Berry Corporation has announced fourth quarter and full-year 2023 results. For the fourth quarter 2023, Berry’s net income was $63 million, or $0.81 per diluted share, Adjusted Net Income was $10 million, or $0.13 per diluted share, and cash flows from operating activities were $79 million. For the full year 2023, Berry's net income was $37 million, or $0.48 per diluted share, Adjusted Net Income was $39 million, or $0.51 per diluted share, and cash flows from operating activities were $199 million.

Fourth Quarter 2023 Highlights

• Delivered Adjusted EBITDA of $70 million and Adjusted Free Cash Flow(1) of $55 million
• Declared total fixed and variable dividends of $0.26 per share, a 24% increase over third quarter 2023
• Acquired highly synergistic working interest in Kern County, CA at year-end
• Produced 25,900 boe/d supported by development program and accretive acquisitions

2023 Highlights

• Delivered $65 million of shareholder returns, or 33% of cash flow from operating activities, consisting of:
  • $0.73 per share fixed and variable dividends (inclusive of dividends to be paid in March 2024) and
  • 1.4 million shares repurchased, or 2% of current shares outstanding
• Generated Adjusted EBITDA(1) of $268 million
• Generated cash flows from operating activities of $199 million and Adjusted Free Cash Flow(1) of $97 million
• Produced 25,400 boe/d, at the top of updated guidance, on lower capital expenditures
• Completed 2023 with zero lost time incidents
• Lower G&A compared to 2022, including 4% reduction in Adjusted G&A(1)
• 2023 year-end reserves of 103 million boe with California reserve replacement ratio of 176%(1) from field extensions and acquisitions, offsetting the impact of production and lower pricing

“2023 was a solid year for Berry in light of a lower energy price environment. We delivered top-tier dividends to our shareholders, maintained production levels essentially flat with lower capital expenditures than planned, and expanded our production base and future cash flow with two financially accretive bolt-on acquisitions,” said Fernando Araujo, Berry’s Chief Executive Officer. “Our full-year average production of 25,400 boe/day was primarily driven by our innovative reservoir management practices with additional contribution from our successful drilling program, which was focused on sidetracks in 2023, our robust workover campaign and the impact from the Macpherson acquisition at the end of the third quarter.”

He continued, “For 2024, our strategy is unchanged with a focus to deliver sustainable free cash flow. We will seek to enhance value in our current asset base through cost reductions and maintaining flat production with the mid-point of our 2024 annual guidance. Note that our 2024 development program and guidance does not depend on obtaining new drill permits, which are currently constrained by ongoing litigation challenging Kern County’s Environmental Impact Review (EIR) for CEQA compliance purposes. We will continue to seek scale and growth through bolt-ons or other opportunities in and outside of California, all while being mindful of optimizing our capital structure.”

Fourth Quarter 2023 Results

Net income in the fourth quarter 2023 was $63 million compared with a loss of $45 million in the third quarter largely driven by the positive impact of improved derivative valuations and related income tax effects, partially offset by lease operating expenses, which includes fuel gas costs for our California steam operations, which increased 13% in the fourth quarter mostly because of higher natural gas (fuel) costs and higher utility costs. Adjusted net income was $10 million and $12 million in the fourth and third quarters of 2023, respectively. Adjusted EBITDA was $70 million in both of the fourth and third quarters of 2023. GHG prices increased consistently throughout 2023 beyond expectations. This had an unexpected effect on Adjusted EBITDA and earnings per share.

The Company's average daily production in the fourth quarter 2023 increased 2% to 25,900 boe/d, compared to third quarter volumes. Company-wide oil production in the fourth quarter 2023 increased 3% sequentially and California production, which consists solely of oil and comprises 83% of total company production, increased 5% to 21,500 mboe/d in the fourth quarter. These increases were largely driven by the impact from the acquisition of Macpherson Energy Corporation (the “Macpherson Acquisition”) at the end of the third quarter.

Company-wide realized oil price, including hedging effects, was $72.65 per bbl for the fourth quarter 2023 compared to $73.13 per bbl in the third quarter 2023. Excluding hedging effects, California's average realized oil prices were $77.74 per bbl in the fourth quarter 2023, 94% of Brent, and $79.98 per bbl in the third quarter 2023, 93% of Brent.

Lease operating expenses, which includes fuel gas costs for our California steam operations, increased 13% in the fourth quarter 2023 from the third quarter 2023, mostly as a result of higher natural gas (fuel) costs and higher utility costs.

Taxes, other than income taxes decreased 12% in the fourth quarter 2023 compared to the third quarter 2023 mainly due to lower severance expense and GHG allowance requirements, partially offset by increased GHG prices quarter over quarter which rose consistently throughout 2023 beyond expectations.

General and administrative expenses (“G&A”) remained flat in the fourth quarter 2023 compared to the third quarter 2023. Adjusted General and Administrative Expenses(1), which excludes non-cash stock compensation costs and non-recurring costs, increased 7% in the fourth quarter 2023 compared to the third quarter 2023 due to higher costs related to year-end payroll tax and benefit true-ups, and insurance cost increases.

The net income for the well servicing and abandonment business, C&J Well Services, remained flat at $3 million in the fourth quarter 2023 compared to the third quarter 2023.

For the fourth quarter 2023, capital expenditures were approximately $16 million, excluding acquisitions, asset retirement obligation spending and $1 million of well servicing and abandonment segment capital. This represented a 36% increase in capital expenditures compared to the third quarter 2023, mainly due to an increase in drilling, facilities, and workover costs in the fourth quarter. Additionally, Berry spent approximately $3 million for plugging and abandonment activities in the fourth quarter 2023.

Full-Year 2023 Results

Net income was $37 million in 2023 compared to $250 million in 2022. Adjusted EBITDA was $268 million in 2023 compared to $380 million in 2022. The decreases were primarily driven by lower oil prices and volumes, higher GHG costs included in taxes, other than income taxes and higher lease operating expenses excluding fuel, partially offset by lower fuel costs driven by lower fuel consumption. Net income changes also included the positive overall impact of improved derivative valuation and income taxes of $18 million compared to a benefit of $42 million in the prior year due to the utilization of net operating losses and tax credits. Adjusted free cash flow declined by $102 million on lower earnings.

The Company's average daily production for the full year 2023 was 25,400 boe/d compared to 26,100 boe/d in 2022. Company-wide oil production in 2023 was 23,500 bbl/d, accounting for 93% of total Company production, with California production contributing 20,700 boe/d or 81% of total production. Overall production decreased 3% principally due to reduced drilling and workover activity, along with natural base decline, partially offset by production from the Macpherson Acquisition in September 2023.

Company-wide realized oil prices, including hedging effects, were $71.67 per bbl in 2023 compared to $77.59 per bbl in 2022. Excluding hedging effects, California average realized oil prices were $76.89 per bbl in 2023 and $93.40 per bbl, in 2022, each 94% of Brent.

Lease operating expenses, which includes fuel costs for our California steam operations, increased 5% due to higher outside services and lease maintenance costs, partially offset by lower fuel costs. Fuel consumption decreased 12% compared to 2022, which resulted in decreased fuel costs of 8%, net of a 4% increase in average natural gas prices. Lease operating expenses excluding fuel increased 12%, due to higher outside services and lease maintenance costs, mostly weather related in the first quarter 2023, as well as increased power costs driven by higher rates.

Electricity generation expenses and sales decreased 68% and 50%, respectively, in 2023 compared to 2022, due to lower volumes sold resulting from operating one of our cogeneration facilities for a portion of the year compared to running it all of 2022 to maximize the margin efficiency of these facilities. Fuel costs included in lease operating expenses and electricity generation expenses exclude the effects of natural gas derivative settlements.

Taxes, other than income taxes, increased 47% in 2023 compared to 2022, largely from increases in GHG expense due to higher GHG emission prices in a volatile California carbon allowance market, partially offset by lower GHG emissions. GHG prices increased consistently throughout 2023 beyond expectations. This had an unexpected effect on Adjusted EBITDA and earnings per share.

General and administrative expenses decreased by approximately $1 million to $96 million in 2023 compared to 2022 due to a decrease in professional services. Adjusted General and Administrative Expenses, which excludes non-cash stock compensation costs and non-recurring costs, decreased by 4%, primarily due to cost saving initiatives implemented in early 2023.

The net income for the well servicing and abandonment business, C&J Well Services, was $13 million for 2023, compared to $15 million for 2022, primarily due to a decline in California drilling activity.

For 2023, capital expenditures were approximately $67 million, excluding acquisitions, asset retirement obligation spending and $6 million of well servicing and abandonment capital, a 54% decrease compared to the prior year. The reduction in development activity was generally made in connection with the Macpherson Acquisition in September 2023. The capital budget was adjusted to reflect the reduced need for drilling activities on the legacy Berry assets due to the addition of producing assets, allowing Berry to meet production targets while reducing drilling, workover and other activities on the legacy Berry assets. In connection with the closing of the Macpherson Acquisition in September 2023, a total of $35 million was reallocated from the 2023 capital expenditures budget to fund a portion of the purchase price. Additionally, the Company spent approximately $18 million for plugging and abandonment activities in 2023.

At December 31, 2023, the Company had liquidity of $171 million, consisting of $5 million cash and $166 million available for borrowings under the Company’s revolving credit facilities.

Proved reserves were 103 mmboe at December 31, 2023, of which 87% are located in California, which is also where approximately 97% of the PV-10(1) value is located. In 2023, Berry replaced 176% of its California production and 19% of its total Company production, with additional proved reserves, from field extensions and acquisitions, offsetting the impact of production and lower pricing.

“We delivered solid financial and operational results in a period of declining energy prices and generated 2023 operating cash flows of $199 million, as well as $97 million of Adjusted Free Cash Flow, more than half of which, $55 million, was attributable to the fourth quarter,” said Mike Helm, Berry’s Chief Financial Officer. “For 2023, we returned $65 million to shareholders, including $55 million in the form of fixed and variable dividends. These cash returns resulted in a top-tier sector total dividend yield of approximately 10% for our shareholders. We also completed $10 million in stock repurchases, or about 2% of outstanding shares. Highlighting our prudent cash management, before the end of the fourth quarter, we paid down the RBL balance that was drawn in the third quarter in connection with the closing of the Macpherson Acquisition. We then utilized about $30 million of our RBL at year end to fund our second bolt-on acquisition.”

KeyFacts Energy Industry Directory: Berry Corporation