Q4 2021 Berry Corporation (Bry) Earnings Call
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Barry Corporation Q4, and full year 2021 earnings conference call will begin momentarily again, please stand by your conference will begin momentarily.
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Good day, and thank you for standing by and welcome to the Berry Corporation Q4, and full year 2021 earnings call.
At this time all participants are in a listen only mode.
The speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone please.
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I would now like to hand, the conference over to your Speaker, Todd Crabtree Investor Relations. Please go ahead.
Thank you Dennis and welcome to everyone. Thank you for joining us for Berry's fourth quarter and full year 2021 earnings teleconference. Yesterday afternoon Berry issued an earnings release, highlighting our full year 2021, and fourth quarter results speaking. This morning will be <unk> Smith, Chairman and CEO , Fernando <unk>, Chief operating officer, and Executive Vice President.
Cary Baker, Chief Financial Officer, and Executive Vice President 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 cause actual.
<unk> 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 web site <unk> Dot Com has a link to the earnings release any information, including forward looking statements made on this call or contained in the earnings release 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 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 transcript on our website, we plan to file our 10-K and post to the Investor relations deck within a week I will now turn the call over to <unk> Smith.
Welcome everyone and thank you for joining us this morning.
'twenty two is going to be a great year for Berry setup nicely by our 2021 performance with our new shareholder return model in place and at today's oil in stock prices, we expect to deliver cash returns in the mid to high teens in terms of dollars. This means that 2022 cash return is expected to be one.
160% to 190% of the $82 million, we have return since going public three and a half years ago. This.
This translates to approximately $1 60 to $1 90 per share.
As a reminder, our new shareholder return model implemented starting Q1 2020 to allocate 60% of our discretionary cash flow primarily in the form of cash variable dividends.
Its governing principles, our predictability transparency and simplicity, just like our business model.
Foundation of our business model as our base production, which is the production that comes from our existing producing wells and on average accounts for 90% of our total production year in and year out before we ever have to drill a new well.
Terminal decline rate of our production base production is low approximately 13% per year.
Our base production requires no new permits and as predictable, which is why we say that our development and production our D. N P business can be model like a manufacturing or industrial business.
Our 2022 goal is to maintain our production, which means we plan to keep production flat year on year let.
Let me briefly summarize how we do this our low decline production accounts for 90% of our production needs. The remaining 10%, which requires new permits is achieved by drilling new wells for 6% of the production and by doing Workovers and existing wells for the remaining 4% bottom line nine.
The percent of our cash flows come from production out of existing producing wells.
So when you combine our production profile with the current price forecast and run that through our new shareholder return model calculating our expected returns to shareholders as easy and predictable.
In 2021 in early 2022, we've reduced our carbon footprint by 13%, which is more than 205000 metric tons.
And we reduced our operating cost by $14 million, mainly due to our focus on operational efficiencies and A&D activity as well as ESG initiatives.
Additionally, in the fourth quarter of 2021, we purchased <unk> well services, a profitable business line to provide standard well services to the industry in California and to accelerate the reduction of fugitive emissions by plugging and abandoning idle in orphan wells across California.
This reduces actual and potential methane emissions, which is known to produce more than 80 times the warming power of carbon dioxide over the first 20 years of emission.
We also commenced the solar project at the Hill property, which we expect to be fully functional in the fourth quarter 2022.
And started the development of several water projects that will ultimately help with the reuse and reduction of water in our operations.
I'll come back to highlight some of our 2022 ESG initiatives in my concluding remarks, now I will turn it over to Fernando who will highlight the operational results of a successful year.
Thank you Tim I want to begin with one of our core values responsible we are responsible for and have an unwavering commitment to protect the safety of our employees and contractors to safeguard and respect the environment and to guarantee the integrity of our infrastructure.
This is reflected in our excellent health and safety results in 2021, we had the best safety performance in the history of the company as we did not have a recordable and lost time incident all year.
This best in class achievement.
In terms of operational performance in Q4, you can refer to the earnings release for details, but I'm happy to report that we met all expectations.
I do want to highlight our Q4 production results as we reached our production peak for the year. Despite the divestment of <unk> in October .
Speaking of divestments, we've had an active A&D campaign in the last few months.
Q4, 2021, we sold a plus reader field immensely populated la County.
This was a strategic decision to focus 100% of our California activity and low density population Kern County placer.
<unk> was our highest cost annoys return asset.
In January we divested rpm's gas field in Colorado, a marginal asset on our only remaining property outside of Utah and California.
The last well drilled in Rpms Gasfield Watson 2015.
Finally earlier this month, we acquired Antelope Creek in the Uinta basin as a bolt on property in Utah with existing production and significant upside.
In terms of activity in 2021, we completed our drilling and Workover program as planned with no delays and achieved a rate of return greater than 100% at strip pricing.
We will continue to have significant activity in 2022 with a capital outlook. The range is between 125 and $135 million. This will allow us to hold production flat year on year net of divestments and acquisitions.
As a result of the A&D activity that I just highlighted.
Oil intensity in 2022 with increased to 92%.
Our strategic financial decisions that enhance our focus on what do we know best produce profitable oil safely from low declining predictable conventional reservoirs.
In 2021, we decreased our operating expenses by 7% year on year, but just like everybody else, we will be affected by inflationary pressures going into 2022.
In our case currently estimated to be in the 5% to 10% range.
To summarize 2021 production increased every quarter of the year, we delivered great long term returns from our development program. We continued to decrease our total opex and we achieved the best safety results in the history of the company.
Same time, we optimize our asset base with strategic A&D activity in preparation for a great 2022.
Now I will turn it over to Kerry.
Thank you Fernando as you stated our operating performance was steady throughout 2021, and our 2022 budget projects. The same we plan to spend $125 million to $135 million of capital, excluding approximately $8 million for seeing Jay well services. Our total budget also includes new ESG.
Projects that trend will discuss in more detail in his closing remarks.
Based on the current oil strip and our hedge position, we expect to generate discretionary cash flow as defined as cash flow from operations less regular fixed dividends and capital needed to hold production flat of about $200 million in 2022.
If the $200 million of discretionary cash flow seems like an impressive number which I think it is we expect to generate our current market capitalization and a little over four years based upon the current strip, including the steep backwardation in the outer years and with our current budgeted cost structure and spa.
<unk> $125 million in capital to maintain our production flat remember our return model is designed to allocate 60% of that.
Amount predominantly to our shareholders through quarterly distributions as well as opportunistic debt repurchases.
With the remaining 40% to be used for opportunistic growth share repurchases and or capital retention. Our first quarterly distribution is planned to be made after the first quarter results reported more description on the model will be included in our Investor relations deck.
Since we are predominantly oil we are pleased to see oil prices rise and bleed global fundamentals are solid for continued strong pricing. Currently we are adequately hedged as was required under our new RV L that closed this past fall. However, as prices rise we will continue to <unk>.
Lock in more pricing opportunistically to ensure strong returns to our shareholder return model throughout the cycle Fernando and his team have done an excellent job of controlling non energy Opex and we expect that trend to continue however, the one area. We have seen increased exposure is energy opex ended it.
Heavily impacted by natural gas prices for 2022, we expect natural gas prices to be up $1 50 per <unk>. We haven't had the same opportunity to hedge natural gas as attractively as we did in 2021 that being said, we will continue to work to minimize the impact of gas prices.
On our energy cost long term, we have improved our energy cost structure by gaining access to an interstate pipeline that will provide us with historically less expense of gas from the Rockies. We received full access in May which will account for approximately two thirds of our natural gas needs I will end by reiterating.
<unk> that Barry has steadily posted consistent results through rational and predictable development, giving strong visibility to our cash flows. This gives us a platform to return capital to shareholders to shareholders in a way that should generate industry leading returns.
Optionality to deploy the remaining cash flow, we will continue to search for value, adding opportunities for portfolio trimmed back to you.
Thanks, Fernando and Gerry as you heard we are in a great position for 2022.
And before we close I want to highlight some of our ESG initiatives for the year. All of these projects will have a positive economic impact on our operations, our new service business J&J well services will continue to profitably reduce methane emissions by advancing the plugging and abandoning of 800 to 2000 wells.
For ourselves and other operators. In addition, Sanjay is also uniquely positioned to capture state and federal funds estimated to be $3 million to $400 million over the next two years to help remediate orphan wells. These are wells for which the state is liable.
California has a reported 35000 orphan and idle wells many of which are in densely populated la county.
A core competency of CJ is its ability to plug and abandon the complex orphan wells in highly populated often distressed communities. This reduces ghd leakage into the atmosphere and potentially reduces health risks to nearby communities.
We are also working on projects to further reduce our carbon footprint and our operating costs. We have signed an LOI to pursue a carbon dioxide capture and sequestration project, we will share more details as it matures. In addition to the completion of the solar project on the Hill lease that I mentioned in my earlier comments, we are working on another.
Solar project in our Pozo Creek field.
We are executing a significant mechanical integrity program to further reduce the possibility of methane leakage and other spills in the future.
Finally, Sanjay is upgrading our service rigs and ancillary equipment with low emission tier four engines, which use four gallons per hour less fuel and reduce emissions by 70% to 90%.
We're also working with a third party to treat our produced water for reuse, helping californians cope with extreme drought conditions going forward. This could provide a significant precious resource to the central valley and reduce our operating costs.
Together all of these projects, which have their own economic value could further reduce our carbon footprint by almost 350000 metric tons per year or an additional 25%.
And our need to purchase and our.
Reduce our need to purchase ghd offsets by an equivalent amount therefore, reducing our taxes other than income taxes.
And we are fulfilling our commitment to being part of the energy transition solution for California.
In conclusion, we are thrilled with our 2022 prospects and we're looking forward to distributing robust returns to our shareholders through our new shareholder return model, which in 2022 is expected to be $1 60 to $1 90 per share.
I'll now open it up for questions.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question. Please press the pound key.
Please standby, while we compile the Q&A roster.
Okay.
And your first question is from the line of Charles Meade with Johnson Rice. Please go ahead.
Hi, Good morning, this is Michael filling in for Charles.
Morning, Mike.
Alright, So previously Barry was more on a growth trajectory and from the guide it appears that there's maybe more towards a similar playbook that other e&ps are following towards maintenance Capex mode trying to hold production flat. So could you provide some details as to what some of the considerations where drivers were.
Ultimately maintenance plan change and why did you all decide this now.
Yes, Michael Good question I think right now we're thinking about the investor based in drawing investors back into the space.
I think it's important for the industry as a whole, including Barry to show the discipline around holding production and returning the capital I think from our point of view, we have optionality to be able to do that if we want to add growth. We can do it in the second half of the year, but at this point in time the plan right now is maintenance holding maintenance.
And returning capital and showing that we have the discipline in the industry itself as a discipline to again attract investors back into the space.
Michael This is Trevor let.
Let me add to that.
Remember our business is a little different than some of the other other.
Oil and gas companies.
If circumstances were to arise we can always very quickly add more drilling opportunities and more workover opportunities to grow production more.
We've always talked about the need to at least maintain our production.
This year, we are clearly specifying maintain the volumes year on year.
But focus on Rob.
Capital returns cash returns to our shareholders, which.
We think we know we can do generously throughout the year.
Great that all makes plenty of sense to me.
Also could you provide a little more detail on the A&D this past quarter.
Specifically, the Colorado gas divestiture in Utah operations.
Some details related to production pricing or potential inventory going forward.
Okay, Hi, Michael This is Fernando I'll start with Antelope Creek.
<unk> Creek, we closed.
Just a few days ago in early February .
A textbook bolt on assets in Utah.
Next to our existing fields in the Uinta basin.
We expect to have some significant savings in terms of opex from that asset about 10%. It is an asset.
It has low production decline.
Much predictable geology.
And again.
Existing infrastructure <unk> acid is already connected to our property.
Tom.
In terms of potential we currently have 10 ducks in that in that property that we're in the process of completing so we will be completing those wells and there is significant upside also in workover activity.
And we're going to be ramping up our workover activity in Utah to realize that.
The potential in <unk>.
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And so hope Creek.
It's a very very good asset exactly the same type of asset that we currently have.
Yes.
So in terms of pounds.
We divested <unk>.
At the end of January and PFS as I mentioned is was a 100% gas production.
It had gas it had that high opex for a gas producing field not much opportunity for growth as we haven't drilled a well in several years there was about seven years in fact.
It was very marginal with lower gas prices as well.
So with that we avoided also a huge vitamin costs in the future of bundling abandoning about 180 wells at $26 million cost.
Although we had in the future and we also avoided upgrading the integrity of the infrastructure was which was entirely a poor shape. So it was it was a great deal all around.
Great. Thank you for taking my questions.
Hey, Michael Michael.
One more thing on that just to let you know I think net net one of the things you probably asked we're considering it from a production point of view.
Basically plas arena, the selling of Plaza rate is offset by the acquisition of Antelope Creek. So those are net net about neutral and then work down about a 1000 BOE a day with the cell.
The Colorado asset PR, so on a pro forma basis that kind of when youre thinking about pro forma on a net net basis just wanted to give you some context around that.
But again as we pointed out we've moved from 88% oil mix to about 92% going forward. So just a little more context.
Once again, ladies and gentlemen, if you would like to ask a question simply press Star then the number one on your telephone keypad.
I don't see any questions there.
I want to thank everybody. That's all I want to thank everybody for joining us today and look forward to talking to you next quarter.
This does conclude today's conference call. Thank you for joining you may now disconnect.
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