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What Did LINN Buy? A Look at BRY’s 2013 Reserve Report Results

Berry Petroleum filed stand-alone reserves, costs incurred, and PV-10 data for 2013 in the back of its 3/31/14 10-K.  With legacy BRY comprising ~25% of LINN Energy’s pro forma total production and ~50% of LINN’s pro forma oil production, these results are important to review for anyone interested in LINE/LNCO.

 

We’ve summarized and synthesized the 2011 – 2013 data in the five tables below, where the takeaways should be relatively self-evident.  But some high-level thoughts….

Overall, the results were mixed.  In 2013 BRY again directed the majority of its capital to its oil plays, but cost creep exceeded the revenue uplift, and profit margins slipped slightly from 2012 (EBITDAX margin fell 300 bps YoY) – SEE TABLE 1.  Despite a 39 MMboe PUD write-off, BRY had a decent year with the drill bit, growing total production 14% and oil production 20% while the PD F&D cost came in at $29/boe and reserve replacement was 140% – SEE TABLES 2 and 3.  We note that LINN’s 2014 maintenance CapEx guidance implies an F&D cost of ~$22/boe for BRY.  That $7/boe difference on 15 MMboe of expected BRY production in 2014 equates to another $105MM ($0.30/unit) of maintenance CapEx on the  legacy BRY assets alone.   The most interesting data to us were the changes in PV-10.  Despite stable price decks (oil flat, NGLs down, gas up), BRY’s PV-10 dropped $545MM (-11%) YoY to $4.6B, with the PD PV-10 down $87MM (-2%) and the PUD PV-10 down $457MM (-36%) YoY.  LINN wrote down $856MM of PV-0 due to negative revisions of previous quantity estimates, which appears to be mostly related to the negative PUD revisions – SEE TABLES 4 and 5.  BRY’s PD PV-10 has been flat at ~$3.8B since YE11, while its PUD PV-10 has fallen from $1.9B to $800MM.  Over that time, the company added ~$1B of debt to the balance sheet, paid out a small dividend (~$17MM/year), and had share count creep due to SBC.  We don’t see much in the way of “value creation” in these results – perhaps why BRY was such eager seller.

What Did LINN Buy?  A Look at BRY’s 2013 Reserve Report Results - b1a

 

What Did LINN Buy?  A Look at BRY’s 2013 Reserve Report Results - b2

 

What Did LINN Buy?  A Look at BRY’s 2013 Reserve Report Results - b3

 

What Did LINN Buy?  A Look at BRY’s 2013 Reserve Report Results - b4

 

What Did LINN Buy?  A Look at BRY’s 2013 Reserve Report Results - b5

 

Kevin Kaiser

Managing Director