Q1 2025 Berry Corp Earnings Call
Hello, and welcome to the Berry Corporation, Q1, 2025 earnings call.
This time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session. If you'd like to ask a question by that time. Please press star one on your telephone people. Thank.
Speaker Change: Thank you I would like to turn the conference over to Christina Cheng Director of Investor Relations you may begin.
Christina Cheng: Thank you Tricia and welcome everyone. Thank you for joining us for Berry's first quarter 2025 earnings call.
Fernando Rahho: This morning Berry issued an earnings release, highlighting our quarterly results speaking this morning will be Fernando Rahho, our CEO, Daniel Hunter, our president and Jeff <unk> our CFO.
Fernando Rahho: Our website has a link to the earnings release, and our updated presentation I would like to call your attention to the Safe Harbor language found in the earnings release the release the presentation and todays discussion contains certain projections and other forward looking statements within the meaning of the federal Securities laws.
Fernando Rahho: These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements.
Fernando Rahho: These include risks and other factors that are disclosed in our filings with the SEC, including our quarterly report on Form 10-Q, which will be filed shortly we.
Fernando Rahho: We have no plans or duty to update our forward looking statements, except as required by law. Please refer to the tables in our earnings release and on our website for a reconciliation between all adjusted measures mentioned in today's call and the related GAAP measures. We will also post a replay link of this call on our website.
Fernando Rahho: With that I will now turn the call over to Fernando.
Fernando Rahho: Thank you, Chris and good morning, everyone welcome to our first quarter earnings call.
Fernando Rahho: He is off to a strong start in 2025, and we are reaffirming our full year guidance.
Fernando Rahho: Our solid first quarter results are underpinned by our balance sheet strength.
Fernando Rahho: I returned the apartment projects.
Fernando Rahho: The capital efficiencies, we are delivery we.
Speaker Change: We are confident in our ability to navigate current market volatility and our 2025 outlook remains unchanged.
Fernando Rahho: Our cashless protected by our strong hedge position.
Fernando Rahho: For the remainder of the year, we have approximately 73% of our oil production hedged at $75 per barrel.
Fernando Rahho: Our business plan is anchored by our high return assets stable production base and low capital intensity projects.
Fernando Rahho: It is a competitive advantage for Berry, we have the permits in hand to execute our 2025 development projects and continue to add inventory for 2026.
Fernando Rahho: Turning to our first quarter results.
Fernando Rahho: We strengthened our balance sheet by paying down $11 million of debt and returned $2 million in cash to shareholders.
Fernando Rahho: Liquidity increased to $120 million and we improved our leverage ratio to 137 times.
Fernando Rahho: Highlighting our commitment to shareholder value, we are on track to deliver approximately 10% of our enterprise value annually through our dividend and debt reduction.
Fernando Rahho: We generated $17 million of free cash flow in the first quarter due to cost improvements and stable production.
Fernando Rahho: We achieved a 9% reduction in hedge energy L O E when compared to the midpoint of our full year guidance.
Fernando Rahho: In California, we drilled twice as many wells during Q1 compared to Q4 last year.
Fernando Rahho: Production for the quarter averaged 24700 barrels per day slightly below the prior quarter due to planned downtime.
Fernando Rahho: Our 2025, California development program is primarily focused on.
Fernando Rahho: The thermal diatomite reservoir.
Fernando Rahho: Our drilling program is front loaded towards the first half of the year.
Fernando Rahho: Therefore, we expect most of our Capex will be incurred by the end of the third quarter.
Fernando Rahho: As referenced on slide 12 in our presentation. The economics of the thermal diatomite remained highly attractive at current oil prices.
Fernando Rahho: Most of these projects generate a rate of return in excess of 100%.
Fernando Rahho: We expect to complete our thermal diatomite drilling by mid summer, which sets up production and cash flow growth through the second half of the year.
Fernando Rahho: With highly competitive economics, and a deep inventory of sidetracked. This will be a core area of capital allocation for years to come.
Fernando Rahho: Horizontal development of our U N type asset is also progressing successfully.
Fernando Rahho: We recently finished drilling our four well horizontal pad ahead of schedule and on budget.
Fernando Rahho: By utilizing produced gas and leveraging our existing facilities, we large fuel cost in our drilling operations by roughly 25%.
Fernando Rahho: Also we expect to reduce completion costs by approximately $500000 per well by utilizing produced guys produce gas to drive our pumps.
Fernando Rahho: Geologic results are in line with expectations.
Fernando Rahho: They use in Butte reservoir, it's fairly uniform across our acreage space.
Fernando Rahho: We're planning to come into Frac operations in June with first production expected in the third quarter.
Fernando Rahho: We continue to see strong results from our six non operated horizontal wells.
Production is exceeding our pre drill estimates and <unk>.
Fernando Rahho: <unk> supports further delineation of our acreage.
Fernando Rahho: Industries recognition and excitement over the Uinta basin is accelerating.
Fernando Rahho: We believe our 100000 acre precision with high working interest and majority held by production has significant upside and provides long term optionality in the capital allocation and growth.
Fernando Rahho: In summary.
Fernando Rahho: Our priorities remain unchanged to generate sustainable free cash flow reduced debt, while returning dividends and create value by investing in our high return development portfolio.
Dan: Now our current I will turn the call over to Dan.
Dan: Thanks Fernando.
Dan: Good morning, everyone. Thank you for joining us and for your interest in our company.
Dan: Supporting our first quarter accomplishments as our commitment to HST excellence and regulatory compliance.
Dan: We believe that protecting the environment.
Dan: Investing in the talented people, we employ and enriching the communities in which we live and operate is critical to our success.
Dan: We execute on that commitment.
Dan: P operations, we had zero recordable incidents zero lost time incidents and no reportable spills during the first quarter.
Dan: Continue with sustainability last month, we published updated and expanded performance metrics and we will be publishing a fulsome report the summer winter 2024 missions data is finalized.
Dan: These efforts reflect our commitment to enhancing our voluntary reporting and providing greater transparency to our stakeholders.
Dan: On the regulatory front, we are seeing a notable construct your shift in messaging from California's decision makers.
Dan: Last month Governor Newsome, directed the California Energy Commission to engage with the oil and gas industry to reinforce the state's openness to a collaborative relationships.
Dan: We are hopeful that this will allow for a meaningful and productive discussion on the many benefits from increasing in state production.
Dan: This not only helps improve the affordability security and environmental impact of the energy supply chain required to meet the daily needs of Californians.
Dan: Production also creates jobs to further fuel the economy and generates critical funding for schools roads public safety and other vital services.
Dan: We are proud to safely and responsibly produced oil and a world, leading labor human rights and health safety and environmental standards.
Dan: Barry stands ready, we're committed to working with the state to meet its goals and ensure all californians have access to clean affordable and reliable energy now and in the future.
Dan: Moving to permitting as Fernando stated, we have all of the permits we need to execute our 2025 plan and we're now building permit inventory for our 2026 drilling program.
Speaker Change: Barry proven ability to successfully navigate the regulatory environment is a competitive advantage.
Speaker Change: We are returns focused and will leverage the flexibility provided by our ample development inventory to allocate capital to our highest return projects well. Additionally, managing our stable base production.
Speaker Change: Berry has a solid runway and multiple avenues to drive sustainable and profitable value creation for years to come.
Jeff: I'll now turn the call over to Jeff.
Jeff: Thanks, Danny and my comments. This morning, I will highlight our first quarter financial results as well as our hedging program operating cost capital structure and guidance.
Jeff: A more in depth information. Please refer to our earnings release issued this morning, and our Form 10-Q, which we expect to file shortly.
Jeff: First quarter oil and gas sales were $148 million, excluding derivatives, the realized oil price of 93% of Brent.
Jeff: Risk management is a key aspect to our strategy and we judiciously hedge our production to protect cash flows enhanced visibility and mitigate the impact of price fluctuations.
Jeff: In early April we strategically converted several bright colors and purchase spuds into swaps to provide additional protection in the current volatile pricing environment.
Jeff: The net effect of these transactions raise the average floor prices by $6 per barrel on 'twenty 300 barrels per day of production in 2026 and 2027.
Jeff: Based on our hedge book as of May 2nd and using the midpoint of our 2025 guidance, we have 73% of our oil production hedged for 2025 at an average price of $74 69 per barrel Brett.
Jeff: Assuming our production guidance is held flat for future periods. Our oil production is 63% hedged for 2026 at an average price of $69 42 says.
Jeff: First quarter adjusted EBITDA.
Jeff: It was 68 million in operating cash flow was $46 million, we generated $7 million in free cash flow after working capital changes.
Jeff: Looking at costs and expenses first quarter non energy <unk> was $13 91 per Boe and hedge energy yellow was $12 49 per Boe.
Jeff: Total LOE per BOE was lower than our annual guidance as we optimize steam injection volumes, while sustaining production.
Jeff: Taxes other than income taxes were $4 15 per Boe and adjusted G&A for E&P incorporate $7 19 per Boe.
Jeff: Turning to our balance sheet, our quarter end total debt was 439 billion and we pay down $11 million during the first quarter.
Jeff: Liquidity increased to $120 million and we reduced our leverage ratio to 137 times from year end.
Jeff: Lastly, as detailed in our earnings release, the board declared a dividend of <unk> <unk> per share.
Jeff: Payable in the second quarter.
Jeff: Quarter end, we were in full compliance with our financial covenants and we have sufficient headroom to execute our strategy.
Jeff: And with that I'll now turn the call over to Fernando to wrap up our prepared remarks.
Jeff: Jeff in summary, we delivered a strong start to 2025, and we remain confident in our ability to navigate the current volatility.
Jeff: Barry sits at an advantaged position, thanks to our strong hedge book and high quality assets.
Jeff: We recognize the challenges presented in today's markets, but we are confident in our plan.
Speaker Change: Our focus remains consistent.
Speaker Change: <unk>, our high rate of return development projects generate sustainable free cash flow.
Speaker Change: Reduced debt and evaluate accretive growth opportunities.
Speaker Change: We are well positioned to advance our goals and generate value for our shareholders. We look forward to sharing our progress.
Speaker Change: With that I'll turn the call over to the operator for questions.
Speaker Change: Thank you we will now begin the question and answer session. At this time I would like to remind everyone that in order to ask a question Star then the number one on your telephone keypad.
Speaker Change: And your first question comes from the line of Nate <unk> with Texas Capital. Please go ahead.
Nate: Good morning, and congrats on the strong quarter.
Speaker Change: Thank you Nate.
Speaker Change: Looking at the strong returns from your thermal Diatomite program on Slide 12 can you elaborate on the scalability of that program and what operational or permitting bottlenecks. If any do you foresee in ramping that development across over 1000 locations you highlighted assuming a supported commodity environment.
Speaker Change: Yeah. That's a very good question, Nate and we have a lot of running room in the thermal diatomite.
Speaker Change: If you look at our year end.
Speaker Change: The reserve report, you'll see that we have about 125 thermal diatomite sidetracked officially categorized as pods.
Speaker Change: And that's that's Cigna, that's a significant running room that's.
Speaker Change: A couple of years at least worth of drilling activity.
Speaker Change: On top of that in our parts official parts we have another.
Speaker Change: Another significant number of new wells in the thermal diatomite and then outside of that we see about a thousand pud locations or future locations to be able to drill in the thermal diatomite, so significant significant running room.
Speaker Change: In terms of.
Speaker Change: The permits to be able to execute this program as you know we are getting sidetracked permits we have been getting sidetracked permits for the last several months in fact this year. We've received on the order of 45 sidetrack permits mostly in the thermal diatomite. So so that's that's going well and then for new wells.
Speaker Change: Once we have.
Speaker Change: Our current county.
Speaker Change: Should be able to drill are the additional opportunities that we have in this grade world class asset.
Speaker Change: That's great and as my follow up I wanted to shift over to the Uinta. If I may with your first operated four well pad drilled ahead of time and on budget can you share any specific learnings or design changes from that project and maybe how should we think about the initial production potential in <unk>.
Speaker Change: Another good question Nate.
Speaker Change: As you as you mentioned, we completed the drilling phase of our four well pad in our in the thermal diatomite, we completed thermal diatomite, sorry in the Uinta basin.
Speaker Change: And we completed that a couple of weeks ago.
Speaker Change: These are three mile laterals.
Speaker Change: And we're targeting as you know the ULIN Butte reservoir, which which is a very uniform in our acreage and we didn't have any.
Speaker Change: Any surprises on the on the geology side of the results in fact in our drilling operations were able to see within a zone, 91% at the time, which is really really excellent as well.
Speaker Change: The last of the wells that we drill in India.
Speaker Change: In the U N. The last of the Horizontals, we drilled a well in 13 days.
Speaker Change: From spud to rig release, which is as good as what we've seen from our nearby operators as well. So so a lot of good things from our drilling activity.
Speaker Change: And the one thing to highlight is the fact that we're able to prove.
Speaker Change: The use of gas as a fuel source for the rig and Thats saving I was on the order of $90000 per well. So that said that's really really good in terms of what's next we'll be fracking the well come here in June.
Speaker Change: So the Frac operations is going to take care of a few weeks, we expect to put the wells on production.
Speaker Change: Later in Q3, most likely in the month of Avago. So we'll have some numbers at that time in terms of expectations going back to that question no. The six wells that non operator wells that we've drilled they're producing wells are producing above expectations.
Speaker Change: And close to that 60 barrels a foot EUR range, which is really really good. So so we're really excited about about what's going on in the Uinta basin.
Speaker Change: That's really exciting and congrats again on the strong quarter.
Nate: Thank you Nate.
Speaker Change: Again, if you would like to ask a question press star one on your telephone keypad.
Speaker Change: And your next question comes from the line of Charles Meade with Johnson Rice. Please go ahead.
Charles Meade: Yes, good morning, Fernando Danielle Jeff in the whole Berry team there.
Charles Meade: I think question is kind of on the same topics, but first I wanted to ask about this slide seven the graph on the bottom half of this and Daniela. Thank you.
Charles Meade: <unk> touched on some of this in your prepared remarks about did you guys are successfully navigating the regulatory environment, California, but.
Charles Meade: You know this this chart shows that <unk> been able to grow.
Charles Meade: California production in the 'twenty three 'twenty four time frame, while while everyone else or at least everyone else on the slight decline. So is that just because you're better at that.
Charles Meade: Navigating the regulatory environment or are there are there other aspects like perhaps that you guys. You guys are are more reliant or more proficient with the sidetrack and the diatomite that other operators don't have that option or just what are what do you view as the drivers behind this relative success here.
Charles Meade: Yeah. Good question.
Speaker Change: Charles and you know what are the strengths that we have is the quality of our teams.
Speaker Change: Especially in California, as you know we've been operating in California for well over 100 years that we know that they said no.
Speaker Change: As good as anybody.
Speaker Change: And we have great teams, they're very innovative.
Speaker Change: And if you remember years ago, we started with with significant workover activity as part of our plan and then a couple of years ago because of the limitations in the risk with the regulatory environment. We started looking at sidetracked and I think we're the first really to a to a to.
Speaker Change: To start implementing that that strategy of going after sidetracked and because of that we've been able to grow our sidetrack.
Speaker Change: Inventory.
Speaker Change: A minute ago I mentioned, our year end reserves for 2024, and if you look at our year end 2024 about 225, where those parts of the 500 and change pods.
Speaker Change: <unk> 25 hour sidetracked so.
Speaker Change: So that gives us an advantage and then obviously the other clear advantage that we have is that in California.
Speaker Change: California is a low capital intensity development basin. So we see rates of return exceeding 100% in most of the projects that we drill.
Speaker Change: Got it thank you for that.
Speaker Change: And then going.
Speaker Change: Going back to the to the Uinta and I wanted to ask a question around timing and.
Speaker Change: I don't I don't intend to and I don't want to try to box you in on any kind of timeline, but I wanted to just understand how you guys are thinking about the news flow or the workflow and then the news flow. So you said that.
Speaker Change: You're going to start fracking. These four wells in early June.
Speaker Change: And so you'll probably be done with that with that frac job here before the end of June how how long do these wells take to flow back and and you know before you before you hit your you know your initial peak rate and are you guys.
Speaker Change: Do you want to see you know.
Speaker Change: Two weeks or 30 days of production data before you you you make an announcement or just kind of give us the time mining and what's your preferences for how you want to talk about it.
Speaker Change: Yeah, No that's perfect.
Speaker Change: And as I mentioned before we will be starting our frac operations in June.
Speaker Change: We were fracking for well so it's going to take US most of June to Frac. Those wells after that obviously, we need to clean out the wellbore and run to completion and then ones that we have to connect the wells to our facilities to put them on production. So we expect to have production initially probably late July but once the wells clean up and it.
Speaker Change: Should take in a few days to do that we should have some significant production numbers in August hopefully in time for the for the next stat earnings cycle.
Speaker Change: Got it that's helpful. Thank you.
Speaker Change: And there are no further questions at this time I will now turn the call back over to Fernando.
Speaker Change: Closing remarks.
Fernando: Yes, Sir Thank you everyone. Thank you for your interest in Berry as I've said before we are in a.
Fernando: A good place and we're really excited about where we are and the opportunity sets that we have.
Fernando: And with that I look forward to giving you more updates as we get results. Thank you so much.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you.
Fernando: You may now disconnect.
Fernando: [music].