SEC Filing | Berry Corporation (bry)

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bry-20210930

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2021


☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from_______________ to _______________

Commission file number 001-38606

Berry Corporation (bry)

(Exact name of registrant as specified in its charter)


Delaware (State of incorporation or organization)						81-5410470 (I.R.S. Employer Identification Number)

16000 Dallas Parkway, Suite 500

Dallas, Texas 75248

(661) 616-3900

(Address of principal executive offices, including zip code

Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class Common Stock, par value $0.001 per share			Trading Symbol BRY			Name of each exchange on which registered Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☒

Smaller reporting company ☐

Emerging Growth Company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Shares of common stock outstanding as of October 31, 2021 80,007,149

Table of Contents


		Page
Part I – Financial Information
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Stockholders’ Equity	3
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	59
Item 4.	Controls and Procedures	59

Part II – Other Information
Item 1.	Legal Proceedings	60
Item 1A.	Risk Factors	60
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Purchases of Equity Securities	61
Item 6.	Exhibits	63
	Glossary of Terms	64
	Signatures	72

The financial information and certain other information presented in this report have been rounded to the nearest whole number or the nearest decimal. Therefore, the sum of the numbers in a column may not conform exactly to the total figure given for that column in certain tables in this report. In addition, certain percentages presented in this report reflect calculations based upon the underlying information prior to rounding and, accordingly, may not conform exactly to the percentages that would be derived if the relevant calculations were based upon the rounded numbers, or may not sum due to rounding.

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

BERRY CORPORATION (bry)

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



	September 30, 2021		December 31, 2020
	(in thousands, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	38,161	$	80,557
Accounts receivable, net of allowance for doubtful accounts of $1,715 at September 30, 2021 and $2,215 at December 31, 2020	69,315		52,027
Derivative instruments	884		2,507

Other current assets	70,559		19,400
Total current assets	178,919		154,491
Noncurrent assets:
Oil and natural gas properties	1,483,389		1,412,566
Accumulated depletion and amortization	(309,089)		(235,259)
Total oil and natural gas properties, net	1,174,300		1,177,307
Other property and equipment	91,052		112,145
Accumulated depreciation	(32,129)		(31,368)
Total other property and equipment, net	58,923		80,777
Derivative instruments	2,042		—
Other noncurrent assets	15,782		7,235
Total assets	$	1,429,966	$	1,419,810
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	154,591	$	151,985
Derivative instruments	39,467		23,321


Total current liabilities	194,058		175,306
Noncurrent liabilities:
Long-term debt	394,285		393,480
Derivative instruments	15,603		—
Deferred income taxes	—		1,011
Asset retirement obligations	115,458		135,192
Other noncurrent liabilities	25,666		785
Commitments and Contingencies - Note 4
Stockholders' Equity:
Common stock ($0.001 par value; 750,000,000 shares authorized; 85,590,417 and 85,041,581 shares issued; and 80,007,149 and 79,929,335 shares outstanding, at September 30, 2021 and December 31, 2020, respectively)	86		85
Additional paid-in-capital	913,544		915,877
Treasury stock, at cost (5,583,268 and 5,112,246 shares at September 30, 2021 and December 31, 2020, respectively)	(52,436)		(49,995)
Retained deficit	(176,298)		(151,931)
Total stockholders' equity	684,896		714,036
Total liabilities and stockholders' equity	$	1,429,966	$	1,419,810

The accompanying notes are an integral part of these condensed consolidated financial statements.

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BERRY CORPORATION (bry)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in thousands, except per share amounts)
Revenues and other:
Oil, natural gas and natural gas liquids sales	$	161,058	$	92,239	$	444,098	$	284,852
Electricity sales	12,371		8,744		29,328		19,089
(Losses) gains on oil and gas sales derivatives	(30,864)		(11,564)		(140,021)		157,398
Marketing revenues	732		330		3,087		1,075
Other revenues	117		—		372		53
Total revenues and other	143,414		89,749		336,864		462,467
Expenses and other:
Lease operating expenses	60,930		45,243		168,756		136,727
Electricity generation expenses	7,128		4,217		19,488		11,186
Transportation expenses	1,806		1,768		5,139		5,379
Marketing expenses	715		326		2,986		1,036
General and administrative expenses	17,614		19,173		50,749		57,287
Depreciation, depletion, and amortization	35,902		35,905		105,592		108,746
Impairment of oil and gas properties	—		—		—		289,085
Taxes, other than income taxes	13,420		9,913		34,580		24,714

Gains on natural gas purchase derivatives	(14,980)		(15,784)		(54,349)		(2,824)
Other operating expenses	3,986		1,648		4,827		2,658
Total expenses and other	126,521		102,409		337,768		633,994
Other (expenses) income:
Interest expense	(7,810)		(8,391)		(24,513)		(25,987)
Other, net	(5)		(3)		(156)		(15)
Total other (expenses) income	(7,815)		(8,394)		(24,669)		(26,002)

Income (loss) before income taxes	9,078		(21,054)		(25,573)		(197,529)
Income tax (benefit) expense	(758)		(2,190)		(1,206)		1,536
Net income (loss)	$	9,836	$	(18,864)	$	(24,367)	$	(199,065)



Net income (loss) per share:
Basic	$	0.12	$	(0.24)	$	(0.30)	$	(2.50)
Diluted	$	0.12	$	(0.24)	$	(0.30)	$	(2.50)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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BERRY CORPORATION (bry)

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)



	Nine-Month Period Ended September 30, 2020
	Common Stock		Additional Paid-in Capital		Treasury Stock		Retained Deficit		Total Stockholders’ Equity
	(in thousands)
December 31, 2019	$	85	$	901,830	$	(49,995)	$	120,528	$	972,448

Shares withheld for payment of taxes on equity awards and other	—		(794)		—		—		(794)
Stock based compensation	—		3,036		—		—		3,036

Dividends declared on common stock, $0.12/share	—		—		—		(9,564)		(9,564)
Net loss	—		—		—		(115,300)		(115,300)
March 31, 2020	85		904,072		(49,995)		(4,336)		849,826
Shares withheld for payment of taxes on equity awards and other	—		(140)		—		—		(140)
Stock based compensation	—		4,730		—		—		4,730

Net loss	—		—		—		(64,901)		(64,901)
June 30, 2020	85		908,662		(49,995)		(69,237)		789,515
Shares withheld for payment of taxes on equity awards and other	—		(46)		—		—		(46)
Stock based compensation	—		4,021		—		—		4,021

Net loss	—		—		—		(18,864)		(18,864)
September 30, 2020	$	85	$	912,637	$	(49,995)	$	(88,102)	$	774,625

Table of Contents


	Nine-Month Period Ended September 30, 2021
	Common Stock		Additional Paid-in Capital		Treasury Stock		Retained Deficit		Total Stockholders’ Equity
	(in thousands)
December 31, 2020	$	85	$	915,877	$	(49,995)	$	(151,931)	$	714,036

Shares withheld for payment of taxes on equity awards and other	—		(1,442)		—		—		(1,442)
Stock based compensation	—		3,995		—		—		3,995
Issuance of common stock	1		—		—		—		1

Dividends declared on common stock, $0.04/share	—		(3,474)		—		—		(3,474)
Net loss	—		—		—		(21,322)		(21,322)
March 31, 2021	86		914,956		(49,995)		(173,253)		691,794
Shares withheld for payment of taxes on equity awards and other	—		(78)		—		—		(78)
Stock based compensation	—		3,042		—		—		3,042


Dividends declared on common stock, $0.04/share	—		(3,219)		—		—		(3,219)
Net loss	—		—		—		(12,881)		(12,881)
June 30, 2021	86		914,701		(49,995)		(186,134)		678,658
Shares withheld for payment of taxes on equity awards and other	—		(23)		—		—		(23)
Stock based compensation	—		3,672		—		—		3,672
Purchases of treasury stock	—		—		(2,441)		—		(2,441)
Dividends declared on common stock, $0.06/share	—		(4,806)		—		—		(4,806)
Net income	—		—		—		9,836		9,836
September 30, 2021	$	86	$	913,544	$	(52,436)	$	(176,298)	$	684,896

The accompanying notes are an integral part of these condensed consolidated financial statements.

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BERRY CORPORATION (bry)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended September 30,
	2021		2020
	(in thousands)
Cash flows from operating activities:
Net loss	$	(24,367)	$	(199,065)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, depletion and amortization	105,592		108,746
Amortization of debt issuance costs	3,839		3,990
Impairment of oil and gas properties	—		289,085
Stock-based compensation expense	10,219		11,397
Deferred income taxes	(1,231)		(702)
(Decrease) increase in allowance for doubtful accounts	(500)		1,112
Other operating expenses	3,988		2,145

Derivative activities:
Total losses (gains)	85,672		(160,222)
Cash settlements on derivatives	(54,204)		106,975

Changes in assets and liabilities:
(Increase) decrease in accounts receivable	(16,760)		21,985
(Increase) decrease in other assets	(19,062)		(919)
(Decrease) increase in accounts payable and accrued expenses	(11,343)		(29,882)
Increase (Decrease) in other liabilities	415		(10,226)
Net cash provided by operating activities	82,258		144,419

Cash flows from investing activities:
Capital expenditures:
Capital expenditures	(105,046)		(62,321)


Changes in capital expenditures accruals	5,299		(10,347)

Acquisition of properties and equipment and other	(11,649)		(2,104)
Proceeds from sale of property and equipment and other	860		250

Net cash used in investing activities	(110,536)		(74,522)

Cash flows from financing activities:
Borrowings under 2017 RBL credit facility	—		228,900
Repayments on 2017 RBL credit facility	—		(230,750)

Dividends paid on common stock	(6,686)		(19,447)
Purchase of treasury stock	(2,440)		—
Shares withheld for payment of taxes on equity awards and other	(1,543)		(980)

Debt issuance costs	(3,449)		—








Net cash used in financing activities	(14,118)		(22,277)
Net (decrease) increase in cash and cash equivalents	(42,396)		47,620
Cash and cash equivalents:
Beginning	80,557		—
Ending	$	38,161	$	47,620

The accompanying notes are an integral part of these condensed consolidated financial statements.

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BERRY CORPORATION (bry)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1—Basis of Presentation

“Berry Corp.” refers to Berry Corporation (bry), a Delaware corporation, which is the sole member of each of its three Delaware limited liability company subsidiaries: (1) Berry Petroleum Company, LLC (“Berry LLC”), (2) CJ Berry Well Services Management, LLC (“C&J Management”) and (3) C&J Well Services, LLC (“C&J Well Services”).

As the context may require, the “Company”, “we”, “our” or similar words refer to (i) for periods prior to October 1, 2021, (a) Berry Corp. and its consolidated subsidiary, Berry LLC, as a whole or (b) either Berry Corp. or Berry LLC, and (ii) for periods on or after October 1, 2021, (a) Berry Corp. and its consolidated subsidiaries, as a whole, or (b) either Berry Corp., Berry LLC, C&J Management or C&J Well Services.

Nature of Business

Berry Corp. is an independent oil and natural gas company that was incorporated under Delaware law in February 2017 and its common stock began trading on NASDAQ under the symbol “bry” in July 2018. Berry Corp. operates through its three wholly owned subsidiaries. Berry LLC owns and operates our oil and gas assets, all of which are located onshore in the United States (the “U.S.”), in California (primarily in the San Joaquin basin), Utah (in the Uinta basin), and Colorado (in the Piceance basin). We are focused on the development and production of onshore, low geologic risk, long-lived conventional oil reserves.

Effective as of October 1, 2021, we completed the acquisition of one of the largest upstream well servicing and abandonment businesses in California (the “C&J Well Services Acquisition”). This business is owned and operated through C&J Well Services.

Principles of Consolidation and Reporting

The condensed consolidated financial statements were prepared in conformity with U.S. generally accepted accounting principles (“GAAP”), which requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. In management’s opinion, the accompanying financial statements contain all normal, recurring adjustments that are necessary to fairly present our interim unaudited condensed consolidated financial statements. We eliminated all significant intercompany transactions and balances upon consolidation. For oil and gas exploration and production joint ventures in which we have a direct working interest, we account for our proportionate share of assets, liabilities, revenue, expense and cash flows within the relevant lines of the financial statements.

We prepared this report pursuant to the rules and regulations of the U.S. Security and Exchange Commission (“SEC”) applicable to interim financial information, which permit the omission of certain disclosures to the extent they have not changed materially since the latest annual financial statements. We believe our disclosures are adequate to make the disclosed information not misleading. The results reported in these unaudited condensed consolidated financial statements may not accurately forecast results for future periods. This Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and the notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2020.

The financial results of C&J Well Services, the business of which we acquired on October 1, 2021, are not included in the third quarter unaudited condensed consolidated financial statements, but will be included beginning in the fourth quarter of 2021 (see Note 9).

Reclassification

We reclassified certain prior year amounts in the cash flow statements to conform to the current year presentation. These reclassifications had no material impact on the financial statements.

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BERRY CORPORATION (bry)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Recently Adopted Accounting Standards

In December 2019, the FASB issued rules which simplify the accounting for income taxes. We adopted these rules in the first quarter of 2021 which did not have a material impact on our financial statements.

Note 2—Debt

The following table summarizes our outstanding debt:


	September 30, 2021		December 31, 2020		Interest Rate	Maturity	Security
	(in thousands)
2021 RBL Facility	$	—	n/a		variable rates 5.3% (2021)	August 26, 2025	Mortgage on 90% of Present Value of proven oil and gas reserves and lien on certain other assets
2017 RBL Facility	n/a		$	—	variable rates 4.0% (2020)	July 29, 2022 (Terminated August 26, 2021)	Mortgage on 85% of Present Value of proven oil and gas reserves and lien on certain other assets
2026 Notes	400,000		400,000		7.0%	February 15, 2026	Unsecured
Long-Term Debt - Principal Amount	400,000		400,000
Less: Debt Issuance Costs	(5,715)		(6,520)
Long-Term Debt, net	$	394,285	$	393,480

Deferred Financing Costs

We incurred legal and bank fees related to the issuance of debt. At September 30, 2021 and December 31, 2020, debt issuance costs for the 2021 RBL Facility and 2017 RBL Facility (each as defined below) reported in “other noncurrent assets” on the balance sheet were approximately $5 million and $7 million net of amortization, respectively. In the third quarter of 2021 we expensed $3 million of unamortized debt issuance costs related to the termination of the 2017 RBL Facility. Also in the third quarter of 2021 we incurred approximately $3 million of legal and bank fees related to the issuance of the 2021 RBL Facility, which costs are reported in “other noncurrent assets” on the balance sheet. At September 30, 2021 and December 31, 2020, debt issuance costs, net of amortization, for the unsecured notes due February 2026 (the “2026 Notes”) reported in “Long-Term Debt, net” on the balance sheet were approximately $6 million and $7 million, respectively.

For each of the three month periods ended September 30, 2021 and 2020, the amortization expense for the 2021 RBL Facility, the 2017 RBL Facility and the 2026 Notes, combined, was approximately $1 million and was included in “interest expense” in the condensed consolidated statements of operations. For each of the nine month periods ended September 30, 2021 and 2020, the amortization expense for the 2021 RBL Facility, the 2017 RBL Facility and the 2026 Notes was approximately $4 million.

Fair Value

Our debt is recorded at the carrying amount on the balance sheets. The carrying amount of the 2021 RBL Facility approximates fair value because the interest rates are variable and reflect market rates. The fair value of the 2026 Notes was approximately $409 million and $337 million at September 30, 2021 and December 31, 2020, respectively.

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BERRY CORPORATION (bry)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

2021 RBL Facility

On August 26, 2021, we entered into a credit agreement that provided for a revolving loan with up to $500 million of commitment, subject to a reserve borrowing base (“2021 RBL Facility”). Our initial borrowing base and elected commitment is $200 million. The 2021 RBL Facility provides a letter of credit subfacility for the issuance of letters of credit in an aggregate amount not to exceed $20 million. Issuances of letters of credit reduce the borrowing availability for revolving loans under the 2021 RBL Facility on a dollar for dollar basis. The 2021 RBL Facility matures on August 26, 2025, unless terminated earlier in accordance with the 2021 RBL Facility terms. Borrowing base redeterminations generally become effective each May and November, although the borrower and the lenders may each make one interim redetermination between scheduled redeterminations. The first scheduled redetermination is scheduled for November 2021.

If the outstanding principal balance of the revolving loans and the aggregate face amount of all letters of credit under the 2021 RBL Facility exceeds the borrowing base at any time as a result of a redetermination of the borrowing base, we have the option within 30 days to take any of the following actions, either individually or in combination: make a lump sum payment curing the deficiency, deliver reserve engineering reports and mortgages covering additional oil and gas properties sufficient in certain lenders’ opinion to increase the borrowing base and cure the deficiency or begin making equal monthly principal payments that will cure the deficiency within the next six-month period. Upon certain adjustments to the borrowing base, we are required to make a lump sum payment in an amount equal to the amount by which the outstanding principal balance of the revolving loans and the aggregate face amount of all letters of credit under the 2021 RBL Facility exceeds the borrowing base. In addition, the 2021 RBL Facility provides that if there are any outstanding borrowings and the consolidated cash balance exceeds $20 million at the end of each calendar week, such excess amounts shall be used to prepay borrowings under the credit agreement. Otherwise, any unpaid principal will be due at maturity.

The outstanding borrowings under the revolving loan bear interest at a rate equal to either (i) a customary base rate plus an applicable margin ranging from 2.0% to 3.0% per annum, and (ii) a customary benchmark rate plus an applicable margin ranging from 3.0% to 4.0% per annum, and in each case depending on levels of borrowing base utilization. In addition, we must pay the lenders a quarterly commitment fee of 0.5% on the average daily unused amount of the borrowing availability under the 2021 RBL Facility. We have the right to prepay any borrowings under the 2021 RBL Facility with prior notice at any time without a prepayment penalty.

The 2021 RBL Facility requires us to maintain on a consolidated basis as of each quarter-end (i) a leverage ratio of not more than 3.0 to 1.0 and (ii) a current ratio of not less than 1.0 to 1.0. As of September 30, 2021, our leverage ratio and current ratio were 2.1:1.0 and 2.4:1.0, respectively. In addition, the 2021 RBL Facility currently provides that to the extent we incur unsecured indebtedness, including any amounts raised in the future, the borrowing base will be reduced by an amount equal to 25% of the amount of such unsecured debt. We were in compliance with all financial covenants under the 2021 RBL Facility as of September 30, 2021.

The 2021 RBL Facility contains usual and customary events of default and remedies for credit facilities of a similar nature. The 2021 RBL Facility also places restrictions on the borrower and its restricted subsidiaries with respect to additional indebtedness, liens, dividends and other payments to shareholders, repurchases or redemptions of our common stock, redemptions of the borrower’s senior notes, investments, acquisitions, mergers, asset dispositions, transactions with affiliates, hedging transactions and other matters. For instance, the 2021 RBL Facility contains certain oil sales hedging requirements.

The 2021 RBL Facility permits us to repurchase equity and indebtedness, among other things, if availability is equal to or greater than 20% of the elected commitments or borrowing base, whichever is in effect, and our pro forma leverage ratio is less than or equal to 2.0 to 1.0.

Berry Corp. and its existing subsidiaries (other than Berry LLC (who is the borrower), C&J Management and C&J Well Services) guarantee, and each future subsidiary of Berry Corp., with certain exceptions, is required to guarantee, our obligations and obligations of the other guarantors under the 2021 RBL Facility and under certain hedging transactions and banking services arrangements (the “Guaranteed Obligations”). The lenders under the 2021

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BERRY CORPORATION (bry)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

RBL Facility hold a mortgage on at least 90% of the present value of our proven oil and gas reserves. The obligations of Berry LLC and the guarantors are also secured by liens on substantially all of our personal property, subject to customary exceptions.

As of September 30, 2021, we had no borrowings outstanding and approximately $200 million of available borrowings capacity under the 2021 RBL Facility.

2017 RBL Facility

On July 31, 2017, we entered into a credit agreement that provided for a revolving loan with up to $1.5 billion of commitment, subject to a reserve borrowing base (“2017 RBL Facility”). In April 2021, we completed our scheduled semi-annual borrowing base redetermination under our 2017 RBL Facility, which resulted in a reaffirmed borrowing base and our elected commitment at $200 million. On August 26, 2021, we terminated the 2017 RBL Facility agreement. There were no borrowings outstanding at the time of termination.

Bond Repurchase Program

In February 2020, our Board of Directors adopted a program to spend up to $75 million for the opportunistic repurchase of our 2026 Notes. The manner, timing and amount of any purchases will be determined based on our evaluation of market conditions, compliance with outstanding agreements and other factors, may be commenced or suspended at any time without notice and do not obligate Berry Corp. to purchase the 2026 Notes during any period or at all. We have not yet repurchased any bonds under this program.

Corporate Organization

Berry Corp., as Berry LLC’s parent company, has no independent assets or operations and is subject to a passive holding company covenant under the 2021 RBL Facility. Any guarantees of potential future registered debt securities by Berry Corp. or Berry LLC would be full and unconditional. In addition, there are no significant restrictions upon the ability of Berry LLC to distribute funds to Berry Corp. by distribution or loan other than restrictions under the 2021 RBL Facility. None of the assets of Berry Corp. or Berry LLC represent restricted net assets.

The 2021 RBL Facility permits Berry Corp. to make dividends so long as both before and after giving pro forma effect to such distribution, no default or event of defaults exists, availability exceeds 20% of the elected commitments or borrowing base, whichever is in effect, and Berry Corp. demonstrates a pro forma leverage ratio less than or equal to 2.0 to 1.0. The conditions are currently met with significant margin.

Note 3—Derivatives

We utilize derivatives, such as swaps, puts and calls, to hedge a portion of our forecasted oil and gas production and gas purchases to reduce exposure to fluctuations in oil and natural gas prices, which addresses our market risk. In addition to the hedging requirements of the 2021 RBL Facility, we target covering our operating expenses and a majority of our fixed charges, which includes capital needed to sustain production levels, as well as interest and fixed dividends as applicable, with the oil and gas sales hedges for a period of up to three years out. Additionally, we target fixing the price for a large portion of our natural gas purchases used in our steam operations for up to two years. We have also entered into Utah gas transportation contracts to help reduce the price fluctuation exposure, however these do not qualify as hedges. We also, from time to time, have entered into agreements to purchase a portion of the natural gas we require for our operations, which we do not record at fair value as derivatives because they qualify for normal purchases and normal sales exclusions.

For fixed-price oil and gas sales swaps, we are the seller, so we make settlement payments for prices above the indicated weighted-average price per barrel and per mmbtu, respectively, and receive settlement payments for prices below the indicated weighted-average price per barrel and per mmbtu, respectively.

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BERRY CORPORATION (bry)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

For our purchased oil puts, we would receive settlement payments for prices below the indicated weighted-average price per barrel of Brent. For some of our purchased puts we paid a premium at the time the positions were created and for others, the premium payment is deferred until the time of settlement. As of September 30, 2021 we have offsetting put positions with an outstanding deferred premium of approximately $24 million, which is reflected in the mark-to-market valuation and will be payable beginning in 2022 through 2024, in approximately the same amount each year.

For our sold oil and gas puts, we would make settlement payments for prices below the indicated weighted-average price. No payment would be due for prices above the indicated weighted-average price.

For our sold oil and gas calls, we would make settlement payments for prices above the indicated weighted-average price. No payment would be due for prices below the indicated weighted-average price.

For our purchased gas calls, we would receive settlement payment for prices above the indicated weighted-average price. No payment would be received for prices below the indicated weighted-average price.

For fixed-price gas purchase swaps, we are the buyer so we make settlement payments for prices below the weighted-average price per mmbtu and receive settlement payments for prices above the weighted-average price per mmbtu.

We use oil and gas swaps and puts to protect our sales against decreases in oil and gas prices. We also use swaps to protect our natural gas purchases against increases in prices. We do not enter into derivative contracts for speculative trading purposes and have not accounted for our derivatives as cash-flow or fair-value hedges. The changes in fair value of these instruments are recorded in current earnings. Gains (losses) on oil and gas sales hedges are classified in the revenues and other section of the statement of operations, while natural gas purchase hedges are included in expenses and other section of the statement of operations.

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BERRY CORPORATION (bry)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

As of September 30, 2021, we had the following crude oil production and gas purchase hedges.


	Q4 2021		FY 2022		FY 2023		FY 2024

Fixed Price Oil Swaps (Brent):
Hedged volume (mbbls)	1,318		3,387		1,596		732
Weighted-average price ($/bbl)	$	48.61	$	66.63	$	65.26	$	61.78
Purchased Oil Put Options (Brent):
Hedged volume (mbbls)	307		1,643		2,555		1,647
Weighted-average price ($/bbl)	$	60.00	$	50.00	$	50.00	$	50.00
Sold Oil Put Options (Brent):
Hedged volume (mbbls)	—		1,643		2,555		1,647
Weighted-average price ($/bbl)	$	—	$	40.00	$	40.00	$	40.00
Sold Oil Calls Options (Brent):
Hedged volume (mbbls)	307		—		—		—
Weighted-average price ($/bbl)	$	75.00	$	—	$	—	$	—










Purchased Gas Call Options (Henry Hub):
Hedged volume (mmbtu)	1,830,000		10,950,000		10,950,000		9,150,000
Weighted-average price ($/mmbtu)	$	4.00	$	4.00	$	4.00	$	4.00
Sold Gas Put Options (Henry Hub):
Hedged volume (mmbtu)	1,830,000		10,950,000		10,950,000		9,150,000
Weighted-average price ($/mmbtu)	$	2.75	$	2.75	$	2.75	$	2.75
Fixed Price Gas Purchase Swaps (Kern, Delivered):
Hedged volume (mmbtu)	2,085,000		—		—		—
Weighted-average price ($/mmbtu)	$	2.95	$	—	$	—	$	—

As of September 30, 2021 we also had open swap positions that are excluded from the table above where we are both buyer and seller of equal notional volumes of 12,500 mmbtu/d of fixed price gas sales swaps each indexed to Northwest Pipeline Rocky Mountains and CIG, for the period October 1, 2021 through December 31, 2021. These swap positions effectively cancel each other while resulting in a mark-to-market gain of approximately $1 million. This gain will be cash settled in 2021 as the positions expire.

In October we added purchased gas put options (Henry Hub) of 20,000 mmbtu/d at $2.75 beginning November 2021 through March 2022, which offset the fourth quarter 2021 and first quarter 2022 sold gas put options included in the above table. We added sold oil put options (Brent) of 500 bbl/d at $60.00 beginning November 2021 through December 2021, which offset the fourth quarter 2021 purchased oil put options included in the above table. We also added purchased fixed price oil swaps (Brent) of 1,000 bbl/d at $66.95 beginning January 2022 through December 2022, which partially offset the 2022 fixed price oil swaps included in the table above.

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BERRY CORPORATION (bry)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Our commodity derivatives are measured at fair value using industry-standard models with various inputs including publicly available underlying commodity prices and forward curves, and all are classified as Level 2 in the required fair value hierarchy for the periods presented. These commodity derivatives are subject to counterparty netting. The following tables present the fair values (gross and net) of our outstanding derivatives as of September 30, 2021 and December 31, 2020:


	September 30, 2021
	Balance Sheet Classification	Gross Amounts Recognized at Fair Value		Gross Amounts Offset in the Balance Sheet		Net Fair Value Presented in the Balance Sheet
	(in thousands)
Assets:
Commodity Contracts	Current assets	$	30,356	$	(29,472)	$	884
Commodity Contracts	Non-current assets	36,287		(34,245)		2,042
Liabilities:
Commodity Contracts	Current liabilities	(68,939)		29,472		(39,467)
Commodity Contracts	Non-current liabilities	(49,848)		34,245		(15,603)
Total derivatives		$	(52,144)	$	—	$	(52,144)



	December 31, 2020
	Balance Sheet Classification	Gross Amounts Recognized at Fair Value		Gross Amounts Offset in the Balance Sheet		Net Fair Value Presented in the Balance Sheet
	(in thousands)
Assets:
Commodity Contracts	Current assets	$	15,217	$	(12,710)	$	2,507

Liabilities:
Commodity Contracts	Current liabilities	(36,031)		12,710		(23,321)

Total derivatives		$	(20,814)	$	—	$	(20,814)

By using derivative instruments to economically hedge exposure to changes in commodity prices, we expose ourselves to credit risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk. We do not receive collateral from our counterparties.

We minimize the credit risk in derivative instruments by limiting our exposure to any single counterparty. In addition, our 2021 RBL Facility prevents us from entering into hedging arrangements that are secured, except with our lenders and their affiliates that have margin call requirements, that otherwise require us to provide collateral or with a non-lender counterparty that does not have an A or A2 credit rating or better from Standards & Poor’s or Moody’s, respectively. In accordance with our standard practice, our commodity derivatives are subject to counterparty netting under agreements governing such derivatives which partially mitigates the counterparty nonperformance risk.

Note 4—Lawsuits, Claims, Commitments and Contingencies

In the normal course of business, we, or our subsidiaries, are the subject of, or party to, pending or threatened legal proceedings, contingencies and commitments involving a variety of matters that seek, or may seek, among other things, compensation for alleged personal injury, breach of contract, property damage or other losses, punitive damages, fines and penalties, remediation costs, or injunctive or declaratory relief.

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BERRY CORPORATION (bry)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

We accrue for currently outstanding lawsuits, claims and proceedings when it is probable that a liability has been incurred and the liability can be reasonably estimated. We have not recorded any reserve balances at September 30, 2021 and December 31, 2020. We also evaluate the amount of reasonably possible losses that we could incur as a result of these matters. We believe that reasonably possible losses that we could incur in excess of accruals on our balance sheet would not be material to our consolidated financial position or results of operations.

We, or our subsidiaries, or both, have indemnified various parties against specific liabilities those parties might incur in the future in connection with transactions that they have entered into with us. As of September 30, 2021, we are not aware of material indemnity claims pending or threatened against us.

We have certain commitments under contracts, including purchase commitments for goods and services. Prior to our 2017 emergence, Berry entered into a Carry and Earning Agreement with Encana, effective June 7, 2006, in connection with our Piceance assets which, among other things, required us to either build a road or secure a license for alternative access, in lieu of paying a $6 million penalty. As of December 31, 2019, we fulfilled the obligation by delivering the access license pursuant to the agreement. On January 30, 2020, Caerus Piceance LLC, the successor of Encana's interests filed a claim in the City and County of Denver District Court challenging the sufficiency of such access, which we dispute. We will continue to defend the matter vigorously, however, given the uncertainty of litigation and the stage of the case, among other things, at this time we cannot estimate the likelihood or an amount of possible loss, that may result from this action.

During the second and third quarters of 2021 we entered into pipeline capacity agreements for the shipment of natural gas from the Rockies to our assets in California, that will reduce our exposure to fuel gas purchase price fluctuations. During the third quarter of 2021 we entered into a capacity agreement for approximately 32,700 mmbtu/d beginning May 2022 through April 2032 for a total commitment of $62 million. In the second quarter of 2021 we entered into pipeline capacity agreements for approximately 10,000 mmbtu/d beginning October 2021 through October 2036 and approximately 5,500 mmbtu/d beginning November 2021 through December 2024 for a total commitment of $32 million. The average price for all three agreements is approximately $0.52 mmbtu/d.

Securities Litigation Matter

On November 20, 2020, Luis Torres, individually and on behalf of a putative class, filed a securities class action lawsuit (the “Torres Lawsuit”) in the United States District Court for the Northern District of Texas against Berry Corp. and certain of its current and former directors and officers (the “Defendants”). The complaint alleges that the Defendants made false and misleading statements during the Class Period and in the offering materials for the IPO, concerning the Company’s business, operational efficiency and stability, and compliance policies, that artificially inflated the Company’s stock price, resulting in injury to the purported class members when the value of Berry Corp.’s common stock declined following release of its financial results for the third quarter of 2020.

On January 21, 2021, motions were filed in the Torres Lawsuit as plaintiffs sought to be appointed lead plaintiff and lead counsel. After briefing and a stipulation between the remaining movants, the Court appointed Luis Torres and Allia DeAngelis as co-lead plaintiffs on August 18, 2021. On November 1, 2021, the co-lead plaintiffs filed an amended complaint asserting claims on behalf of the same putative class under Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, alleging, among other things, that the Company and the individual defendants made false and misleading statements between July 26, 2018 and November 3, 2020 regarding the Company’s permits and permitting processes. The amended complaint does not quantify the alleged losses but seeks to recover all damages sustained by the putative class as a result of these alleged securities violations, as well as attorneys’ fees and costs. The defendants’ motion to dismiss the amended complaint is due January 10, 2022. All briefing on the motion to dismiss will be completed by May 2, 2022, and no oral argument has yet been scheduled.

We dispute these claims and intend to defend the matter vigorously. Given the uncertainty of litigation, the preliminary stage of the case, and the legal standards that must be met for, among other things, class certification and success on the merits, we cannot reasonably estimate the possible loss or range of loss that may result from this action.

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BERRY CORPORATION (bry)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 5—Equity

Cash Dividends

Our Board of Directors approved a regular cash dividend of $0.04 per share on our common stock for each of the first and second quarters of 2021. We paid the first and the second quarter cash dividend in April and July 2021, respectively. The Board of Directors approved a $0.06 per share regular cash dividend on our common stock for each of the third and fourth quarters of 2021. We paid the third quarter dividend in October 2021 and the fourth quarter dividend is expected to be paid in January 2022.

Stock Repurchase Program

In December 2018, our Board of Directors adopted a program for the opportunistic repurchase of up to $100 million of our common stock. Based on the Board’s evaluation of market conditions for our common stock at the time, they authorized repurchases of up to $50 million under the program. In 2018 and 2019, the Company repurchased a total of 5,057,682 shares under the stock repurchase program for approximately $50 million in aggregate. In February 2020, the Board of Directors authorized the repurchase of the remaining $50 million available under the repurchase program. We did not repurchase any common stock in 2020. For the three and nine months ended September 30, 2021, we repurchased 471,022 shares at an average price of $5.18 per share for approximately $2 million, which is reflected as treasury stock. Accordingly, as of September 30, 2021, the Company has repurchased a total of 5,528,704 shares under the stock repurchase program for approximately $52 million in aggregate, leaving approximately $48 million authorized and available for future repurchases under the program. Repurchases may be made from time to time in the open market, in privately negotiated transactions or by other means, as determined in the Company's sole discretion. The manner, timing and amount of any purchases will be determined based on our evaluation of market conditions, stock price, compliance with outstanding agreements and other factors, may be commenced or suspended at any time without notice and does not obligate Berry Corp. to purchase shares during any period or at all. Any shares acquired will be available for general corporate purposes.

Stock-Based Compensation

In February 2021, the Company granted awards of 1,832,941 shares of restricted stock units (“RSUs”), which will vest annually in equal amounts over three years and 997,840 performance-based restricted stock units (“PSUs”), which will cliff vest, if at all, at the end of a three year performance period. The fair value of these awards was approximately $14 million.

The RSUs awarded in February 2021 are solely time-based awards. Of the PSUs awarded in February 2021, (a) 50% of such will vest, if at all, based on a total stockholder return (“TSR”) performance metric (the “TSR PSUs”), which is defined as the capital gains per share of stock plus dividends paid assuming reinvestment, with TSR measured on an absolute basis and relative to the TSR of the 39 exploration and production companies in the Vanguard World Fund - Vanguard Energy ETF Index plus the S&P SmallCap 600 Value Index (collectively, the “Peer Group”) during the performance period; and (b) the other 50% of such will vest, if at all, based on the Company's average cash returned on invested capital (“CROIC PSUs”) over the performance period. Depending on the results achieved during the three-year performance period, the actual number of shares that a grant recipient receives at the end of the period may range from 0% to 250% of the TSR PSUs granted and from 0% to 200% of the CROIC PSUs granted.

The fair value of the RSUs and CROIC PSUs was determined using the grant date stock price. The fair value of the TSR PSUs was determined using a Monte Carlo simulation analysis to estimate the total shareholder return ranking of the Company, including a comparison against the Peer Group over the performance periods. The expected volatility of the Company’s common stock at the date of grant was estimated based on average volatility rates for the Company and selected guideline public companies. The dividend yield assumption was based on the then current annualized declared dividend. The risk-free interest rate assumption was based on observed interest rates consistent with the approximate three-year performance measurement period.

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BERRY CORPORATION (bry)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 6—Supplemental Disclosures to the Financial Statements

Other current assets reported on the condensed consolidated balance sheets included the following:


	September 30, 2021		December 31, 2020
	(in thousands)
Assets held for sale	$	32,326	$	—
Prepaid expenses	25,024		3,592

Materials and supplies	9,711		11,666
Oil inventories	3,272		3,490
Other	226		652
Total other current assets	$	70,559	$	19,400

Other non-current assets at September 30, 2021, included approximately $10.4 million of costs in escrow for the C&J Acquisition (see Note 9) and $5 million of deferred financing costs, net of amortization. At December 31, 2020, other non-current assets included approximately $7 million of deferred financing costs, net of amortization.

Accounts payable and accrued expenses on the condensed consolidated balance sheets included the following:


	September 30, 2021		December 31, 2020
	(in thousands)
Accounts payable-trade	$	11,762	$	11,055
Accrued expenses	58,095		43,452
Royalties payable	20,469		15,150
Greenhouse gas liability - current portion	—		35,554
Taxes other than income tax liability	14,671		10,118
Accrued interest	3,597		10,783
Dividends payable	4,803		—
Asset retirement obligations - current portion	20,000		25,000
Liabilities related to assets held for sale	20,428		—
Other	766		873
Total accounts payable and accrued expenses	$	154,591	$	151,985

The decrease of $20 million in the long-term portion of the asset retirement obligations from $135 million at December 31, 2020 to $115 million at September 30, 2021 was due to a $20 million reclassification of long-term to current liabilities related to assets held for sale, $12 million of liabilities settled during the period, and a $2 million reduction related to property sales. These decreases were offset by $8 million of accretion, a $5 million change from short-term to long-term liabilities due to changes in anticipated spending and $1 million of liabilities incurred.

Other non-current liabilities at September 30, 2021 included approximately $25 million greenhouse gas liability.

Supplemental Information on the Statement of Operations

For the three months ended September 30, 2021, other operating expenses was $4 million and mainly consisted of expensing $3 million of unamortized debt issuance costs related to the termination of the 2017 RBL Facility. For the three months ended September 30, 2020, other operating expenses was $2 million and mainly consisted of excess abandonment costs and oil tank storage fees.

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BERRY CORPORATION (bry)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

For the nine months ended September 30, 2021 and 2020, other operating expenses were $5 million and $3 million, respectively. For the nine months ended September 30, 2021, other operating expenses mainly consisted of expensing $3 million of unamortized debt issuance costs related to the termination of the 2017 RBL Facility, approximately $3 million of supplemental property tax assessments, royalty audit charges and tank rental costs and $1 million of various other costs such as abandonment costs and legal fees, partially offset by $2 million of income from employee retention credits. For the nine months ended September 30, 2020, other operating expenses included $2 million of excess abandonment costs, $1 million of oil tank storage fees, and $1 million of drilling rig standby charges, partially offset by $1 million of taxes and other refunds.

Supplemental Cash Flow Information

Supplemental disclosures to the condensed consolidated statements of cash flows are presented below:




	Nine Months Ended September 30,
	2021		2020
	(in thousands)
Supplemental Disclosures of Significant Non-Cash Investing Activities:
Material inventory transfers to oil and natural gas properties	$	2,916	$	1,013
Supplemental Disclosures of Cash Payments (Receipts):
Interest, net of amounts capitalized	$	29,114	$	29,962
Income taxes payments	$	294	$	222

Cash and cash equivalents consist primarily of highly liquid investments with original maturities of three months or less and are stated at cost, which approximates fair value. As part of our cash management system, we use a controlled disbursement account to fund cash distribution checks presented for payment by the holder. Checks issued but not yet presented to banks may result in overdraft balances for accounting purposes and have been included in “accounts payable and accrued expenses” in the condensed consolidated balance sheets, amounts are none as of September 30, 2021 and approximately $2 million as of December 31, 2020.

Note 7—Earnings Per Share

We calculate basic earnings (loss) per share by dividing net income (loss) by the weighted-average number of common shares outstanding for each period presented. Common shares issuable upon the satisfaction of certain conditions pursuant to a contractual agreement, are considered common shares outstanding and are included in the computation of net income (loss) per share.

The RSUs and PSUs are not a participating security as the dividends are forfeitable. For the three months ended September 30, 2021, 2,656,000 incremental RSU and PSU shares were included in the diluted EPS calculation, as their effect was dilutive under the “if converted” method. For the three months ended September 30, 2020 and the nine months ended September 30, 2021 and 2020, no incremental RSUs or PSUs were included in the diluted EPS calculation as their effect was anti-dilutive under the “if converted” method.

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BERRY CORPORATION (bry)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)




	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in thousands except per share amounts)
Basic EPS calculation
Net income (loss)	$	9,836	$	(18,864)	$	(24,367)	$	(199,065)




Weighted-average shares of common stock outstanding	80,242		79,879		80,277		79,776
Basic income (loss) per share	$	0.12	$	(0.24)	$	(0.30)	$	(2.50)
Diluted EPS calculation
Net income (loss)	$	9,836	$	(18,864)	$	(24,367)	$	(199,065)




Weighted-average shares of common stock outstanding	80,242		79,879		80,277		79,776
Dilutive effect of potentially dilutive securities(1)	2,656		—		—		—
Weighted-average common shares outstanding - diluted	82,898		79,879		80,277		79,776
Diluted income (loss) per share	$	0.12	$	(0.24)	$	(0.30)	$	(2.50)

__________

(1) We excluded approximately 0.2 million dilutive securities from the dilutive weighted-average common shares outstanding for the three months ended 2020, because their effect was anti-dilutive. We excluded approximately 2.4 million and 0.2 million dilutive securities from the dilutive weighted-average common shares outstanding for the nine months ended September 30, 2021 and 2020, because their effect was anti-dilutive.

Note 8—Revenue Recognition

We have derived most of our revenue from sales of oil, natural gas and NGLs, with the remaining revenue generated from sales of electricity and marketing activities related to transporting and marketing third-party volumes.

The following table provides disaggregated revenue for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in thousands)
Oil sales	$	152,536	$	88,453	$	416,204	$	274,275
Natural gas sales	6,922		3,347		24,414		9,549
Natural gas liquids sales	1,600		439		3,480		1,028
Electricity sales	12,371		8,744		29,328		19,089
Marketing revenues	732		330		3,087		1,075
Other revenues	117		—		372		53
Revenues from contracts with customers	174,278		101,313		476,885		305,069
(Losses) gains on oil and gas sales derivatives	(30,864)		(11,564)		(140,021)		157,398
Total revenues and other