Berry Corporation announced second quarter 2023 results, including net income of $26 million or $0.33 per diluted share, Adjusted Net Income(1) of $12 million or $0.15 per diluted share, cash flow from operating activities of $63 million and Adjusted EBITDA(1) of $69 million.
Quarterly Highlights
• Generated Adjusted EBITDA(1) of $69 million and Adjusted Free Cash Flow(1) of $34 million
• Delivered strong operational results, with a nearly 7% increase in production over first quarter 2023
• Repurchased more than 1.4 million shares of common stock at an average price of $7.04 per share
• Declared total dividends of $0.14 per share
• Signed agreement to acquire Kern County producer Macpherson Energy Corporation for $70 million funded partially through capital reallocation
“In the second quarter we successfully executed on our strategy to deliver meaningful returns,” said Fernando Araujo, Berry’s CEO. “Our operational and financial performance was strong. We delivered a nearly 7% increase, or more than 1,600 boe per day, in production volumes quarter over quarter with less capital than planned. Additionally, we reduced lease operating expenses, net of hedges, by 23% compared to the first quarter, driven by lower fuel prices and a reduction in lease maintenance costs. As a result, we will pay total dividends this quarter of $0.14 per share, fixed plus variable. We also opportunistically repurchased 1.4 million shares in the open market at an average price of $7.04 per share.
“We are excited about our pending acquisition of Macpherson Energy Corporation, achieving our important strategic objective to acquire accretive, producing bolt-on assets. This transaction provides additional production and improved capital efficiency and will be funded partially through a reallocation of $35 million of capital in 2023. The Macpherson assets are high-quality, low decline oil producing properties, and are a natural fit with our existing rural Kern County portfolio. In addition to the attractive base production, we see upside for near-term production enhancement and development opportunities,” Araujo said.
Second Quarter 2023 Results
Net income was $26 million in the second quarter 2023 compared to a net loss of $6 million in the first quarter 2023 while Adjusted EBITDA was $69 million and $59 million, respectively. The 17% increase in Adjusted EBITDA was largely driven by increased production, coupled with lower fuel prices and lease maintenance costs, slightly offset by lower oil prices.
The Company's average daily production increased in the second quarter 2023 to 25,900 boe/d compared to 24,300 boe/d in the first quarter 2023.
Company-wide oil production in the second quarter 2023 was 24,000 bbl/d, accounting for 93% of total Company production, with California production contributing 20,800 boe/d or 80% of total production. Production was nearly 7% higher quarter-over-quarter due to improved base production from optimized steam injection in California, as well as making up for first quarter weather-related production downtime.
Company-wide realized oil price, including hedging effects, was $69.87 per bbl for the second quarter 2023 compared to $71.04 per bbl in the first quarter 2023. Excluding hedging effects, California's average realized oil prices were $72.10 per bbl in the second quarter 2023, 93% of Brent, and $76.24 per bbl in the first quarter 2023, 93% of Brent.
Lease operating expenses, which includes fuel gas costs for California steam operations, decreased in the second quarter 2023 from the first quarter 2023 mostly as a result of lower natural gas (fuel) costs for our California steam generation facilities due to a significant price decrease. Lease operating expense excluding fuel decreased $2 million due to lower lease maintenance costs, which were uncharacteristically high in the first quarter 2023 as a consequence of adverse weather conditions.
Taxes, other than income taxes, increased 22%, in the second quarter 2023 compared to the first quarter 2023 due to higher mark-to-market prices for greenhouse gas (“GHG”) allowances in the second quarter.
General and administrative expenses decreased 29% in the second quarter 2023 compared to the first quarter 2023, in large part due to non-recurring executive transition and workforce reduction costs that occurred in the first quarter 2023. Adjusted General and Administrative Expenses(1), which excludes non-cash stock compensation costs and nonrecurring costs, decreased 3% in the second quarter 2023 compared to the first quarter 2023, as a result of the cost savings initiatives that began in early 2023.
The income for the well servicing and abandonment business, C&J Well Services, increased 129% to $5 million in the second quarter 2023 compared to the first quarter 2023, due to increased activity in the second quarter compared to the first quarter which had been impacted by weather-related customer demand.
For the second quarter 2023, capital expenditures were approximately $21 million, excluding acquisitions, asset retirement obligation spending and well servicing and abandonment capital of $1 million. This represented a 5% increase compared to the first quarter 2023 as a result of increased facilities and workover spending. Additionally, the Company spent approximately $6 million for plugging and abandonment activities in the second quarter 2023.
At June 30, 2023, the Company had liquidity of $186 million, consisting of $9 million cash and $177 million available for borrowings under its revolving credit facilities.
“We increased Adjusted EBITDA for the second quarter by 17% over the first quarter and generated solid Adjusted Free Cash Flow of $34 million. Executing on our commitment to return meaningful cash to shareholders, we purchased $10 million of Berry shares in the quarter for an average price of $7.04, and will continue to evaluate opportunities to generate and deliver returns consistent with our shareholder return model,” stated Mike Helm, Berry’s CFO. “Berry is hitting its targets and is well positioned for continued success in maximizing shareholder returns.”
2023 Outlook
We currently anticipate that our full-year results will be in line with previous guidance, before consideration of the Macpherson transaction, except with respect to capital expenditures. We expect 2023 capital expenditures for both Berry and C&J Well Services to be approximately $35 million lower than the $103 million to $113 million initial guidance as a result of the reallocation of capital to fund a portion of the Macpherson purchase price. We will fully update guidance in connection with the transaction close, expected late in the third quarter 2023.
Quarterly Dividends
The Company’s Board of Directors declared dividends totaling $0.14 per share on the Company’s outstanding common stock. The variable portion of $0.02 per share was based on the cumulative Adjusted Free Cash Flow results for the six months ended June 30, 2023 in accordance with the Company's Shareholder Return Model. The fixed portion of $0.12 per share was also declared, and both dividends are payable on August 25, 2023 to shareholders of record at the close of business on August 15, 2023.
