize the performance of our current assets and create meaningful growth in similar conventional unpredictable place. This is our core strength.
Moving to our performance I'll start with production results from the quarter Q3 production averaged 27600 barrels a day.
87% of which was oil production.
Also note that 80% of our total production comes from our California fields.
Production is down 5% compared to last quarter as we temporarily discontinued our drilling activity last April we also experienced seasonal another temporary operational disruptions in California and Utah.
After my initial review of our properties, we've started to make some operational changes that we believe will improve efficiencies and will stabilize production was improving capital efficiency.
One example is our Foster Creek field, where we changed how we manage the increasing casing pressures and we are now seeing improved production results.
Production for the full year is expected to be within our April guidance, which you cited to be flat to down 2% versus 2019.
We are focused on arresting base decline and have restarted high return drilling and Workover activity. In Q4. This will allow us to stabilize production as we come into 2021.
Now, let's turn to operating expenses in Q3, our Opex previously was 16 97. This is a dollar and 14 lower when compared to Q2.
This is mainly due to seasonally higher electrical sales, which reduced our operating expenses.
Non energy Opex, which excludes fuel purchase an electrical sales.
Is flat quarter on quarter on an absolute dollar terms.
Slightly up on a dollar per Boe basis due to lower production.
For full year Opex, we expect to finish the year well below our annual guidance. We also expect that most non energy operating expenses will be sustainable in the current price environment.
In Q4 and going forward.
Dedicate the necessary resources to ensure that we become the lowest cost operator in the basins, where we operate well not neglecting our regulatory commandments mechanical integrity obligations.
Next I'll touch on capital expenditures Capex in Q3 was $4 million a year to date, it's $57 million full year capital for 2020 is expected to be within our plan levels at 72 million excluding capitalized overhead.
As mentioned, we restarted drilling operations in mid October after six after a six month break we plan to drill 22 wells in Q4, focusing on three very exciting place.
We've drilled two horizontal wells in the prolific butter trend north midway Sunset, where weve seen excellent production response without steaming.
Our recent acquisition of more than 700 acres further consolidated our position in this trend and we plan to expand our activity here throughout 2021.
Also we plan to drill vertical wells in its Larry sandstone formation in our Hill property does feel has amongst the highest operating margins in our portfolio and do not require any additional permit.
Finally, we plan to drill five horizontal wells and the proven unpredictable monarch sandstone trend in our home base property in South Midway Sunset.
In Q4, we're also focusing on our Workover and Recompletion opportunities.
As you know Workover and Recompletion capital is some of the best capital to spend in terms of capital efficiency.
We plan to have a continuous capital Workover program. In 2021. This is a new focus area for Barry compared to previous years.
At the same time, we remain fully committed to our obligations under the California idle well management program and our role as a leader in the environmental social and governance initiatives.
In line with our plan are plugging and abandonment costs were $14 million year to date, I will be $16 million to $20 million for the full year.
We are able to report that we will abandon 191 wells in 2020, which is well above our official idle well commitment of 160 wells.
As mentioned by trend in past calls we have been actively in communication with a joint Cal Jim Lawrence Livermore.
Nickel study on high pressure cyclic steam production processes in thermal dynamite reservoirs.
We anticipate the report will be completed before the end of the year. Our 2021 plans currently to not include new thermal dynamite development.
Dissipated development program for 2021 is targeting sandstone reservoirs only these are predictable high return low decline conventional plays in San Joaquin into San Joaquin Basin in California.
Also we plan to meet or exceed all plugging and abandonment obligations as we've done in 2020 and with that I'll turn it over to Carrie.
Thanks, Fernando we're continuing with our two year plan for a cyclical low crude price environment. We are generating significant cash in 2020 as planned we have more than half of our expected 2021 oil production hedged well above the current strip. This is more heavily weighted in.
The first half of the year and in total should provide adequate price protection to fulfill our plans we have lowered our costs. We're also beginning to see production improvements as we start to deploy capital and realize efficiency gains. We know that there is a lot of issues decks that cloud the economic.
Picture at 2021, and these issues add uncertainty for our planning purposes. However, we do see oil prices strengthening in the latter half of 2021 as the worlds ability to manage COVID-19, we will continue to improve and as vaccines and therapies are introduced one of.
The advantages of Barry is that we can scale up or down very quickly that said we are currently moving forward with the plan of holding production relatively flat in 2021, which keeps us in line with our 2019 and 2020 annual production to announce.
We will find these developments with cash flow from operations and cash on hand again this aligns with our two year down cycle plan and our goal of living out of Levered free cash flow over the two year period.
If the global economy economy continues to lag long lower for longer than we will reduced activity and continued to build cash for Barry It is that simple.
Ill stay away from repeating financial information in Yesterdays earnings release, and the Q that will be filed later today. However, two financial numbers I will highlight our levered free cash flow for the quarter, a $48 million and our current cash balance at roughly $60 million, we expect our cash balance to continue to operate.
Improve the remainder of the year.
Based upon our current hedge portfolio and operating performance. We currently expect Levered keep levered free cash flow for 2020 to be more than $100 million are all hedge book hasn't changed since the last quarter, but we did recently enter into hedges for gas sales.
Roughly 12500, and then B to you at day at roughly $3 per 2021.
As trim and Fernando have highlighted our cost cutting savings and efficiency initiatives continued to be strong one of the short term cash saving initiatives that we get the most questioned about it the temporary suspension at our quarterly dividend. This suspension currently saves us nearly $10 million of cash per quarter how.
However, we are committed to returning the value to the shareholders as the economy and our financial position allow.
I stayed in last call. We will review, we will consider reinstituting our dividend when we have more clarity on long term prospects of oil prices will explore this when brent prices reaches sustainable $50 barrel.
Staying on liquidity, we are starting in the fall Redetermination and we aren't expecting a change from the current $200 million elected commitment that we do expect the $50 million blocker to be removed, we primarily use the RBL facility to manage working capital fluctuations and have no.
Standing is on the line today, our plan anticipates, we will not use the RBL through 2021, given the strong cash position and weaker and we are currently in it that we aren't currently in the process of building at Barry We remain steadfast on managing this company for value.
We will continue to operate efficiently safely and at the lowest possible cost during these challenging times and beyond.
While we don't know when the market will improve we are working to ensure that Barry is in the best position to continued for continued success. This means taking advantage of opportunistic acquisitions like bolt ons hedging prudently lowering our cost and living within our Levered free cash flow and now I'll turn it.
Back over to trim for his final remarks.
Before opening it up for questions I'd like to make a couple of comments on strategic opportunities consolidation is needed as investors are demanding scale and cost savings the universe of public opportunities for Barry is smaller than the resource focused companies. We continue to focus on conventional production was.
Hello decline curves, we will leave no stone unturned looking for the right opportunities. We have a management team that has been focused on creating value and living within levered free cash flow since our inception.
There are opportunities in the market that will greatly improve our skill and allow us to create additional value by reducing both gionee and operating cost, while giving us a better opportunity to be a meaningful participant in the energy transition and use of renewables within our operations.
However, we will not grow for the sake of growth and the transaction must be accretive and work within our financial policy.
At Barry we understand the situation in California and across our nation is acute but things are improving demand in the majority of US is returning to pre cobot levels. We are working well with the governments in the states, where we operate and we are in the position to provide the needed energy for California, Colorado and Utah.
To rebound.
In closing, we will continue to create value build cash and ensure our strong position when the market returns our focus for 2021 is maintaining our production keeping our costs down and our employees and the communities, where we live and operate safe.
Continuing to ensure that Barry can provide affordable energy to the citizens of every state, where we operate and looking for opportunities to return capital back to our investors.
We'll now open it up for questions.
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The Bible, we complied acuity roster.
First question comes from the line of Leo Mariani from Keybanc.
Finally open.
Hey, guys.
I was hoping to get a little bit more color on sort of regulatory developments out in California. There is you kind of still waiting on the Lawrence Livermore study here, but any insight from any kind of recent conversations you may have had with with state officials therein and Cal Jim.
He began to giving you any sense of kind of where this may be headed and then just kind of wanted to see also if there's any thing else that might be coming up on the regulatory front that might be getting ready to go to legislative session, maybe next year or something.
Sure Hey will this is true.
Let me just give you a quick update first of all we have well over 200 permits in hand to drill our sandstone wrote.
Targets.
So we are we have a good pipeline of permits that are coming through the system and that is continues to work well in our relationship with Cal Jim is going very strongly we have no new thermal dynamite projects on the plans for 2021, However to answer your question about Belgium and law.
Once Livermore, we are in communication with them they will be finishing up there the actual study here.
Soon and then it will go to a process where.
It's reviewed and individual operators will be discussing with Lawrence Livermore in college and the impact on them as my understanding. So we anticipate this to go on into the first quarter that part to go on into the first quarter of next year and we'll continue to talk about it and monitor it but the good news is its going as per.
Land with the government and there is a desire currently for the government to finish it up.
Regarding the future there will be a legislative session starting here shortly and it's the first of two you'll know that California has two of them each.
Each cycle and we do anticipate that there will be all legislation proposed that is.
Going to require our attention to push back on there will be.
Anti fracking.
Bill whatever that means by the way Leo.
The definition of fracking is.
Is all over the place in California.
And but the industry is well prepared and Barry is well prepared to to address.
These legislative efforts.
And but we do anticipate it and.
May be.
Very visible, but it will be it's part of the nature of the business in California.
So we're ready.
All right. That's good color just wanted to touch base a little bit around.
Your comments on scale trend you certainly pointed out that it's kind of not as many public opportunities versus the shell guys. We've clearly seen a wave of consolidation on the shale side.
You also kind of indicating you're kind of turning over a lot of rocks out there so to speak as well.
Can you give us the maybe a little color on kind of what type of deals you guys are looking at is it sort of a lot of little things like a bolt on that you do end up in.
Midway sunset over the summer is there anything kind of chunk year with significant production can you give us any color on the types of things you're looking at yes, I can I will give you the color I can without getting in trouble Leo you know I can't talk specifics, but I can say that we are we continue to look at the bolt ons, that's just normal business now.
Now.
And that activity will continue but.
What I was referring to Mr terms of strategic opportunities are significant producing opportunities.
That would just change the scale and magnitude of Berry's footprint.
Okay. That's helpful. I guess, maybe just turning to 21 you guys. Obviously have a plan to kind of stay flattish can you give us a sense of kind of roughly what type of activity that would require that kind of a couple rigs in California.
You've got the one rig now would it be a plan to bring another rig on maybe early next year.
Tell us about that.
I'm going to let Fernando.
Yeah.
This is Fernando again, and obviously, we want to remain nimble and flexible with our activity. We actually have two rigs working right now in California will be dropping one of them here in the next couple of weeks as we finish the monarch program.
And as opportunities arise, we'll flex up.
That prices stay low we'll look at pulling back we have that flexibility for next year. As you mentioned, we want to keep production flat. We're looking at the different options in terms of capital efficiencies as to what they will take in terms of capital dollars to do that so we're in the process of building our plan for next year, but the idea is to keep production.
Flat and most likely worked with a couple of rigs.
And 20, thank you.
Appreciate the color.
Okay. Thanks Leah.
Next question comes from the line of child.
Jim Johnson Rice your line.
It is now open.
Charlie trim.
That's a new pronunciation of my last name but.
We need some distractions today.
I want to go back to your to your comments on on the outlook in your prepared remarks, you said something that piqued my interest when you set up your scale.
Would benefit which serve the goals of Barry but it would also serve the goals of California, the state of California. So it.
Is there is there a shift or is there is there some increasing push from your state regulatory bodies to get rid of some smaller operators or to find a champion that they can get behind or what should we what should we.
Infer from your comments there.
Pretty much what they what they said let me, let me back up and repeat a couple of things Charles because it's a very good question.
First off there are over 400 operators in California.
And there are the California business has been around for many many years as you know well over 100 years in many many cases in many parts of the state.
Consolidation has never really occurred as a result, and given 400 operators operating practices tend to vary.
Getting consolidations into a consistent similar operating pattern will make it easier for well a band profitable well abandonments profitable local.
Oil production to grow its just a matter of doing the math literally that way and the state seems to be receptive to the concept.
Instead of having to deal with 400, they can deal with fewer makes their lives easier as well.
Got it Thats helpful. And then a follow up question, perhaps for Fernando you talked about.
Talked about these two horizontal wells in the powder trend and if I remember correctly I think that that part of that came from the acquisition you guys did last quarter or announced last quarter can.
Can you give us a sense of the the inventory in that Potter trend.
Currently as I mentioned, we drilled a couple of wells already that will be putting on production. This week.
And then early next year, we'll be drilling a few delineation wells in the trend.
And that will give us an idea of the inventory levels, but but the number is going to be it's going to be significant.
We're looking at about.
We're looking at about 40, 40 wells more or less right now, but it could be greater than that depending on the results of that delineation activity from from early next year.
That's helpful. Thank you.
Extra thanks Charles.
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We have another question from Nicholas.
No.
Seaport global.
Yes.
Good morning, guys.
Hey, I just wanted to clarify on the on what Youre kind of talked about Directionally in 2021.
The flat I took it flat.
With 2020 overall are you talking about flat from a from an exit rate.
2020, but we're talking flat overall year over year, so kind of if you look at and getting that if you look at 1920 and 21 year over year production will be fairly flat amongst the three years combined as well.
Total volume yes.
That that's actually had I just wanted to clarify that thanks guys. Okay.
Thank you.
Okay.
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I'm showing no further questions at this time I would now like to turn the conference back to Tim.
I want to thank everybody for joining us today.
And I want to wish everyone, a safe and.
And happy.
Giving season, which starts pretty much today. So good luck to everybody and thanks again to talk to you soon.
Ladies and gentlemen, todays.
This concludes today's conference call. Thank you for participating.
Yes.
Okay.
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