You may have seen the recent headlines around Chevron’s (CVX – Get Rating) purchase of Hess (HES – Get Rating) or Exxon’s (XOM – Get Rating) big merger with Pioneer (PXD – Get Rating). Splashy headlines, and lots of CNBC interviews, but those deals will likely take years to integrate and the CVX/HES deal in particular may take a lot longer to be profitable.
Berry is an oil and gas exploration company that has been in business since 1909, with a bit of a twist. It also has a well servicing division which brings in a stable approximately $25M annually to the company.
Servicing and decommissioning wells in California in particular, where Berry does a large part of its business, is very lucrative given the state’s extensive environmental laws.
Those same laws have prevented the extensions of pipelines into California from non-western states, which in essence gives Berry (and other oil producers in the region) a quasi monopoly when it comes to selling oil in California, Nevada, and Arizona, what Berry calls a “structurally advantaged market”.
BRY’s enhanced shareholder return model, is a combination of a fixed dividend, a variable dividend (the just released earnings put the current dividend at over 6%, with a long term target of 8-9% announced by the company), share buybacks, debt reduction, and bolt-on acquisitions which are quickly accretive to earnings (as opposed to headline grabbing acquisitions that may or may not pan out).
Berry takes on less risk in…
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