Q4 2024 Berry Corp Earnings Call
Charles Meade, Michael Helm, Fernando Araujo, Todd Crabtree, Danielle Hunter
Charles Meade, Michael Helm.
Speaker Change: Good day, and thank you for standing by. Welcome to the Berry Corporation Q4 in full year of 2024 Ernie's conference call.
Speaker Change: at this time, all participants are in a listen only mode. To ask a question during the session, you press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised.
Speaker Change: To a story of question, please press star with one again. Please be advised today's conference is being recorded. I would now like to turn the conference over to your
Speaker Change: Thank you, Lisa, and welcome everyone, and thank you for joining us for Berry's fourth quarter and full year 2024 earnings call. Yesterday afternoon, Berry issued an earnings release highlighting our 2024 results. Speaking this morning will be Fernando Araujo, RCEO, Danielle Hunter, our president, and Jeff McGitz, our CFO .
Speaker Change: I would like to call your attention to the Safe Harbor language found in the earnings release.
Speaker Change: 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 these statements.
Speaker Change: These include risks and other factors disclosed in our filings with the SEC including our 10K which will be filed shortly.
Speaker Change: Our website has a link to the earnings release and our updated investor presentation.
Speaker Change: Any information, including forward-looking statements, reflects our analysis as of the date made. We have no plans or duty to update them, except is required by law.
Speaker Change: 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 related GAAP measures . We will also post the replay link of this call on our website. I will now turn the call over to Fernando.
Fernando Araujo: Thanks, Todd, and good morning, everyone. We appreciate your time today and your interest in Berry.
Fernando Araujo: Our fourth quarter, a year and 2024 results, highlight our continued success executing on our strategy to create long-term shareholder value.
Fernando Araujo: and Generate Sustainable Free Cash Flow. Underpinning our strategy, we're proud to have an innovative team operating our high-quality assets with the highest health, safety, and environmental standards.
Fernando Araujo: 2024 was a strong year, demonstrated by our financial and operational results.
Fernando Araujo: We delivered on key goals and positioned Berry for greater future success by unlocking the development potential from our thermal dynamite reservoir in California, and laying the groundwork for a horizontal well-development program in the UNTA basin.
Fernando Araujo: I will share details of the significant value drivers in a moment.
Fernando Araujo: Last year, we generated $292 million of adjusted EBITDA, 9% higher than 2023, and we reduced hedged LOE by 12% and our adjusted GNA by more than 6% year over year.
Fernando Araujo: In 2024, we improved our top tier capital efficiency. We drilled better wells exceeding top curves in most operational areas.
Fernando Araujo: Our average annual production of 25,400 barrels of all of the equivalent per day was near the top of our guidance range and even to 2023.
Fernando Araujo: It is notable that Berry has been able to sustain total production levels during the last six years, net of divestments, while during the same time period, Californians state-wide oil production has declined by 35%.
Fernando Araujo: is a testament to the quality of Berry's assets and the strength of our team.
Fernando Araujo: In 2024, we drove a total of 56 gross wells, 46 in California, which includes 10 new drills and 36 sidetracks, plus standing Utah, which includes four vertical, plus six
Fernando Araujo: We enter the year with an active rig in California and we started our horizontal drilling campaign in the Yantra Basin in February .
Fernando Araujo: In fact, we reached TD total depth on our first horizontal world this week, with 93% of the lateral within target range and positive indication of hydrocarbons throughout, on cost and on schedule.
Fernando Araujo: At year end, Berry's total proof reserves of 107 million barrels of oil equivalent had a PV-10 value of $2.3 billion at FCC pricing.
Fernando Araujo: Our 2024 Reserve Replacement Racial was 147%, which is a great achievement of our technical teams.
Fernando Araujo: In California, we added reserves in our thermal dynamite asset based on production performance and new site track opportunities.
Fernando Araujo: In the UN tabation, we added reserves due to the farmings and berries' change in focus from vertical to horizontal development.
Fernando Araujo: Our Thermal Dynamite Reservoir continues to deliver value enhancing results and is a catalyst for future opportunities.
In 2024, we successfully drilled 28 citrax with exceptional results.
Fernando Araujo: and a rate of return exceeding 100%. These results have unlocked the potential to drill an additional 115 citrex in this asset over the next few years, including 34 planned for 2025.
Fernando Araujo: As an important side note, I want to emphasize that we have identified another 110 site drug opportunities in other locations across our California assets.
Fernando Araujo: According to the UN Foundation, we have another exciting catalyst, significant growth potential.
Fernando Araujo: In 2024, we took steps toward proving up the value of our 100,000 acre operated position over 90% of which is held by production.
Fernando Araujo: The second quarter, we entered our first filing to drill four holes on the wells in the yield-and-beaut reservoir, the results confirmed significant potential value.
Fernando Araujo: In the fourth quarter, we executed on the second fireman to drill an additional 12-forged honor wells in the same reservoir over the course of the next 18 to 24 months.
Fernando Araujo: The first two wells were put on production in January with initial peak production rates of 1900 and 2,000 barrels of all equivalent per day, which is better than the peak production from the wells drilled in the first format.
Fernando Araujo: These two farmings helped us to be risk and accelerate the appraisal phase of our UNTA assets.
Fernando Araujo: While our analysis is still evolving, we have identified approximately 200 potential horizontal vacations.
Fernando Araujo: I also want to highlight a significant cost of damage we have in the basins.
Fernando Araujo: We estimate that our development wells could be approximately 20% as expensive on a per-foot basis compared to other operators in the base.
Fernando Araujo: In addition to operating in the shallower end of the basin, we can leverage our extensive existing infrastructure to drive synergies and cost savings. Our ability to utilize lease gas to fuel our drilling and completion operations is another important cost advantage.
Fernando Araujo: Plus, we have no entry cost or time pressures from these explorations.
Fernando Araujo: In summary, we are excited about the future. We have the capability to deliver on the significant near-tune value drivers I've mentioned. Our team has a proven track record of delivering on key objectives through commodity cycles and regulatory challenges.
and we have a compelling pipeline of value-adding opportunities.
Fernando Araujo: We see tremendous value in our stock price and our confidence in our ability to create significant, sustainable value for our stakeholders.
Deb: Now, I will turn the call over to Dennis. Thanks, Fernando. Good morning, everyone.
Deb: First, HSC. Conducting our business safely, responsibly, in a manner that protects our stakeholders and minimizes our environmental impact, is an integral part of our day-to-day operations and incorporated into our decision-making process.
Deb: We had an annual TR IR of .64, which is below the industry average, and only one lost time incident and no vehicle incidents in all of 2024. These accomplishments were the results of our team's working in unison to deliver excellent results.
Deb: Moving to permitting, as we share it on prior calls, we continue to receive permits to drill sidetracks and new wells in areas with existing SQL compliance, as well as for work
Deb: Similar to 2024, our 2025 Capital Program in California is focused on side tracks and workovers, and we expect that we will timely receive the permits to execute our plans.
Deb: Our applications are technically sound, consistent with other permits being approved and not reliant on the current county EIR.
Deb: That said, we have the flexibility to shift capital to further development in Utah if needed or determined optimal.
Deb: As for the reinstatement of the Kern County EIR, which facilitates efficient new draw applications, there are no significant developments to share at this time. We know that the county is working hard to address the court identified deficiencies, and we expect a draft to be released for public comment very soon.
This will be an important milestone in the reinstatement process.
Deb: While of course we look forward to the reinstatement of the EIR and the additional optionality it provides.
Deb: I want to emphasize that Berry's ability to sustain production over the next few years is not dependent on the EIR. In fact, even if the EIR were reinstated tomorrow, we wouldn't necessarily change our term plans, not 2025.
Speaker Change: As Fernando explained, we have a proven track record, quality proof reserves, and a deep inventory of high return projects for which permits have been and should continue to be available.
Speaker Change: Importantly, based on our 2024 year-end audited reserves, only 5% of Berry's California PUD reserves are in areas where neutral permits are currently constrained and where we're not pursuing alternative equal compliance.
Speaker Change: This means that almost all of our PUD locations can be accessed through available permitting processes.
Speaker Change: On the sustainability front, we're continuing to enhance our disclosures to provide greater transparency about very strategy to ensure a sustainable enterprise.
Speaker Change: In April and quarter-nation with our annual report, we're planning to publish expanded and updated data tables, highlighting our performance across key sustainability-focused, environmental, social and governance-related factors.
Speaker Change: and we plan on releasing our full 2025 Sustainability Report in mid-summer, which is when emissions for the prior year are finalized.
Speaker Change: As a reminder, in 2024 we completed our methane emissions reduction project, achieving our goal to reduce methane emissions by more than 80% compared to a 2022 baseline, and we did so over a year ahead of schedule.
Speaker Change: We expect this will result in an approximately 10% reduction in our scope one emissions compared to 2022.
Speaker Change: A preview of a few initiatives we plan to launch in 2025 include deploying continuous skilled methane detection technology in California and expanding our methane detection and repair program in Utah.
Speaker Change: We're also engaging with other operators in California with carbon capture projects to potentially deliver our CO2 emissions to them.
Finally, I want to introduce our new CFO , Jeff Magids.
Jeff Majid: Jeff joined us in January and brings to very more than 15 years of experience in the oil and gas industry with a strong background in finance, investor relations, treasury, and risk management functions as well as M&A experience. We're excited to have them as a member of the team.
With that, I will turn the call over to Jeff.
Jeff Majid: Thanks, Danny. I'm excited to be here and to collaborate with the team to advance Mary's strategy. We're well positioned with the resources to advance our strategic goals and continue delivering strong results and shareholder returns.
Jeff Majid: In my comments this morning, I'll highlight our fourth quarter in full-year financial results as well as our hedging program, operating costs, capital structure, and guidance. For more in-depth information, please refer to our earnings release issued yesterday and our 10K, which we expect to file shortly.
Jeff Majid: Our fourth quarter, oil and gas sales, were 158 million excluding derivatives with a realized oil price of 93% of Brent. For the full year, oil and gas sales were 648 million excluding derivatives with a realized oil price of 92% of Brent.
Jeff Majid: Risk Management is a key aspect to our business, and with various operations in California indexed to Brent, we look to mitigate price fluctuations through hedging.
Jeff Majid: Based on our hedge book as of February 28th, we have approximately 75% of our estimated oil production hedge for 2025 at an average strike price of $74.24 per barrel or bit.
Jeff Majid: Jimming our production guidance is held flat for future periods. Our oil volume is 60% in hedge for 2026.
Turning to cost and expenses.
Jeff Majid: for the full year on an unhedged basis, non-energy LOE was $13.10 per POE, an energy
was $11.21 per BOE.
Jeff Majid: on a hedge basis, Energy LOE with $13.84 per BOE, taxes other than income taxes were $5.08 per BOE, and adjusted GNA for EMP in corporate with $6.35 per BOE.
Jeff Majid: Adjusted EBITDA for the fourth quarter was $82 million, 22% higher than the third quarter. For the full year, Adjusted EBITDA was $292 million, a 9% increase over 2023, and driven primarily by sustained production levels and lower operating costs.
Jeff Majid: CapEx on an accrual basis told them $17 million for the fourth quarter and $102 million for the full year in line with guidance.
Jeff Majid: As presented in our earnings materials, we generated free cash flow of 24 million for the fourth quarter and 108 million for the full year.
Jeff Majid: Turning to our balance sheet, our year in total debt was 450 million, liquidity was 110 million, and our leverage ratio was 1.5 times.
Jeff Majid: Our $450 million term loan facility is a three-year note which could be extended by two years. A key element of this agreement is that we were able to take the loan out at par for the first two years. This provides us flexibility for strategic opportunities.
Jeff Majid: and December . We also entered into a three-year reserve-based credit facility. Disagreement provides a $95 million barring base giving us the working capital and liquidity we need to execute our development plans.
2025 capital guidance is $110 to $120 million.
Jeff Majid: for the upcoming year, we expected to pull a 40% of our capital to Utah compared to just 25% in 2024.
Jeff Majid: For the fourth quarter, we'll be paying a fixed dividend of three cents per share.
Jeff Majid: At year in 2024, we were in full compliance with our financial covenants and had sufficient had room to execute our strategy.
Fernando Araujo: and with that, I will now turn the call over to Fernando to wrap up our remarks. Thank you, Jeff. Looking into 2025, our strategies and priorities remain consistent.
Fernando Araujo: We have a proven truck record of successful operations supported by low-decline, low-capital
Quality Proof Reserves, Significant Pods and a Deep Inventory
Fernando Araujo: We are well positioned to advance our strategic goals and generate value for our shareholders.
Fernando Araujo: A recent debt refinancing provides us with the flexibility and ensures capital for our development plans.
Fernando Araujo: We have already started to execute on value and has an opportunity in both California and in the UN
where we believe...
We have significant upside value.
Fernando Araujo: This really is an exciting time to be at Berry. We look forward to sharing our progress as the year goes on. And with that, I'll turn the call over to the operator for questions.
Thank you. Thank you. Thank you.
of Johnson Rice.
Yeah, good. Yeah.
Speaker Change: Good morning, Fernando, Daniel Jeff, and I think I heard my name in there somewhere with the screen more for you guys too.
Fernando Araujo: Yeah, a little bit. Good morning. Good morning to you. Yeah.
Fernando Araujo: Fernando, I want to ask about these, about the recent you-into-wells and how they should
Our Expectations for your first Operated Pad, so...
Jeff Majid: When I look back at what you did, what you guys did, the first farm in, off to the Northeast, there was about 1,000 barrel they wells, or POEA day, I should say. This next set, the first two, are 2,000 barrels a day, and so can you talk about what the
Jeff Majid: What the deltas are there, whether it's, I think they're all in the same zone, but would zone their targeting, the lateral ranks, the depth and pressure setting, and what drove those differences, and what does it suggest for expectations on your first operating
Jeff Majid: Yeah, that's a very good question. Yeah, let me start with with the first set of wells, the four wells, the first farming. Those walls targeted the Eulim, but reservoir, which as you know, Charles is the main reservoir being targeted by most operators, including ourselves.
Jeff Majid: In that pad we drilled two three mile lateral wells and two two mile lateral wells.
Jeff Majid: and as noted, those wells had a peak production of about 1,100 barrels a day on average. But I remember that we've got two two mile lateral wells there in the mix as well.
Jeff Majid: and then, at the same time, for the next two wells that we put on production here in January .
Jeff Majid: Those are from the second farming, those are two three mileers, so three mile laterals with a peak production averaging close to a 2000 barrels equivalent per day, also targeting
Jeff Majid: In what we've talked before and discussed before, the geology in the youth and youth reservoir is fairly uniform throughout our acreage, north, south and east and west.
Jeff Majid: As you know, it's mostly a dolomitic reservoir, it's a carbonate reservoir, it's got some sandstone stringers as well, and as noted, we are at the shallow end of the basin, and because of that, our pressure gradients.
Jeff Majid: were a bit lower than what they are in the deep base.
Jeff Majid: But there is not much of a pressure gradient difference between the two sets of wells that were drilling. And then really the main difference between the two sets of wells is that in the first pad, we do have those two to my lateral wells.
Speaker Change: Thank you. And any just any indications for what you would be satisfied with on your on your.
You're Operated Pet.
Speaker Change: Now, in our operator pad, as you know, we just, that PD, the first of the world, in fact, we're already drilling the second one, we're at the 2000 foot depth, more or less, we'll be drilling four wells targeting, again, the youth and viewed reservoir. We expect
Speaker Change: Very good results, similar to what we've seen in the two pads.
Speaker Change: So we have high expectations, but as I've mentioned before, based on the result that we're seeing so far from our wells in Utah, this could really be a transformational opportunity for Berry going forward. So we're really happy with the results so far.
Speaker Change: Thank you and then going back to California this is something we haven't talked
Speaker Change: much about. But, you know, can you talk about what the acquisition environment may be like in California and if there's been any change or increase in the willingness of
some privates to sell.
Charles: Yeah, another good question, Charles. As you know, we actually pursue both one opportunities in California and in Utah for that matter. That's part of our daily business.
Charles: in California, we always focus on current county which is the place where we can realize the most synergies and the place where we can apply our expertise.
Charles: We have been in conversations with a handful of operators, small primates, similar to McPherson, and there's a handful of those operators.
We are advancing, you know, talks and conversations.
Charles: but there is an opportunity to execute on those bolt-downs under the right deal structure. So there is something to be done there. They're not great in size, but they are significant in terms of production.
Thank you, Fernando.
Thank you and one moment for the next questions.
Speaker Change: And our next question will be coming from the line of Nate Petelton of Texas Capital. Your line is open.
Good morning, congrats on the strong quarter.
Thank you, Nate.
Speaker Change: We're going to start off on Utah in light of the recent volatility in commodity markets and the encouraging early well results we've seen. Can you provide an update on how the partnership or joint venture discussions are progressing for future development?
Speaker Change: Yes, good question, Nate. We've been talking to different parties here over the last few weeks about a possible JV for a 2025 campaign. I'm beyond.
Speaker Change: Obviously, this would help us mitigate the capital requirements in the program and help us accelerate the development activity as well.
Speaker Change: But then at the same time, we want to make sure that the deal is a creative to Berry and that we don't give up any value because we believe we we have. [inaudible]
Speaker Change: We have an asset that's very valuable and with great potential so for now we're very comfortable drilling the wells ourselves, that first pad on our own.
Speaker Change: and we're off to a very successful start, as I mentioned. So until that right deal comes across, we're not going to pull the trigger, but when it does, we will. So we're still in conversations, but just waiting for the right deal.
Speaker Change: Got it. Thank you. And then perhaps for Danielle, can you speak to the opportunity that you see on the horizon for CNJ, given the recent abandonment legislation that went into effect this year in California, and also maybe any color you can provide on the competitive landscape facing CNJ to take advantage of that opportunity?
Speaker Change: Yeah, certainly. So, the legislation that you're referring to is one that is increasing the PNA obligations for operators across the state. The incremental increase will be based on idle well inventory. And so, for Berry, we expect it to have...
Speaker Change: Maybe I think you need to California is that even though the law technically went into effect on January 1, there is a little bit of a delay in actual implementation while Calgem puts together the implementation regulations and meets with operators to determine how it would apply to each. So there will be a little bit of a lag.
Speaker Change: But it is coming by regulation there will be an increase in demand and C&J is one of the largest PNA operators in California.
Speaker Change: is well positioned to take advantage of that. You know, I do think before you see any sort of material increase in either pricing or activity levels for any individual.
Speaker Change: Service Provider, Consolidation is needed and I think that's the case outside of California as well, and so that is something that we are actively considering. I think there's some right consolidation opportunities there.
Speaker Change: Some of our fellow operators may not like that too much, but the good news for Berry is that we would be well insulated if consolidation did happen and there was some change in the market dynamics.
That's a great update. Thanks, take my questions.
Thanks, Nate.
Thank you. One moment for the next question, please.
Speaker Change: As a reminder, if you would like to ask a question, please press star one on your telephone. And the next question will be coming from the line of Emma Schwartz of Jeffreys Your Line is open.
Emma Schwartz: Hi, thanks for taking my question today. I wanted to ask a little bit more on the permitting side. It's great to see this side track and work over new, love that.
Emma Schwartz: I wanted to ask about the current EIR. You made some comments about that and it's great that you don't really need the current EIR to operate, but if there was a resolution, just walking through why you wouldn't capitalize on that to increase activity in California, or would that be more of a 26 story?
Speaker Change: Yeah, good question Emma. You know, the great advantage that we currently have right now is that we have a lot of opportunities in California. Thank you very much.
Speaker Change: and based on the results from our Citra campaign in Thermal Dynamite in 2024, it opened up
Speaker Change: A lot of opportunities to continue drilling a site track in California. We've got about 115 site track opportunities in the thermal dynamite and another 100 or so site track opportunities in other areas in our asset base. So you're looking at 225 or so opportunities.
Speaker Change: The drill really, really good productive wells. And again, you saw the results for the thermal dynamo sidetracks in terms of rate return.
Speaker Change: So even if we had the current county, current county EIR process opened up now, we would likely still drill those side track opportunities in the thermal dynamite because they're at the highest end of our party list of wells to drill.
Speaker Change: So even though the Kern County EAR is closed now, it's really not affecting our activity and how we're planning our business.
Speaker Change: makes sense and that's amazing. And then if you could just walk me through on like the conditional use permit and multi-basin permit side, what kind of the timeline and the process that's looking like would speak with air?
Speaker Change: Yeah, for the initial use permits and the project like project reviews, which is which are a couple of the alternatives that we have in the permitting process in California. The timing is similar to the current county AR. So you're looking at some time in 2026 for that as well.
Speaker Change: Okay. Amazing. And then I just had a question on Utah. Could you kind of walk me through and like frame up what do you think is the long-term potential there is for that asset? Where do you think you could grow it to? And is there any time post we should watch over the next
Speaker Change: over 25 in the next year or two to track how we should be thinking about that.
Speaker Change: So Utah has significant potential as I've mentioned already. As you know, we've got a hundred thousand acres operate
which is a significant footprint.
Speaker Change: You know, based on the footprint that we have, and just really targeting one or two reservoirs, we've got the potential to drill 200 or so. Well, so significant, significant potential. The initial results are excellent.
Speaker Change: and the potential to grow in Utah is significant. In our investor deck, I think page 19 of our deck, we've got the potential that we have. And theoretically, we could go from, you know, 5,000 barrels a day currently, too.
Speaker Change: Close to 40,000 barrels a day over the next 10 years or so. And that's obviously assuming a couple of rigs drilling in Utah over the next several years, starting next year.
Speaker Change: But obviously we have to be cognizant of our capital needs, and that's why we're being conversations for possibly coming up with a JV partner to help us mitigate that.
Excellent. Thank you so much.
Yes.
Speaker Change: Thank you, Ezra Meade. If you would like to ask a question, please press star one on your telephone.
Speaker Change: There are a number of questions in the queue. I would like to go ahead and turn the call back over to the Senate, Fernando Araujo. CEO , please go ahead, but you're closing remarks.
Fernando Araujo: Thank you so much. Thank you for your interest in Berry. Now it really is an exciting time to do with the company. We have a lot of great opportunities.
Speaker Change: and we're in the middle of executing a lot of those opportunities as we speak. So we'll be providing updates over the next few weeks and I hope to see some of you in investor meetings and conferences over the next few weeks as well. Thank you so much.
Speaker Change: Thank you for your time, and I'll see you in the next video.