Q2 2021 Berry Corporation (Bry) Earnings Call
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Yes.
Ladies and gentlemen, thank you for standing by and welcome to the Berry Corporation second quarter 2021 earnings Conference call.
At this time all participants are in a listen only mode.
The speaker's presentation, there will be a question and answer session.
Ask a question during this session you will need to press star 1 on your telephone please.
Please be advised that today's conference call is being recorded if you require any further assistance. Please press star zero.
I will now turn the conference over to your Speaker today, Todd Crabtree manager of Investor Relations. Please go ahead Sir.
Thank you Crystal and welcome to everyone. Thank you for joining us for Berry second quarter 2021 earnings teleconference. Yesterday afternoon, very issued an earnings release, highlighting second quarter results speaking this morning will be trimmed Smith, chairman and CEO Rahul.
Rahho, Chief operating officer, and Executive Vice President and Cary Baetz, Chief Financial Officer, and Executive Vice President DRAM will discuss our second quarter performance as well as our expectations for the remainder of 2021, Fernando and then Cary will share further details on how we are addressing the operational and financial aspects of our business before.
Turning it over to questions trend will make a few concluding remarks before we begin I want to call your attention to the Safe Harbor language found in our earnings release the earnings release and today's discussion contains certain projections and other forward looking statements within the meaning of federal Securities laws. These statements are subject to risks and uncertainties that may occur.
Cause actual results to differ materially from those expressed or implied in these statements. These include risks and other factors outlined in our filings with the SEC our website <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 tables in our earnings release and on our website for a reconciliation between all adjusted measures mentioned in today's call and the related GAAP measures. We will also post the replay link of this call and the <unk>.
Transcript on our website I will now turn the call over to <unk> Smith.
Thank you Todd good morning, everyone and thanks for joining us today.
The Berry team continues to execute our 2020.2021plan with excellence.
We had a solid quarter consistent with our expectations and annual guidance and we remain committed to our disciplined financial principles and to delivering long term value to our shareholders.
We continued to reduce our non energy costs on a sustainable basis, despite increasing commodity prices without compromising safety, our safety and environmental standards. Our safety record remains exceptional. Furthermore, we grew our production in the second quarter, approximately 1% and are on target to keep production essentially flat.
Year on year per our plan.
Our business model remains simple durable and resilient and we have proven it generate free cash flow in all but the most extreme market environments.
This is not just a promise for free cash flow in the future.
It's what we have already been doing at Berry, we generate free cash flow today and have for the past 4 years further and in line with our key financial Tenet, we continued to generate and live out of Levered free cash flow.
We are not aware of another U S based company that defines it like we do in.
In addition to the normal expenses like Opex taxes, and G&A. We include interest dividends and the capex needed to keep production flat or what we call maintenance capital only cash generated after these expenses is considered by berry to be discretionary free cash.
Flow or levered free cash flow or Levered free cash flow should only grow going forward as our hedges put in place during the pandemic begin to roll off.
As we pass the midpoint of the year, we are seeing positive signs in the industry. The price of oil is up almost $30 from a year ago. The demand for oil is increasing as vehicle miles traveled in the U S has bounced back to pre COVID-19 levels and overall air travel in the U S is returning to normal.
Oil supply in the U S has declined approximately 15% from pre pandemic levels and stable for the moment at around 11.2 million barrels per day.
However, rig counts in the U S and overseas remained well below pre pandemic levels as many resource companies are spending less capital in completing their significant inventory of ducks, which are wells drilled but left uncompleted after.
The market collapse in pandemic of last year.
Therefore, as demand continues to grow and the inventory of Ducks is depleted supply, especially in the U S is likely to continue to fall.
Gary However is in a terrific position to meet the growing demand and continues to create value and its conventional reservoirs through the drill bit in both California, where we are currently the most active operator with 3 rigs drilling new wells and in Utah remember we are not.
Our resource operator, we produce from shallow low decline predictable conventional reservoirs, making our drilling programs low risk and repeatable.
In the second quarter, we drilled 50, new wells in California, and 8 in Utah.
21, or 42% of the California wells and 5 or 62, 5% of the Utah wells are coming on production in Q3.
Furthermore, I wanted to be very clear that once again, we have not been impacted in any meaningful way by governmental or regulatory constraints in California.
We are continuing to receive permits and we're continuing to drill.
In other words, despite political distractions and headlines we have always maintained or grown our production.
Within our Levered free cash flow and increased shareholder value.
By all.
Measures Berry is on track to have a strong 2021 and beyond reflecting this the board approved a 50% increase to our third quarter dividend to <unk> <unk> per share a top tier return in the small mid cap E&P space.
Our model gives us the visibility to potentially increase incrementally our dividend as we continue to meet our cash needs through free cash flow generation.
We believe the current best use of capital is to keep production flat, enabling us to return capital and increase shareholder returns.
Strategic acquisitions continue to be a priority for the Berry team as we look to increase our scale through accretive value, adding M&A to be clear. However, the status quo outlook for Berry is very strong.
We continue to create significant value for our shareholders and we'll continue to based on the current strip.
Excuse me, while we were looking for and evaluating beneficial M&A opportunities I am encouraged that we have more than 3 decades of inventory in our sandstone reservoirs alone that will help meet California's long term energy demand, which by the way is not slowing down and.
<unk> value to all stakeholders for decades to come.
We understand the importance of environmental social and governance matters or ESG to all our stakeholders and the growing interest of our investors. We are continuing to enhance our work in this area as well as our disclosures yesterday, we published our quarterly update report, which you can find on the sustained.
Ability page of our website B R Y dotcom, notably we have introduced disclosures aligned with the SaaS b metrics for our industry.
All in all our business model continues to work just like it has since we became public.
It continues to perform.
We continue to generate value for our shareholders and we are positioned to do so well into the future.
I will now turn it over to Fernando.
Yeah.
Thank you Trent and I want to begin my comments by reaffirming that safety protection of the environment and regulatory compliance remain top priorities.
At the same time, we continue to create value by optimizing the performance of our current assets and by generating meaningful growth in many of our conventional plays in a safe and responsible manner.
I'm proud to report that we continued to achieve excellent health safety and environmental results in Q2.
In fact, we are approaching that 500 day, mark without a recordable incidents and 800 days without lost time incidents.
We will continue to dedicate the necessary resources to ensure the safety of our employees and contractors to protect the environment to meet all regulatory commitments and to maintain the quality of our infrastructure.
Moving to operational performance production in Q2 average 27300 barrels a day. This is 1% higher than Q1, our California oil production, which constitutes 80% of our total production was essentially flat quarter on quarter.
For 2020, 1 we expect almost 90% of our total production to be oil.
In Q2, we operated with 2 drilling rigs in California drilling 50 wells, which included 8 injectors and 6 delineation wells all in thermal sandstone reservoirs.
We drilled successful programs into powder on monarch sense in the midway Sunset field.
I, especially want to highlight our drilling results in the hill property part of the J M beverage volume.
These are vertical wells targeting the predictable to Larry formation, where actual production is exceeding type curves by 10% and our drilling and completion costs are 30% below last year.
<unk> very attractive returns.
The asset is currently producing at a 50 year high in.
In Q2, we drilled 8 wells in Utah, you anti basin, 3 of which are on production and performing better than type curve.
In total for 2020, 1 we have now drilled 10 wells in Utah, 7 new which will be completed and put on production in Q3.
We have a healthy bank of 70 permits in Utah that provides substantial flexibility to our capital program.
Yes.
Now you went to a basin provides another attractive opportunity to drill and predictable conventional assets.
Furthermore, we realized excellent results from our aggressive workover activities. These activities are yielding a rate of return in excess of 100% with approximately 140 wells back to production year to date.
This aggressive Workover campaign will continue for the remainder of 2021.
As previously stated we expect to see a slight production growth in the second half of the year with a higher Q4 exit rate compared to last year.
As planned in California, we picked up a third drilling rig in July targeting additional opportunities in Q3, we are meeting our production targets. Despite lower production in our postal Creek field, where operating practices by an offset operator, along with a reduction in steam injection volumes triggered an unexpected drop in production.
The situation is under control and we have already begun to arrest that feels high production decline.
Next let's turn to operating expenses in Q2.
We average on operating expense of $17.31 per Boe to a dollar and 20 cents per Boe improvement when compared to last year and a $3 per Boe improvement from 2019.
Our non energy Opex in Q2 average $12.71 per BOE. This is flat compared to Q1 and about a dollar per Boe lower than 2020. Moreover, since 2019, we haven't been able to cut more than $2 per Boe E auto of our non energy cost structure. These are sustainable.
Things stemming from improved operational efficiencies in all parts of our operations.
Our energy Opex in Q2 was higher compared to Q1, but still 6% lower when compared to last year's average as you may remember our energy Opex includes fuel gas purchases, which are which are mostly hedged offset by electrical sales from our cogeneration plants in California.
Now, let's turn to capital Capex.
Capex in Q2 was $43.5 million as planned.
Was higher than Q1 and within our budget for the first half of the year.
During the quarter, we added a drilling rig in Utah. In addition to the 2 rig program in California.
We also saw an acceleration of workover activity in Q2, when compared to Q1.
Capital outlook for full year 2021 remains unchanged.
In terms of well permitting in California.
We have enough permits in hand to execute to execute our capital program in 2020..1 at the same time, we are actively receiving permits for our 2022 program. We currently have 130 permits approved in California for 2021 and 'twenty 'twenty 2.
And have applications submitted for the remainder of our 2022 trillion program part of 2023.
To summarize we're achieving outstanding safety results. Our production has sequentially grown since the beginning of the year. We are within plan with our capital expenditures focusing on revenue generating projects and we have taken $3 per Boe out of our opex structure since 2019 in a sustainable way we are.
Our goal to become the best operator in the basins, where we operate and with that I'll turn it over to Kerry.
Thanks, Fernando the quarter was in line with our expert expectation for oil sales and natural gas natural gas prices returned to more seasonal prices.
As you May remember due to the impact of winter storm Yuri our Rockies gas sales were nearly as high in the first quarter of 2021as they were in all of 'twenty, 'twenty, adding $10 million to our first quarter adjusted EBITDA.
So keep that in mind as you compare our first quarter to second quarter, adjusted EBITDA of $41 million, which was in line with expectations.
We remain very focused on natural gas market.
Can have a significant impact on our operating cost we are well hedged through October and have added and will continue to add additional natural gas hedges for the next year. However, because we are gradually gaining access to the current river gas pipeline the need to hedge our NAV.
Gas consumption in our years will be reduced beginning this fall.
This will allow us to move ours or other purchase gas when the Rockies to our operations in California.
Secondly, creating a physical hedge.
We have been granted access to up to 15500 M. M. Btu per day, starting in October of this year with a high potential to gain another 30000 M. M. Btu per day in May of 'twenty 'twenty..2 these contracts are in place for up to 15 years. This is a great opportunity per.
To better manage our gas needs in California.
Oil fundamentals continued to improve global demand for oil is almost at the same level as 2019, but the slope of supply has gone down since 2019 based on global drilling activity a major supply increased disruption is not evident in fact the.
U S producers seem to be focused on ducks. However, this will this will eventually need to be put this they will eventually need to put the drill bit back to work, which for most will mean higher capex and lower cash flows just isn't the case for Berry, we are drilling 2.
Maintaining production and we continue to live out of Levered free cash flow in fact based upon our current cost structure and today's strip prices Berry should produce enough levered free cash flow that we could be debt free in about 2 and a half years don't forget our definition of Levered.
Free cash flow and Coos includes the cost of maintaining our production Tanger interest and our dividends we are a cash flow machine.
Want to hone in on this point a little more as of today Berry has returned capital amounting to 115% of the IPO proceeds or $127 million, including $77 million of dividends.
And we have done that without compromising production and while improving our oil intensity.
All of this makes it hard for us to understand why we trade at such a discount to the industry.
1 possible explanation is that the market has concerns about California politics, and its regulatory environment, both of which are publically and negatively focused on the industry. However, the fact remains that since creating the new Berry just 4 years ago, we have not.
Been impacted operationally from state or federal legislation only the market's knee jerk negative reactions to attention grabbing headlines have kept our valuations depressed.
Capital expenditures are in line with our plan and per our plan. The majority of our capital is B is to be spent in the second and third quarters. The timing for spending in the second quarter was weighted to the back end of the quarter and we should see the majority of the production improvements starting in Q3, we.
We would have an additional 600 barrels per day in production. If we had not experienced a small production issue from Endo mentioned earlier we.
We do expect to see the production fully return later this year or early 2022 in short we are seeing the uplift in production that we expect from our capital spend.
We are currently working on a new borrowing base facility that is right sized for our limited needs further exemplifying the point that we live at a levered free cash flow, we have not borrowed under our current facility in over a year and at the current strip, we don't see a need to do so in the foreseeable future that.
Third we are working with a strong bank group to provide the liquidity the market demands in closing we are making no changes to our annual guidance. Lastly, we continue to focus on return of capital and we're happy to announce that 50% increase in our quarterly dividend of 6 cents per <unk> per share.
Our 10-Q will be filed later today, if you want to take a deeper dive into the financials now I'll turn it back to tramp for his final remarks. Thank.
Thank you Carrie and Fernando.
Summary, it was a good quarter with solid results as you heard we are a great company and I want to close by underscoring what makes us great.
We have predictable shallow low decline, averaging about 13% annually conventional oil reservoirs.
Our business model continues to perform it works.
It has shown over and over again that is resilient durable and able to withstand pandemics market collapses and political headwinds.
We are a cash machine defining levered free cash flow as no 1 else does even with our definition, which includes interest dividends and the capex to maintain our production flat we have discretionary cash flows above $47 Brent.
If we exclude those items like everyone else seems to do we generate free cash flow above $35 Brent.
We continue to return value to shareholders. We have done this since day, 1 more than 77 million in dividends out of 127 million and total shareholder returns since going public just 3 years ago.
We have a strong cost management with more than $3 reduction in opex on a sustainable basis, while at the same time, increasing our oil and gas mix to 90% oil.
Remember oil production is by definition higher cost than natural gas production.
We provide hundreds of high paying skilled jobs and make substantial contributions to the local economies, where we operate.
We have an incredible safety and environmental record and adhere to all of California's safety Labor Human rights and environmental standards. These standards are the strictest in the world and in Sharp contrast to the foreign countries, including Saudi Arabia, Ecuador in Iraq, where California imports most of.
Its oil.
And finally, we are providing equitable and affordable energy for all Californians, while keeping the environment, our employees, our contractors and our communities safe and healthy.
I'll now turn it over for questions.
At this time, if you would like to ask an audio question. Please press star 1 on your Touchtone phone.
Once again that is star 1 to ask an audio question 1 moment for your first question.
Your first question comes from the line of Leo Mariani with Keybanc.
Morning, Liam.
Hey, guys.
Was hoping to get maybe a little bit more color on your thoughts on aegis.
Progress on the regulatory situation in particular with respect to the Lawrence Livermore study I know you folks talked about kind of having to wait to see what happens with the recall election. So perhaps you could maybe just talk about what youre kind of seeing there I guess that'll be here in about a month.
How do you think maybe this kind of plays out into the fall.
Sure Leo this is trim.
Again.
First of all we are only able to do with Cal Jim.
Charles is theyre going to do.
And.
A reminder to everyone on the call the high pressure cyclic steam moratorium was caused by another operator failing to meet some of the California regulatory requirements, which then caused 7 other operators to stop doing that particular mechanism on new wells.
Not existing production, we have been able to maintain our existing production in those areas.
And we have no none of the wells in the current budget or plans for next year or this year.
So that's the zone.
To Leo's question Cal Jim continues to state that it is tied up in the political environment of the recall election, and we will have to wait to see how that plays out and certainly have to wait to see how the outcome plays out to see when that frees up but.
It remains done they remain aware and I think it's been just tied up in the political whims of the state.
And the regulatory.
I'd like to also add we didn't emphasize a big long discussion on the regulatory piece in this earnings call and the reason is there was nothing to report.
We haven't been influenced by the Legislative sessions. This this time, we have a very good relationship with our with both and ourselves and there's a strong coalition and there's a growing recognition in the state that oil and gas is a requirement for them to go down this transition to a more green environment.
And so we.
There was no reason to talk about it yeah and the only other thing that was came through California was about well stimulation and well stimulation does not impact there that's correct period.
Okay, well I guess no news on that front is good news for you folks at this point in the near term.
Well, yes, yes, yes.
Leo Let me just bulk zone.
Just the near term.
The point, we were trying to make also is that we've never had any impact on us by it it's been a topic.
So it's a it's 1 that's continues to.
Be managed and mitigated okay. That's just want to make sure that's clear.
Yeah.
And obviously in your prepared comments you folks certainly talked about how M&A is.
Something that you certainly looking to do here.
Just wanted to get a sense if there.
Any high level update do you guys feel like Theres, some opportunities that might be a bit closer than maybe they were earlier in the year. We obviously have seen a much higher oil price environment in the last several months and you know it.
Feels a little bit more stable than it did.
Start the year, so just curious as to whether or not maybe there's more deals and maybe just give us a sense.
How far down the revenue you guys think you are in that front.
I think we're extremely active again its a very its a something that's at the forefront of what we're talking about on a consistent basis from and I spend a lot of time on this matter. The reality is it's got to be an attractive transaction for Berry the status quo for Berry is extremely attractive right.
Leo, especially at the current strip.
And as you know.
Looking at our trading at our cost of capital is extremely high.
1 of the most frustrating things we have that we continue to execute we continue return capital we continue to hold our production flat, but yet when you look at our valuation we continued to be valued much lower than resource plays which have dropped their production from $14 million in 2019 to 11, 2 today and now just talk about returning capital to get there.
Rewarded so with that being said we are looking for opportunities to grow cost of capital is expensive current status quo is extremely attractive if something comes along that works for us in our current shareholders. We will take advantage of it but it's got to meet those parameters.
Okay that makes sense and obviously you guys did take some action with respect to that with a very healthy dividend increase and I heard you right in the call. It certainly sounds as though we could see some other dividend increases in the future and clearly you guys have some underwater hedges this year and as those roll off there's kind of a huge jump in cash flow and in <unk>.
'twenty 2 so I guess in the absence.
Equity markets deciding to.
Good you guys, maybe a more appropriate valuation it sounds like you're committed to maybe ramping this dividend quite a bit overtime I would say that is a fair and accurate statement.
Okay, Great and then just lastly on capital.
Certainly you guys talked about spending more money in the middle part of the year. So for Q3, Capex should that be pretty similar to Q T. Before it drops off in Q4 can you just help us with that yes, I would say, yes, our capex spending we probably did a poor job of messaging earlier this year looks much more like what I would say a bell curve, where we're spending the majority.
And the second and third and late and lesser amounts from the first and fourth and in our kind of traditional as well, especially fourth quarters most people.
<unk> is down a lot. So I would say second and third quarter should look a lot alike.
Thank you.
Just to add a little more color to that as you know we've been operating with 2 drilling rigs in California, and then in mid July we picked up a third drilling rig. So we will be operating in California with through with 3 rigs in Q3.
And they will drop back to 2 rigs for Q4.
Okay. Thanks Fernando.
Leo.
Leo.
Ah got June you ask can I go back to your first question for a second this is from.
The other part of this is and we mentioned it in the call is that we are well on our way to having well we have the permits for 2021, we're well on our way to having everything we need in 2022, and we've even got permits in the system for 2023, okay. So.
I just want to make sure that's clear.
Okay. That's great additional color. Thanks trim you bet. Thanks Leah.
Your next question comes from the line of Charles Meade with Johnson Rice.
Good morning Charles.
Morning, Fernando and Carrie Thank you for all your for all your comments.
I was able to speak with caught a little bit last night on this but Fernando I Wonder if you could give a little bit more detail on what happened with this this offset operator.
I'm sure there's a lot of.
There's a lot of detail, but probably not.
Not appropriate for this for this 1 but what I'm really curious about.
Is.
Rob.
How how many how many similar circumstances exist in your portfolio or put differently, how how many other places.
Ross your asset base could could another offset operator affect you in this way.
Yes, Charles let me give you a little more detail on that the problem was really 2 fold as we had a decrease in water withdrawals down dip in our reservoirs.
And that was related to the.
The offset operator.
And then at the same time, we had a reduction in steam injection rates uptick.
So theres allowed.
I prefer to encroach on reservoir crossing early early breakthrough in lowering our reservoir temperatures as we've mentioned already things to our talented engineers they've taken they've taken corrective measures.
We're already seeing a positive response from the reservoir.
And we've already arrested the production decline now.
No we really don't have any other places similar.
With a similar situation as in.
Again this was in postal Creek, and we do not have any other fields with a similar situation.
Yes Charles.
Zero is a nice field, but it's a small field roughly probably about 1000 barrels a day on average over time.
So again I think this is kind of a 1 off but the point of pointing it out at this point in time is because I was concerned the market is not seeing the visibility to our capital efficiency on new production. So we don't usually like to point out things like this but I think it's good to give the transparency and visibility said the mall.
Does understand when we put capital to work, we get bonds out of it and again as Fernando pointed out. This is starting to move back in the right direction, but you are dealing with steam and with that.
The ability of when it comes back fully takes some time. So we just wanted to be full full and transparent with them.
Got it thank you for that Gary and I understand there's always a lot there's a lot of momentum.
And these are you doing.
And these thermal operations that can go in both directions.
Going back to the to ask another question about the the assets.
Hugh you mentioned on your prepared comments that the that the Utah wells that you have.
That you brought on line or above your type curve can you refresh us on what your targets are there in the Uinta basin and are in.
And what kind of.
What kind of results you were looking for what kind of results you got.
Yes, Charles you know, we do like the flexibility of our development program in Utah.
Especially it.
At the current prices and we've had excellent results.
Generally speaking our wells in Utah have better IP, then our wells in California, and we're looking at 3 digit eyepiece and we're getting those those ip's from from the 3 wells that are currently on production and again, we will have another 7 wells on production in Q4.
Sorry in Q3.
Again, I want to emphasize that Utah is a very predictable conventional reservoir and it does provide that flexibility that is very attractive, especially at current prices.
And they will be part of our development planning 2022 as well.
Okay, great. Thank you for that I have got 1 or 2 more questions about all I'll hop back in the queue and let somebody up somebody else picked a lot. Thank you. Thanks Charles.
Once again in order to ask a question. Please press star 1 on your Touchtone phone.
Your next question comes from the line of Nicholas Pope with Seaport Research.
Good morning, guys, Hey, Matt.
I was hoping you could talk.
You know looking at 'twenty, 2 strong cash flow profile coming with those hedges rolling off.
And you look at the balance sheet.
With with the existing note that you have in place.
How are you how are you.
Looking at that 400 million.
I guess the Colorability features of that and I mean, how is that how are you looking at that with kind of the cash flow profile, because it's the only piece of it.
That you have outstanding right now.
How are you thinking about that that instrument relative to kind of the balance sheet and what you want the company's balance sheet to look like going forward.
I would say, it's I would say it's fluid Nick obviously.
Yeah.
These visits are easier to manage without leverage right, but I think the right amount the right type of leverage works I think that piece of note works very well for us because again high yield.
Fairly low cost of capital plenty of flexibility on the cabinet side. So it doesn't it's not restricted.
The idea for US is really how does our overall free cash flow, where do we get the greatest value for our shareholders is what I think about when we look to 'twenty..2 is it is it lower debt is at a return of more capital back to the shareholders. I think that's what we're trying to solve at this point in time to figure out where we get the biggest bang for the Buck.
Debt maturity on that still a 2020, but we do have time.
We're out of the make whole period of time on it. So you don't have a huge call premiums that you would normally add shall we do have flexibility. If that's the best use of cash to be able to pull some of that back but at this point in time I think it's still a fluid conversation to be fair.
Got it and when you look at it relative to your credit.
<unk> is the commitment still 200 million, but its out of I mean I think.
The total revolver is.
That number at 12, 1.2 billion is that.
Yeah, I think right now based 5.500 with a $200 million elected commitment.
And again that's yeah.
Yeah, we really keep the elected commitment as skinny as possible because theres no used to be paying a 50 basis points on an unused that anymore. I think the 200 million is kind of works well with the rating agencies from a liquidity profile point of view. So that there is a formula on how we're looking at elected commitment.
But again from a company that lives out of Levered free cash flow, who keeps quite a bit of money in cash in the bank at this point in time the need to have substantially more than that is.
He is not needed at this point in time, obviously, if a transaction comes down the pipe where something is needed. We can move quickly it's something we could tap into but that's kind of how we're looking at.
Got it thank you.
And just real quick on Utah.
Is it that.
Is it still the waxy oil.
Kind of locked into the.
The Utah market.
And what's the pricing dynamic right there.
So on that on that oil, yet and while Thats a focus on Utah.
I would say it is we are primarily black wax it primarily states only in the Utah market. We have contracts that are up to a year on supply point of view and right now we're roughly about 90% of W. E T I, 88% to 90% of W. T I.
So from a transport point of view, obviously local is best because of reduced overall cost.
But it's an attractive at current W. T I and what that oil is in all of that is it's an attractive return.
And part of the reason we're also putting it to work is the market is actually clamoring for more oil in that market from local producers much like California, we've seen that market supply decrease and those 3 refiners need to continue to keep their their feedstock and <unk>.
Look for our producers like Berry, who has consistently worked in that market kept it consistent production profile as somebody they want to work with and that's what allowed us to get longer term contracts at better pricing.
Yes, there is refining capacity in Salt Lake city, especially for our crude with the black wax that carrier is talking about.
Got it so it sounds like there was a signal.
That was kind of it is driving this.
Uptick in tour activity that.
Demand that's kind of pulse.
There is demand and it is demand that they are looking for I mean, its supply that theyre looking for and I think yes.
It's still an attractive market force.
We are what we are we have we have we have organic growth opportunities there, but eventually we have some level of cap on those organic to make sure we're keeping supply and demand in that market in good shape for Berry.
Got it fantastic Thats all I had thanks, guys for the time thanks.
Thanks I appreciate it.
You do have a follow up question from Charles Meade with Johnson Rice.
Thanks for letting me back in.
This is going to be.
This question may be kind of a far field, but.
Going back to California operations.
You know theres a lot of news that our water.
Like reservoir water is low.
And there is an upside to that for you guys or at least less hydro generation and so theres maybe a.
Yep.
<unk> sees that and talk about California electricity prices being up and you guys would be beneficiary of that would be with all your cogent facilities, but is there any exposure that you guys have on so is that something that's all that's on the horizon and is it could it be material to Berry and then along with that is there any exposure that you guys have.
Access to water to actually run your co. Gen are you seeing for soldiers.
Once you start Fernando.
In terms of our operating itself, we've got enough water.
We produce and how we treat and to be able to to satisfy the needs that we have in terms of steam in fact, we use about 40% of our total water production too.
Generate steam.
And then the rest the rest is used in our waterflood that we have and then it's also sent.
Third parties for disposal as well and we dispose of the water ourselves. So that's.
So in short, we don't need any additional water for our operations.
Got it.
Do you are you.
Is the is the potential for higher electricity sales something that could actually.
Turning the dial for you or is it not something we should really be attuned to for Berry, maybe thats more of a question for Gary I think you know obviously Charles this is the high season for us on electricity sales.
Uh huh.
Right now we're looking at more his.
Prices can be higher demand could be higher we havent seen the amount of rolling blackouts and brown outs that we saw last year, we have seen an increase in natural gas prices. If you think they're high.
Everywhere else you should see California at this point in time, I think that would be the trigger what's going to drive it that for whatever reason, we haven't seen at this point in time the amount of brown outs that we had last year. So I think right now we're trying to I would say, it's going to be more seasonally seasonal with a potential for upside and probably not.
Potential for downside risk, that's how I'd answer that.
That was the characterization I was looking for thank you Karen.
Alright, Thanks, Charles I appreciate it.
Thank you. This concludes today's Berry Corporation second quarter earnings call you may now disconnect.
Sure.
Yeah.
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Okay.
Good morning.
Okay.
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Yes.
Yes.
Yes.