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With a Brent strip over $100 for 2022, Berry Corporation (NASDAQ: BRY) may now be able to generate around $270 million in discretionary cash flow this year. It copes with the increase in energy operating expenses due to its use of combustible gas in its operations, but has attempted to mitigate it by covering consumers and guaranteeing cheaper gas supplies from the Rockies.

Notes on prior transactions

It looks like Berry did not receive any money for its sale of its Bassin Piceance assets. These assets had relatively high operating costs as well as future abandonment costs of $26 million. The Piceance Basin assets also appeared to perform decently when gas prices were high, generating $3 million in operating profit in Q4 2021 with a realized gas price of $5.54 per Mcf. However, it seems that Berry was primarily interested in reducing his drop liabilities.

Berry also said he paid $18 million for his acquisition of Antelope Creek. These assets were located adjacent to its existing Uinta assets and produced approximately 600 BOEPDs prior to the acquisition. Berry mentioned that it has doubled its production since it started mining this asset.

Functionnary costs

Berry faces significant cost pressure with its energy operating expenses. On a hedged basis, operating expenses ended up at $25.64 per boe in the first quarter of 2022, compared to Berry’s full-year guidance of $20-22 per boe.

Berry uses approximately 60,000 MMBTU per day in combustible gas and natural gas prices have risen sharply. Berry has attempted to control costs through a combination of gas hedging and access to Rocky Mountain gas (which is generally cheaper than California) through securing Kern River pipeline capacity.

Although Berry is currently maintaining its full-year operating cost guidance, I believe it will likely end up above the high of its guidance as natural gas prices have risen sharply in all markets, including including the Rockies.

Berry hedges

Berry hedges (

Berry added more hedges through 2022, resulting in collars covering 67% of its fuel consumption in the second half. However, this came at the cost of reducing its tunnel coverage in 2023 and 2024, as it liquidated the majority of that coverage to pay for its additional 2022 coverage.

Outlook 2022

The current 2022 Brent strip is around $105, and Berry may be able to generate $931 million in oil and gas revenue before hedges at that price. Natural gas prices have also improved a lot, but that’s a bit of a net negative for Berry due to its natural gas consumption for its operations.

Berry maintains its guidance of approximately $27 million in EBITDA for C&J Well Services for the full year, although it reported only $3 million in EBITDA for this unit in the first quarter. 2022. Berry noted that the first quarter is typically a weak quarter for this unit, while an increase in labor and fuel costs also affected results.

Berry posted a realized loss of $32 million on its derivatives in the first quarter of 2022 and could end up with a total hedging loss of $153 million for the year at current strip prices.

Type Units $/unit millions of dollars
Oil 8,898,700 $100.50 $894
NGL 146,000 $48.00 $7
Natural gas 3,766,800 $8.00 $30
Well maintenance and abandonment EBITDA $27
Coverage value -$153
Total revenue $805

I now model Berry’s operating expenses at $24 per boe for 2022, about $2 above the high end of its current forecast range.

Expenses millions of dollars
Functionnary costs $232
Taxes other than income tax $60
Cash G&A (Development and Production) $58
Cash interest $28
Capital expenditure $138
Fixed dividend $19
Total expenses $535

This translates to an estimate of $270 million in discretionary cash flow with around $105 of Brent in 2022.

This would allow Berry to invest $162 million (or $2.03 per share) in variable dividends and debt buyback and $108 million in share buybacks, organic growth and capital retention. Thus, the total dividend (tied to 2022 results) could reach $2.27 per share.

Share buybacks and valuation

Bay recently acquired 2 million shares for a total of $22.8 million. That leaves him with about 78.8 million shares outstanding. I increased its estimated value to $12 in a long-term environment of $75 Brent due to improved near-term cash flow projections. When Berry’s estimated dividend is taken into account, there is a potential return of around 30% over the next year based on the current strip.


Berry is now expected to generate $270 million in discretionary cash flow in 2022 despite the impact of rising energy operating costs. Berry is trying to manage energy operating costs through consumption hedges and securing pipeline capacity from the Rockies. It has liquidated about half of its natural gas consumption hedges for 2023 and all of its natural gas consumption hedges for 2024, so there is energy operating cost risk in future years. It would be more problematic if oil and gas prices deviate significantly in direction. In the current commodity price environment, Berry may be able to deliver strong returns over the next year, with an estimated total dividend of $2.27 per share (tied to 2022 results).

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