Berry Corporation

Company Overview

Business Model: BERRY CORPORATION (bry) operates in two primary segments: exploration and production (E&P) of oil and natural gas, and well servicing and abandonment services. The E&P segment focuses on onshore, low geologic risk, long-lived oil and gas reserves primarily in California's San Joaquin Basin (100% oil) and Utah's Uinta Basin (65% oil). The well servicing and abandonment services segment, operated by C&J Well Services, provides wellsite services including well servicing, well abandonment, and water logistics in California. Revenue is generated from the sale of oil, natural gas, natural gas liquids, electricity from cogeneration, and well servicing fees.

Market Position: BERRY CORPORATION (bry) holds significant E&P assets in California and Utah, with approximately 118,860 net acres and 3,838 gross productive wells as of December 31, 2024. The company maintains a high average working interest of approximately 95% across its total productive wells. In California, C&J Well Services operates an average fleet of 56 well servicing rigs and 225 water logistics trucks, addressing a substantial market for well abandonment services, with CalGEM estimating approximately 35,000 idle wells in California.

Recent Strategic Developments:

• Acquisitions: Completed the Macpherson Energy acquisition in September 2023, adding high-quality, low-decline oil producing properties in Kern County, California. Acquired additional synergistic working interests in Kern County, California, in December 2023 and Q2 2024 for approximately $6 million and $3 million, respectively. In April 2024, acquired a 21% working interest in four lateral wells in Utah's Uteland Butte reservoir for approximately $10 million.
• Divestitures: Sold C&J Well Services’ storage facility in Ventura, California, in July 2024 for approximately $7 million net cash proceeds, realizing a $5 million gain.
• Capital Program: Total capital expenditures (excluding acquisitions/asset retirement) were $102 million in 2024, up from $73 million in 2023. The 2024 capital allocation was approximately 75% to California and 25% to Utah. For 2025, the capital expenditure budget is $110-$120 million, with a planned shift to approximately 40% allocation to Utah.
• Regulatory Impacts: Downgraded 9 million barrels of oil equivalent (mmboe) of California proved undeveloped reserves in 2024 due to SB 1137, which prohibits new wells/rework within 3,200 feet of sensitive receptors. AB 218 delayed some SB 1137 compliance deadlines to July 1, 2026. CalGEM regulation formally ended hydraulic fracturing in California in October 2024.

Geographic Footprint:

• California: Approximately 20,000 net acres (91% held by production/fee interest), with 94% average working interest and 2,574 gross producing wells. Infrastructure includes four natural gas-fired cogeneration plants (~66 MW total electrical capacity) and 54 conventional steam generators.
• Utah: Approximately 100,000 net acres (91% held by production/fee interest), with 96% average working interest and 1,264 gross producing wells. Infrastructure includes approximately 400 miles of natural gas gathering pipelines and a natural gas processing plant in Brundage Canyon (~30 mmcf/d capacity).
• Well Servicing: Operations are exclusively in California.

Financial Performance

Revenue Analysis

Profitability Metrics:

• Operating Margin: 8.6%
• Net Margin: 2.5%

Investment in Growth:

• Capital Expenditures: $102.4 million (2024), $73.1 million (2023)
• Strategic Investments:
  • Macpherson Energy acquisition (September 2023) for approximately $70 million.
  • Utah working interest acquisition (April 2024) for approximately $10 million.
  • Round Mountain field working interest acquisition (Q2 2024) for approximately $3 million.
  • Various Kern County, California, oil and gas property acquisitions (2024) for approximately $6 million.

Business Segment Analysis

Exploration and Production (E&P)

Financial Performance:

• Revenue: $664.6 million (-8.3% YoY)
• Operating Margin: 21.9%
• Key Growth Drivers: Acquisitions of proved properties (Macpherson Energy, Utah working interests, Round Mountain field), development drilling (46 wells in California, 10 new wells; 10 wells in Utah in 2024), and improved sidetrack/workover permit cycle times in California.

Product Portfolio:

• Major product lines: Oil, natural gas, and natural gas liquids (NGLs).
• New product launches or major updates: Not explicitly mentioned, focus is on development and production of existing reserves.

Market Dynamics:

• Competitive positioning within segment: Focus on onshore, low geologic risk, long-lived oil and gas reserves in California and Utah.
• Key customer types and market trends: Sales of oil, natural gas, and NGLs to refiners and other market participants. Subject to California's evolving regulatory landscape (e.g., SB 1137 impact on reserves).

Sub-segment Breakdown:

• California E&P: Approximately 20,000 net acres, 2,574 gross producing wells, 94% average working interest. Infrastructure includes cogeneration plants and steam generators.
• Utah E&P: Approximately 100,000 net acres, 1,264 gross producing wells, 96% average working interest. Infrastructure includes natural gas gathering pipelines and a processing plant.

Well Servicing and Abandonment Services

Financial Performance:

• Revenue: $111.9 million (-37.4% YoY)
• Operating Margin: -0.4% (segment profit of -$0.6 million on $132.5 million pre-elimination revenue)
• Key Growth Drivers: Addressing the significant market for well abandonment in California, with CalGEM estimating approximately 35,000 idle wells. New regulations effective January 1, 2025, are expected to increase plugging and abandonment (P&A) obligations.

Product Portfolio:

• Major product lines and services: Well servicing, well abandonment, and water logistics.
• New product launches or major updates: Not explicitly mentioned.

Market Dynamics:

• Competitive positioning within segment: Operates an average fleet of 56 well servicing rigs and 225 water logistics trucks in California.
• Key customer types and market trends: Serves E&P operators in California, benefiting from increased regulatory focus on well abandonment.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: No share repurchases in 2024. Total shares repurchased from 2018 to December 31, 2024, were 11.9 million shares for approximately $114 million.
• Dividend Payments: Paid $0.58 per share in 2024 ($0.39 fixed, $0.19 variable). The Board approved a fixed cash dividend of $0.03 per share for March 2025.
• Future Capital Return Commitments: Remaining share repurchase authority of $190 million as of December 31, 2024. Established an At-The-Market (ATM) Program on March 13, 2025, to sell common stock up to $50 million for general corporate purposes, including debt payment/refinancing, acquisitions, and capital expenditures.

Balance Sheet Position:

• Cash and Equivalents: $15.3 million (2024), $4.8 million (2023)
• Total Debt: $450.0 million (principal amount, 2024), $431.0 million (principal amount, 2023)
• Net Cash Position: -$419.9 million (2024), -$426.2 million (2023)
• Debt Maturity Profile:
  • 2024 Term Loan: $450 million outstanding (Dec 31, 2024), 11.84% interest, matures December 24, 2027. Quarterly principal payments of 2.5% begin March 2025.
  • 2024 Revolver: $63 million available borrowing capacity (Dec 31, 2024), 11.00% interest, matures December 24, 2027. Borrowing base of $95 million.

Cash Flow Generation:

• Operating Cash Flow: $210.2 million (2024), $198.7 million (2023)
• Free Cash Flow: $107.9 million (2024), $125.5 million (2023)

Operational Excellence

Production & Service Model: The E&P segment focuses on onshore, low geologic risk, long-lived oil and gas reserves, utilizing techniques such as steamflood and cogeneration to enhance recovery and manage energy costs. The well servicing and abandonment services segment provides essential wellsite services, including routine maintenance, workovers, and regulatory-mandated well abandonment, supported by a fleet of rigs and water logistics trucks.

Supply Chain Architecture: Key Suppliers & Partners:

• Sales Agents: Jefferies LLC and Johnson Rice & Company L.L.C. (for ATM Program).

Facility Network:

• Manufacturing: Not applicable for E&P, but includes four natural gas-fired cogeneration plants (~66 MW total electrical capacity) and 54 conventional steam generators in California for energy production.
• Research & Development: Not explicitly detailed as separate facilities.
• Distribution: Approximately 400 miles of natural gas gathering pipelines and a natural gas processing plant in Brundage Canyon (~30 mmcf/d capacity) in Utah.

Operational Metrics:

• Lease operating expenses (unhedged): $24.31/boe (2024), $34.21/boe (2023).
• E&P and corporate General and Administrative Expenses: $6.35/boe (2024), $6.73/boe (2023).
• C&J Well Services fleet: Operated an average of 56 well servicing rigs and 225 water logistics trucks in 2024.

Market Access & Customer Relationships

Go-to-Market Strategy: Distribution Channels:

• Direct Sales: Implied for oil, natural gas, and NGL sales to refiners and other market participants.
• Digital Platforms: Not explicitly mentioned.

Customer Portfolio: Enterprise Customers:

• Tier 1 Clients (2024 sales): PBF Holding (~30%), Chevron (~28%), Phillips 66 (~10%).
• Customer Concentration: Two customers represented approximately 28% and 24% of accounts receivable as of December 31, 2024. The planned closure of Phillips 66 Wilmington refinery (which purchased ~15% of California production in 2024) by late 2025 represents a future customer concentration risk.

Geographic Revenue Distribution:

• Revenue is primarily derived from E&P activities in California and Utah, and well servicing in California. Specific revenue breakdown by state is not provided.

Competitive Intelligence

Market Structure & Dynamics

Industry Characteristics: The E&P industry is characterized by commodity price volatility and significant regulatory oversight, particularly in California. The well servicing and abandonment market in California is driven by the large number of idle wells and increasing regulatory obligations for plugging and abandonment.

Competitive Positioning Matrix:

Direct Competitors

Primary Competitors: Not explicitly named in the filing.

Emerging Competitive Threats:

• New entrants: Not explicitly mentioned.
• Disruptive technologies: Not explicitly mentioned.
• Alternative solutions: Not explicitly mentioned.
• Regulatory changes: SB 1137 and the formal end of hydraulic fracturing in California pose significant challenges to E&P operations and reserve development.

Competitive Response Strategy: The company is adapting to the regulatory environment by shifting capital allocation, with a planned increase to approximately 40% for Utah E&P in 2025 (vs. 25% in 2024). In California, the focus is on sidetracks and workovers, with improved permit cycle times.

Risk Assessment Framework

Strategic & Market Risks

Market Dynamics:

• Commodity Price Volatility: Exposure to fluctuations in Brent crude oil and natural gas prices, partially mitigated by hedging strategies.
• Regulatory Environment: California's evolving regulatory landscape (e.g., SB 1137, hydraulic fracturing ban) significantly impacts E&P operations, reserve development, and future drilling locations.
• Customer Concentration: Dependency on key customers like PBF Holding, Chevron, and Phillips 66. The planned closure of Phillips 66 Wilmington refinery by late 2025 presents a risk to California production sales.

Operational & Execution Risks

Supply Chain Vulnerabilities:

• Geographic Concentration: Significant operational exposure to California's regulatory and political environment.
• Permitting Delays: Historical delays in obtaining new well permits in California, though sidetrack/workover permit cycle times improved in mid-2024.

Financial & Regulatory Risks

Market & Financial Risks:

• Interest Rate Risk: A 1% increase in interest rate on the $450 million 2024 Term Loan would increase annual interest expense by $4.5 million.
• Credit & Liquidity: Reliance on the 2024 Term Loan and 2024 Revolver for financing. Regulatory & Compliance Risks:
• Environmental Regulations: Compliance with CalGEM regulations, SB 1137, AB 218, and upcoming GHG emissions and climate-related financial risk disclosures (SB 253 and SB 261).
• Legal Proceedings: Ongoing shareholder derivative actions (Assad Lawsuit, Karp Lawsuit).

Geopolitical & External Risks

Geopolitical Exposure:

• Geographic Dependencies: Operations are concentrated in the U.S. (California and Utah), limiting broader geopolitical exposure but increasing sensitivity to state-specific policies.

Innovation & Technology Leadership

Research & Development Focus: Core Technology Areas:

• Enhanced Oil Recovery: Investment in steamflood technology for improved oil recovery in California.
• Energy Management: Utilization of natural gas-fired cogeneration plants to generate electricity for internal use and sale, optimizing energy costs.

Intellectual Property Portfolio: Not explicitly detailed in the filing.

Technology Partnerships: Not explicitly detailed in the filing.

Leadership & Governance

Executive Leadership Team

Board Composition: The Board of Directors includes Renée Hornbaker (Chair), Anne L. Mariucci, Donald L. Paul, Rajath Shourie, James M. Trimble, and Matthew R. Bob.

Human Capital Strategy

Workforce Composition:

• Total Employees: 1,070 as of December 31, 2024.
• Workforce in C&J Well Services: 710 employees.
• Collective Bargaining: None of the employees are covered by collective bargaining agreements.

Talent Management: Acquisition & Retention:

• Employee Value Proposition: Health, Safety, and Environmental (HSE) metrics are integrated into employee incentive programs.

Diversity & Development: Not explicitly detailed in the filing.

Environmental & Social Impact

Environmental Commitments: Climate Strategy:

• Emissions Targets: Subject to SB 253 and SB 261, requiring GHG emissions and climate-related financial risk disclosures starting 2026 (for 2025 reporting year).
• Renewable Energy: Operates natural gas-fired cogeneration plants, which generate electricity for internal use and sale to the California market.

Supply Chain Sustainability: Not explicitly detailed in the filing.

Social Impact Initiatives: Not explicitly detailed in the filing.

Business Cyclicality & Seasonality

Demand Patterns:

• Economic Sensitivity: The company's financial performance is sensitive to global and regional oil and natural gas prices, which are influenced by economic cycles.

Planning & Forecasting:

• The company sets annual capital expenditure budgets, with the 2025 budget set at $110-$120 million, indicating forward-looking planning.

Regulatory Environment & Compliance

Regulatory Framework: Industry-Specific Regulations:

• California Geologic Energy Management Division (CalGEM): Oversees E&P and well servicing activities, including new regulations increasing plugging and abandonment obligations.
• SB 1137: Prohibits new wells/rework within 3,200 feet of sensitive receptors, leading to a downgrade of 9 mmboe of California PUD reserves in 2024.
• AB 218: Delays some SB 1137 compliance deadlines to July 1, 2026.
• Hydraulic Fracturing: Formally ended in California as of October 2024.
• Climate Disclosure (SB 253 & SB 261): Requires GHG emissions and climate-related financial risk disclosures starting 2026.
• California Environmental Quality Act (CEQA): Requires environmental review for projects, impacting permit approvals.

Legal Proceedings:

• Securities Class Action: Settled for $2.5 million in February 2024.
• Shareholder Derivative Actions: Assad Lawsuit and Karp Lawsuit remain pending.

Tax Strategy & Considerations

Tax Profile:

• Effective Tax Rate: 31.4% (2024), 32.5% (2023).
• Geographic Tax Planning: Holds state Net Operating Loss (NOL) carryforwards of $4 million and U.S. federal general business tax credit carryforwards of $77 million as of December 31, 2024.
• Tax Reform Impact: California legislation in 2024 suspended state NOLs and credits for 2024-2026.

Insurance & Risk Transfer

Risk Management Framework:

• Risk Transfer Mechanisms: Utilizes a comprehensive hedging program for Brent crude oil (swaps, collars, purchased puts) and NWPL natural gas purchases (swaps) to mitigate commodity price volatility. As of February 28, 2025, significant volumes are hedged through 2028 for oil and through 2026 for natural gas.