- Berry announced its new shareholder return plan, allocating 60% of discretionary cash flow to cash variable dividends and debt repurchases.
- At current 2022 strip of high-$70s Brent, this translates into the potential for $1.72 per share in total dividends.
- At $70 Brent (and no hedges), Berry could pay $1.43 per share in dividends.
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Berry Corporation (NASDAQ:BRY) (also known as BRY now) announced its new shareholder return model. With 60% of its discretionary cash flow going towards cash variable dividends, that means that Berry could pay out as much as $1.72 per share in total dividends based on 2022 results at current high-$70s Brent strip. In a scenario with long-term $70 Brent and no hedges, it may be able to support $1.43 per share in total dividends. At $9 per share, Berry looks like a reasonably good value despite some remaining California regulatory risk.
New Shareholder Return Model
Berry's new shareholder return model went into effect at the start of 2022. It is based on discretionary cash flow, which it defines as cash flow from operations less regular fixed dividends and maintenance capex (the amount needed to hold production flat).
This can be estimated by calculating Berry's EBITDA and then subtracting $28 million per year in interest costs for its 7.0% unsecured notes due 2026, $19 million per year in fixed dividends (at $0.24 per share per year) and approximately $110 million in maintenance capex. The maintenance capex figure is based on Berry's estimates of $11 per BOE in costs to "protect the base" and production of around 27,500 BOEPD. This production number reflects Berry's potential 2021 exit rate production after its Placerita asset sale.
Berry is planning on allocating its discretionary cash flow on a quarterly basis, with 60% going towards cash variable dividends (and potentially debt repurchases). The other 40% would go towards discretionary capital for items such as organic growth, share repurchases, sustainability initiatives and capital retention.
2022 Outlook With Maintenance Capex
Brent strip is currently around $78 to $79 for 2022. This is a scenario where Berry could generate $687 million in revenues before hedges with 27,500 BOEPD in average production (flat compared to the end of 2021).
After subtracting the $36 million in negative hedge value, Berry would have $651 million in revenue for 2022.
Source: Author's Work
In a maintenance capex scenario for 2022, Berry is projected to have $454 million in cash expenditures (including its current fixed dividend).
|Taxes, Other than Income Taxes||$51|
|Plugging & Abandonment||$15|
Source: Author's Work
This leaves $197 million for Berry's discretionary cash flow.
2022 Discretionary Cash Flow Allocation
That calculation results in around $118 million in discretionary cash flow going towards cash variable dividends and opportunistic debt repurchases. Berry's variable dividend could be as much as $1.48 per share in 2022, bringing its total dividend payment to $1.72 per share after adding the $0.24 per share in fixed dividends.
Berry would also have $79 million to put towards organic growth, share repurchases, capital retention and sustainability initiatives.
Discretionary Cash Flow At $70 Brent
A scenario with $70 Brent instead (and no hedges) would result in Berry having around $159 million in discretionary cash flow. This would allow it to put $95 million (or $1.19 per share) towards cash variable dividends and opportunistic debt repurchases. Berry's total dividends could end up at $1.43 per share in that scenario.
My previous estimate was that Berry would be worth around $10.50 in a long-term $70 Brent environment, so Berry could end up yielding around 13.6% at that share price and $70 Brent (assuming no debt repurchases).
With high-$70s Brent in 2022 (current strip), Berry may be able to pay out as much as $1.72 per share in total dividends while also having $79 million to put towards items such as share repurchases, capital retention and organic growth.
It could also pay around $1.43 per share in dividends in a longer-term $70 Brent environment and looks like a reasonably good value at around $9 per share now.
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