Q2 2023 Berry Corporation Earnings Call
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Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Todd Crabtree head of Investor Relations. Please go ahead.
Thank you Gerald and welcome everyone and thank you for joining us for Berry second quarter 2023 earnings teleconference earlier today Berry issued an earnings release, highlighting 2023 second quarter results.
This morning would be Fernando <unk>, our Chief Executive Officer, and Mike <unk>, Our Chief Financial Officer.
Before we begin I would like to call your attention to the Safe Harbor language found in our earnings release that was issued this morning.
Yes really used in today's discussion may contain 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 these statements.
These risks and other factors outlined in our filings with the SEC, including our 10-Q, which will be filed later today on 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.
That presentation reflects our analysis as of the date, we have no plans or duty to update them, except as required by law. Please.
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.
And the transcript on our website I will now turn the call over to Fernando.
Thanks, Todd and welcome everyone and thank you for joining us in the second quarter, we successfully executed on our strategy to maximize shareholder value and generate meaningful returns our operational and financial performance was strong and we delivered on all fronts. We are excited about our pending acquisition of Macpherson energy corporate.
Which is on track to close late in the third quarter.
This is another step in achieving our very important objective objective of acquiring accretive producing bolt ons.
We currently anticipate that our full year 2023 results from our current operations will be in line with previous guidance, except with respect to capital expenditures.
We expect 2023 capital expenditures to be approximately $35 million lower than initial guidance.
As a result of the reallocation of capital used to fund a portion of the Macpherson transaction.
It will fully update guidance in connection with the transaction close.
We delivered nearly 7% or more than 6800 barrels per day higher production volumes quarter over quarter.
Accomplish this with less capital than planned.
We expect annual production from our current operations to be at or above the midpoint of our initial guidance.
Our base production, which is expected to account for more than 95% of our total 2023 production has outperformed class.
This is mainly due to the implementation of an optimized steam injection strategy in our California feels to us.
A great example of what I mean, when I use the term operational excellence.
The powers of production comes from our successful Workover a sidetrack campaign.
Part of the production gain in Q2 was related to recovery in deferred production from Q1.
Our ongoing commitment is to maximize shareholder returns, while ensuring that we remain a responsible and safe producer.
In accordance with our shareholder return model. This quarter, we paid total dividends of <unk> 14 per share between fixed and variable.
This is in line with our goal to deliver a 2023 cash return in the high single digits based on our current stock price.
Additionally, we opportunistically repurchased $10 million of our common stock during the second quarter.
We recently announced that we've entered into an agreement to acquire Macpherson energy corporations privately held Kern County, operator for $70 million in cash.
This transaction improves capital efficiency and reallocate capital with 80% of the purchase price funded with $35 million from our planned 2023 capital expenditures plus expected cash flows from the acquired assets in 2023 and 2024.
Based on current projections and $75 per barrel Brent pricing, yeah, adjusted free cash flow delivered by the combined company. After the transaction is fully paid for in 'twenty 'twenty four is expected to be 15% to 25% greater than Berry without nutrition.
Sure some assets, which are high quality larger client producing properties are a natural fit with our existing world Kern County portfolio.
In addition to the attractive base production, we see upside for near term production enhancement and development opportunities by utilizing existing well bores.
This is a value creating transaction for berry and its shareholders reflective of our disciplined capital return strategy.
We are ideally positioned to capture future consolidation opportunities I will now turn the call over to Mike.
Thank you Fernando is always more information is available in our earnings release issued this morning and in our 10-Q filing available later today, but here are a few highlights.
Our financial and operational results were strong this quarter.
<unk> EBITDA totaled $69 million compared to 59 million for the first quarter.
This 17% increase despite the lower oil prices.
It's primarily due to higher production and lower lease operating expenses.
Lease operating expenses, including the effect of gas purchase hedges decreased 23% from Q1, most of which is attributable to the lower fuel costs and lower lease maintenance costs.
We also continued to implement ongoing cost reduction initiatives during the quarter some of which are beginning to bear fruit entering the second half of the year and example of this completion as this is the completion of the solar project at our South Belarus property, which in addition to reducing our carbon footprint is expected to reduce our annual power cost by.
About $300000.
Adjusted G&A expenses were down slightly compared to the first quarter and we expect to see continued improvement throughout the rest of the year.
Second quarter adjusted free cash flow was $34 million, which after taking into account the use of working capital in the first quarter resulted in accumulative net adjusted free cash flow of $7 million for the first half of 'twenty three.
Accordingly, we have declared a variable dividend of two per share. In addition to the quarterly fixed dividend of <unk> 12 per share.
As a reminder, our shareholder return model is based on annual adjusted free cash flow calculated after the payment of the fixed dividend, 20% of which is earmarked for variable dividends. The remaining 80% is intended for opportunistic debt and stock repurchases as well as strategic growth and the acquisition of producing bolt ons.
Barry was active with share buybacks in the second quarter repurchasing around one 4 million shares in the open market for approximately $10 million at an average price of $7.04 per share we have an additional $190 million authorized for future stock buybacks and $75 million authorized for debt repurchases.
To summarize various hitting its operational and financial targets as well positioned for continued success maximizing shareholder returns.
Thanks, Mike.
In closing our second quarter results have delivered on our commitment to maximize shareholder returns and achieve operational excellence.
We are on track to meet our annual production goals with less capital spend and decreasing operating expenses.
We are confident in our ability to enhance free cash flow and shareholder returns going forward.
We believe that the current industry and market conditions are favorable for M&A and my curious and acquisition as evidence of that.
Gary remains well positioned to be a consolidator.
Actively pursuing other opportunities that align with our strategy to maximize shareholder value.
With that I will now turn the call over to the operator for questions.
Thank you.
We will now conduct a question and answer session. As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.
To withdraw your question. Please press star one again, please standby, while we compile the Q&A roster.
Our first question comes from the line of Charles Meade with Johnson Rice. Please proceed with your question.
Okay.
Good morning, Fernando Mike and the rest of the <unk> team.
Fernando I wonder I want to pick up.
Exactly where you left off there with your prepared comments about you you said that.
Conditions are becoming more favorable for us.
For a N D or for acquisition opportunities in in Kern County.
Yeah. This this looks like a good deal of this.
The first deal, but can you elaborate a bit on.
What what are the prospects for more opportunities like this coming your way.
Yeah very good question Charles.
Before any in particular, we're seeing a renewed interest in M&A opportunities, especially with the current regulatory environment.
Groups are willing to have a conversation now more than before and we are very active in those conversations with several parties.
We believe the future of California, it's consolidation in order for industry to be able to achieve those synergies operational synergies available.
And we as Barry you want to be that that company that can step that leading company that consolidates assets.
Obviously, we continue to evaluate producing.
Properties in Kern County, but also in Utah and other places.
All in all cases properties that would align with our strategy to maximize shareholder returns.
You know we are looking at opportunities.
To be able to keep production flat or even or even.
Increased production in some cases.
We are focusing on areas, where we can see immediate operational synergies.
Areas, where we can apply some of our proven technologies to be able to enhance the value of those assets. So we are very active currently charles looking at different opportunities, but but but this is the time.
Got it so.
Just to just to push on that a little bit more for you if I understand you right.
Or if I understand correctly, it's is it something along the lines of you know these are these are.
Family owned businesses, probably family operated and they you know they they've been they've been doing the same sorts of projects you know for years and and now because.
The regulatory environment has has has maybe shut some of that those activities down there. It is kind of forcing a re evaluation of their strategic direction is that am I right.
Am I understanding correctly or along the right lines.
Yeah, Yeah, Yeah, Yeah, you're correct in that in that are in that assumption.
One of the smaller companies are kind of reevaluating their purchases now with the current environment, but again, we're looking at not only some of the smaller players by looking at different size companies are opportunities as well.
Got it got it okay. Thank you and then and then maybe just a second follow up there so.
Obviously you did this is the this is my first one is you know it's it's it's in your wheelhouse and in Kern County, but most of my understanding most of your your production not all but most of this is more a westar Bakersfield, whereas you know your existing parcel Creek and and and this person is.
More north of Bakersfield, So are there.
How is the opportunity set.
Different or perhaps better.
With these asset since your since you are kind of waiting up in this area.
Yeah.
We see opportunities both on the eastern side of our Kern County, which is which is the case is Macpherson and also the western side of Kern County, where most of our operations are so we are we are talking we are talking to folks on both sides.
And I'm a Christian as you know is fairly close to our parcel field. So we're gonna be able to realize some synergies just just.
Because of the kind of economies of scale.
But we are seeing opportunities in both both sides of that.
The base and then where we're actively looking at everything.
Got it I'll, let someone else I'll, let someone else hop in.
I'll hop back in the queue.
Thank you one moment at that prepare the queue.
Our next question comes from the line of Tim <unk> from Meros investment management. The line is now yours.
Hi, good morning.
Just curious if.
I'm sure you're aware of California resources in there and their efforts.
Uh huh.
Two more or less split the company into two businesses E&P on one side and carbon management.
On the other.
Is that is that.
Structure at all relevant to you and your assets since you've you operate and somewhat.
Similar.
Similar to where they are.
Yeah.
Yeah, very very good question Tim.
The big difference between CRE and C&I says, it's really size.
Our goal when it comes to two ESG in particular has to be a good corporate citizen and to be able to minimize the environmental impact as far as carbon capture projects, we want to be more of a follower than a leader.
So we are talking to different parties about the possibility of collecting our emissions and delivering doesn't niches too to a third party, but we don't we just simply don't have the size to be able to have our own project like cat like CRC.
And it seems like they are bringing in outside capital.
Partnership.
Uh huh.
So in another words I don't think they're handling it all on their own but after this I guess you've answered the question, but I'm just.
Hinting out there.
Yes, there are larger but theres also outside capital that's looking for things like this.
Can I ask you a separate question, whether there's been any change in the court process.
With Kern County timetable with the appellate court system or anything along those lines that you can offer color too.
Yes, sure Tim I, you know the permitting filtration really hasnt changed since last time, we reported.
The card issuing and stay back in January as you know now the appeal process is underway and the court is expected.
Court process is expected to take a few months and we are expecting.
To have a ruling and at the end of the year beginning of next year.
We're confident that the courts will reinstate the Kern County.
But that is obviously, a risk and it's not a given but.
We will be ready for that we've got several we've got on the order of 84.
County permits county cards as they call them ready to go when that happens, but that but for now there's really been no additional movements.
Beyond what I just talked about.
I see thanks.
Thanks for your time.
Thank you.
Again as a reminder to ask a question you will need to press star one one on your telephone.
I am showing no further questions.
So at this time I would now like to turn the conference back over to you.
CEO Fernando <unk> for closing remarks.
Well, thank you everyone for.
Attending and be safe and until next time, we're excited about what's going on with Barry. We're excited about the results in Q2 and are well, we'll keep going so thank you.
Yeah.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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