Q2 2022 Berry Corporation (Bry) Earnings Call

August 3, 2022

Yeah.

[music].

Yes, Sir.

Good day, and thank you for standing by and welcome to Bury corporations Q2, 2022 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During this session you will need to press star one on your telephone please be advised that today's.

The conference is being recorded I would now.

I'd like to hand, the conference over to your Speaker today, Danny Hunter with General Counsel you may begin.

Thank you welcome everyone. Thanks for joining us for Berry second quarter 2022 earnings teleconference.

Earlier today Berry issued an earnings release, highlighting our second quarter results speaking. This morning will be from Smith Board Chair and CEO Fernando <unk>, Chief operating officer, and Executive Vice President and Cary Baetz, Chief Financial Officer, and Executive Vice President.

We begin I want to call your attention to the Safe Harbor language found in our earnings release.

He used in today's discussion contains certain projections and other forward looking statements within the meaning of federal Securities laws. These.

These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in the statements. These include risks and other factors outlined in our filings with the SEC.

Our website B R Y Dot com has a link to the earnings release and our most recent investor presentation.

The 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 reconciliation between all adjusted measures mentioned in today's call and the related GAAP measures, we'll file our 10-Q.

Later today and also post the replay link of this call and the transcript on our website.

I will now turn the call over to Charles Smith.

Welcome everyone and thank you for joining us. This morning, we delivered solid results in the second quarter of 2022, and the year is trending in line with our expectations.

<unk> continues to be a cash flow machine.

We have a strong track record of returning capital to our shareholders as we remain on pace to deliver top tier returns going forward Barry is uniquely positioned to continue returning capital well beyond the current cycle.

Last quarter, we delivered our first variable dividend through our new shareholder return model. We are excited to report that we are delivering an even larger dividend this quarter for the quarter, our combined dividend variable and fixed at <unk> 62 per share more than three times larger than last quarter's return.

This positions us as one of the highest returners of capital in the industry.

We still anticipate the cash dividends for the fiscal year 2022 will be in the range of $1 60 to $1 90 per share.

Based on the current plan and commodity strip prices.

As a reminder, our shareholder return model is based on discretionary cash flow, we generate which is calculated after the payment of the regular fixed dividend and then allocate 60% of that discretionary cash flow primarily in the form of cash variable dividends and the remaining 40%.

As for discretionary capital to be used opportunistically, including in the form of share repurchases.

We generated $74 million of discretionary cash flow in the second quarter, which means we are delivering $44 million or <unk> 56 per share to our shareholders for the variable dividend on top of the fixed dividend of <unk> <unk> per share.

In the second quarter, we also repurchased 2 million shares for $23 million utilizing a portion of our board approved share repurchase authorization of $150 million in the aggregate.

Over the last few years, we have repurchased more than seven 5 million shares or almost 10% of Berry's outstanding shares.

Since going public in July 2018, and inclusive of the 62 per share dividend that will be paid in August we will have returned more than $225 million to shareholders in the form of dividends and share repurchases.

Which is more than two times, the $110 million of net IPO proceeds.

This includes the $92 million announced so far this year.

Looking forward to the remainder of the year, we see our production holding relatively steady and our discretionary cash flow remaining strong. In addition, we expect full year capital to be at the lower end of its guidance range due to a shift in our development plan to focus on reusing existing well bores further optimizing.

Our use of capital Fernando will expand on this further.

Thank you tram for details of our operational performance in Q2, please refer to the earnings release and 10-Q.

Sure a few key achievements I'd like to highlight from Q2.

<unk> remained essentially flat from Q1 to Q2.

Net of our Colorado divestment in January we improved our capital efficiency by allocating more resources to working over existing well bores in Q2, which.

Which is our most efficient use of capital.

So far this year, we have completed 169, workover jobs with a rate of return greater than 100% for the program.

Also in Q2, we began implementing a robust surveillance program, which includes enhanced data gathering and reservoir management.

The program helps us maximize oil recovery from our fields has generated additional workover scope.

He is helping us optimize new well placements.

This is another effective way to enhance base production performance, we expect that on average the base production will account for more than 90% of our total production this year.

Non energy operating expenses increased quarter on quarter, mainly driven by higher inflationary pressures also we identified and executed expense workover activity in Q2 above and beyond what we have done in previous quarters.

Plan to continue the current pace of Workover activity for the remainder of 2022 is it generates additional oil production today.

Energy Opex decreased quarter on quarter by $2 19 per Boe.

This was mainly driven by additional gas hedges realized in Q2.

Currently have two thirds of our demand hedged at $4 per Btu.

Plan to have most of our demand hedged in Q4.

Also additional physical natural gas line capacity in the <unk> line covers up to 80% of our total gas this.

<unk> brings a reliable supply of gas from the Rockies to California at prices that historically has been less expense.

All of these.

To mitigate the volatility in the gas markets too.

To summarize we have delivered production according to plan year to date and our production guidance remains unchanged.

During the quarter, we accelerated the pace of our worker productivity, which delivered outstanding results in our operating margins significantly increased quarter on quarter reporting, Utah, and California, I will now pass it per Carrie. Thank you Fernando we achieved strong discretionary free cash flow this quarter and further demonstrated our commitment to <unk>.

Delivering top tier yields and total returns are second quarter variable dividend met our expectations and we are well positioned to have strong payout for the rest of 2022 as well as over the next few years based upon the current strip.

One housekeeping item, we have aligned the record date and payable date, the fixed and variable dividends going forward as highlighted in our earnings release.

Regarding hedging we have roughly 60% of our planned production swapped at about $77 a barrel Brent for the rest of this year. This provides certainty around our free cash flow and leaves upside pricing for a significant portion of our production as we anticipate continued strong oil prices throughout the rest of.

Of the year and over the near term. Please look at slide 19 at the Investor presentation for more detail on our hedging program.

Our guidance ranges remain in place. However, operating expenses are tracking on the higher side of guidance due to the increase in Workover expense.

We will also incur some additional costs associated with our improved surveillance program for existing wells to optimize our base production.

We expect slightly lower capital expenditures due primarily to the increase and reusing existing well bores and due to the anticipated lower overall, new well count for the year.

In closing, we continue to provide investors with strong predictability and visibility into our cash flows with that we have the confidence to plan for and deliver significant cash returns.

And to deliver additional value to shareholders vacuum trucks.

<unk>.

Very strong team continues to deliver on its promises generating strong cash flow distributing best in class returns and successfully executing our plan.

Before we take your questions I'd like to briefly highlight three more items of note.

First we are extremely proud to report that our Sanjay well services team one the energy workforce and technology Council's Gold Award and grew 5% for the 2021 safety record.

Which will be presented tomorrow at the Council Summer meeting Sanjay has won this award 20 times over the last two three years.

Second we continue to focus on reducing our carbon footprint.

Notably we have signed letters of intent with operators of major carbon capture and sequestration projects to capture up to 80% of our current direct operational cotwo emissions in California.

These are long term projects in the early stages of definition and planning.

Finally, we have some exciting news regarding our thermal diatomite production.

We have encouraging results from early testing of two new horizontal wells.

The wells target, our thermal diatomite reservoir in north Midway Sunset field, using a new development concept that takes advantage of existing reservoir energy.

In short the wells leveraged the heat from existing base thermal steam operations, and therefore do not need new steam injection.

This application opens up a lot of exciting potential and with continued success.

Represents an important opportunity for Berry.

Now I'll open it up for questions.

And thank you as a reminder to ask a question you will need to press star one on your telephone. Please standby, we compile the Q&A roster.

And one moment for questions.

And our first question comes from Michael Ferro from Johnson Rice <unk> Company. Your line is now open.

Hi, Good morning, Michael taking my questions.

I appreciate the color on the thermal diatomite that was going to be my first question regarding if you still need to inject steam but it.

It seems like Thats, a good advantage to use the current <unk>.

<unk>, it's already down there so and.

In regards to these this new development program is it too early to determine how that's going to have an impact on.

Production for the number of locations that this could be applicable to.

This is tram and I'll, let fernando follows if necessary.

It is too early to overall production.

However, with continued success this opens up hundreds of opportunities for us in terms of well locations throughout our diatomite acreage.

Yes, we have very encouraging results from the first two wells that we've drilled we're moving fluids.

Producing oil we're getting to the wells, we have fracture system that is connecting the heat to the wells and we're gathering lots of data. So it's very a very exciting opportunity that we have.

And the next phase of that that opportunity is to is to continue with the development program and we're in the middle of preparing that.

Next thing is right now so it's very exciting.

Alright. Thank you that's helpful. So.

I guess my next question is how does it look like.

Does the path look like going forward to actually developing.

More than just a couple of test wells for these thermal diatomite wells in regards to.

The current regulatory environments or.

Other challenges that you might face.

Very very simply here Michael good question.

This is something we will be doing.

In light of the fact that it's successful it does not take away from our desire to see the high pressure cyclic steam moratorium lifted.

Which will give us opportunities to.

Build safely.

And efficiently more steam injection capabilities, which would just increase this opportunity even more we look to these activities in parallel.

And not one excluding the other.

And.

That's.

Where we're headed in terms of planning.

And the additional item to note is this entire area is already covered by a sequel approved.

<unk>.

Process in other words.

New drill locations are available to us in this area, while the Kern County, <unk> is finalizing its reentry into the into the regulatory world.

Does that make sense Michael.

That doesn't make sense actually I appreciate the information.

That's a very good thing for us.

It sounds like and Im looking forward to hearing more about the development of these thermal diatomite prospects going forward.

So are we.

Okay.

Yes.

And thank you.

And again, if you would like to ask a question that is star one one again, if you'd like to ask a question that is star one one.

And one moment for questions.

Okay.

One moment.

And our next question comes from Stephen Bush from Everglades. Your line is now open.

Good morning, gentlemen, thank you for taking my call.

So just give us an update on the permit situation in California.

Sure.

The permit update we are.

The current <unk>.

<unk> is.

Final stages of being.

Putting an adequate position that hopefully the court system will will approve its reentry and allow us to move forward with the new drilling well opportunities throughout the central basin.

In Kern County in particular, and so that's going on in the meantime.

We get we currently get.

All the Workovers side tracks and plugging and abandoning permits we need because these are re entries into existing well bores.

And we have 2000 over 2000 wells with Workover opportunities that we know of today. So thats, a very positive outcome because thats a great use of capital and then there is a large area in north Midway Sunset as I. Just responded that has sequel coverage already.

Proof and we're able to get new drill locations, there, which includes our potter sandstone trends as well as our thermal diatomite.

Okay.

So would you say.

The permit process loosens up Youll have a you have potential upside this year are you pretty much.

We have upside in terms of drilling activity remember, sometimes it takes a little while for the actual production to ramp up from new wells, but yes that would be upside that would extend into early 2023 and beyond.

Yes, Sir.

Okay and on this thermal diatomite process is this something you guys developed or you develop with someone else.

<unk> patentable or anything like that.

We have done.

We have done age.

<unk>.

This is something that was developed internally.

Looking at the reservoir. It's the result of an increased surveillance program in terms of.

The reservoir characterization and one of the outcomes was there should have been and it turns out there is some stored energy and and migratory path.

Inside the reservoir, which allows these these wells to flow. So no. It was a it was just good reservoir and geologic work.

Led to this this technique.

Okay.

Alright.

It looks good so far is I appreciate the dividend and it looks like were steady as we go.

Thank you that's great.

If you can say that louder that would be great.

Thank you. Thanks, they enjoyed the question I forgot one.

Thank you.

And one moment for our next question.

And our next question is a follow up from Michael <unk> from Johnson Rice <unk> Company. Your line is now open.

Okay. Thanks, guys thought it'd have a quick follow up just regarding the full year cash dividend expectation range of $1 $62 90 per share.

Can you clarify what oil price assumption is being used in that range.

Yes, we still look at it based upon our hedge position and the current strip.

Okay, Great that's helpful. Thank.

Thank you.

Thanks, Michael.

And thank you and I'm showing no further questions I would now like to turn the call back over to <unk> Smith for closing remarks.

I want to thank everybody for taking the time it was a good quarter for Berry and.

I hope everybody appreciates the significant impact of the variable dividend.

And have a great day.

This concludes today's conference call. Thank you for participating you may now disconnect.

Thank you.

The conference will begin to take into to raise your hand during Q&A you can dial one one.

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Okay.

[music].

Okay.

[music].

Sure.

Yes.

Okay.

[music].

Okay.

[music].

Yeah.

[music].

Yes.

[music].

<unk> conference is being recorded I would now like to hand, the conference over to your speaker today, Danny Hunter with General Counsel you may begin.

Thank you welcome everyone. Thanks for joining us for Berry second quarter 2022 earnings teleconference earlier today Berry issued an earnings release, highlighting our second quarter results.

Speaking this morning will be from Smith Board Chair and CEO , Fernando <unk>, Chief operating Officer, and Executive Vice President and Cary Baetz, 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 release in 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 results to differ materially from those expressed or implied in our statements. These include risks and other factors outlined in our filings with the SEC.

Our website VR why 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 are 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 reconciliation of all adjusted measures mentioned in today's call and the related GAAP measures, we'll file our 10-Q.

Later today and also post the replay link of this call and the transcript on our website.

I will now turn the call over to Charles Smith.

Welcome everyone and thank you for joining us. This morning, we delivered solid results in the second quarter of 2022, and the year is trending in line with our expectations.

<unk> continues to be a cash flow machine, we have a strong track record of returning capital to our shareholders as we remain on pace to deliver top tier returns going forward Barry is uniquely positioned to continue returning capital well beyond the current cycle.

Last quarter, we delivered our first variable dividend through our new shareholder return model. We are excited to report that we are delivering an even larger dividend this quarter for the quarter, our combined dividend variable and fixed is <unk> 62 per share more than three times larger than last quarter's return.

This positions us as one of the highest returns of capital in the industry.

We still anticipate the cash dividends for the fiscal year 2022 will be in the range of $1 60 to $1 90 per share based on the current plan and commodity strip prices. As a reminder, our shareholder return model is based on discretionary cash flow, we generate which is calculated after the pay.

<unk> of the regular fixed dividend and then allocate 60% of that discretionary cash flow primarily in the form of cash variable dividends. The remaining 40% is for discretionary capital to be used opportunistically, including in the form of share repurchases.

In the second quarter, we also repurchased 2 million shares for $23 million utilizing a portion of our board approved share repurchase authorization of $150 million in the aggregate.

Over the last few years, we have repurchased more than seven 5 million shares or almost 10% of Berry's outstanding shares.

Which is more than two times, the $110 million of net IPO proceeds.

This includes the $92 million announced so far this year.

Use of capital Fernando will expand on this further.

Thank you tram for details of our operational performance in Q2, please refer to the earnings release and 10-Q.

Here are few key achievements I'd like to highlight from Q2.

<unk> remained essentially flat from Q1 to Q2 net of our Colorado divestment in January we improved our capital efficiency by allocating more resources to working over existing well bores in Q2.

Which is our most efficient use of capital. So far this year, we have completed a 169 workover jobs with a rate of return greater than 100% for the program.

Also in Q2, we began implementing a robust <unk> program, which includes enhanced data gathering and reservoir management.

The program helps us maximize oil recovery from our fields has generated additional workover scope.

It is helping us optimize new loan placements.

He is another effective way to enhance base production performance, we expect that on average the base production will account for more than 90% of our total production this year.

Plan to continue the current pace of Workover activity for the remainder of 2022 is it generates additional oil production today.

Energy Opex decreased quarter on quarter by $2 19 per Boe.

This was mainly driven by additional gas hedges realized in Q2.

Currently have two thirds of our demand hedged at $4 per Btu, and we plan to have most of our demand hedged in Q4.

Also additional physical natural gas line capacity in the <unk> line.

Covers up to 80% of our total gas demand. This pipeline brings a reliable supply of gas from the Rockies to California at prices that historically have been less expense.

All of these.

To help us mitigate the volatility in the gas markets.

To summarize we have delivered production according to plan year to date and our production guidance remains unchanged.

During the quarter, we accelerated the pace of our Workover activity, which delivered outstanding results in our operating margins significantly increased quarter on quarter reporting, Utah, and California, I will now pass it to Kirk. Thank you Fernando we achieved strong discretionary free cash flow this quarter and further demonstrated our commitment to.

One housekeeping item, we have aligned the record date and payable date.

Fixed and variable dividends going forward as highlighted in our earnings release rigs.

For the year and over the near term. Please look at slide 19 of the Investor presentation for more detail on our hedging program.

Our guidance ranges remain in place. However, operating expenses are tracking on the higher side of guidance due to the increase in Workover expense.

We will also incur some additional costs associated with our improved surveillance program for existing wells to optimize our base production, we expect slightly lower capital expenditures due primarily to the increase and reusing existing well bores and due to the anticipated lower overall.

New well count for the year.

In closing, we continue to provide investors with strong predictability and visibility into our cash flows with that we have the confidence the planned for and deliver significant cash returns and to deliver additional value to shareholders vacuum trucks.

Very strong.

<unk> team continues to deliver on its promises generating strong cash flow distributing best in class returns and successfully executing our plan.

Before we take your questions I'd like to briefly highlight three more items of note.

First we are extremely proud to report that our <unk> well services team one the energy workforce and technology Council's Gold Award and group five for the 2021 safety record, which will be presented tomorrow at the Council Summer meeting Sanjay has won this award 20 times over the last two three years.

<unk>.

Second we continue to focus on reducing our carbon footprint, notably we have signed letters of intent with operators of major carbon capture and sequestration projects to capture up to 80% of our current direct operational Cotwo emissions in California. These are long term projects and the early stage.

A definition and planning.

Finally, we have some exciting news regarding our thermal diatomite production we.

Encouraging results from early testing of two new horizontal wells the wells target, our thermal diatomite reservoir in north Midway Sunset field, using a new development concept that takes advantage of existing reservoir energy.

In short the wells leveraged behave from existing.

Thermal steam operations, and therefore do not need new steam injection.

This application opens up a lot of exciting potential and with continued success.

Represents an important opportunity for Berry.

Now I'll open it up for questions.

And thank you as a reminder to ask a question you will need to press star one on your telephone please standby, while we compile the Q&A roster.

And one moment for questions.

Yes.

And our first question comes from Michael <unk> from Johnson Rice <unk> Company. Your line is now open.

Hi, Good morning, Michael taking my questions.

Yes, I appreciate the color on the thermal diatomite that was going to be my first question regarding if you still need to do to inject steam but it seems like thats. Good advantage to use the current energy thats already down there.

So.

In regards to these new development program is it too early to determine how that can have an impact on.

Production more the number of locations that this could be applicable to.

This is tram.

I'll, let fernando follows if necessary.

It is too early to overall production.

However, with continued success this opens up hundreds of opportunities for us in terms of well locations throughout our diatomite acreage.

Yes, and we have very encouraging results from the first two wells that we've drilled we're moving fluids.

We're producing oil we're getting keep to the wells.

Have a fracture system that is connecting the heat to the wells and we're gathering lots of data. So it's very very exciting opportunity that we have.

And the next phase of that that opportunity is to is to continue with the development program and we're in the middle of preparing that.

Next phase right now so it's very exciting.

Alright. Thank you that's helpful. So.

I guess my next question is how does it look like what does the path look like going forward to actually developing more than just a couple of test wells for these thermal diatomite wells in regards to.

The current regulatory environments or.

Other challenges that you might face.

Very very simply here Michael good question.

This is something we will be doing.

In light of the fact that it's successful it does not take away from our desire to see the high pressure cyclic steam moratorium lifted.

Which will give us opportunities to.

Build safely.

And efficiently more steam injection capabilities, which would just increase this opportunity even more we look to these activities in parallel.

And not one excluding the other.

And.

Thats.

That's.

Where we are headed in terms of the planning and the additional item to note is this entire area.

Is already covered by a sequel approved.

Process in other words.

New drill locations are available to us in this area, while the Kern County, <unk> is finalizing its reentry into the into the regulatory world.

Does that makes sense Michael.

That does make sense actually I appreciate the information.

That's a very good thing for us.

It.

Sounds like and Im looking forward to hearing more about the development of these thermal diatomite prospects going forward.

So are we.

Okay.

Yes.

And thank you.

And again, if you would like to ask a question that is star one one.

If you'd like to ask a question that is star one one.

And one moment for questions.

Okay.

One moment.

And our next question comes from Stephen Bush from Everglades. Your line is now open.

Good morning, gentlemen, thank you for taking my call.

So just give us an update on the permit situation in California.

Sure.

The permit update we are there.

The current <unk> is in final stages of being.

Putting an adequate position that hopefully the court system will will approve its reentry and allow us to move forward with the new drilling well opportunities throughout the central basin.

In Kern County in particular, and so that's going on in the meantime, we get we currently get.

And all of the Workovers side tracks and plugging and abandoning permits we need because these are re entries into existing well bores.

And we're able to get new drill locations, there, which includes our potter sandstone trends as well as our thermal diatomite.

Okay.

So would you say.

The permit process loosens up Youll have a you have potential upside this year are you pretty much.

Okay and on this thermal diatomite process is this something you guys developed or you develop with someone else.

Technology, patentable or anything like that.

We have done.

We have done age.

<unk>.

This is something that was developed internally.

Looking at the reservoir. It's the result of an increased surveillance program in terms of.

The reservoir characterization and one of the outcomes was there should have been and it turns out there is some stored energy and and migratory path.

Inside the reservoir, which allows the these these wells to flow. So no. It was a it was just good reservoir and geologic work.

Led to this this technique.

Okay.

Alright, well it looks.

It looks good so far is I appreciate the dividend and it looks like were steady as we go.

Thank you that's great.

If you could say that louder that would be great.

Thank you. Thanks, they enjoyed the questions I get one.

Thank you.

And one moment for our next question.

And our next question is a follow up from Michael <unk> from Johnson Rice <unk> Company. Your line is now open.

Alright, Thanks, guys thought it'd have a quick follow up just regarding the full year cash dividend expectation range of $1 60 to $1 90 per share.

Can you clarify what oil price assumption is being used in that range.

Yes, we still look at it based upon our hedge position and the current strip.

Okay, Great that's helpful. Thank.

Thank you Brian .

Michael.

And thank you and I'm showing no further questions I would now like to turn the call back over to Tim Smith for closing remarks.

I want to thank everybody for taking the time it was a good quarter for Berry and.

I hope everybody appreciates the significant impact of the variable dividend.

And have a great day.

This concludes today's conference call. Thank you for participating you may now disconnect.

Q2 2022 Berry Corporation (Bry) Earnings Call

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