Berry Petroleum Corp. (NASDAQ: BRY) announced on Dec. 3 its exit from the East Texas Basin as the California-based E&P turns its focus on its core oil assets in the Golden State.

The sale comprised Berry’s noncore producing properties and related assets including 4,532 net acres located in the East Texas Basin. Production, comprised primarily of natural gas, was about 700 barrels of oil equivalent per day (boe/d) in third-quarter 2018.

An undisclosed company, which Berry CEO Trem Smith described as a local operator, agreed to acquire Berry’s position for $6.7 million in a transaction completed on Nov. 30.

“After reviewing its role and potential, we decided East Texas will have more value to a local operator than it will to Berry,” Smith said on a recent earnings call, according to a company transcript of the call.

Analysts with Tudor, Pickering, Holt & Co. (TPH) commented on the deal in a Dec. 4 research note saying it is good to see the company trim noncore assets.

Assuming full production value, the TPH analysts estimate the sale implies roughly $1,600 per thousand cubic foot equivalent per day.

“Transaction value-neutral in our view, but it’s good to see the company shed noncore assets and increase oil mix as a result [guidance now for 83% vs. 80%],” the TPH analysts said. “No immediate plans on use of proceeds from this sale, and we’ll be keeping an eye out for updates to plans in Piceance given recent deferrals of capex plans there.”

Divesting the East Texas properties also follows Berry’s stated strategy of focusing on and growing its core oil assets, the company said in a press release.

“The result of this transaction, in conjunction with the significant growth we’re seeing in our oil production, is that we are now even oilier with approximately 86% of our total company production expected to be black oil in 2019,” Smith said on the call noting 100% of the company’s California production is currently and will remain black oil.

According to the company release, the transaction moves Berry’s production profile to roughly 83% oil from 80% oil.

The sale follows Berry’s IPO earlier this year, which raised less than expected.

RELATED: California’s Berry Petroleum Targets $300 Million IPO

In the first E&P IPO since late-2016, California-based Berry priced at $14 per share, the company said in a statement on July 30, below its $15-$17 target range.

The company sold around 10.5 million shares to raise $146.96 million, less than the originally planned 12.2 million shares. Existing shareholders sold a further 2.5 million shares, also less than originally planned.

Drawbacks for Berry from an investor standpoint included its multibasin strategy when the trend is toward single-basin strategies, and its gas business, a sector which is facing an oversupply issue, according to a Reuters report.

Berry Petroleum Asset Map (Source: Berry Petroleum Corp.)

Berry currently holds positions in California’s San Joaquin and East Ventura basins as well as the Uinta Basin in Utah. Following its East Texas exit, the company’s remaining gas position is in Colorado’s Piceance Basin.

During the third quarter of 2018, Berry’s $40 million Capex was 90% directed to California oil development. The company’s average production for the quarter was 19,500 boe/d, of which about 100% was oil.

Emily Patsy can be reached at epatsy@hartenergy.com.

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