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4ENABLESûPREDECESSORûENTITYEQUITIES AMERICASBerry Petroleum ripens for IPO return
US E&P cleans up act through bankruptcyOnce bankrupt, BERRY PETROLEUM is taking a
conservative approach in its return to public
markets by promising to live within cashflow and
agreeing to pay a dividend to shareholders as
proof of its discipline.
Berry’s up to US$318.8m IPO launched last
Monday will allow creditors to begin to cash out.
Goldman Sachs, Wells Fargo, BMO Capital
Markets, Evercore and UBS plan to sell 18.75m
Berry shares, including 6.6m from secondary
sellers, at US$15–$17 each. The IPO will
give Berry a market capitalization of roughly
US$1.4bn at high-end pricing.
The IPO terms value Berry at about six times
2018 EV/Ebitda and 4.8 times for 2019.
In addition to the secondary shares, the
company is using a portion of the proceeds to
repurchase 4.2m shares from former creditors
Benefit Street Partners and Oaktree Capital.
Benefit Street and Oaktree would reduce
their stakes to 20.3% and 9.3%, respectively,
while other creditors such as Goldman Sachs
Asset Management (7.5%), Western Asset
Management (7.4%) and CarVal (7.1%) are also
selling.
“Investors are familiar with their assets, but
it is a different management team and differentboard of directors,” said one banker involved in
the underwriting.
“They’ve turned around a shrinking company
into growing company.”
Berry, whose main assets are located in the
San Joaquin basin of California, tapped former
Chevron exec Arthur Smith as its new CEO in
March 2017 after emerging from bankruptcy
protection a month earlier.LINE OUT
The company was purchased by onetime
E&P LP Linn Energy for US$4.6bn in stock and
assumed debt in 2013, but was forced to seek
bankruptcy protection in May 2016.
Berry wiped out US$1.3bn of debt through the
bankruptcy reorganization and received $335m
of new capital in the form of preferred equity.
Berry has also accelerated development.
It plans to increase capex this year to
US$140m–$160m, from the US$73m in 2017,
and to US$210m–$230m in 2019. That will fund
the development of 180 to 190 conventional
wells this year, of which at least 175 will be in
California, and 430 to 490 wells in 2019, all in
California.
Berry’s focus on the San Joaquin basin,
one of the oldest oilfields in the country, is a
differentiator.The company estimates production
averaged 25,700–27,300 barrels daily in the
second quarter and that it realized prices of
US$55.25–$58.75 per barrel, up from 26,200
and US$52.74, respectively, in the first, based on
preliminary results.
Berry’s California focus ties pricing closer to
Brent crude than WTI crude.
“Because of transport and takeaway
constraints out of the Permian there is a price
differential between Brent and WTI,” said a
second banker. “They’re going to play up that
Brent exposure.”
Brent trades at about US$73 and WTI closer
to US$70.
Unlike higher-growth Permian operators,
Berry is focused on living within cashflow.
Having pumped out US$24.6m of free
cashflow in the first quarter, the company plans
to pay a 12-cent quarterly dividend.
Future dividends will be based on cashflow
generated and to maintain net debt leverage at
1.5 to two times throughout the cycle.
If successful, Berry would be the first E&P
IPO since Jagged Peak Energy in January 2017,
excluding royalty trusts.
Stephen Lacey