BRY Berry Corporation

Berry Petroleum Company (NYSE:BRY) reported a net loss of $3 million, or $0.06 per diluted share, for the third quarter of 2010. Oil and gas revenues were $152 million during the quarter from production of 33,867 BOED. Discretionary cash flow for the quarter totaled $95 million.

The net income for the quarter was affected by a non-cash loss on hedges which decreased net income by approximately $24 million, or $0.44 per diluted share, for an adjusted third quarter net income of $21 million, or $0.38 per diluted share.

For the third quarter of 2010 and the second quarter of 2010, average net production in BOE per day was as follows:

               

Third Quarter EndedSeptember 30

         

Second Quarter EndedJune 30

2010 Production           2010 Production Oil (Bbls) 21,771           64 %           21,869           67 % Natural Gas (BOE) 12,096 36 % 10,985 33 % Total BOE per day 33,867 100 % 32,854 100 %  

Robert F. Heinemann, president and chief executive officer, said, “Berry has delivered three important events since the close of the second quarter: the resumption of our development drilling program in our diatomite asset, the launching of the full-field development of our McKittrick 21Z heavy oil property and the acquisition of additional assets in the Permian basin. Our focus on managing operating costs along with continued lower natural gas prices allowed us to generate a corporate margin of approximately $31 per BOE during the quarter. Production for the third quarter of 2010 was 33,867 BOED, 64% of which was oil production. While diatomite production declined during the quarter as we completed our field optimization and prepared to resume drilling, we expect production to increase sequentially over the next three quarters and reach 5,000 barrels of oil per day in mid-2011.

“Our Permian assets continue to deliver solid performance with production increasing 30% in the third quarter. Since entering the Permian basin in March of 2010, and assuming closing on our recently announced acquisition, Berry has now accumulated approximately 19,350 net acres in the Wolfberry trend. The $313 million of acquisitions in 2010 will provide a five-year drilling inventory in the Wolfberry with 400 locations on forty-acre spacing and an additional 400 potential locations on twenty-acre spacing.

“The Company’s capital budget for 2011 based on $75 WTI is expected to be between $375 million and $425 million and should be fully funded from cash flow, with 65% of expected 2011 oil production hedged. Approximately 90% of the 2011 capital is expected to be directed towards the Company’s oil assets targeting oil production growth of at least 20%. Berry expects its total average 2011 production to be between 37,000 and 39,000 BOED. Of the expected 2011 production growth of approximately 15%, the acquired assets should contribute 6% with organic growth comprising 9%. Production volumes are expected to be 70% oil, which should drive corporate operating margins to $33 per BOE.”

Operational Update

Michael Duginski, executive vice president and chief operating officer, stated, “In the diatomite, average production declined from 2,730 BOED in the second quarter of 2010 to 2,290 BOED in the third quarter of 2010 as we completed our field optimization in preparation of the 2010 drilling program. With our next phase of development in the diatomite approved by regulators, we began drilling in October and have resumed normal steam injection levels which should allow production to exit 2010 at approximately 3,500 BOED. Our McKittrick 21Z pilot has performed above our expectations and we are moving forward with full field development and plan to drill approximately 50 wells there in 2011. We executed a three rig program in the Permian during the third quarter with well results in line with our expectations and production from the Permian assets averaged 1,340 BOED, up from 1,033 BOED in the second quarter. In the Uinta, we completed four Lake Canyon wells that were drilled earlier this year and are encouraged by the results. We have completed a total of six Haynesville horizontal wells in E. Texas and results continue to be in line with our expectations. While our East Texas and Piceance programs have delivered solid production performance during 2010, in 2011 we expect to defer drilling operations in East Texas and drill in the Piceance to hold acreage as we focus our capital program on our higher return oil projects.”

2010 Capital Update

The Company expects 2010 capital spending will range from $290 million to $310 million. Additional capital requirements are attributable to the expedited development of the Company’s diatomite asset, an incremental 14 wells in the Uinta basin and increased costs in the Company’s East Texas operations.

Explanation and Reconciliation of Non-GAAP Financial Measures

Discretionary Cash Flow

                Three Months Ended 09/30/10           06/30/10 Net cash provided by operating activities $ 183.6 $ 71.4 Add back: Net increase (decrease) in current assets (53.0 ) 19.0 Add back: Net decrease (increase) in current liabilities including book overdraft (35.9 ) 12.8 Add back: Recovery of Flying J bad debt   -     38.5   Discretionary cash flow $ 94.7 $ 141.7(1 )   1   Includes $60.5 million in total recoveries from the Flying J bankruptcy.  

Reconciliation of Third Quarter Net Income

               

Three Months Ended

09/30/10           06/30/10 Adjusted net income $ 20.6 $ 22.9 After tax adjustments: Flying J bankruptcy recovery 37.4 Non-cash hedge (losses) gains (23.6 ) 30.0 Dry hole costs (0.1 ) Acquisition related items     (1.2 ) Net income, as reported $ (3.0 ) $ 89.0  

Teleconference Call

An earnings conference call will be held Tuesday, October 26, 2010 at 11:00 a.m. Eastern Time (9:00 a.m. Mountain Time). Dial 1-800-591-6930 to participate, using passcode 67573152. International callers may dial 617-614-4908. For a digital replay available until November 2, 2010 dial 1-888-286-8010 (passcode 87381214). Listen live or via replay on the web at www.bry.com.

About Berry Petroleum Company

Berry Petroleum Company is a publicly traded independent oil and gas production and exploitation company with operations in California, Colorado, Texas and Utah. The Company uses its web site as a channel of distribution of material company information. Financial and other material information regarding the Company is routinely posted on and accessible at http://www.bry.com/index.php?page=investor.

Safe harbor under the “Private Securities Litigation Reform Act of 1995”

Any statements in this news release that are not historical facts are forward-looking statements that involve risks and uncertainties. Words such as “should”, “estimate”, “expect”, "would," "will," "target," "goal," and forms of those words and others indicate forward-looking statements. These statements include but are not limited to forward-looking statements about acquisitions and the expectations of plans, strategies, objectives and anticipated financial and operating results of the Company, including the Company's drilling program, production, hedging activities, capital expenditure levels and other guidance included in this press release. These statements are based on certain assumptions made by the Company based on management's experience and perception of historical trends, current conditions, anticipated future developments and other factors believed to be appropriate. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. Important factors which could affect actual results are discussed in PART 1, Item 1A. Risk Factors of Berry's 2009 Form 10-K filed with the Securities and Exchange Commission on February 25, 2010 under the heading "Other Factors Affecting the Company's Business and Financial Results" in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations.”

  CONDENSED INCOME STATEMENTS (In thousands, except per share data) (unaudited)                 Three Months 09/30/10           06/30/10 Revenues Sales of oil and gas $ 151,671 $ 151,525 Sales of electricity 9,451 7,928 Gas marketing 4,918 5,004 Realized and unrealized gain (loss) on derivatives (27,178 ) 56,057 Settlement of Flying J bankruptcy claim - 21,992 Interest and other, net   362     1,796   Total   139,224     244,302   Expenses Operating costs – oil & gas 46,782 46,452 Operating costs – electricity 7,220 7,839 Production taxes 6,215 5,064 Depreciation, depletion & amortization - oil & gas 49,367 43,703 Depreciation, depletion & amortization - electricity 819 793 Gas marketing 4,067 4,357 General and administrative 12,399 12,155 Interest 15,586 16,340 Transaction costs on acquisitions, net of gain - 1,908 Dry hole, abandonment, impairment & exploration 586 266 Bad debt recovery   -     (38,508 ) Total   143,041     100,369     Income (loss) before income taxes (3,817 ) 143,933 Income tax provision (benefit)   (794 )   54,910   Income (loss) from continuing operations (3,023 ) 89,023   Net income (loss) $ (3,023 ) $ 89,023     Basic net income (loss) per share $ (0.06 ) $ 1.65     Diluted net income (loss) per share $ (0.06 ) $ 1.64     Cash dividends per share $ 0.075 $ 0.075       CONDENSED BALANCE SHEETS (In thousands) (unaudited)                   09/30/10           12/31/09 Assets Current assets $ 116,771 $ 103,476 Property, buildings & equipment, net 2,409,225 2,106,385 Fair value of derivatives 3,082 735 Other assets   24,804   29,539 $ 2,553,882 $ 2,240,135 Liabilities & Shareholders’ Equity Current liabilities $ 213,901 $ 152,137 Deferred taxes 319,279 237,161 Long-term debt 878,334 1,008,544 Other long-term liabilities 69,547 63,198 Fair value of derivatives 32,566 75,836 Shareholders’ equity   1,040,255   703,259 $ 2,553,882 $ 2,240,135       CONDENSED STATEMENTS OF CASH FLOWS (In thousands) (unaudited)                   Three Months 09/30/10           06/30/10 Cash flows from operating activities: Net income $ (3,023 ) $ 89,023 Depreciation, depletion & amortization (DD&A) 50,186 44,495 Amortization of debt issuance costs and net discount 2,164 2,120 Gain on purchase of oil and natural gas properties - 1,358 Dry hole & impairment 49 221 Commodity derivatives 37,110 (48,586 ) Stock based compensation 2,129 1,976 Deferred income taxes 6,391 52,594 Cash paid for abandonment (295 ) (1,512 ) Bad debt recovery - (38,508 ) Net changes in assets and liabilities including book overdraft   88,942     (31,827 )   Net cash provided by operating activities 183,653 71,354   Net cash used in investing activities (107,108 ) (111,826 ) Net cash provided by financing activities   (76,730 )   40,654     Net increase (decrease) in cash and cash equivalents (185 ) 182   Cash and cash equivalents at beginning of year   239     57     Cash and cash equivalents at end of period $ 54   $ 239         COMPARATIVE OPERATING STATISTICS (unaudited)             Three Months 09/30/10           06/30/10           Change Oil and gas: Heavy Oil Production (Bbl/D) 16,722 17,492 Light Oil Production (Bbl/D)   5,049     4,377   Total Oil Production (Bbl/D) 21,771 21,869 Natural Gas Production (Mcf/D)   72,576     65,909   Net production-BOE per day 33,867 32,854 3 % Per BOE: Average realized sales price $ 48.73 $ 50.81 -4 % Average sales price including cash derivative $ 51.88 $ 53.11 -2 %   Oil, per Bbl: Average WTI price $ 76.20 $ 78.05 -2 % Price sensitive royalties (2.91 ) (2.90 ) Gravity differential and other (8.87 ) (9.71 ) Crude oil derivatives non cash amortization   (2.89 )   (2.42 ) Oil revenue $ 61.53 $ 63.02 -2 % Add: Crude oil derivatives non cash amortization 2.89 2.42 Crude Oil derivative cash settlements   1.14     0.01   Average realized oil price $ 65.56 $ 65.45 0 %   Natural gas price: Average Henry Hub price per MMBtu $ 4.38 $ 4.09 7 % Conversion to Mcf 0.22 0.20 Natural gas derivatives non cash amortization 0.09 0.12 Location, quality differentials, other   (0.40 )   0.02   Natural gas revenue per Mcf $ 4.29 $ 4.43 -3 % Less: Natural gas derivatives non cash amortization (0.09 ) (0.12 ) Natural gas derivative cash settlements   0.35     0.46   Average realized natural gas price per Mcf $ 4.55 $ 4.77 -5 %   Operating costs $ 15.01 $ 15.54 -3 % Production taxes   2.00     1.69   18 % Total operating costs $ 17.01 $ 17.23 -1 %   DD&A - oil and gas $ 15.84 $ 14.62 8 % General & administrative expenses $ 3.98 $ 4.07 -2 %   Interest expense $ 5.00 $ 5.47 -9 %