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, 2023
OR
| 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
(Exact name of registrant as specified in its charter)
(State of incorporation or organization) | (I.R.S. Employer Identification Number) | |||||||
(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 | Trading Symbol | Name of each exchange on which registered | ||||||
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 ☐ | 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, 2023 75,666,776
Table of Contents
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| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
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.
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
BERRY CORPORATION (bry)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| September 30, 2023 | December 31, 2022 | ||||||||||
| (in thousands, except share amounts) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, net of allowance for doubtful accounts of $ | |||||||||||
| Derivative instruments | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Noncurrent assets: | |||||||||||
| Oil and natural gas properties | |||||||||||
| Accumulated depletion and amortization | ( | ( | |||||||||
| Total oil and natural gas properties, net | |||||||||||
| Other property and equipment | |||||||||||
| Accumulated depreciation | ( | ( | |||||||||
| Total other property and equipment, net | |||||||||||
| Derivative instruments | |||||||||||
| Deferred income taxes | |||||||||||
| Other noncurrent assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable and accrued expenses | $ | $ | |||||||||
| Derivative instruments | |||||||||||
| Total current liabilities | |||||||||||
| Noncurrent liabilities: | |||||||||||
| Long-term debt | |||||||||||
| Derivative instruments | |||||||||||
| Asset retirement obligations | |||||||||||
| Other noncurrent liabilities | |||||||||||
| Commitments and Contingencies - Note 4 | |||||||||||
| Stockholders' Equity: | |||||||||||
Common stock ($ | |||||||||||
| Additional paid-in-capital | |||||||||||
Treasury stock, at cost ( | ( | ( | |||||||||
Retained earnings | |||||||||||
| Total stockholders' equity | |||||||||||
| Total liabilities and stockholders' equity | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (in thousands, except per share amounts) | |||||||||||||||||||||||
| Revenues and other: | |||||||||||||||||||||||
| Oil, natural gas and natural gas liquids sales | $ | $ | $ | $ | |||||||||||||||||||
| Services revenue | |||||||||||||||||||||||
| Electricity sales | |||||||||||||||||||||||
(Losses) gains on oil and gas sales derivatives | ( | ( | ( | ||||||||||||||||||||
| Marketing revenues | |||||||||||||||||||||||
| Other revenues | |||||||||||||||||||||||
| Total revenues and other | |||||||||||||||||||||||
| Expenses and other: | |||||||||||||||||||||||
| Lease operating expenses | |||||||||||||||||||||||
| Costs of services | |||||||||||||||||||||||
| Electricity generation expenses | |||||||||||||||||||||||
| Transportation expenses | |||||||||||||||||||||||
| Marketing expenses | |||||||||||||||||||||||
| Acquisition costs | |||||||||||||||||||||||
| General and administrative expenses | |||||||||||||||||||||||
| Depreciation, depletion, and amortization | |||||||||||||||||||||||
| Taxes, other than income taxes | |||||||||||||||||||||||
(Gains) losses on natural gas purchase derivatives | ( | ( | ( | ||||||||||||||||||||
| Other operating (income) expenses | ( | ( | |||||||||||||||||||||
| Total expenses and other | |||||||||||||||||||||||
| Other (expenses) income: | |||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Other, net | ( | ( | ( | ( | |||||||||||||||||||
| Total other expenses | ( | ( | ( | ( | |||||||||||||||||||
| (Loss) income before income taxes | ( | ( | |||||||||||||||||||||
Income tax (benefit) expense | ( | ( | |||||||||||||||||||||
| Net (loss) income | $ | ( | $ | $ | ( | $ | |||||||||||||||||
Net (loss) income per share: | |||||||||||||||||||||||
Basic | $ | ( | $ | $ | ( | $ | |||||||||||||||||
Diluted | $ | ( | $ | $ | ( | $ | |||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
BERRY CORPORATION (bry)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
Nine-Month Period Ended September 30, 2022 | |||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Treasury Stock | Retained Earnings (Accumulated Deficit) | Total Stockholders’ Equity | |||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||
| December 31, 2021 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||
| Shares withheld for payment of taxes on equity awards and other | — | ( | — | — | ( | ||||||||||||||||||||||||
| Stock based compensation | — | — | — | ||||||||||||||||||||||||||
Dividends declared on common stock, $ | — | ( | — | — | ( | ||||||||||||||||||||||||
| Net loss | — | — | — | ( | ( | ||||||||||||||||||||||||
| March 31, 2022 | ( | ( | |||||||||||||||||||||||||||
| Shares withheld for payment of taxes on equity awards and other | — | ( | — | — | ( | ||||||||||||||||||||||||
| Stock based compensation | — | — | — | ||||||||||||||||||||||||||
| Purchases of treasury stock | — | — | ( | — | ( | ||||||||||||||||||||||||
Dividends declared on common stock, $ | — | ( | — | — | ( | ||||||||||||||||||||||||
| Net income | — | — | — | ||||||||||||||||||||||||||
| June 30, 2022 | ( | ( | |||||||||||||||||||||||||||
| Shares withheld for payment of taxes on equity awards and other | — | ( | — | — | ( | ||||||||||||||||||||||||
| Stock based compensation | — | — | — | ||||||||||||||||||||||||||
| Purchases of treasury stock | — | — | ( | — | ( | ||||||||||||||||||||||||
Dividends declared on common stock, $ | — | ( | — | — | ( | ||||||||||||||||||||||||
| Net income | — | — | — | ||||||||||||||||||||||||||
| September 30, 2022 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
BERRY CORPORATION (bry)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
Nine-Month Period Ended September 30, 2023 | |||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Treasury Stock | Retained Earnings | Total Stockholders’ Equity | |||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||
| December 31, 2022 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
Shares withheld for payment of taxes on equity awards and other | — | ( | — | — | ( | ||||||||||||||||||||||||
Stock based compensation | — | — | — | ||||||||||||||||||||||||||
| Issuance of common stock | — | — | — | ||||||||||||||||||||||||||
Dividends declared on common stock, $ | — | — | — | ( | ( | ||||||||||||||||||||||||
Net loss | — | — | — | ( | ( | ||||||||||||||||||||||||
| March 31, 2023 | ( | ||||||||||||||||||||||||||||
Shares withheld for payment of taxes on equity awards and other | — | ( | — | — | ( | ||||||||||||||||||||||||
Stock based compensation | — | — | — | ||||||||||||||||||||||||||
| Purchases of treasury stock | — | — | ( | — | ( | ||||||||||||||||||||||||
Dividends declared on common stock, $ | — | — | — | ( | ( | ||||||||||||||||||||||||
Net income | — | — | — | ||||||||||||||||||||||||||
| June 30, 2023 | ( | ||||||||||||||||||||||||||||
Shares withheld for payment of taxes on equity awards and other | — | ( | — | — | ( | ||||||||||||||||||||||||
Stock based compensation | — | — | — | ||||||||||||||||||||||||||
Dividends declared on common stock, $ | — | ( | — | — | ( | ||||||||||||||||||||||||
Net loss | — | — | — | ( | ( | ||||||||||||||||||||||||
| September 30, 2023 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
| Nine Months Ended September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| (in thousands) | |||||||||||
| Cash flows from operating activities: | |||||||||||
Net (loss) income | $ | ( | $ | ||||||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |||||||||||
| Depreciation, depletion and amortization | |||||||||||
| Amortization of debt issuance costs | |||||||||||
| Stock-based compensation expense | |||||||||||
| Deferred income taxes | ( | ||||||||||
| Other operating expenses (income) | ( | ||||||||||
| Derivative activities: | |||||||||||
Total losses | |||||||||||
| Cash settlements on derivatives | ( | ||||||||||
| Changes in assets and liabilities: | |||||||||||
| Decrease (increase) in accounts receivable | ( | ||||||||||
(Increase) decrease in other assets | ( | ||||||||||
Decrease in accounts payable and accrued expenses | ( | ( | |||||||||
Increase (decrease) in other liabilities | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures: | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Changes in capital expenditures accruals | ( | ||||||||||
| Acquisitions, net of cash received | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Borrowings under 2021 RBL credit facility | |||||||||||
| Repayments on 2021 RBL credit facility | ( | ( | |||||||||
| Borrowings under 2022 ABL credit facility | |||||||||||
| Repayments on 2022 ABL credit facility | ( | ||||||||||
| Dividends paid on common stock | ( | ( | |||||||||
| Purchase of treasury stock | ( | ( | |||||||||
| Shares withheld for payment of taxes on equity awards and other | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Net (decrease) increase in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents: | |||||||||||
| Beginning | |||||||||||
| Ending | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
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”), (C&J Management and C&J together, “CJWS”). 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. In July 2023, we executed an agreement to acquire Macpherson Energy Corporation and its subsidiaries, a privately held Kern County, California operator, and we closed the acquisition in September 2023 (“Macpherson Acquisition”). As of September 15, 2023, Berry LLC owns Macpherson Energy, LLC (formerly, known as Macpherson Energy Corporation) and its subsidiaries (“Macpherson Energy”).
Nature of Business
We are a western United States independent upstream energy company with a focus on onshore, low geologic risk, long-lived oil and gas reserves. We operate in two business segments: (i) exploration and production (“E&P”) and (ii) well servicing and abandonment. Our E&P assets are located in California and the Rockies, characterized by high oil content and predominantly located in rural areas with low population. Our California assets are in the San Joaquin basin (100 % oil), while our Rockies assets are in the Uinta basin of Utah (60 % oil and 40 % gas). We operate our well servicing and abandonment segment in California.
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.
6
BERRY CORPORATION (bry)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 2—Debt
The following table summarizes our outstanding debt:
| September 30, 2023 | December 31, 2022 | Interest Rate | Maturity | Security | |||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||
| 2021 RBL Facility | $ | $ | variable rates | August 26, 2025 | Mortgage on | ||||||||||||||||||||||||
| 2022 ABL Facility | variable rates and | June 5, 2025 | CJWS property and certain other assets | ||||||||||||||||||||||||||
| 2026 Notes | February 15, 2026 | Unsecured | |||||||||||||||||||||||||||
| Long-Term Debt - Principal Amount | |||||||||||||||||||||||||||||
| Less: Debt Issuance Costs | ( | ( | |||||||||||||||||||||||||||
| Long-Term Debt, net | $ | $ | |||||||||||||||||||||||||||
Deferred Financing Costs
We incurred legal and bank fees related to the issuance of debt. At September 30, 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 September 30, 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 $3 million and $4 million, respectively.
For each of the three month periods ended September 30, 2023 and 2022, the amortization expense for the 2021 RBL Facility, the 2022 ABL Facility and the 2026 Notes, combined, was approximately $1 2
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 Facility and 2022 ABL Facility are Level 2 in the fair value hierarchy. The fair value of the 2026 Notes was approximately $384 million and $369 million at September 30, 2023 and December 31, 2022, respectively. The 2026 Notes are Level 1 in the fair value hierarchy.
2021 RBL Facility
The borrowing base under the 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. On May 10, 2023, Berry Corp, as a guarantor, and Berry LLC, as borrower, entered into the Fourth Amendment to Credit Agreement (the “Amendment”) pursuant to which, among other things, the requisite lenders under the 2021 RBL Facility agreed to (i) maintain the aggregate elected commitment amounts at $200 million, (ii) decrease the borrowing base from $250 million to $200 million, which constituted a redetermination of the borrowing base that was scheduled to occur on or about May 1, 2023 pursuant to the terms of the Credit Facility, (iii) decrease the maximum consolidated leverage ratio by 0.25 x to 2.75 x for fiscal quarters ending June 30, 2023 and thereafter and (iv) amend the minimum hedging covenant to specify the floor price set forth in the Amendment but without any modification to the minimum volumes required to be hedged.
As of September 30, 2023, the 2021 RBL Facility had a $500 million revolving commitment and the aforementioned $200 million borrowing base and aggregate elected commitment 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 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 , 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 2.75 to 1.0 and (ii) a current ratio of not less than 1.0 to 1.0. As of September 30, 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 September 30, 2023, we had $57 million borrowings outstanding, $10 million in letters of credit outstanding and approximately $133 million of available borrowing capacity under the 2021 RBL Facility. As of October 31, 2023, we reduced the borrowings to $49 million.
2022 ABL Facility
Subject to satisfaction of customary conditions precedent to borrowing, as of September 30, 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 the lender may implement in its reasonable discretion. As of September 30, 2023, the borrowing base was $15 million. 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 the lender’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 September 30, 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 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 September 30, 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, 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 September 30, 2023.
Debt Repurchase Program
In February 2020, the board of directors (the “Board of Directors” or the “Board”) 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.
7
BERRY CORPORATION (bry)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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 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 below the indicated weighted-average price per barrel, other than any applicable deferred premium.
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.
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 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 September 30, 2023, we have net payable deferred premiums of approximately $2 million, which is reflected in the mark-to-market valuation and will be payable through December 31, 2024.
We use oil and gas production hedges to protect our sales against decreases in oil and gas prices. We also use natural gas purchase hedges to protect our natural gas purchases against increases in prices. We do not enter into derivative contracts for speculative trading purposes and have not accounted for our derivatives as cash-flow or fair-value hedges. The changes in fair value of these instruments are recorded in current earnings. Gains (losses) on oil and gas sales hedges are classified in the revenues and other section of the statement of operations, while natural gas purchase hedges are included in expenses and other section of the statement of operations.
8
BERRY CORPORATION (bry)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
As of September 30, 2023, we had the following crude oil production and gas purchases hedges.
| Q4 2023 | FY 2024 | FY 2025 | FY 2026 | ||||||||||||||||||||
| Brent - Crude Oil production | |||||||||||||||||||||||
| Swaps | |||||||||||||||||||||||
| Hedged volume (bbls) | |||||||||||||||||||||||
| Weighted-average price ($/bbl) | $ | $ | $ | $ | |||||||||||||||||||
Sold Calls(1) | |||||||||||||||||||||||
| Hedged volume (bbls) | |||||||||||||||||||||||
| Weighted-average price ($/bbl) | $ | $ | $ | $ | |||||||||||||||||||
Purchased Puts (net)(2) | |||||||||||||||||||||||
| Hedged volume (bbls) | |||||||||||||||||||||||
| Weighted-average price ($/bbl) | $ | $ | $ | $ | |||||||||||||||||||
Purchased Puts (net)(2) | |||||||||||||||||||||||
| Hedged volume (bbls) | |||||||||||||||||||||||
| Weighted-average price ($/bbl) | $ | $ | $ | $ | |||||||||||||||||||
Sold Puts (net)(2) | |||||||||||||||||||||||
| Hedged volume (bbls) | |||||||||||||||||||||||
| Weighted-average price ($/bbl) | $ | $ | $ | $ | |||||||||||||||||||
| Henry Hub - Natural Gas purchases | |||||||||||||||||||||||
| NWPL - Natural Gas purchases | |||||||||||||||||||||||
| Swaps | |||||||||||||||||||||||
| Hedged volume (mmbtu) | |||||||||||||||||||||||
| Weighted-average price ($/mmbtu) | $ | $ | $ | $ | |||||||||||||||||||
| Gas Basis Differentials | |||||||||||||||||||||||
| NWPL/HH - basis swaps | |||||||||||||||||||||||
| Hedged volume (mmbtu) | |||||||||||||||||||||||
| Weighted-average price ($/mmbtu) | $ | $ | $ | $ | |||||||||||||||||||
(1) Purchased calls and sold calls with the same strike price have been presented on a net basis.
(2) Purchased puts and sold puts with the same strike price have been presented on a net basis.
9
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, 2023 and December 31, 2022:
| September 30, 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 | $ | $ | ( | $ | ||||||||||||||||||
| Commodity Contracts | Non-current assets | ( | |||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Commodity Contracts | Current liabilities | ( | ( | ||||||||||||||||||||
| Commodity Contracts | Non-current liabilities | ( | ( | ||||||||||||||||||||
| Total derivatives | $ | ( | $ | — | $ | ( | |||||||||||||||||
| 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 | $ | $ | ( | $ | ||||||||||||||||||
| Commodity Contracts | Non-current assets | ( | |||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Commodity Contracts | Current liabilities | ( | ( | ||||||||||||||||||||
| Commodity Contracts | Non-current liabilities | ( | ( | ||||||||||||||||||||
| Total derivatives | $ | ( | $ | — | $ | ( | |||||||||||||||||
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 Standard & 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.
10
BERRY CORPORATION (bry)
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 September 30, 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 September 30, 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 “Securities Class Action”) 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 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, and the case moved into 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 filed their reply on May 26, 2023, and a hearing on the motion for class certification was set for August 23, 2023.
On July 31, 2023, the parties executed a Memorandum of Understanding memorializing an agreement-in-principle to settle all claims in the Securities Class Action for an aggregate sum of $2.5 million. On September 18, 2023, the plaintiffs and Defendants executed a Stipulation and Agreement of Settlement, and the plaintiffs filed a motion seeking preliminary approval of the settlement. On October 18, 2023, the Court granted that motion, issuing a preliminary approval order and scheduling a final settlement approval hearing for February 6, 2024. The parties will now move forward with the notice and approval process, which is expected to include, among other things, the February 6, 2024 final approval hearing, an opt-out process, and opportunities for class members to object to the settlement. The Defendants continue to maintain that the claims are without merit and admit no liability in connection with the settlement.
11
BERRY CORPORATION (bry)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
On October 20, 2022, a shareholder derivative lawsuit (the “Assad 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 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 Assad Lawsuit pending resolution of the Securities Class Action.
On January 20, 2023, a second shareholder derivative lawsuit (the “Karp Lawsuit,” together with the Assad Lawsuit, the “Shareholder Derivative Actions”) 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. This complaint, similar to the Assad Lawsuit, 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. On February 13, 2023, the court granted the parties’ joint stipulated request to stay the Karp Lawsuit pending resolution of a motion for summary judgment by the defendants in the Securities Class Action. The proposed settlement of the Securities Class Action does not relate to the Shareholder Derivative Actions. The defendants continue to 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 these matters.
Note 5—Equity
Cash Dividends
In February 2023, the Board of Directors declared regular fixed cash dividends of $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 was paid in March 2023. In April 2023, the Board of Directors declared a $0.12 per share regular fixed cash dividend based on the results of the first quarter of 2023, which was paid in May 2023. In July 2023, the Board of Directors declared a $0.12 per share regular fixed cash dividend, as well as a variable dividend of $0.02 based on the results for the six months ended June 30, 2023, which was paid in August 2023. In October 2023, the Board of Directors approved a $0.12 per share regular fixed cash dividend, as well as a variable dividend of $0.09 based on the results of the third quarter of 2023, each of which is expected to be paid in November 2023.
The Company anticipates that it will continue to pay quarterly cash dividends 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.
12
BERRY CORPORATION (bry)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Stock Repurchase Program
The Company did not repurchase any shares during the three months ended September 30, 2023. For the nine months ended September 30, 2023, we repurchased 1.4 million shares (all in the second quarter) for approximately $10 million.
As of September 30, 2023, the Company had repurchased a total of 11,949,247 shares under the stock repurchase program for approximately $114 million in aggregate. 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 September 30, 2023, the Company’s remaining total share repurchase authority is $190 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. Purchases may be commenced or suspended at any time without notice and do 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.
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.
13
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, 2023 | December 31, 2022 | ||||||||||
| (in thousands) | |||||||||||
| Prepaid expenses | $ | $ | |||||||||
| Materials and supplies | |||||||||||
| Deposits | |||||||||||
| Oil inventories | |||||||||||
| Other | |||||||||||
| Total other current assets | $ | $ | |||||||||
Other non-current assets at September 30, 2023 included approximately $8 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.
Accounts payable and accrued expenses on the condensed consolidated balance sheets included the following:
| September 30, 2023 | December 31, 2022 | ||||||||||
| (in thousands) | |||||||||||
| Accounts payable-trade | $ | $ | |||||||||
Deferred acquisition payable(1) | |||||||||||
| Accrued expenses | |||||||||||
| Royalties payable | |||||||||||
| Taxes other than income tax liability | |||||||||||
| Accrued interest | |||||||||||
| Asset retirement obligations - current portion | |||||||||||
| Operating lease liability | |||||||||||
| Total accounts payable and accrued expenses | $ | $ | |||||||||
(1) Relates to the remaining payable of $20 million, on a discounted basis, for the Macpherson Acquisition due in July 2024.
The increase of approximately $1 million in the long-term portion of the asset retirement obligations from $158 million at December 31, 2022 to $160 million at September 30, 2023 was due to $9 million of accretion and a $7 million increase of asset retirement obligations for Macpherson Energy, largely offset by $15 million of liabilities settled during the period.
Other noncurrent liabilities at September 30, 2023 included approximately $40 million of greenhouse gas liability, which is due in the fourth quarter of 2024, and $6 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 in the fourth quarter of 2024, and $5 million of non-current operating lease liability.
14
BERRY CORPORATION (bry)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Supplemental Information on the Statement of Operations
For the nine months ended September 30, 2023, other operating income was $2 million and mainly consisted of net property tax refunds from prior periods and a net gain on equipment sales. For the nine months ended September 30, 2022, other operating expenses were $5 million and mainly consisted of over $2 million in royalty audit charges incurred prior to our emergence and restructuring in 2017, and approximately $2 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:
| Nine Months Ended September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| (in thousands) | |||||||||||
Supplemental Disclosures of Significant Non-Cash Investing Activities: | |||||||||||
| Deferred consideration payable for acquisition | $ | $ | |||||||||
| Material inventory transfers to oil and natural gas properties | $ | $ | |||||||||
| Supplemental Disclosures of Cash Payments (Receipts): | |||||||||||
| Interest, net of amounts capitalized | $ | $ | |||||||||
| Income taxes payments | $ | $ | |||||||||
Note 7—Acquisition and Divestiture
Macpherson Acquisition
In July 2023, we executed an agreement to acquire Macpherson Energy, a privately held Kern County, California operator and we closed the acquisition in September 2023. The total purchase price is approximately $70 million, subject to customary purchase price adjustments. The transaction was structured such that approximately $53 million has been paid at closing, including purchase price adjustments, and approximately $20 million will be paid in July 2024, subject to purchase price adjustments.
The Macpherson transaction was accounted for as a business combination under the acquisition method of accounting. When determining the fair values of assets acquired and liabilities assumed, management made significant estimates, judgments and assumptions. The assets acquired and liabilities assumed are included in the E&P segment. The Company's preliminary allocation of the purchase price as of the closing date, including preliminary working capital adjustments, to the estimated fair value of the Macpherson Energy net assets is as follows:
15
BERRY CORPORATION (bry)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
| September 15, 2023 | |||||
| (in thousands) | |||||
Cash and cash equivalents | $ | ||||
Accounts receivable, net of allowance for doubtful accounts | |||||
Other current assets | |||||
Property and equipment | |||||
Other noncurrent assets | |||||
| Total assets acquired | $ | ||||
Accounts payable and accrued expenses assumed | ( | ||||
Asset retirement obligation | ( | ||||
Other noncurrent liabilities | ( | ||||
| Net assets acquired | $ | ||||
The allocation of the purchase price to Macpherson Energy net tangible assets and liabilities as of September 15, 2023, is preliminary and subject to revisions to the fair value calculations for the identifiable assets and liabilities. The final purchase price allocation could differ from the preliminary allocation noted in the summary above. The acquired property and equipment is stated at fair value, and amortization on the acquired oil and gas property is computed using units-of-production method over the remaining proved reserves and depreciation of other property and equipment is computed using the straight-line method over the estimated useful lives of each asset.
The unaudited pro forma information presented below has been prepared to give effect to the Macpherson Acquisition as if it had occurred at the beginning of the periods presented. The unaudited pro forma information includes the effects from the allocation of the acquisition purchase price on depreciation and amortization as well as the Macpherson Acquisition costs charged to earnings during the nine months ended September 30, 2023 and 2022. The unaudited pro forma information is presented for illustration purposes only and is based on estimates and assumptions the Company deemed appropriate. The following unaudited pro forma information is not necessarily indicative of the results that would have been achieved if the Macpherson Acquisition had occurred in the past, and should not be relied upon as an indication of the operating results that the Company would have achieved if the acquisition had occurred at the beginning of the periods presented, and our operating results, or the future results.
| Pro Forma | |||||||||||
Nine Months Ended September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| (unaudited) (in thousands) | |||||||||||
| Revenue | $ | $ | |||||||||
Net (loss) income | $ | ( | $ | ||||||||
We acquired Macpherson Energy because their assets are high-quality, low decline oil producing properties, and are a natural fit with our existing rural Kern County portfolio. In addition to the attractive base production, we see upside for near-term production enhancement and development opportunities.
16
BERRY CORPORATION (bry)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 8—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 and nine months ended September 30, 2023, no 4,001,000 and 4,168,000 , RSU and PSU shares were included in the diluted EPS calculation, respectively.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (in thousands except per share amounts) | |||||||||||||||||||||||
| Basic EPS calculation | |||||||||||||||||||||||
Net (loss) income | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Weighted-average shares of common stock outstanding | |||||||||||||||||||||||
Basic (loss) income per share | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Diluted EPS calculation | |||||||||||||||||||||||
Net (loss) income | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Weighted-average shares of common stock outstanding | |||||||||||||||||||||||
Dilutive effect of potentially dilutive securities(1) | |||||||||||||||||||||||
| Weighted-average common shares outstanding - diluted | |||||||||||||||||||||||
Diluted (loss) income per share | $ | ( | $ | $ | ( | $ | |||||||||||||||||
__________
(1) We excluded approximately 1.9
17
BERRY CORPORATION (bry)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 9—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 and nine months ended September 30, 2023 and 2022:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Oil sales | $ | $ | $ | $ | |||||||||||||||||||
| Natural gas sales | |||||||||||||||||||||||
| Natural gas liquids sales | |||||||||||||||||||||||
| Service revenue | |||||||||||||||||||||||
| Electricity sales | |||||||||||||||||||||||
| Marketing revenues | |||||||||||||||||||||||
| Other revenues | |||||||||||||||||||||||
| Revenues from contracts with customers | |||||||||||||||||||||||
(Losses) gains on oil and gas sales derivatives | ( | ( | ( | ||||||||||||||||||||
| Total revenues and other | $ | $ | $ | $ | |||||||||||||||||||
18
BERRY CORPORATION (bry)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 10—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 oil and gas reserves located in California and the Rockies. As of September 15, 2023, E&P also includes Macpherson Energy. 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 and $5 million in revenue and expense during consolidation for the three and nine months ended September 30, 2023, respectively. The intercompany elimination was $1
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 September 30, 2023 | |||||||||||||||||||||||
| E&P | Well Servicing and Abandonment | Corporate/Eliminations | Consolidated Company | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
Revenues(1) | $ | $ | $ | ( | $ | ||||||||||||||||||
Net (loss) income before income taxes | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
| Adjusted EBITDA | $ | $ | $ | ( | $ | ||||||||||||||||||
| Capital expenditures | $ | $ | $ | $ | |||||||||||||||||||
| Total assets | $ | $ | $ | ( | $ | ||||||||||||||||||
| Three Months Ended September 30, 2022 | |||||||||||||||||||||||
| E&P | Well Servicing and Abandonment | Corporate/Eliminations | Consolidated Company | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
Revenues(1) | $ | $ | $ | ( | $ | ||||||||||||||||||
| Net income (loss) before income taxes | $ | $ | $ | ( | $ | ||||||||||||||||||
| Adjusted EBITDA | $ | $ | $ | ( | $ | ||||||||||||||||||
| Capital expenditures | $ | $ | $ | $ | |||||||||||||||||||
| Total assets | $ | $ | $ | ( | $ | ||||||||||||||||||
__________
(1) These revenues do not include hedge settlements.
19
BERRY CORPORATION (bry)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
| Nine Months Ended September 30, 2023 | |||||||||||||||||||||||
| E&P | Well Servicing and Abandonment | Corporate/Eliminations | Consolidated Company | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
Revenues(1) | $ | $ | $ | ( | $ | ||||||||||||||||||
| Net income (loss) before income taxes | $ | $ | $ | ( | $ | ( | |||||||||||||||||
| Adjusted EBITDA | $ | $ | $ | ( | $ | ||||||||||||||||||
| Capital expenditures | $ | $ | $ | $ | |||||||||||||||||||
| Total assets | $ | $ | $ | ( | $ | ||||||||||||||||||
| Nine Months Ended September 30, 2022 | |||||||||||||||||||||||
| E&P | Well Servicing and Abandonment | Corporate/Eliminations | Consolidated Company | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
Revenues(1) | $ | $ | $ | ( | $ | ||||||||||||||||||
| Net income (loss) before income taxes | $ | $ | $ | ( | $ | ||||||||||||||||||
| Adjusted EBITDA | $ | $ | $ | ( | $ | ||||||||||||||||||
| Capital expenditures | $ | $ | $ | $ | |||||||||||||||||||
| Total assets | $ | $ | $ | ( | $ | ||||||||||||||||||
__________
(1) These revenues do not include hedge settlements.
20
BERRY CORPORATION (bry)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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.
| Three Months Ended September 30, 2023 | |||||||||||||||||||||||
| E&P | Well Servicing and Abandonment | Corporate/Eliminations | Consolidated Company | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
Adjusted EBITDA reconciliation: | |||||||||||||||||||||||
Net (loss) income | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
| Add (Subtract): | |||||||||||||||||||||||
| Interest (income) expense | ( | ||||||||||||||||||||||
Income tax benefit | ( | ( | |||||||||||||||||||||
| Depreciation, depletion, and amortization | |||||||||||||||||||||||
Losses on derivatives | |||||||||||||||||||||||
| Net cash paid for scheduled derivative settlements | ( | ( | |||||||||||||||||||||
Other operating expenses (income) | ( | ( | ( | ||||||||||||||||||||
| Stock compensation expense | |||||||||||||||||||||||
Acquisition costs(1) | |||||||||||||||||||||||
Non-recurring costs(2) | |||||||||||||||||||||||
| Adjusted EBITDA | $ | $ | $ | ( | $ | ||||||||||||||||||
__________
(1) Consists of costs related to the Macpherson Acquisition.
(2) Consists of costs related to the settlement of shareholder litigation.
Three Months Ended September 30, 2022 | |||||||||||||||||||||||
| E&P | Well Servicing and Abandonment | Corporate/Eliminations | Consolidated Company | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
Adjusted EBITDA reconciliation: | |||||||||||||||||||||||
| Net income (loss) | $ | $ | $ | ( | $ | ||||||||||||||||||
| Add (Subtract): | |||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Income tax expense | |||||||||||||||||||||||
| Depreciation, depletion, and amortization | |||||||||||||||||||||||
Gains on derivatives | ( | ( | |||||||||||||||||||||
| Net cash paid for scheduled derivative settlements | ( | ( | |||||||||||||||||||||
| Other operating expenses (income) | ( | ||||||||||||||||||||||
| Stock compensation expense | |||||||||||||||||||||||
| Adjusted EBITDA | $ | $ | $ | ( | $ | ||||||||||||||||||
21
BERRY CORPORATION (bry)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
| Nine Months Ended September 30, 2023 | |||||||||||||||||||||||
| E&P | Well Servicing and Abandonment | Corporate/Eliminations | Consolidated Company | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
Adjusted EBITDA reconciliation: | |||||||||||||||||||||||
| Net income (loss) | $ | $ | $ | ( | $ | ( | |||||||||||||||||
| Add (Subtract): | |||||||||||||||||||||||
| Interest (income) expense | ( | ||||||||||||||||||||||
Income tax benefit | ( | ( | |||||||||||||||||||||
| Depreciation, depletion, and amortization | |||||||||||||||||||||||
| Losses on derivatives | |||||||||||||||||||||||
| Net cash received for scheduled derivative settlements | |||||||||||||||||||||||
| Other operating expenses (income) | ( | ( | ( | ||||||||||||||||||||
| Stock compensation expense | |||||||||||||||||||||||
Acquisition costs(1) | |||||||||||||||||||||||
Non-recurring costs(2) | |||||||||||||||||||||||
| Adjusted EBITDA | $ | $ | $ | ( | $ | ||||||||||||||||||
__________
(1) Consists of costs related to the Macpherson Acquisition.
(2) Non-recurring costs consists of the settlement of shareholder litigation in the third quarter of 2023 and executive transition costs and workforce reduction costs in the first quarter of 2023.
| Nine Months Ended September 30, 2022 | |||||||||||||||||||||||
| E&P | Well Servicing and Abandonment | Corporate/Eliminations | Consolidated Company | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
Adjusted EBITDA reconciliation: | |||||||||||||||||||||||
| Net income (loss) | $ | $ | |||||||||||||||||||||