SEC Filing | Berry Corporation (bry)

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bry-20230331

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 March 31, 2023


☐						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 of this chapter) 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 an 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 April 30, 2023 77,081,809

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	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	56
Item 4.	Controls and Procedures	57

Part II – Other Information
Item 1.	Legal Proceedings	58
Item 1A.	Risk Factors	59
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Purchases of Equity Securities	59
Item 6.	Exhibits	60
	Glossary of Terms	61
	Signatures	68

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)



	March 31, 2023		December 31, 2022
	(in thousands, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	14,117	$	46,250
Accounts receivable, net of allowance for doubtful accounts of $866 at March 31, 2023 and December 31, 2022	83,113		101,713
Derivative instruments	497		36,367

Other current assets	34,885		33,725
Total current assets	132,612		218,055
Noncurrent assets:
Oil and natural gas properties	1,746,216		1,725,864
Accumulated depletion and amortization	(495,883)		(465,889)
Total oil and natural gas properties, net	1,250,333		1,259,975
Other property and equipment	159,612		155,619
Accumulated depreciation	(63,063)		(55,781)
Total other property and equipment, net	96,549		99,838

Derivative instruments	5,858		76
Deferred income taxes	45,371		42,844
Other noncurrent assets	9,518		10,242
Total assets	$	1,540,241	$	1,631,030
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	141,063	$	203,101
Derivative instruments	20,476		31,106


Total current liabilities	161,539		234,207
Noncurrent liabilities:
Long-term debt	437,036		395,735
Derivative instruments	2,555		13,642

Asset retirement obligations	156,411		158,491
Other noncurrent liabilities	29,764		28,470
Commitments and Contingencies - Note 4
Stockholders' Equity:
Common stock ($0.001 par value; 750,000,000 shares authorized; 87,166,043 and 86,350,771 shares issued; and 76,582,775 and 75,767,503 shares outstanding, at March 31, 2023 and December 31, 2022, respectively)	88		86
Additional paid-in-capital	822,172		821,443
Treasury stock, at cost (10,583,268 shares at March 31, 2023 and December 31, 2022, respectively)	(103,739)		(103,739)
Retained earnings	34,415		82,695
Total stockholders' equity	752,936		800,485
Total liabilities and stockholders' equity	$	1,540,241	$	1,631,030

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 March 31,
		2023		2022
		(in thousands, except per share amounts)
Revenues and other:
Oil, natural gas and natural gas liquids sales		$	166,357	$	210,351
Services revenue		44,623		39,836
Electricity sales		5,445		5,419
Gains (losses) on oil and gas sales derivatives		38,499		(161,858)
Marketing revenues		—		289
Other revenues		45		45
Total revenues and other		254,969		94,082
Expenses and other:
Lease operating expenses		134,835		63,124
Costs of services		36,099		33,472
Electricity generation expenses		2,500		4,463
Transportation expenses		1,041		1,158
Marketing expenses		—		299
General and administrative expenses		31,669		22,942
Depreciation, depletion, and amortization		40,121		39,777

Taxes, other than income taxes		10,460		6,605

Gains on natural gas purchase derivatives		(610)		(29,054)
Other operating (income) expenses		(286)		3,769
Total expenses and other		255,829		146,555
Other (expenses) income:
Interest expense		(7,837)		(7,675)
Other, net		(75)		(13)
Total other expenses		(7,912)		(7,688)

Loss before income taxes		(8,772)		(60,161)
Income tax benefit		(2,913)		(3,351)
Net loss		$	(5,859)	$	(56,810)



Net loss per share:
Basic		$	(0.08)	$	(0.71)
Diluted		$	(0.08)	$	(0.71)

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)



	Three-Month Period Ended March 31, 2022
	Common Stock		Additional Paid-in Capital		Treasury Stock		Accumulated Deficit		Total Stockholders’ Equity
	(in thousands)
December 31, 2021	$	86	$	912,471	$	(52,436)	$	(167,473)	$	692,648

Shares withheld for payment of taxes on equity awards and other	—		(4,096)		—		—		(4,096)
Stock based compensation	—		3,920		—		—		3,920


Dividends declared on common stock, $0.06/share	—		(5,236)		—		—		(5,236)
Net loss	—		—		—		(56,810)		(56,810)
March 31, 2022	$	86	$	907,059	$	(52,436)	$	(224,283)	$	630,426


	Three-Month Period Ended March 31, 2023
	Common Stock		Additional Paid-in Capital		Treasury Stock		Retained Earnings		Total Stockholders’ Equity
	(in thousands)
December 31, 2022	$	86	$	821,443	$	(103,739)	$	82,695	$	800,485

Shares withheld for payment of taxes on equity awards and other	—		(4,260)		—		—		(4,260)
Stock based compensation	—		4,989		—		—		4,989
Issuance of common stock	2		—		—		—		2

Dividends declared on common stock, $0.50/share	—		—		—		(42,421)		(42,421)
Net loss	—		—		—		(5,859)		(5,859)
March 31, 2023	$	88	$	822,172	$	(103,739)	$	34,415	$	752,936

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)


	Three Months Ended March 31,
	2023		2022
	(in thousands)
Cash flows from operating activities:
Net loss	$	(5,859)	$	(56,810)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, depletion and amortization	40,121		39,777
Amortization of debt issuance costs	636		576

Stock-based compensation expense	4,766		3,686
Deferred income taxes	(2,913)		(2,002)

Other operating expenses (income)	604		(910)

Derivative activities:
Total (gains) losses	(39,109)		132,804
Cash settlements on derivatives	47,467		(32,152)

Changes in assets and liabilities:
Decrease (increase) in accounts receivable	18,615		(25,648)
(Increase) decrease in other assets	(383)		9,231
Decrease in accounts payable and accrued expenses	(57,933)		(14,093)
Decrease in other liabilities	(4,231)		(5,929)
Net cash provided by operating activities	1,781		48,530

Cash flows from investing activities:
Capital expenditures:
Capital expenditures	(20,633)		(27,620)


Changes in capital expenditures accruals	(6,170)		9,992

Acquisitions, net of cash received	(3,657)		(18,932)




Net cash used in investing activities	(30,460)		(36,560)

Cash flows from financing activities:
Borrowings under 2021 RBL credit facility	53,000		107,000
Repayments on 2021 RBL credit facility	(12,000)		(107,000)




Dividends paid on common stock	(40,194)		(5,197)

Shares withheld for payment of taxes on equity awards and other	(4,260)		(4,096)









Net cash used in financing activities	(3,454)		(9,293)
Net (decrease) increase in cash and cash equivalents	(32,133)		2,677
Cash and cash equivalents:
Beginning	46,250		15,283
Ending	$	14,117	$	17,960

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”). As the context may require, the “Company”, “we”, “our” or similar words refer to Berry Corp. and its subsidiaries, Berry LLC, C&J Management and C&J.

Nature of Business

We are a western United States independent upstream energy company with a focus on onshore, low geologic risk, long-lived conventional reserves in the San Joaquin basin of California (100% oil) and the Uinta basin of Utah (oil and gas), with well servicing and abandonment capabilities in California. We operate in two business segments: (i) exploration and production (“E&P”) and (ii) well servicing and abandonment.

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. Securities 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, 2022.

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BERRY CORPORATION (bry)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 2—Debt

The following table summarizes our outstanding debt:


	March 31, 2023		December 31, 2022		Interest Rate	Maturity	Security
	(in thousands)
2021 RBL Facility	$	41,000	$	—	variable rates 10.25% (2023) and 9.50% (2022)	August 26, 2025	Mortgage on 90% of Present Value of proven oil and gas reserves and lien on certain other assets
2022 ABL Facility	—		—		variable rates 9.0% (2023) and 8.3% (2022)	June 5, 2025	Personal property assets, other than excluded accounts

2026 Notes	400,000		400,000		7.0%	February 15, 2026	Unsecured
Long-Term Debt - Principal Amount	441,000		400,000
Less: Debt Issuance Costs	(3,964)		(4,265)
Long-Term Debt, net	$	437,036	$	395,735

Deferred Financing Costs

We incurred legal and bank fees related to the issuance of debt. At March 31, 2023 and December 31, 2022, debt issuance costs reported in “other noncurrent assets” on the balance sheet were approximately (i) $3 million and $4 million, respectively, net of amortization, for the Credit Agreement, dated as of August 26, 2021, among Berry Corp, as a guarantor, Berry LLC, as the borrower, JPMorgan Chase Bank, N.A., as the administrative agent and the other parties thereto (as amended, restated, modified or otherwise supplemented from time to time, the “2021 RBL Facility”) and (ii) an immaterial amount, net of amortization, for the Revolving Loan and Security Agreement, dated as of August 9, 2022, among C&J and C&J Management, as borrowers, and Tri Counties Bank, as lender (as amended, restated, supplemented or otherwise modified from time to time, the “2022 ABL Facility”). At March 31, 2023 and December 31, 2022, 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 was approximately $4 million.

For each of the three month periods ended March 31, 2023 and 2022, the amortization expense for the 2021 RBL Facility, 2022 ABL Facility and the 2026 Notes, combined, was approximately $1 million. The amortization of debt issuance costs is presented in “interest expense” on the condensed consolidated statements of operations.

Fair Value

Our debt is recorded at the carrying amount on the balance sheets. The carrying amounts of the 2021 RBL Facility and the 2022 ABL Facility approximate fair value because the interest rates are variable and reflect market rates. The 2021 RBL and 2022 ABL are Level 2 in the fair value hierarchy. The fair value of the 2026 Notes was approximately $369 million at March 31, 2023 and December 31, 2022. The 2026 Notes are Level 1 in the fair value hierarchy.

2021 RBL Facility

As of March 31, 2023, the 2021 RBL Facility had a $500 million revolving commitment and a $250 million borrowing base with the aggregate elected commitments of $200 million, and a $20 million sublimit for the issuance of letters of credit (with borrowing availability being reduced by the face amount of any letters of credit issued under the subfacility). Availability under the 2021 RBL Facility may not exceed the lesser of the aggregate elected commitments or the borrowing base less outstanding advances and letters of credit. The borrowing base under the

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BERRY CORPORATION (bry)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

2021 RBL Facility is redetermined semi-annually, and the 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 2021 RBL Facility matures on August 26, 2025, unless terminated earlier in accordance with the 2021 RBL Facility terms. The 2021 RBL Facility is available to us for general corporate purposes, including working capital.

The outstanding borrowings under the 2021 RBL Facility bear interest at a rate equal to, at our option, either (a) a customary base rate plus an applicable margin ranging from 2.0% to 3.0% or (b) a term SOFR reference rate, plus an applicable margin ranging from 3.0% to 4.0%, in each case determined based on the utilization level under the 2021 RBL Facility. Interest rate on base borrowings is payable quarterly in arrears and is computed on the basis of a year of 365/366 days, and interest on term SOFR borrowings accrues in respect of interest periods of one, three or six months, at the election of the borrower, and is computed on the basis of a year of 360 days and is payable on the last day of such interest period (or, for interest periods of six months, three months after the commencement of such interest period and at the end of such interest period.) Unused commitment fees are charged at a rate of 0.50%.

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 March 31, 2023, our leverage ratio and current ratio were 1.4 to 1.0 and 1.8 to 1.0, respectively. As of March 31, 2023, we were in compliance with all of the debt covenants.

The 2021 RBL Facility also contains other customary affirmative and negative covenants, as well as events of default and remedies. If we do not comply with the financial and other covenants in the 2021 RBL Facility, the lenders may, subject to customary cure rights, require immediate payment of all amounts outstanding under the 2021 RBL Facility and terminate the commitments thereunder.

As of March 31, 2023, we had $41 million borrowings outstanding, $7 million in letters of credit outstanding and approximately $152 million of available borrowing capacity under the 2021 RBL Facility.

2022 ABL Facility

Subject to satisfaction of customary conditions precedent to borrowing, as of March 31, 2023, C&J and C&J Management could borrow up to the lesser of (x) $15 million and (y) the borrowing base under the 2022 ABL Facility, with a letter of credit subfacility for the issuance of letters of credit in an aggregate amount not to exceed $7.5 million (with borrowing availability being reduced by the face amount of any letters of credit issued under the subfacility). The “borrowing base” is an amount equal to 80% of the balance due on eligible accounts receivable, subject to reserves that Tri Counties Bank may implement in its reasonable discretion. Interest on the outstanding principal amount of the revolving loans under the 2022 ABL Facility accrues at a per annum rate equal to 1.25% in excess of The Wall Street Journal Prime Rate. The “Wall Street Journal Prime Rate” is the variable rate of interest, on a per annum basis, which is announced and/or published in the “Money Rates” section of The Wall Street Journal from time to time as its “Prime Rate”. The rate will be redetermined whenever The Wall Street Journal Prime Rate changes. Interest is due quarterly, in arrears. The 2022 ABL Facility matures on June 5, 2025, unless terminated in accordance with the 2022 ABL Facility terms.

The 2022 ABL Facility requires CJWS to comply with the following financial covenants (i) maintain on a consolidated basis a ratio of total liabilities to tangible net worth of no greater than 1.5 to 1.0 at any time; (ii) reduce the amount of revolving advances outstanding under the 2022 ABL Facility to not more than 90% of the lesser of (a) the maximum revolving advance amount, or (b) the borrowing base, as of Tri Counties Bank’s close of business on the last day of each fiscal quarter; and (iii) maintain net income before taxes of not less than $1.00 as of each fiscal year end. As of March 31, 2023, CJWS was in compliance with all of the debt covenants.

The 2022 ABL Facility also contains other customary affirmative and negative covenants, as well as events of default and remedies. If CJWS does not comply with the financial and other covenants in the 2022 ABL Facility, the lender may, subject to customary cure rights, require immediate payment of all amounts outstanding under the 2022 ABL Facility and terminate the commitment thereunder. CJWS’s obligations under the 2022 ABL Facility are not guaranteed by Berry Corp. or Berry LLC and Berry Corp. and Berry LLC do not and are not required to provide any

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BERRY CORPORATION (bry)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

credit support for such obligations.

In March 2023, we entered into the Amendment to Revolving Loan and Security Agreement (the “First Amendment”). The First Amendment, in addition to other changes described therein, amended the 2022 ABL Facility to substitute certain collateral.

As of March 31, 2023, CJWS had no borrowings and $2 million letters of credit outstanding with $13 million of available borrowing capacity under the 2022 ABL Facility.

Senior Unsecured Notes

In February 2018, Berry LLC completed a private issuance of $400 million in aggregate principal amount of 7.0% senior unsecured notes due February 2026 (the “2026 Notes”), which resulted in net proceeds to us of approximately $391 million after deducting expenses and the initial purchasers’ discount.

The 2026 Notes are Berry LLC’s senior unsecured obligations and rank equally in right of payment with all of our other senior indebtedness and senior to any of our subordinated indebtedness. The 2026 Notes are fully and unconditionally guaranteed on a senior unsecured basis by Berry Corp.

The indenture governing the 2026 Notes contains customary covenants and events of default (in some cases, subject to grace periods). We were in compliance with all covenants under the 2026 Notes as of March 31, 2023.

Debt 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 notes under this program.

Note 3—Derivatives

We utilize derivatives, such as swaps, puts, calls and collars, 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 satisfying the oil 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 three 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. We had no such transactions in the periods presented.

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 bbl and per mmbtu, respectively, and receive settlement payments for prices below the indicated weighted-average price per bbl and per mmbtu, respectively.

For our purchased puts, we would receive settlement payments for prices below the indicated weighted-average price per barrel, net of any deferred premium. No payment would be made or received for prices above the indicated weighted-average price per barrel, other than any applicable deferred premium.

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BERRY CORPORATION (bry)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

For our sold puts, we would make settlement payments for prices below the indicated weighted-average price per barrel, net of any deferred premium. No payment would be made or received for prices above the indicated weighted-average price per barrel, other than any applicable deferred premium.

For our sold call options, we would make settlement payments for prices above the indicated weighted-average price per barrel, net of any deferred premium. No payment would be made or received for prices above the indicated weighted-average price per barrel, other than any applicable deferred premium.

A consumer collar is used for the purchase of fuel gas and is the combination of buying a call option and selling a put option. We would receive settlement payments for prices above the indicated weighted-average price of the call option and we would make settlement payments for prices below the indicated weighted-average price of the put option. No payment would be made or received for prices above the indicated weighted-average price per barrel, other than any applicable deferred premium.

For natural gas basis swaps, we make settlement payments if the difference between NWPL and Henry Hub is below the indicated weighted-average price of our contracts and receive settlement payments if the difference between NWPL and Henry Hub is above the indicated weighted-average price.

For some of our options we paid or received a premium at the time the positions were created and for others, the premium payment or receipt is deferred until the time of settlement. As of March 31, 2023 we have net payable deferred premiums of approximately $4 million, which is reflected in the mark-to-market valuation and will be payable through December 31, 2024.

We use oil and gas production hedges to protect our sales against decreases in oil and gas prices. We also use natural gas purchase hedges 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 March 31, 2023, we had the following crude oil production and gas purchases hedges.


	Q2 2023		Q3 2023		Q4 2023		FY 2024		FY 2025		FY 2026
Brent - Crude Oil production
Swaps
Hedged volume (bbls)	1,387,750		1,211,717		1,196,000		3,412,817		99,337		9,518
Weighted-average price ($/bbl)	$	77.01	$	76.26	$	76.18	$	76.07	$	71.55	$	71.55

Sold Calls
Hedged volume (bbls)	364,000		368,000		368,000		1,098,000		2,486,127		472,500
Weighted-average price ($/bbl)	$	106.00	$	106.00	$	106.00	$	105.00	$	91.11	$	82.21
Purchased Puts (net)(1)
Hedged volume (bbls)	546,000		552,000		552,000		1,281,000		2,486,127		472,500
Weighted-average price ($/bbl)	$	50.00	$	50.00	$	50.00	$	50.00	$	58.53	$	60.00

Sold Puts (net)(1)
Hedged volume (bbls)	132,668		184,000		154,116		183,000		—		—
Weighted-average price ($/bbl)	$	40.00	$	40.00	$	40.00	$	40.00	$	—	$	—




Henry Hub - Natural Gas purchases



Consumer Collars
Hedged volume (mmbtu)	1,820,000		—		—		—		—		—
Weighted-average price ($/mmbtu)	$4.00/$2.75		$	—	$	—	$	—	$	—	$	—
NWPL - Natural Gas purchases
Swaps
Hedged volume (mmbtu)	3,640,000		3,680,000		3,680,000		7,320,000		6,080,000		—
Weighted-average price ($/mmbtu)	$	5.34	$	5.34	$	5.34	$	4.27	$	4.27	$	—
Gas Basis Differentials
NWPL/HH - basis swaps
Hedged volume (mmbtu)	—		—		610,000		—		—		—
Weighted-average price ($/mmbtu)	$	—	$	—	$	1.12	$	—	$	—	$	—

__________

(1) Purchase puts and sold puts with the same strike price have been presented on a net basis.

In addition to the table above, in April 2023, we added a natural gas purchase swap (NWPL) of 10,000 mmbtu/d at $4.10 beginning January 2024 through December 2024.

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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 March 31, 2023 and December 31, 2022:


	March 31, 2023
	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	$	23,352	$	(22,855)	$	497
Commodity Contracts	Non-current assets	46,315		(40,457)		5,858
Liabilities:
Commodity Contracts	Current liabilities	(43,331)		22,855		(20,476)
Commodity Contracts	Non-current liabilities	(43,012)		40,457		(2,555)
Total derivatives		$	(16,676)	$	—	$	(16,676)


	December 31, 2022
	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	$	66,974	$	(30,607)	$	36,367
Commodity Contracts	Non-current assets	39,886		(39,810)		76
Liabilities:
Commodity Contracts	Current liabilities	(61,713)		30,607		(31,106)
Commodity Contracts	Non-current liabilities	(53,452)		39,810		(13,642)
Total derivatives		$	(8,305)	$	—	$	(8,305)

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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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.

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 March 31, 2023 and December 31, 2022. 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 March 31, 2023, we are not aware of material indemnity claims pending or threatened against us.

Securities Litigation Matters

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 (collectively, the “Defendants”). The complaint asserts violations of Sections 11 and 15 of the Securities Act of 1933 (as amended, the “Securities Act”), and Sections 10(b) and 20(a) of the Exchange Act of 1934 (as amended, the “Exchange Act”), on behalf of a putative class of all persons who purchased or otherwise acquired (i) common stock pursuant and/or traceable to the Company’s 2018 IPO; or (ii) Berry Corp.'s securities between July 26, 2018 and November 3, 2020 (the “Class Period”). In particular, 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 November 3, 2020.

On November 1, 2021, the court-appointed 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 Exchange Act, 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 filed a Motion to Dismiss on January 24, 2022 and on September 13, 2022, the Court issued an order denying that motion. The case is now in discovery. On February 13, 2023, the plaintiffs filed a motion for class certification, and on April 14, 2023, the defendants filed their opposition; the plaintiffs are required to file their reply on or before May 30, 2023.

We dispute these claims and intend to defend the matter vigorously. Given the uncertainty of litigation, the early 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.

On October 20, 2022, a shareholder derivative lawsuit was filed in the United States District Court for the Northern District of Texas by putative stockholder George Assad, allegedly on behalf of the Company, that piggy-backs on the securities class action referenced above and which is currently pending before the same Court. The derivative complaint names certain current and former officers and directors as defendants, and generally alleges that they breached their fiduciary duties by causing or failing to prevent the securities violations alleged in the securities class action. The derivative complaint also alleges claims for unjust enrichment as against all defendants, and claims for contribution and indemnification under Sections 10(b) and 21D of the Exchange Act. On January 27, 2023, the court granted the parties’ joint stipulated request to stay the derivative action pending resolution of the

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BERRY CORPORATION (bry)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

related securities class action. On January 20, 2023, a second shareholder derivative lawsuit was filed, this time in the United States District Court for the District of Delaware, by putative stockholder Molly Karp allegedly on behalf of the Company, again piggy-backing on the securities class action referenced above. This complaint, similar to the first derivative complaint, is brought against certain current and former officers and directors of the Company, asserting breach of fiduciary duty, aiding and abetting, and contribution claims based on the defendants allegedly having caused or failed to prevent the securities violations alleged in the securities class action. In addition, the complaint asserts a claim under Section 14(a) of the Exchange Act, alleging that Berry’s 2022 Proxy Statement was false and misleading in that it suggested the Company’s internal controls were sufficient and the board of directors was adequately overseeing material risks facing the Company when, according to the derivative plaintiff, that was not the case. The defendants believe the claims in the shareholder derivative actions are without merit and intend to defend vigorously against them, but there can be no assurances as to the outcome. At this time, we are unable to estimate the probability or the amount of liability, if any, related to this matter.

In addition, on or around April 17, 2023, the Company received a stockholder litigation demand that the Company’s board of directors investigate and commence legal proceedings against certain current and former officers and directors based ostensibly on the same claims asserted in the derivative actions.

Note 5—Equity

Cash Dividends

In the first quarter of 2023, our Board of Directors declared a quarterly fixed cash dividend totaling $0.06 per share, as well as variable cash dividends of $0.44 per share which was based on the results of the fourth quarter of 2022, for a total of $0.50 per share, which we paid in March 2023. The Board of Directors approved a $0.12 per share fixed cash dividend based on the results of the first quarter of 2023, which is expected to be paid in May 2023.

The Company anticipates that it will continue to pay quarterly cash dividend in the future. However, the payment and amount of future dividends remain within the discretion of the Board and will depend upon the Company’s future earnings, financial condition, capital requirements, and other factors.

Stock Repurchase Program

We did not repurchase any shares during the three months ended March 31, 2023. As of March 31, 2023, the Company had repurchased a total of 10,528,704 shares under the stock repurchase program for approximately $104 million. As previously disclosed, the Company implemented a shareholder return model in early 2022, for which the Company intends to allocate a portion of Adjusted Free Cash Flow to opportunistic share repurchases.

In February 2023, the Board of Directors approved an increase of $102 million to the Company’s stock repurchase authorization bringing the Company’s remaining share authority to $200 million. As of March 31, 2023, the Company’s remaining total share repurchase authority is $200 million. The Board’s authorization permits the Company to make purchases of its common stock from time to time in the open market and in privately negotiated transactions, subject to market conditions and other factors, up to the aggregate amount authorized by the Board. The Board’s authorization has no expiration date.

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 the company to purchase shares during any period or at all. Any shares repurchased are reflected as treasury stock and any shares acquired will be available for general corporate purposes.

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BERRY CORPORATION (bry)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Stock-Based Compensation

In February 2023, the Company granted awards of approximately 1,031,000 shares of restricted stock units (“RSUs”), which will vest annually in equal amounts over three years and a target number of approximately 437,000 shares of 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 2023 are solely time-based awards. Of the PSUs awarded to certain Berry employees (excluding CJWS employee awards) in February 2023, (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 (b) 50% of such awards will vest, if at all, based on the consolidated Company's average cash returned on invested capital (“CROIC PSUs”) over the performance period. The PSUs awarded to certain CJWS employees in February 2023 will vest, if at all, based on the CJWS average cash returned on invested capital (“ROIC 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 200% of the target TSR, CROIC and ROIC PSUs granted.

The fair value of the RSUs, CROIC PSUs and ROIC 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 three-year performance measurement period.

Note 6—Supplemental Disclosures to the Financial Statements

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


	March 31, 2023		December 31, 2022
	(in thousands)
Prepaid expenses	$	11,495	$	12,330
Materials and supplies	9,813		8,976

Deposits	7,323		7,266

Oil inventories	4,751		4,036
Other	1,503		1,117
Total other current assets	$	34,885	$	33,725

Other non-current assets at March 31, 2023 included approximately $6 million of operating lease right-of-use assets, net of amortization and $3 million of deferred financing costs, net of amortization. At December 31, 2022 other non-current assets included approximately $6 million of operating lease right-of-use assets, net of amortization and $4 million of deferred financing costs, net of amortization.

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BERRY CORPORATION (bry)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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


	March 31, 2023		December 31, 2022
	(in thousands)
Accounts payable-trade	$	31,756	$	40,286
Accrued expenses	54,132		85,360
Royalties payable	16,093		38,264

Taxes other than income tax liability	11,236		6,640
Accrued interest	4,004		10,885
Dividends payable	2,227		—
Asset retirement obligations - current portion	20,000		20,000
Operating lease liability	1,615		1,666

Total accounts payable and accrued expenses	$	141,063	$	203,101

The decrease of $2 million in the long-term portion of the asset retirement obligations from $158 million at December 31, 2022 to $156 million at March 31, 2023 was due to $5 million of liabilities settled during the period, offset by $3 million of accretion.

Other noncurrent liabilities at March 31, 2023 included approximately $25 million of greenhouse gas liability, which is due in 2024, and $5 million of operating lease noncurrent liability. At December 31, 2022 other non-current liabilities included approximately $23 million non-current greenhouse gas liability, which is due 2024, and $5 million of non-current operating lease liability.

Supplemental Information on the Statement of Operations

For the three months ended March 31, 2023, other operating income was less than $1 million. For the three months ended March 31, 2022, other operating expenses were $4 million and mainly consisted of over $2 million in royalty audit charges incurred prior to our emergence and restructuring in 2017, and approximately $1 million loss on the divestiture of the Piceance properties.

Supplemental Cash Flow Information

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




	Three Months Ended March 31,
	2023		2022
	(in thousands)


Supplemental Disclosures of Significant Non-Cash Investing Activities:
Material inventory transfers to oil and natural gas properties	$	288	$	243
Supplemental Disclosures of Cash Payments (Receipts):
Interest, net of amounts capitalized	$	14,388	$	14,539

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.

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BERRY CORPORATION (bry)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The RSUs and PSUs are not a participating security as the dividends are forfeitable. For the three months ended March 31, 2023 and March 31, 2022, no incremental RSU and PSU shares were included in the diluted EPS calculation as their effect was anti-dilutive under the “if converted” method.




	Three Months Ended March 31,
	2023		2022
	(in thousands except per share amounts)
Basic EPS calculation
Net loss	$	(5,859)	$	(56,810)




Weighted-average shares of common stock outstanding	76,112		80,298
Basic loss per share	$	(0.08)	$	(0.71)
Diluted EPS calculation
Net loss	$	(5,859)	$	(56,810)




Weighted-average shares of common stock outstanding	76,112		80,298
Dilutive effect of potentially dilutive securities(1)	—		—
Weighted-average common shares outstanding - diluted	76,112		80,298
Diluted loss per share	$	(0.08)	$	(0.71)

__________

(1) We excluded approximately 3.1 million and 4.1 million of combined RSUs and PSUs from the dilutive weighted-average common shares outstanding for the three months ended March 31, 2023 and 2022, because their effect was anti-dilutive.

Note 8—Revenue Recognition

We derive revenue from sales of oil, natural gas and natural gas liquids (“NGL”), with additional revenue generated from sales of electricity and marketing activities. Revenue from CJWS is generated from well servicing and abandonment business.

The following table provides disaggregated revenue for the three months ended March 31, 2023 and 2022:


	Three Months Ended March 31,
	2023		2022
	(in thousands)
Oil sales	$	152,134	$	202,724
Natural gas sales	13,543		5,982
Natural gas liquids sales	680		1,645
Service revenue	44,623		39,836
Electricity sales	5,445		5,419
Marketing revenues	—		289
Other revenues	45		45
Revenues from contracts with customers	216,470		255,940
Gains (losses) on oil and gas sales derivatives	38,499		(161,858)
Total revenues and other	$	254,969	$	94,082

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BERRY CORPORATION (bry)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 9—Segment Information

We operate in two business segments: (i) E&P and (ii) well servicing and abandonment. The E&P segment is engaged in the exploration and production of onshore, low geologic risk, long-lived conventional oil reserves primarily located in California, as well as Utah. The well servicing and abandonment segment is operated by CJWS and provides wellsite services in California to oil and natural gas production companies, with a focus on well servicing, well abandonment services and water logistics.

The well servicing and abandonment segment occasionally provides services to our E&P segment, as such, we recorded an intercompany elimination of $2 million in revenue and expense during consolidation for the three months ended March 31, 2023. The intercompany elimination was immaterial for the three months ended March 31, 2022.

The following table represents selected financial information for the periods presented regarding the Company's business segments on a stand-alone basis and the consolidation and elimination entries necessary to arrive at the financial information for the Company on a consolidated basis.


	Three Months Ended March 31, 2023
	E&P		Well Servicing and Abandonment		Corporate/Eliminations		Consolidated Company
	(in thousands)
Revenues(1)	$	171,847	$	46,363	$	(1,740)	$	216,470
Net income (loss) before income taxes	$	24,170	$	2,114	$	(35,056)	$	(8,772)
Adjusted EBITDA	$	75,797	$	5,438	$	(21,898)	$	59,337
Capital expenditures	$	19,272	$	982	$	379	$	20,633
Total assets	$	1,471,679	$	80,897	$	(12,335)	$	1,540,241


	Three Months Ended March 31, 2022
	E&P		Well Servicing and Abandonment		Corporate/Eliminations		Consolidated Company
	(in thousands)
Revenues(1)	$	216,104	$	39,836	$	—	$	255,940
Net loss before income taxes	$	(34,291)	$	(284)	$	(25,586)	$	(60,161)
Adjusted EBITDA	$	105,649	$	3,300	$	(13,237)	$	95,712
Capital expenditures	$	26,437	$	628	$	555	$	27,620
Total assets	$	1,471,358	$	73,887	$	(50,518)	$	1,494,727

__________

(1) These revenues do not include hedge settlements.

Adjusted EBITDA is the measure reported to the chief operating decision maker (CODM) for purposes of making decisions about allocating resources to and assessing performance of each segment. Adjusted EBITDA is calculated as earnings before interest expense; income taxes; depreciation, depletion, and amortization; derivative gains or losses net of cash received or paid for scheduled derivative settlements; impairments; stock compensation expense; and unusual and infrequent items.

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BERRY CORPORATION (bry)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)


	Three Months Ended March 31, 2023
	E&P		Well Servicing and Abandonment		Corporate/Eliminations		Consolidated Company
	(in thousands)
Adjusted EBITDA reconciliation to net income (loss):
Net income (loss)	$	24,170	$	2,114	$	(32,143)	$	(5,859)
Add (Subtract):
Interest expense	—		5		7,832		7,837
Income tax benefit	—		—		(2,913)		(2,913)
Depreciation, depletion, and amortization	33,835		3,256		3,030		40,121


Gains on derivatives	(39,109)		—		—		(39,109)
Net cash received for scheduled derivative settlements	47,467		—		—		47,467
Other operating expenses (income)	1,809		(82)		(2,013)		(286)

Stock compensation expense	312		145		4,309		4,766
Non-recurring costs(1)	7,313		—		—		7,313

Adjusted EBITDA	$	75,797	$	5,438	$	(21,898)	$	59,337

__________

(1) Non-recurring costs included executive transition costs and workforce reduction costs in the first quarter of 2023.


	Three Months Ended March 31, 2022
	E&P		Well Servicing and Abandonment		Corporate/Eliminations		Consolidated Company
	(in thousands)
Adjusted EBITDA reconciliation to net income (loss):
Net loss	$	(34,291)	$	(284)	$	(22,235)	$	(56,810)
Add (Subtract):
Interest expense	—		—		7,675		7,675
Income tax benefit	—		—		(