Berry Petroleum Company Form 10-Q September 30, 2005
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
[X] Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act
For
the quarterly period ended September 30, 2005
Commission
file number 1-9735
BERRY
PETROLEUM COMPANY
(Exact
name of registrant as specified in its charter)
DELAWARE
77-0079387
(State
or other jurisdiction of
(I.R.S.
Employer
incorporation
or organization)
Identification
No.)
5201
Truxtun Avenue, Suite 300, Bakersfield, California
93309-0640
(Address
of principal executive offices)
(Zip Code)
Registrant's
telephone number, including area code (661)
616-3900
Former
name, Former Address and Former Fiscal Year, if Changed Since Last
Report:
NONE
Indicate
by check mark whether the registrant (1) has filed all reports required
to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934
during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES (X) NO ( )
Indicate
by check mark whether the registrant is an accelerated filer (as
defined
in Rule 12b-2 of the Exchange Act).
YES (X) NO ( )
The
number of shares of each of the registrant’s classes of capital stock
outstanding as of September 30, 2005, was 21,157,155 shares of Class
A
Common Stock ($.01 par value) and 898,892 shares of Class B Stock
($.01
par value). All of the Class B Stock is held by a shareholder who
owns in
excess of 5% of the outstanding stock of the
registrant.
|
|
Berry
Petroleum Company
Third
Quarter 2005 Form 10-Q
Index
Page
No.
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PART
I. Financial Information
|
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|
|
Item
1. Financial Statements
|
|
|
|
Unaudited
Condensed Balance Sheets at September 30, 2005 and
December
31, 2004
|
2
|
|
|
Unaudited
Condensed Income Statements for the Three Month Periods
Ended
September 30, 2005 and 2004
|
3
|
|
|
Unaudited
Condensed Statements of Comprehensive Income for the
Three Month
Periods Ended September 30, 2005 and 2004
|
3 |
|
|
Unaudited
Condensed Income Statements for the Nine Month Periods
Ended
September 30, 2005 and 2004
|
4
|
|
|
Unaudited
Condensed Statements of Comprehensive Income for the
Nine
Month Periods Ended September 30, 2005 and 2004
|
4
|
|
|
Unaudited
Condensed Statements of Cash Flows for the
Nine
Month Periods Ended September 30, 2005 and 2004
|
5
|
|
|
Notes
to Unaudited Condensed Financial Statements
|
6
|
|
|
Item
2. Management's Discussion and Analysis
of
Financial Condition and Results of Operations
|
9
|
|
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
|
18
|
|
|
Item
4. Controls and Procedures
|
21
|
PART
II. Other Information
Item
1. Legal Proceedings
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
Item
3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item
5. Other Information
Item
6. Exhibits
|
22
22
22
22
22
22
|
Berry
Petroleum Company
Form
10-Q for the three and nine months ended September 30,
2005
Part
I. Financial Information
Item
1. Financial Statements
CONDENSED
BALANCE SHEETS (unaudited)
|
|
|
|
|
(In
Thousands, Except Per Share Information)
|
|
September
30, 2005
|
|
|
|
|
|
|
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|
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|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
$
|
8,427
|
|
|
$
|
16,690
|
|
Short-term
investments available for sale
|
|
655
|
|
|
|
659
|
|
Accounts
receivable
|
|
57,610
|
|
|
|
34,621
|
|
Deferred
income taxes
|
|
14,094
|
|
|
|
3,558
|
|
Fair
value of derivatives
|
|
6,623
|
|
|
|
3,243
|
|
Prepaid
expenses and other
|
|
5,882
|
|
|
|
2,230
|
|
Income
taxes receivable
|
|
2,177
|
|
|
|
-
|
|
Total
current assets
|
|
95,468
|
|
|
|
61,001
|
|
|
|
|
|
|
|
|
|
Oil
and gas properties (successful efforts
|
|
|
|
|
|
|
|
basis),
buildings and equipment, net
|
|
512,034
|
|
|
|
338,706
|
|
Deposit
on properties
|
|
-
|
|
|
|
10,221
|
|
Other
assets
|
|
5,750
|
|
|
|
2,176
|
|
|
|
|
|
|
|
|
|
|
$
|
613,252
|
|
|
$
|
412,104
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
$
|
48,240
|
|
|
$
|
27,750
|
|
Revenue
and royalties payable
|
|
25,312
|
|
|
|
23,945
|
|
Accrued
liabilities
|
|
10,921
|
|
|
|
6,132
|
|
Income
taxes payable
|
|
-
|
|
|
|
1,067
|
|
Fair
value of derivatives
|
|
37,599
|
|
|
|
5,947
|
|
Total
current liabilities
|
|
122,072
|
|
|
|
64,841
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
48,221
|
|
|
|
47,963
|
|
Long-term
debt
|
|
100,000
|
|
|
|
28,000
|
|
Unearned
revenue
|
|
995
|
|
|
|
-
|
|
Abandonment
obligations
|
|
11,221
|
|
|
|
8,214
|
|
Fair
value of derivatives
|
|
38,713
|
|
|
|
-
|
|
|
|
199,150
|
|
|
|
84,177
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
Preferred
stock, $.01 par value; 2,000,000 shares authorized; 0
outstanding
|
-
|
|
|
|
-
|
|
Capital
stock, $.01 par value;
|
|
|
|
|
|
|
|
Class
A Common Stock, 50,000,000 shares authorized; 21,157,155
shares
|
|
|
|
|
|
issued
and outstanding (21,060,420 in 2004)
|
|
212
|
|
|
|
210
|
|
Class
B Stock, 1,500,000 shares authorized;
|
|
|
|
|
|
|
|
898,892
shares issued and outstanding (liquidation preference of
$899)
|
9
|
|
|
|
9
|
|
Capital
in excess of par value
|
|
58,824
|
|
|
|
60,676
|
|
Accumulated
other comprehensive loss
|
|
(41,814)
|
|
|
|
(987)
|
|
Retained
earnings
|
|
274,799
|
|
|
|
203,178
|
|
Total
shareholders' equity
|
|
292,030
|
|
|
|
263,086
|
|
|
|
|
|
|
|
|
|
|
$
|
613,252
|
|
|
$
|
412,104
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
|
|
|
|
|
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|
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|
|
|
|
Berry
Petroleum Company
Form
10-Q for the three and nine months ended September 30,
2005
Part
I. Financial Information
Item
1. Financial Statements
CONDENSED
INCOME STATEMENTS (unaudited)
Three
Month Periods Ended September 30, 2005 and
2004
|
|
|
|
|
|
|
|
(In
Thousands, Except Per Share Information)
|
|
2005
|
|
|
|
2004
|
Revenues:
|
|
|
|
|
|
|
Sales
of oil and gas
|
$
|
96,439
|
|
|
$
|
61,560
|
Sales
of electricity
|
|
12,933
|
|
|
|
11,344
|
Interest
and other income, net
|
|
612
|
|
|
|
45
|
|
|
109,984
|
|
|
|
72,949
|
Expenses:
|
|
|
|
|
|
|
Operating
costs - oil and gas production
|
|
28,144
|
|
|
|
22,487
|
Operating
costs - electricity generation
|
|
12,316
|
|
|
|
10,423
|
Exploration
costs
|
|
749
|
|
|
|
-
|
Depreciation,
depletion and amortization - oil and gas production
|
|
8,813
|
|
|
|
7,500
|
Depreciation,
depletion and amortization - electricity generation
|
|
831
|
|
|
|
823
|
General
and administrative
|
|
5,965
|
|
|
|
4,769
|
Dry
hole, abandonment and impairment
|
|
2,803
|
|
|
|
-
|
Interest
|
|
1,598
|
|
|
|
512
|
|
|
61,219
|
|
|
|
46,514
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
48,765
|
|
|
|
26,435
|
Provision
for income taxes
|
|
14,546
|
|
|
|
8,206
|
|
|
|
|
|
|
|
Net
income
|
$
|
34,219
|
|
|
$
|
18,229
|
|
|
|
|
|
|
|
Basic
net income per share
|
$
|
1.55
|
|
|
$
|
.83
|
Diluted
net income per share
|
$
|
1.52
|
|
|
$
|
.82
|
Cash
dividends per share
|
$
|
.23
|
|
|
$
|
.18
|
Weighted
average number of shares of capital stock outstanding used
to
|
|
|
|
|
|
|
calculate
basic net income per share
|
|
22,068
|
|
|
|
21,934
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
Stock
options
|
|
402
|
|
|
|
375
|
Other
|
|
59
|
|
|
|
56
|
|
|
|
|
|
|
|
Weighted
average number of shares of capital stock used to
calculate
|
|
|
|
|
|
|
diluted
net income per share
|
|
22,529
|
|
|
|
22,365
|
|
|
|
|
|
|
|
Condensed
Statements of Comprehensive Income (unaudited)
|
|
|
|
|
|
|
|
Three
Month Periods Ended September 30, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
Thousands)
|
|
2005
|
|
|
|
2004
|
|
Net
income
|
$
|
34,219
|
|
|
$
|
18,229
|
|
Unrealized
losses on derivatives, (net of income taxes of $11,090
|
|
|
|
|
|
|
and $4,604 in 2005 and 2004, respectively)
|
|
(16,635)
|
|
|
|
(6,906) |
|
Reclassification
of realized losses included in net income
|
|
|
|
|
|
|
|
(net of income taxes of $2,568 and $490 in 2005 and 2004,
respectively)
|
|
(3,852) |
|
|
|
(736) |
|
Comprehensive
income
|
$
|
|
|
|
$
|
10,587
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
|
|
|
|
|
|
Berry
Petroleum Company
Form
10-Q for the three and nine months ended September 30,
2005
Part
I. Financial Information
Item
1. Financial Statements
CONDENSED
INCOME STATEMENTS (unaudited)
Nine
Month Periods Ended September 30, 2005 and
2004
|
|
|
|
|
|
|
|
|
(In
Thousands, Except Per Share Information)
|
|
2005
|
|
|
|
2004
|
|
Revenues:
|
|
|
|
|
|
|
|
Sales
of oil and gas
|
$
|
252,635
|
|
|
$
|
159,520
|
|
Sales
of electricity
|
|
36,903
|
|
|
|
34,569
|
|
Interest
and other income, net
|
|
1,130
|
|
|
|
338
|
|
|
|
290,668
|
|
|
|
194,427
|
|
Expenses:
|
|
|
|
|
|
|
|
Operating
costs - oil and gas production
|
|
77,925
|
|
|
|
58,721
|
|
Operating
costs - electricity generation
|
|
36,596
|
|
|
|
33,415
|
|
Exploration
costs
|
|
1,535
|
|
|
|
-
|
|
Depreciation,
depletion and amortization - oil and gas production
|
26,800
|
|
|
|
21,497
|
|
Depreciation,
depletion and amortization - electricity generation
|
2,443
|
|
|
|
2,539
|
|
General
and administrative
|
|
15,988
|
|
|
|
16,956
|
|
Dry
hole, abandonment and impairment
|
|
5,425
|
|
|
|
-
|
|
Interest
|
|
4,502
|
|
|
|
1,577
|
|
|
|
171,214
|
|
|
|
134,705
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
119,454
|
|
|
|
59,722
|
|
Provision
for income taxes
|
|
37,470
|
|
|
|
15,850
|
|
|
|
|
|
|
|
|
|
Net
income
|
$
|
81,984
|
|
|
$
|
43,872
|
|
|
|
|
|
|
|
|
|
Basic
net income per share
|
$
|
3.72
|
|
|
$
|
2.01
|
|
Diluted
net income per share
|
$
|
3.65
|
|
|
$
|
1.97
|
|
Cash
dividends per share
|
$
|
.47
|
|
|
$
|
.40
|
|
Weighted
average number of shares of capital stock outstanding used
to
|
|
|
|
|
|
calculate
basic net income per share
|
|
22,039
|
|
|
|
21,875
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
Stock
options
|
|
393
|
|
|
|
366
|
|
Other
|
|
57
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares of capital stock used to
calculate
|
|
|
|
|
|
diluted
net income per share
|
|
22,489
|
|
|
|
22,295
|
|
|
|
|
|
|
|
|
|
Condensed
Statements of Comprehensive Income (unaudited)
|
|
|
|
|
|
|
|
Nine
Month Periods Ended September 30, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
Thousands)
|
|
2005
|
|
|
|
2004
|
|
Net
income
|
$
|
81,984
|
|
|
$
|
43,872
|
|
Unrealized
losses on derivatives, (net of income taxes of $26,407
|
|
|
|
|
|
|
and
$2,350 in 2005 and 2004, respectively)
|
|
(39,611)
|
|
|
|
(3,525)
|
|
Reclassification
of realized losses included in net income
|
|
|
|
|
|
|
|
(net of income taxes of $811 and $1,713 in 2005 and 2004,
respectively)
|
|
(1,216) |
|
|
|
(2,569) |
|
Comprehensive
income
|
$
|
41,157
|
|
|
$
|
37,778
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
|
|
|
|
|
|
Berry
Petroleum Company
Form
10-Q for the three and nine months ended September 30,
2005
Part
I. Financial Information
Item
1. Financial Statements
CONDENSED
STATEMENTS OF CASH FLOWS (unaudited)
Nine
Month Periods Ended September 30, 2005 and
2004
|
|
|
|
|
|
|
|
(In
Thousands)
|
|
2005
|
|
|
|
2004
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
$
|
81,984
|
|
|
$
|
43,872
|
Depreciation,
depletion and amortization
|
|
29,243
|
|
|
|
24,036
|
Deferred
income taxes, net
|
|
16,939
|
|
|
|
6,846
|
Dry
hole, abandonment and impairment
|
|
2,298
|
|
|
|
-
|
Stock-based
compensation expense
|
|
404
|
|
|
|
4,520
|
Other,
net
|
|
106
|
|
|
|
205
|
Decrease
in current assets other than cash, cash equivalents and
short-term
|
|
|
|
|
|
|
investments
|
|
(28,310)
|
|
|
|
(12,448)
|
Increase
in current liabilities
|
|
19,623
|
|
|
|
11,451
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
122,287
|
|
|
|
78,482
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
Capital
expenditures, excluding property acquisitions
|
|
(78,321)
|
|
|
|
(51,856)
|
Property
acquisitions
|
|
(118,700)
|
|
|
|
-
|
Other,
net
|
|
130
|
|
|
|
(3,316)
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
(196,891)
|
|
|
|
(55,172)
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
Proceeds
from issuance of long-term debt
|
|
116,000
|
|
|
|
-
|
Payment
of long-term debt
|
|
(44,000)
|
|
|
|
(17,000)
|
Dividends
paid
|
|
(10,362)
|
|
|
|
(8,760)
|
Book
overdraft
|
|
7,718
|
|
|
|
-
|
Repurchase
of stock and other
|
|
(3,015)
|
|
|
|
-
|
|
|
|
|
|
|
|
Net
cash provided by (used in) financing activities
|
|
66,341
|
|
|
|
(25,760)
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
(8,263)
|
|
|
|
(2,450)
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of year
|
|
16,690
|
|
|
|
10,658
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
$
|
8,427
|
|
|
$
|
8,208
|
|
|
|
|
|
|
|
Supplemental
non-cash activity:
|
|
|
|
|
|
|
(Increase)
decrease in fair value of derivatives:
|
|
|
|
|
|
|
Current
(net of income taxes of $11,309 and $4,138 in 2005 and
2004,
|
|
|
|
|
|
|
respectively)
|
$
|
16,964
|
|
|
$
|
6,207
|
Non-current
(net of income taxes of $15,909 and ($75) in 2005 and
2004,
|
|
|
|
|
|
|
respectively)
|
|
23,863
|
|
|
|
(113)
|
|
|
|
|
|
|
|
Net
increase to accumulated other comprehensive loss
|
$
|
40,827
|
|
|
$
|
6,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Berry
Petroleum Company
Form
10-Q for the three and nine months ended September 30,
2005
Part
I. Financial Information
|
Item
1. Financial Statements
|
Notes
to Condensed Financial Statements
(unaudited)
|
1. General.
All
adjustments which are, in the opinion of Management, necessary for a fair
statement of Berry Petroleum Company’s (the “Company”) financial position at
September 30, 2005 and December 31, 2004 and results of operations for
the
three and nine month periods ended September 30, 2005 and 2004 and cash flows
for the nine month periods ended September 30, 2005 and 2004 have been included.
All such adjustments are of a normal recurring nature. The results of operations
and cash flows are not necessarily indicative of the results for a full
year.
The
accompanying unaudited condensed financial statements have been prepared on
a
basis consistent with the accounting principles and policies reflected in the
December 31, 2004 financial statements. The December 31, 2004 Form 10-K,
March 31, 2005 Form 10-Q and June 30, 2005 Form 10-Q should be read in
conjunction herewith. The year-end condensed balance sheet was derived from
audited financial statements, but does not include all disclosures required
by
accounting principles generally accepted in the United States of America. Refer
to Note 8 for discussion on the dissolution of subsidiary, Canyon Drilling
LLC.
The
Company’s cash management process provides for the daily funding of checks as
they are presented to the bank. Included in accounts payable at September 30,
2005 is $7.7 million representing outstanding checks in excess of the bank
balance (book overdraft).
2.
Fair Value of Derivatives.
Due to
the increase in NYMEX crude oil futures prices at September 30, 2005 from
December 31, 2004 and the addition of the zero-cost collar derivative
instruments in June 2005, the Company’s net fair value of derivatives liability
increased to $69.7 million at September 30, 2005 from $2.7 million at December
31, 2004. The unrealized loss, net of income taxes, of $40.8 million, is
recorded in accumulated other comprehensive loss on the Company’s balance sheet
at September 30, 2005. The deferred tax benefit of the unrealized loss is
reflected as an addition to the deferred income tax asset on the Company’s
balance sheet.
3.
Asset Retirement Obligations.
The
Company follows Statement of Financial Accounting Standard, (SFAS) No.
143,
Accounting for Asset Retirement Obligations,
for
recording future site restoration and abandonment costs related to its oil
and
gas properties. Under SFAS No. 143, the following table summarizes the change
in
abandonment obligation for the nine months ended September 30 (in
thousands):
|
|
2005
|
|
2004
|
Beginning
balance at January 1
|
|
$
8,214
|
|
$
7,311
|
Liabilities
incurred
|
|
2,963
|
|
-
|
Liabilities
settled
|
|
(603)
|
|
(235)
|
Accretion
expense
|
|
647
|
|
349
|
Ending
balance at September 30
|
|
$
11,221
|
|
$
7,425
|
|
|
|
|
|
4. Reclassification.
Certain
amounts in the condensed income statements for the three and nine months ended
September 30, 2004 have been reclassified to conform to the 2005 presentation.
In the fourth quarter of 2004, the Company concluded that it was appropriate
to
revise its allocation of cogeneration costs to oil and gas operations. The
revised allocation is based on the thermal efficiency (of fuel in
generating electricity and producing steam) of the Company’s cogeneration
facilities. In addition, in 2005 the Company is reclassifying technical labor
between general and administrative expenses and operating costs - oil and gas.
These reclassifications had no impact on net income or net cash provided
by
operating activities. Accordingly, the Company has revised prior classifications
for the three and nine months ended September 30, 2004 as follows (in
thousands):
Berry
Petroleum Company
Form
10-Q for the three and nine months ended September 30,
2005
|
|
Three
Months
|
|
Nine
Months
|
|
|
Ended
9/30/04
|
|
Ended
9/30/04
|
Operating
costs - oil and gas
|
|
|
|
|
As
previously reported
|
|
$
22,107
|
|
$
59,321
|
As
revised
|
|
22,487
|
|
58,721
|
Difference
|
|
$
(380)
|
|
$
600
|
|
|
|
|
|
Operating
costs - electricity generation
|
|
|
|
|
As
previously reported
|
|
$
11,344
|
|
$
34,569
|
As
revised
|
|
10,423
|
|
33,415
|
Difference
|
|
$
921
|
|
$
1,154
|
|
|
|
|
|
G&A
expenses
|
|
|
|
|
As
previously reported
|
|
$
4,228
|
|
$
15,202
|
As
revised
|
|
4,769
|
|
16,956
|
Difference
|
|
$
(541)
|
|
$
(1,754)
|
|
|
|
|
|
DD&A
- oil and gas
|
|
|
|
|
As
previously reported
|
|
$
8,323
|
|
$
24,036
|
As
revised
|
|
7,500
|
|
21,497
|
Difference
|
|
$
823
|
|
$
2,539
|
|
|
|
|
|
DD&A
- electricity generation
|
|
|
|
|
As
previously reported
|
|
$
-
|
|
$
-
|
As
revised
|
|
823
|
|
2,539
|
Difference
|
|
$
(823)
|
|
$
(2,539)
|
|
|
|
|
|
5.
Credit Facility.
In June
2005 the Company completed a new unsecured five-year bank credit agreement
(the
Agreement) with a banking syndicate. The Agreement is a revolving credit
facility for up to $500 million with nine banks and replaces the previous $200
million facility which was due to mature in 2006. Initial borrowings were $125
million which represented an amount equal to the borrowings outstanding under
the previous credit facility and the initial borrowing base was established
at
$350 million. This transaction is considered a modification of a debt instrument
due to modification of terms in accordance with Emerging Issues Task Force,
(EITF) 96-19,
Debtor’s Accounting for Modification or Exchange of Debt
Instruments.
The
total
outstanding debt on the $350 million credit facility available was $100 million
at September 30, 2005. The Agreement matures on July 1, 2010. Interest on
amounts borrowed is charged at LIBOR plus a margin or the prime rate, with
margins on the various rate options based on the ratio of credit outstanding
to
the borrowing base. The Company is required under the Agreement to pay a
commitment fee of 25 to 38 basis points on the unused portion of the credit
facility.
The
weighted average interest rate on outstanding borrowings at September 30, 2005
was 4.8%. The Company was in compliance with all covenants as of September
30,
2005.
6.
Dry hole, abandonment and impairment. The
majority of the $2.8 million reflected on the Company’s income statement under
dry hole, abandonment and impairment is the write off of the remaining carrying
value of its Illinois and Eastern Kansas prospective coal bed methane (CBM)
acreage acquired in 2002. Due to lack of regional activity for evaluation and/or
development of similar prospective CBM acreage and the inability to attract
buyers, the Company determined the assets were impaired in the third quarter
of
2005.
Berry
Petroleum Company
Form
10-Q for the three and nine months ended September 30,
2005
7.
Pro Forma Results.
On
January 27, 2005, the Company acquired certain interests in the Niobrara field
in northeastern Colorado for approximately $105 million (J-W Acquisition).
The
unaudited pro forma results presented below for the nine months ended September
30, 2005 and 2004 have been prepared to give effect to the J-W Acquisition
on
the Company’s results of operations under the purchase method of accounting as
if it had been consummated on January 1, 2004. The unaudited pro forma results
do not purport to represent the results of operations that actually would have
occurred on such date or to project the Company’s results of operations for any
future date or period. (in thousands, except per share data):
|
|
|
2005
|
|
2004
|
Proforma
Revenue
|
|
|
$
292,031
|
|
$
208,852
|
Proforma
Income from operations
|
140,611
|
|
84,872
|
Proforma
Net income
|
|
|
82,288
|
|
45,863
|
Proforma
Basic earnings per share
|
3.73
|
|
2.10
|
Proforma
Diluted earnings per share
|
3.66
|
|
2.06
|
8.
Canyon Drilling.
Canyon
Drilling LLC (“Canyon”), a 100% owned Colorado entity, was dissolved in the
third quarter of 2005. Canyon owned a drilling rig which was leased to a third
party. After the dissolution, the drilling rig is 100% owned by the
Company. Concurrent with the dissolution of Canyon, the original lease
was
terminated and a revised three year lease agreement was executed which has
similar terms to the original lease. The revised lease includes a three
year purchase option. The total net investment in the revised lease
is approximately $3.4 million and is accounted for as a direct financing
lease as defined by SFAS No. 13, Accounting
for Leases.
Net
investment in this lease as of September 30, 2005 is as follows (in
thousands):
Net
minimum lease payments receivable
|
|
$ 4,854
|
|
Unearned
income
|
|
(1,489)
|
|
Net
investment in direct financing lease
|
|
$ 3,365
|
|
|
|
|
|
Estimated
future minimum lease payments, including the purchase option, to be received
as
of September 30, 2005 are as follows (in thousands):
2005
|
|
$
126
|
|
2006
|
|
504
|
|
2007
|
|
504
|
|
2008
|
|
3,720
|
|
Total
|
|
$
4,854
|
|
|
|
|
|
9.
Taxes.
The
Company’s effective tax rate was 30% for the third quarter of 2005 compared to
32% for the second quarter of 2005 and 31% for the third quarter of 2004. The
Company benefits from enhanced oil recovery (EOR) credits on development
activities on its heavy oil properties which reduces the Company’s income tax
liabilities and accordingly, the effective tax rate in 2005. EOR credits are
expected to be fully phased out in 2006 due to the high level of crude oil
prices in 2005.
10.
Recent Accounting Pronouncements. In
December 2004, SFAS No. 123 (revised 2004) or SFAS No. 123(R),
Share-Based Payment was issued. This statement requires that the cost resulting
from all share-based payment transactions be recognized in the financial
statements at their fair value on the grant date. SFAS No. 123(R) is
effective as of the beginning of the first annual reporting period that begins
after June 15, 2005. As a result, the Company expects to adopt this
statement on January 1, 2006. The adoption of this statement is not expected
to
have a material impact on the Company’s financial position, net income or cash
flows.
Berry
Petroleum Company
Form
10-Q for the three and nine months ended September 30,
2005
In
March
2005, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
No. 47, Accounting
for Conditional Asset Retirement Obligations
(“FIN
47”). FIN 47 clarifies the definition and treatment of conditional asset
retirement obligations as discussed in FASB Statement No. 143, Accounting for
Asset Retirement Obligations. A conditional asset retirement obligation is
defined as an asset retirement activity in which the timing and/or method of
settlement are dependent on future events that may be outside the control of
the
company. FIN 47 states that a company must record a liability when incurred
for
conditional asset retirement obligations if the fair value of the obligation
is
reasonably estimable. FIN 47 is intended to provide more information about
long-lived assets and future cash outflows for these obligations and more
consistent recognition of these liabilities. FIN 47 is effective for fiscal
years ending after December 15, 2005. The adoption of FIN 47 is not expected
to
have a material impact on the Company’s financial position, net income or cash
flows.
11.
Subsequent Events. In
October 2005 the following three events took place. The Company entered into
a
three-year drilling contract for the services of an automated drilling rig.
The
three year drilling contract begins upon delivery of the rig which is expected
in second quarter of 2006. Secondly, the Company purchased a drilling rig which
is being refurbished in preparation for leasing to a drilling company. Lastly,
the Company purchased a 50% interest in approximately 70,000 gross undeveloped
acres (60,000 net) in Colorado’s Phillips and Sedgwick Counties. This additional
Niobrara leasehold position is adjacent to and immediately north of Berry’s
producing natural gas assets in Yuma County. The Company is scheduled to begin
shooting a 3-D seismic survey within the next three months and expects to drill
the first delineation wells in mid-2006.
Part
I. Financial Information
Item
2. Management's Discussion and Analysis of Financial Condition and
Results
of Operations
Company
Overview
|
The
following discussion provides information on the results of operations for
each
of the three and nine month periods ended September 30, 2005 and 2004 and the
financial condition, liquidity and capital resources as of September 30, 2005.
The financial statements and the notes thereto contain detailed information
that
should be referred to in conjunction with this discussion.
The
profitability of the Company's operations in any particular accounting period
will be directly related to the realized prices of oil, gas and electricity
sold, the type and volume of oil and gas produced and electricity generated
and
the results of development, exploitation, acquisition and exploration
activities. The realized prices for natural gas and electricity will fluctuate
from one period to another due to regional market conditions and other factors,
while oil prices will be predominantly influenced by world supply and demand.
The aggregate amount of oil and gas produced may fluctuate based on the success
of development and exploitation of oil and gas reserves pursuant to current
reservoir management. The cost of natural gas used in the Company's steaming
operations and electrical generation, production rates, labor, equipment costs,
maintenance expenses, and production taxes are expected to be the principal
influences on operating costs. Accordingly, the results of operations of the
Company may fluctuate from period to period based on the foregoing principal
factors, among others.
Berry
Petroleum Company
Form
10-Q for the three and nine months ended September 30,
2005
Corporate
Strategy
The
Company's mission is to increase shareholder value, primarily through maximizing
the value and cash flows of the Company's assets. The strategies to accomplish
these goals include:
· |
Growing
production and reserves from existing assets while
managing expenses
|
· |
Acquiring
more light oil and natural gas assets with significant growth potential
in
the Rockies and Mid-Continent
|
· |
Utilizing
joint ventures with respected partners to enter new
basins
|
· |
Investing
the Company’s capital in an efficient, disciplined manner to increase
production and reserves
|
· |
Appraising
the Company’s exploitation and exploration projects in an expedient
manner
|
Key Third
Quarter Items
· |
Achieved
record production which averaged 23,647
BOE/D
|
· |
Increased
2005 capital budget from $107 million to $136
million
|
· |
Added
approximately 13,000 net acres in the North Dakota Bakken play
|
· |
Increased
quarterly dividend to $.13 per share and paid special dividend of
$.10 per
share
|
· |
Paid
down $25 million in debt
|
· |
Began
25 well expansion of California Diatomite
project
|
· |
Began
drilling to assess several prospects
|
· |
Repurchased
shares for $2.6 million
|
· |
Wrote
off Eastern Kansas and Illinois
properties
|
Anticipated
and Completed Key Fourth Quarter Items
· |
Continuing
to grow production
|
· |
Will
obtain initial data on several key appraisal
wells
|
· |
Negotiating
crude oil sales contract for California
production
|
· |
Added
approximately 60,000 net acres to Colorado Niobrara inventory
|
· |
Executed
three-year contract for automated drilling rig in
California
|
· |
Realigned
organization into asset teams
|
· |
Added
Joseph H. Bryant to the Board of Directors in October
2005
|
Results
of Operations
|
Three
Months Ended
|
|
|
|
|
Sep
30, 2005
|
Sep
30, 2004
|
Change
|
Jun
30, 2005
|
Change
|
|
Revenues
(in millions)
|
$
110.0
|
$
72.9
|
51%
|
$
92.7
|
19%
|
|
Net
Income (in millions)
|
34.2
|
18.2
|
88%
|
25.3
|
35%
|
|
Earnings
per share (diluted)
|
1.52
|
0.82
|
85%
|
1.13
|
35%
|
|
Oil
and Gas Sales and Production. The
Company’s revenues may vary significantly from period to period as a result of
changes in commodity prices and/or production volumes. Improvements in
production volume are due to acquisitions and sizable capital investments.
Improvement in prices during 2005 are due to a tighter supply and demand balance
and the nervousness of the market about possible supply disruptions. In 2005,
the Company anticipates production to average approximately 23,000
BOE/D. Production in 2006, excluding acquisitions, is expected to average
approximately 25,000 BOE/D.
Berry
Petroleum Company
Form
10-Q for the three and nine months ended September 30,
2005
The
following table presents certain oil and gas operating data for the periods
ending:
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
Sept
30, 2005
|
%
|
Jun
30, 2005
|
%
|
Sept
30, 2004
|
%
|
|
Sept
30, 2005
|
Sept
30, 2004
|
Oil
and Gas
|
|
|
|
|
|
|
|
|
|
Heavy
Oil Production (Bbl/D)
|
16,701
|
71
|
15,733
|
70
|
15,626
|
75
|
|
16,086
|
15,807
|
Light
Oil Production (Bbl/D)
|
3,308
|
14
|
3,253
|
14
|
3,689
|
18
|
|
3,301
|
3,219
|
Total
Oil Production (Bbl/D)
|
20,009
|
85
|
18,986
|
84
|
19,315
|
93
|
|
19,387
|
19,026
|
Natural
Gas Production (Mcf/D)
|
21,829
|
15
|
22,090
|
16
|
9,066
|
7
|
|
20,438
|
7,302
|
Total
(BOE/D)
|
23,647
|
100
|
22,668
|
100
|
20,825
|
100
|
|
22,793
|
20,243
|
|
|
|
|
|
|
|
|
|
|
Per
BOE:
|
|
|
|
|
|
|
|
|
|
Average
sales price before hedging
|
$
51.34
|
|
$
43.41
|
|
$
35.61
|
|
|
$
45.38
|
$
31.58
|
Average
sales price after hedging
|
44.25
|
|
39.09
|
|
32.28
|
|
|
40.48
|
28.81
|
|
|
|
|
|
|
|
|
|
|
Oil,
per Bbl:
|
|
|
|
|
|
|
|
|
|
Average
WTI price
|
$
63.31
|
|
$
53.22
|
|
$
43.88
|
|
|
$
55.61
|
$
39.21
|
Price
sensitive royalties
|
(5.68)
|
|
(3.76)
|
|
(3.38)
|
|
|
(4.22)
|
(2.78)
|
Gravity
differential
|
(4.94)
|
|
(5.47)
|
|
(4.91)
|
|
|
(5.18)
|
(4.93)
|
Crude
oil hedges
|
(8.35)
|
|
(5.27)
|
|
(3.59)
|
|
|
(5.78)
|
(2.93)
|
Average
oil sales price after hedging
|
$
44.34
|
|
$
38.72
|
|
$
32.00
|
|
|
$
40.43
|
$
28.57
|
|
|
|
|
|
|
|
|
|
|
Gas,
per MMBtu:
|
|
|
|
|
|
|
|
|
|
Average
Henry Hub price
|
$
6.97
|
|
$
6.70
|
|
$
5.76
|
|
|
$
6.62
|
$
5.81
|
Natural
gas hedges
|
0.02
|
|
(0.04)
|
|
-
|
|
|
(0.02)
|
(0.01)
|
Location
and quality differentials
|
(0.85)
|
|
(0.87)
|
|
(0.69)
|
|
|
(0.78)
|
(0.61)
|
Average
gas sales price after hedging
|
$
6.14
|
|
$
5.79
|
|
$
5.07
|
|
|
$
5.82
|
$
5.19
|
|
|
|
|
|
|
|
|
|
|
California
Oil and Gas Sales Contract. The
Company sells the majority of its California heavy crude oil under a favorable
contract which expires on December 31, 2005. The contract pricing is based
upon
the higher of the average of 1) the local field posted prices plus a fixed
premium, or 2) WTI minus a fixed amount of approximately $6 per barrel. The
Company is in negotiations on a multi-year contract for its California heavy
crude oil. The Company believes it can achieve fair contract terms based on
the
significant daily quantity of crude oil it can deliver. In 2006, the Company
expects that its oil revenues will be negatively impacted as the new contract
terms will likely be less favorable than the existing contract due to the
widening of the crude price differential between WTI and California heavy crude.
The differential, which over the last several years approximated $6 per barrel,
increased dramatically in the second half of 2004 to approximately $14 per
barrel. The differential narrowed to approximately $10.50 per barrel as of
September 30, 2005.
In
the
third quarter of 2005, the Company estimates that its revenues benefited from
the existing contract by approximately $8.1 million. At a differential of
approximately $12.75 per barrel for the first nine months of 2005, the Company
estimates that its revenues will benefit from the contract by approximately
$42.6 million in 2005. While Management believes that the differential will
narrow and move closer toward its historical level over time, there are no
assurances that this will occur.
Hedging
Revenue. As
a
result of hedging activities the Company's revenue, which was reported in
Sales
of oil and gas in the financial statements, was reduced by $30.6 million
and
$15.3 million in the nine months ended September 30, 2005 and 2004,
respectively. These hedging activities resulted in a net reduction in revenue
per BOE to the Company of $7.09 in the third quarter of 2005, $4.32 in the
second quarter of 2005 and $3.33 in the third quarter of 2004. As of September
30, 2005, hedging contracts had settlement dates through the end of 2009
and no
ineffectiveness was realized. If the differential were to change significantly,
it is possible that the Company’s hedges, when marked-to-market, could have a
material impact on earnings in any given quarter and, thus, add increased
volatility to the Company’s sales and net income. See Note 2 to the unaudited
condensed financial statements and “Item 3. Quantitative and Qualitative
Disclosure About Market Risk.”
Berry
Petroleum Company
Form
10-Q for the three and nine months ended September 30,
2005
Electricity.
The
Company consumes natural gas as fuel to operate its three cogeneration
facilities which are intended to provide an efficient and secure long-term
supply of steam necessary for the economic production of heavy oil. The Company
sells its electricity to utilities under Standard Offer contracts, under which
its revenues are linked to the cost of natural gas. Natural gas index prices
are
the primary determinant of the Company’s electricity sales price. The
correlation between electricity sales and natural gas prices allows the Company
to more effectively manage its cost of producing steam. Electricity production
was lower in the second quarter of 2005 due to a scheduled turnaround, which
included a turbine refurbishment. Revenue and operating costs in the third
quarter of 2005 were up from the second quarter of 2005 due to 14% higher
electricity prices and 16% higher natural gas prices, respectively. The Company
purchased approximately 25,400 MMBtu/D as fuel for use in its cogeneration
facilities in the nine months ended September 30, 2005.
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
Sept
30, 2005
|
Jun
30, 2005
|
Sept
30, 2004
|
|
Sept
30, 2005
|
|
Sept
30, 2004
|
Electricity
|
|
|
|
|
|
|
|
|
|
|
Revenues
(in millions)
|
$
12.9
|
|
$
11.5
|
|
$
11.3
|
|
|
$
36.9
|
|
$
34.6
|
Operating
Costs (in millions)
|
$
12.3
|
|
$
10.9
|
|
$
10.4
|
|
|
$
36.6
|
|
$
33.4
|
Electric
power produced (MWh/D)
|
2,025
|
|
1,897
|
|
2,122
|
|
|
2,013
|
|
2,112
|
Electric
power sold (MWh/D)
|
1,830
|
|
1,702
|
|
1,916
|
|
|
1,816
|
|
1,905
|
Average
sales price/MWh
|
$
84.89
|
|
$
74.52
|
|
$
75.96
|
|
|
$
76.08
|
|
$
70.25
|
Fuel
gas cost/MMBtu (excluding transportation)
|
$
7.16
|
|
$
6.15
|
|
$
5.27
|
|
|
$
6.34
|
|
$
5.27
|
Berry
Petroleum Company
Form
10-Q for the three and nine months ended September 30,
2005
Oil
and Gas Operating, G&A and Interest Expenses.
The
following table presents information comparing the Company’s oil and gas
operating expenses for each of the quarters ended September 30, 2005 and 2004
and June 30, 2005:
Three
Months Ended:
|
per
BOE
|
|
|
|
|
in
thousands
|
|
|
Sep
30, 2005
|
Jun
30, 2005
|
Change
|
Sep
30, 2004
|
Change
|
|
Sep
30, 2005
|
Jun
30, 2005
|
Sep
30, 2004
|
Operating
costs
|
$
12.94
|
$
12.79
|
1%
|
$
11.74
|
10%
|
|
$
28,144
|
$
26,374
|
$
22,487
|
DD&A
|
4.05
|
4.59
|
(12%)
|
3.91
|
4%
|
|
8,813
|
9,461
|
7,500
|
G&A
|
2.74
|
2.52
|
9%
|
2.49
|
10%
|
|
5,965
|
5,204
|
4,769
|
Interest
expense
|
0.73
|
0.84
|
(13%)
|
0.27
|
170%
|
|
1,598
|
1,740
|
512
|
· |
Higher
crude oil and natural gas prices have created an incentive for the
U.S.
domestic oil and gas industry to significantly increase exploration
and
development activities which is straining the capacity for such goods
and
services. Thus, higher costs are prominent throughout the industry
and
resulted in higher operating costs per BOE for the third quarter
of 2005
from the third quarter of 2004. The cost of the Company’s steaming
operations on its heavy oil properties represents a significant portion
of
the Company’s operating costs and will vary depending on the cost of
natural gas used as fuel and the volume of steam injected.
The
following table presents this information:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
Sep
30, 2005
|
Sep
30, 2004
|
Change
|
|
Sep
30, 2005
|
Sep
30, 2004
|
Change
|
Volume
of steam injected (Bbl/D)
|
69,590
|
72,556
|
(4%)
|
|
69,362
|
67,889
|
2%
|
Fuel
gas cost/MMBtu
|
$
7.16
|
$
5.27
|
36%
|
|
$
6.34
|
$
5.27
|
20%
|
· |
DD&A
increased per BOE in the third quarter of 2005 from the third quarter
of
2004 due to higher acquisition costs of the Company's Rockies
and
Mid-Continent assets as compared to the Company’s legacy heavy oil assets
in California and higher finding and development
costs.
|
· |
Approximately
two-thirds of the Company’s G&A is compensation or compensation
related costs. The Company intends to remain competitive in workforce
compensation to achieve its growth plans. The third quarter 2005
increase
compared to third quarter 2004 is due to higher compensation as well
as
hiring an additional 55 employees for a total of 211 employees as
of
September 30, 2005.
|
· |
Interest
expense in the third quarter of 2005 per BOE was up from the third
quarter
of 2004 due to increased outstanding borrowings of $100 million at
September 30, 2005 as compared to $33 million at September 30, 2004
Average borrowings increased as a result of acquisitions of $119
million
in the first nine months of 2005. Additionally, interest rates have
increased by approximately 2% since September 30,
2004.
|
Berry
Petroleum Company
Form
10-Q for the three and nine months ended September 30,
2005
The
following table presents information comparing the Company’s operating expenses
for the nine months ended September 30, 2005 and 2004:
Nine
Months Ended:
|
per
BOE |
|
|
in
thousands
|
|
Sep
30, 2005
|
Sep
30, 2004
|
Change
|
|
Sep
30, 2005
|
Sep
30, 2004
|
Operating
costs
|
$
12.52
|
$
10.59
|
18%
|
|
$
77,925
|
$
58,721
|
DD&A
|
4.31
|
3.88
|
11%
|
|
26,800
|
21,497
|
G&A
|
2.57
|
3.06
|
(16%)
|
|
15,988
|
16,956
|
Interest
expense
|
0.72
|
0.28
|
157%
|
|
4,502
|
1,577
|
Also
see
the three month variance explanations, as the variances in the nine month
periods do not differ significantly from the three month variance discussion
on
the previous page, with the exception of G&A.
· |
The
Company anticipates operating costs to average between $13.75 and
$14.25
per BOE for 2005 based on Henry Hub (HH) $13.30 per MMBtu gas price
in the
fourth quarter, while the average gas price for all of 2005 is estimated
to be approximately $9.00 per MMBtu. Based on HH natural gas prices
of
approximately $10.00 per MMBtu in 2006, the Company projects its
2006
operating costs would average between $16.00 and $17.00 per BOE.
Higher
operating costs for 2006 are anticipated due to increases in all
of the
following; gas prices, steam volumes, well service costs, other
contractual costs, labor and production taxes.
|
· |
The
Company anticipates DD&A will average between $4.25 and $4.75 per BOE
for 2005 and between $5.00 and $6.00 per BOE for
2006.
|
· |
G&A
expenses per BOE in the first nine months of 2005 decreased from
the first
nine months of 2004 due to the charge on stock options that was part
of
the Company’s change in accounting method in 2004. The Company expects
G&A will average between $2.55 and $2.65 per BOE for all of 2005 and
between $2.40 and $2.80 per BOE in
2006.
|
· |
The
Company anticipates interest expense to be between $.60 to $.80 per
BOE
for 2005 and between $.50 to $.75 per BOE for
2006.
|
Income
Taxes. See
Note
9 to the unaudited condensed financial statements. The Company benefits from
EOR
credits on development activities on its heavy oil properties. However, with
higher crude oil prices and the increasing investment in its light crude oil
and
natural gas properties, the Company’s effective income tax rate is trending
higher compared to prior years. Based on current forecasted oil prices, the
Company anticipates an effective tax rate for all of 2005 between 31% and 33%.
The Company estimates that the average U.S. wellhead price for crude oil will
exceed $43 in 2005, thus triggering a full phase-out of the EOR credit for
2006.
Without any EOR credit in 2006, the Company anticipates its effective tax rate
will be between 37% and 39%. If the U.S. wellhead price of crude oil declines
below the triggering point, in future years the Company will be able to claim
the EOR credit on qualifying expenditures and the Company’s effective tax rate
should decline.
Dry
Hole, Abandonment and Impairment. See
Note
6 to the unaudited condensed financial statements.
Acquisitions
During and Subsequent to the Quarter.
In the
third quarter, Berry completed several transactions whereby Berry now has total
working interests in over 33,000 net acres (160,000 gross) located in the
Williston Basin in North Dakota. These acquisitions, totaling approximately
$9
million, provide the Company an entry into the emerging Bakken oil play in
the
Williston Basin. The acreage covers several contiguous blocks located primarily
on the eastern flank of the Nesson Anticline.
Berry
Petroleum Company
Form
10-Q for the three and nine months ended September 30,
2005
Development
activity in the Middle Bakken play is generally expanding to the area
surrounding the Nesson Anticline. Closing on additional acreage is anticipated
in fourth quarter 2005.
In
October 2005, the Company purchased a 50% interest in approximately 70,000
gross
undeveloped acres (60,000 net) in Colorado’s Phillips and Sedgwick Counties.
This additional Niobrara leasehold position is adjacent to and immediately
north
of Berry’s producing natural gas assets in Yuma County. The Company is scheduled
to begin shooting a 3-D seismic survey within the next three months and expects
to drill the first delineation wells in mid-2006.
California
Diatomite Exploitation.
Oil
production from the initial 14 well pilot (6 producers), which averaged
approximately 220 Bbl/D in the third quarter of 2005, is economic at current
oil
prices. The Company is continuing to assess the long-term economic and operating
viability of the project as the pilot is an indication of future large-scale
development. Results continue to be encouraging. The Company is judiciously
monitoring the steam to oil ratio (SOR) because the Company believes achieving
an SOR of 6 or less is the threshold for commerciality. Due to positive results
thus far, the Company began an expansion of the pilot with a 25 well program
(15
producers) in the third quarter. Additionally, the Company is preparing for
a
much larger expansion in 2006 with up to 50 wells (31 producers) and related
facilities for a capital investment approximating $25 million. Estimated
original oil in place ranges between 200 million to 250 million barrels with
the
Company targeting a minimum 25% recovery of original oil in place. The Company
believes that the project continues to remain on track towards
commerciality.
Other
Exploration Activities.
The
Company has a working interest in approximately 390,000 gross (172,250 net)
prospective acres, located in eastern Colorado, western Kansas and southwestern
Nebraska. The Company and its joint venture partner, collectively “the JV”, will
jointly explore and develop shallow Niobrara biogenic natural gas, Sharon
Springs Shale gas and deeper Pennsylvanian formation oil potential on the
acreage. The JV’s first exploratory wells at Prairie Star are commercial and the
JV is proceeding with two 35 mile 3-D seismic data surveys on nearby acreage.
Additionally, the JV intends to drill another five wells at Prairie Star in
the
fourth quarter of 2005.
In
the
Uinta Basin Coyote Flats prospect, the Company is drilling an exploratory well
into the Ferron sands. The Company will drill a six-well CBM program on this
prospect in 2005 and 2006.
Also
in
the Uinta Basin, the Company has two shallow Green River oil and gas wells
scheduled for drilling on its Lake Canyon acreage during the fourth quarter
of
2005. These initial wells will be approximately three miles west of the
Company’s Brundage Canyon field. In an attempt to define deeper horizons, a 57
square mile 3-D seismic survey at Lake Canyon was completed and the results
are
being interpreted and evaluated. In October 2005, the Company and its partner
began drilling a deep Mesaverde gas test well that is expected to reach targeted
depth of 14,200 feet before year end.
The
Company has a minority interest in two other exploratory wells which are being
tested and evaluated; one in the North Dakota Bakken oil play, and the second
well is targeting deep Mesaverde gas in a unit southeast of the Brundage Canyon
field in the Uinta Basin.
Berry
Petroleum Company
Form
10-Q for the three and nine months ended September 30,
2005
Update
to Drilling Activities. The
following table is in net wells:
|
|
2005
Budget
|
|
Nine
Months Ended September 30, 2005
|
Location
|
|
#
New Wells
|
#
Workovers
|
|
#
New Wells
|
#
Workovers
|
California
|
|
69
|
83
|
|
44
|
45
|
Mid-Continent
|
|
|
|
|
|
|
Niobrara
|
|
64
|
19
|
|
41
|
55
|
Bakken
|
|
1
|
-
|
|
-
|
-
|
Tri-State
|
|
4
|
-
|
|
-
|
-
|
Rockies
|
|
|
|
|
|
|
Brundage
Canyon
|
59
|
39
|
|
45
|
25
|
Lake
Canyon
|
|
1
|
-
|
|
-
|
-
|
Coyote
Flats
|
|
5
|
1
|
|
-
|
-
|
Total
|
|
203
|
142
|
|
130
|
125
|
|
|
|
|
|
|
|
California
Drilling Rigs.
The
Company entered into a three-year drilling contract for the services of an
automated drilling rig. This rig provides a means for Berry to meet at least
half of its California new well drilling needs for the next three years, with
the other half being met by conventional drilling rigs. The three year drilling
contract begins upon delivery of the rig which is expected in second quarter
of
2006.
Rockies
and Mid-Continent Drilling Rigs.
During
2005, the Company purchased two drilling rigs. The first rig is leased to a
drilling company under a three year contract, while the second rig is currently
being refurbished in preparation for leasing under a similar drilling contract.
Owning these rigs allows the Company to successfully meet the majority of its
drilling needs in the Uinta Basin over the next several years.
Organization
Realignment.
In
October 2005, the Company modified its management structure to better align
the
organization with its growth and diversification strategies. Over the last
two
years the Company has successfully added significant producing assets and
prospective acreage in the Rockies and Mid-Continent. The new organizational
structure will utilize integrated asset teams, and accordingly, several officers
were promoted or had their responsibilities realigned with the Company’s
objectives.
Financial
Condition, Liquidity and Capital Resources
Capital
Budget.
The
Company establishes a capital budget for each calendar year based on its
development opportunities and the expected cash flow from operations for that
year. Excess cash generated from operations is expected to be applied toward
acquisitions, debt reduction or other corporate purposes. The Company has
re-evaluated its current capital budget of $107 million and authorized a $29
million increase for the remainder of 2005 to $136 million in light of current
crude oil and natural gas prices and the Company’s significant opportunities.
All capital expenditures, excluding acquisitions, will be funded out of
internally generated cash flow.
The
$29
million increase in the 2005 budget will be directed at 1) additional wells
and
workovers in California, 2) additional wells in the Uinta Basin, 3)
participation in wells in the Bakken play in North
Berry
Petroleum Company
Form
10-Q for the three and nine months ended September 30,
2005
Dakota,
and 4) various facilities, seismic surveys and other items. Berry is confident
that it can obtain the rigs and services over the next few months to fulfill
this additional work program. The goal is to reinvest a portion of the Company’s
excellent cash flow into high rate of return projects and to accelerate the
assessment process on some of the Company’s prospective acreage. In 2006, the
Company anticipates the capital program will be at least $150
million.
Dividends.
The
regular quarterly dividend was increased by 8%, from $.12 to $.13 per share,
beginning with the September 2005 dividend. The total dividend payable on
September 29, 2005 was $.23 per share which included a special $.10 per share
dividend. This is the third consecutive year that the Company has raised its
quarterly dividend and distributed a special dividend. This action should result
in a total payout in 2005 of $.60 per share, up 15% from the $.52 per share
paid
out in 2004.
Working
Capital and Cash Flows.
Cash
flow from operations is dependent upon the price of crude oil and natural gas
and the Company's ability to increase production and manage costs. Prices and
sales have increased in the first nine months of 2005 due to increase in real
and perceived world supply shortages and increase in the market demand for
oil
and gas, while production has increased due to acquisitions and improved finding
and development technology.
The
Company's working capital balance fluctuates as a result of the timing and
amount of borrowings or repayments under its credit arrangements. The Company
increased the borrowings on its credit line primarily to fund property
acquisitions. Generally, the Company uses excess cash to pay down borrowings
under its credit arrangement. As a result, the Company often has a working
capital deficit or a relatively small amount of positive working capital. See
table below for further information:
|
Nine
Months Ended
|
|
|
Sep
30, 2005
|
Sep
30, 2004
|
Change
|
Net
cash provided by operating activities (in millions)
|
$
122.3
|
$
78.5
|
56%
|
Production
(BOE/D)
|
22,793
|
20,243
|
13%
|
Average
oil and gas prices, net of hedging
|
$
40.48
|
$
28.81
|
41%
|
Sales
of oil and gas (in millions)
|
252.6
|
159.5
|
58%
|
Working
capital (in millions)-end of period
|
(26.6)
|
(3.8)
|
(600%)
|
Long-term
debt (in millions)-end of period
|
100.0
|
33.0
|
203%
|
Property
acquisitions and deposits on acquistions (in
millions)
|
118.7
|
3.3
|
3,497%
|
Dividends
paid (in millions)
|
10.4
|
8.8
|
18%
|
In
June
2005, a share repurchase program was authorized for up to an aggregate of $50
million of the Company's outstanding Class A Common Stock. Through September
30,
2005 the Company had repurchased 43,900 shares for approximately $2.6
million.
Berry
Petroleum Company
Form
10-Q for the three and nine months ended September 30,
2005
Contractual
Obligations. The
Company's contractual obligations as of September 30, 2005 are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
More
than
|
|
Total
|
|
1
Year or less
|
|
Years
2 and 3
|
|
Years
4 and 5
|
|
5
years
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt (1)
|
$
100,000
|
|
$ - |
|
$ - |
|
$
100,000
|
|
$ - |
Abandonment
obligations
|
11,221
|
|
315
|
|
899
|
|
1,113
|
|
8,894
|
Other
obligations, including buildings
|
1,369
|
|
621
|
|
676
|
|
72
|
|
- |
Drilling
and rig obligation
|
15,830
|
|
6,230
|
|
4,250
|
|
5,350
|
|
- |
Firm
natural gas
|
|
|
|
|
|
|
|
|
|
transportation
contract
|
21,334
|
|
2,814
|
|
5,628
|
|
5,628
|
|
7,264
|
Total
|
$
149,754
|
|
$
9,980
|
|
$
11,453
|
|
$
112,163
|
|
$
16,158
|
|
|
|
|
|
|
|
|
|
|
(1)
Long-term debt does not include interest as the balance can be paid before
its
maturity date without significant penalty.
Hedging.
See
Note
2 to the unaudited condensed financial statements and “Item 3. Quantitative and
Qualitative Disclosure About Market Risk.”
Credit
Facility.
See Note
5 to the unaudited condensed financial statements. The new credit facility,
which has an initial borrowing base of $350 million, is an integral part of
the
Company’s financing structure that provides improved access to capital and the
flexibility to support growth plans.
Part
I. Financial Information
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
As
discussed in Note 2 to the unaudited condensed financial statements and in
“Item
2. Management's Discussion and Analysis of Financial Condition and Results
of
Operations,” to minimize the effect of a downturn in oil and gas prices and
protect the profitability of the Company and the economics of the Company’s
development plans, from time to time the Company enters into crude oil and
natural gas hedge contracts. The terms of contracts depend on various factors,
including Management’s view of future crude oil and natural gas prices and the
Company’s future financial commitments. This price hedging program is designed
to moderate the effects of a severe crude oil price downturn while allowing
Berry to participate in the upside. Management regularly monitors the crude
oil
and natural gas markets and the Company’s financial commitments to determine if,
when, and at what level some form of crude oil and/or natural gas hedging or
other price protection is appropriate in accordance with Board established
policy.
Currently,
the Company’s hedges are in the form of swaps and collars. However, the Company
may use a variety of hedge instruments in the future to hedge WTI or the index
gas price. The Company has crude oil sales contracts in place, which are priced
based on a correlation to WTI. Natural gas (for cogeneration and conventional
steaming operations) is purchased at the Socal border price and the Company
sells its produced gas in Colorado and Utah at the Colorado Interstate Gas
(CIG)
and Questar index prices, respectively.
The
following table summarizes the hedge position of the Company as of September
30,
2005:
Term
|
Average
Barrels Per Day
|
Average
Price
|
|
Term
|
Average
MMbtu Per Day
|
Average
Price
|
Crude
Oil Sales (NYMEX WTI)
|
|
|
|
|
Natural
Gas Sales (CIG)
|
|
|
Swaps
|
|
|
|
|
Swaps
|
|
|
4th
Quarter 2005
|
7,500
|
$
40.75
|
|
|
4th
Quarter 2005
|
5,000
|
$
6.76
|
1st
Quarter 2006
|
3,000
|
$
50.91
|
|
|
1st
Quarter 2006
|
3,000
|
$
7.49
|
2nd
Quarter 2006
|
3,000
|
$
50.17
|
|
|
|
|
|
3rd
Quarter 2006
|
3,000
|
$
49.56
|
|
|
|
|
|
Collars
|
|
Floor
/ Ceiling
Prices
|
Natural
Gas Purchases (SoCal Border)
|
1st
through 3rd Quarter 2006
|
7,000
|
$47.50
/ $70
|
|
|
Swaps
|
|
|
4th
Quarter 2006
|
10,000
|
$47.50
/ $70
|
|
|
4th
Quarter 2005
|
6,000
|
$
5.05
|
Full
year 2007
|
10,000
|
$47.50
/ $70
|
|
|
1st
Quarter 2006
|
5,000
|
$
4.85
|
Full
year 2008
|
10,000
|
$47.50
/ $70
|
|
|
2nd
Quarter 2006
|
5,000
|
$
4.85
|
Full
year 2009
|
10,000
|
$47.50
/ $70
|
|
|
|
|
|
The
collar strike prices will allow the Company to protect a significant portion
of
its future cash flow if oil prices decline below $47.50 per barrel while still
participating in any oil price increase up to $70 per barrel on these volumes.
These hedges improve the Company’s financial flexibility by locking in
significant revenues and cash flow upon a substantial decline in crude oil
prices. It also allows the Company to develop its long-lived assets and pursue
exploitation opportunities with greater confidence in the projected economic
outcomes.
The
Company’s California oil production is heavy crude that, for the remainder of
2005, is sold to a refiner under a favorable sales contract to Berry. As of
September 30, 2005, California heavy crude oil sold at a discount of
approximately $10.50 per barrel to WTI and at this time the Company is retaining
the risk of movement in this price differential on its production beginning
in
2006. While the Company has designated its hedges as cash flow hedges in
accordance with SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities,
it is
possible that a portion of the hedge related to the movement in the WTI to
California heavy oil price differential may be determined to be ineffective.
If
this occurs, the ineffective portion will directly impact net income rather
than
being reported as Other Comprehensive Income. While Management believes that
the
differential will narrow and move closer toward its historical level over time,
there are no assurances as to the movement in the differential. If the
differential were to change significantly, it is possible that the Company’s
hedges, when marked-to-market, could have a material impact on earnings in
any
given quarter and, thus, add increased volatility to the Company’s net income.
The marked-to-market values reflect the liquidation values of such hedges and
not necessarily the values of the hedges if they are held to maturity.
Irrespective of the unrealized gains reflected in Other Comprehensive Income,
the ultimate impact to net income over the life of the hedges will reflect
the
actual settlement values.
At
September 30, 2005, Accumulated Other Comprehensive Loss, net of income taxes,
consisted of $41.8 million of unrealized losses from the Company's crude oil
and
natural gas hedges. Deferred net losses recorded in Accumulated Other
Comprehensive Loss at September 30, 2005 are expected to be reclassified to
earnings through 2006 for the Company’s swaps and at current prices the
Company’s collars are not expected to impact earnings.
The
use
of hedging transactions may involve basis risk. The Company's oil hedges are
based on reported settlement prices on the NYMEX. The basis risk between NYMEX
and the Company's California heavy crude oil is mitigated by the Company's
crude
oil sales contracts. Pricing in the existing California agreement is based
upon
the higher of the average of 1) the local field posted prices plus a fixed
premium, or 2) WTI minus a fixed amount of approximately $6 per barrel. This
contract expires on December 31, 2005. The Company is in negotiations on a
multi-year contract for its California heavy crude oil. Pricing in the existing
crude oil sales agreement at Brundage Canyon is based upon average weekly WTI
minus a fixed differential of approximately $2 per barrel through September
30,
2006. After contract expiration, and absent any new contracts, prices will
be
negotiated based on the market. Upon the expiration of these crude oil
contracts, and absent any new contracts, the Company will be exposed to
fluctuations in the basis differentials between WTI and the posted price for
its
crude oil at its various producing locations until new contracts which lock
in
such differential can be obtained.
The
use
of hedging transactions also involves the risk that the counterparties will
be
unable to meet the financial terms of such transactions. With respect to the
Company’s hedging activities, the Company utilizes multiple counterparties on
its hedges and monitors each counterparty’s credit rating.
Based
on
NYMEX futures prices as of September 30, 2005, (WTI $64.27; HH $13.09) and
due
to the backwardated nature of the futures prices as of that date, the Company
would expect to make pre-tax future cash payments or to receive payments over
the remaining term of its crude oil and natural gas hedges in place as
follows:
|
Sep
30, 2005 NYMEX Futures
|
Impact
of percent change in futures prices on earnings
|
|
|
-20%
|
-10%
|
+10%
|
+20%
|
Average
WTI Price
|
$
64.27
|
$
51.41
|
$
57.84
|
$
70.69
|
$
77.12
|
Crude
oil loss (in millions)
|
(32)
|
(11)
|
(21)
|
(56)
|
(145)
|
Average
HH Price
|
13.09
|
10.47
|
11.78
|
14.40
|
15.71
|
Natural
gas gain (in millions)
|
7
|
5
|
6
|
7
|
8
|
|
|
|
|
|
|
Net
pre-tax future cash (payments) and receipts by year (in
millions):
|
|
|
2005
|
$
(16)
|
$
(7)
|
$
(11)
|
$
(21)
|
$
(25)
|
2006
|
(9)
|
1
|
(4)
|
(23)
|
(47)
|
2007
|
-
|
-
|
-
|
(5)
|
(29)
|
2008
|
-
|
-
|
-
|
-
|
(21)
|
2009
|
-
|
-
|
-
|
-
|
(15)
|
Total
|
$
(25)
|
$
(6)
|
$
(15)
|
$
(49)
|
$
(137)
|
|
|
|
|
|
|
The
Company’s exposure to changes in interest rates results primarily from long-term
debt. Total debt outstanding was $100 million and $33 million, at September
30,
2005 and 2004, respectively. Interest on amounts borrowed is charged at LIBOR
plus a margin or the prime rate, with margins on the various rate options based
on the ratio of credit outstanding to the borrowing base. Based on these
borrowings, a 1% change in interest rates would not have a material impact
on
the Company’s financial statements.
Berry
Petroleum Company
Form
10-Q for the three and nine months ended September 30,
2005
Part
I. Financial Information
Item
4. Controls and Procedures
As
of
September 30, 2005, the Company has carried out an evaluation under the
supervision of, and with the participation of, the Company’s Management,
including the Company’s Chief Executive Officer and Chief Financial Officer, of
the effectiveness of the design and operation of the Company’s disclosure
controls and procedures pursuant to Rule 13a-15 under the Securities and
Exchange Act of 1934, as amended.
Based
on
their evaluation as of September 30, 2005, the Chief Executive Officer and
Chief
Financial Officer of the Company have concluded that the Company’s disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under
the
Securities Exchange Act of 1934) are effective to ensure that the information
required to be disclosed by the Company in the reports that it files or submits
under the Securities Exchange Act of 1934 is recorded, processed, summarized
and
reported within the time periods specified in SEC rules and forms.
There
was
no change in the Company's internal control over financial reporting during
the
most recently completed calendar quarter that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
Commonly
Used Oil and Gas Terms
Bbl One
stock
tank barrel, or 42 U.S. gallons liquid volume, used herein in reference to
crude
oil or condensate.
BOE
Barrel
of
oil equivalent, measured as 6 thousand cubic feet of natural gas equal to 1
barrel of crude oil.
CBM Coal
bed
methane.
HH Henry
Hub. The pipeline interchange and the delivery point for the NYMEX active
natural gas futures market.
MMBtu Million
British thermal units. A British thermal unit represents the heat required
to
raise the temperature of a one-pound mass of water from 58.5 to 59.5 degrees
Fahrenheit.
Mcf One
thousand cubic feet.
MWh Megawatt
hour. One million watts generated per hour.
Net
When
used
in conjunction with wells and acreage indicates the sum of the fractional
working interests owned in gross acres or gross wells, as the case may
be.
NYMEX New
York
Mercantile Exchange.
WTI West
Texas Intermediate. The US benchmark crude oil, approximating 40 degree API
gravity.
/D
per
day.
Forward
Looking Statements
Safe
harbor under the “Private Securities Litigation Reform Act of 1995” Any
statements in this Form 10-Q that are not historical facts are forward-looking
statements that involve risks and uncertainties. Words such as
“strategy,”“anticipates,””possible,”“estimates,” "believes," "should," "plans,"
"may," "can," "will," "expects," "potential,” "target" and others indicate
forward-looking statements, but their absence does not mean that a statement
is
not forward-looking, if the discussion involves strategy, beliefs, plans,
targets, or intentions.
Forward-looking
statements are made based on Management’s current expectations and beliefs
concerning future developments and their potential effects upon Berry Petroleum
Company. Important factors which could affect actual results
are
discussed in Part II of the Company’s Form 10-K filed with the Securities and
Exchange Commission, 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."
Berry
Petroleum Company
Form
10-Q for the three and nine months ended September 30,
2005
Part
II. Other Information
|
Item
1.
Legal proceedings
None
Item
2.
Unregistered Sales of Equity Securities and Use of Proceeds
None
Item
3.
Defaults Upon Senior Securities
None
Item
4.
Submission of Matters to a Vote of Security Holders
None
Item
5.
Other Information
None
Item
6.
Exhibits
Exhibit
No.
Description
of Exhibit
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley
Act of 2002. *
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley
Act of 2002. *
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*
*
Filed
herewith
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereto
duly authorized.
BERRY
PETROLEUM COMPANY
/s/
Donald A. Dale
Donald
A.
Dale
Controller
(Principal
Accounting Officer)
Date: November
3, 2005
Berry
Petroleum Company
Form
10-Q for the three and nine months ended September 30,
2005
Exhibit
31.1
CERTIFICATION
OF CHIEF EXECUTIVE OFFICER
PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I,
Robert
F. Heinemann, President and Chief Executive Officer of Berry Petroleum Company
certify that:
1.
I have
reviewed this quarterly report on Form 10-Q of Berry Petroleum Company (the
“Company”);
2.
Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made,
in
light of the circumstances under which such statements were made, not misleading
with respect to the periods covered by this report;
3.
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the Company as of, and for,
the periods presented in this report;
4.
The
Company's other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act
Rules
13a-15(e)) and internal control over financial reporting as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f) for the Company and have:
a)
designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision to ensure that
material information relating to the Company is made known to us by others
within those entities, particularly during the period in which periodic reports
are being prepared;
b)
designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles.
c)
evaluated the effectiveness of the Company's disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by
this
report based on such evaluation; and
d)
disclosed in this report any change in the Company's internal control over
financial reporting that occurred during the Company's most recent fiscal
quarter that has materially affected, or is reasonably likely to affect, the
Company's internal control over financial reporting;
5.
The
Company's other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the Company's
auditors and to the audit committee of Company's board of directors:
a)
all
significant deficiencies in the design or operation of internal controls over
financial reporting which are reasonably likely to adversely affect the
Company's ability to record, process, summarize and report financial
information, and
b)
any
fraud, whether or not material, that involves management or other employees
who
have a significant role in the Company's internal controls over financial
reporting.
Date:
November 3,
2005
/s/ Robert
F.
Heinemann
Robert
F.
Heinemann
President
and Chief Executive Officer
Berry
Petroleum Company
Form
10-Q for the three and nine months ended September 30,
2005
Exhibit
31.2
CERTIFICATION
OF CHIEF FINANCIAL OFFICER
PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I,
Ralph
J. Goehring, Executive Vice President and Chief Financial Officer of Berry
Petroleum Company, certify that:
1.
I have
reviewed this quarterly report on Form 10-Q of Berry Petroleum Company (the
“Company”);
2.
Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made,
in
light of the circumstances under which such statements were made, not misleading
with respect to the periods covered by this report;
3.
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the Company as of, and for,
the periods presented in this report;
4.
The
Company's other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act
Rules
13a-15(e)) and internal control over financial reporting as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f) for the Company and have:
a)
designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision to ensure that
material information relating to the Company is made known to us by others
within those entities, particularly during the period in which periodic reports
are being prepared;
b)
designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles.
c)
evaluated the effectiveness of the Company's disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by
this
report based on such evaluation; and
d)
disclosed in this report any change in the Company's internal control over
financial reporting that occurred during the Company's most recent fiscal
quarter that has materially affected, or is reasonably likely to affect, the
Company's internal control over financial reporting;
5.
The
Company's other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the Company's
auditors and to the audit committee of Company's board of directors:
a)
all
significant deficiencies in the design or operation of internal controls over
financial reporting which are reasonably likely to adversely affect the
Company's ability to record, process, summarize and report financial
information, and
b)
any
fraud, whether or not material, that involves management or other employees
who
have a significant role in the Company's internal controls over financial
reporting.
Date:
November 3,
2005 /s/
Ralph J.
Goehring
Ralph
J.
Goehring
Executive
Vice President and
Chief
Financial Officer
Berry
Petroleum Company
Form
10-Q for the three and nine months ended September 30,
2005
Exhibit
32.1
Certification
of Chief Executive Officer Pursuant to Section 906
of
the Sarbanes-Oxley Act of 2002
In
connection with the Quarterly Report of Berry Petroleum Company (the “Company”)
on Form 10-Q for the period ending September 30, 2005 as filed with the
Securities and Exchange Commission on the date hereof (the
“Report”).
I,
Robert
F. Heinemann, President and Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1)
The
Report fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2)
The
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
/s/
Robert F. Heinemann
Robert
F.
Heinemann
President
and Chief Executive Officer
November
3, 2005
Berry
Petroleum Company
Form
10-Q for the three and nine months ended September 30,
2005
Exhibit
32.2
Certification
of Chief Financial Officer Pursuant to Section 906
of
the Sarbanes-Oxley Act of 2002
In
connection with the Quarterly Report of Berry Petroleum Company (the “Company”)
on Form 10-Q for the period ending September 30, 2005 as filed with the
Securities and Exchange Commission on the date hereof (the
“Report”).
I,
Ralph
J. Goehring, Executive Vice President and Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section
906
of the Sarbanes-Oxley Act of 2002, that:
(1)
The
Report fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2)
The
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
/s/
Ralph
J. Goehring
Ralph
J.
Goehring
Executive
Vice President and
Chief
Financial Officer
November
3, 2005