Berry Petroleum Announces Results for Third Quarter of 2012

Berry Petroleum Announces Results for Third Quarter of 2012

Acquires Additional Uinta Properties

DENVER--(BUSINESS WIRE)-- Berry Petroleum Company (NYS: BRY) reported net earnings of $18 million, or $0.33 per diluted share, for the third quarter of 2012. The reported earnings include a non-cash loss on derivatives of $20 million and dry hole expense of $1 million. Excluding these items, adjusted net earnings were $39 million, or $0.71 per diluted share. Oil and natural gas sales were $233 million during the quarter. Discretionary cash flow for the quarter totaled $125 million, and net cash provided by operating activities totaled $144 million.


Robert Heinemann, President and Chief Executive Officer, commented, "Berry delivered 5% sequential oil production growth in the third quarter with increases from all four of the Company's development assets. Our Diatomite asset grew production 18% from second quarter levels, followed by 10% growth in our New Steam Floods, 6% growth in the Permian, and 5% growth in the Uinta. The Company's natural gas production declined an expected 3%, resulting in a more favorable mix of 76% oil, 24% natural gas. Operating margins were approximately $47 per BOE, supported by sales of our California oil at an $8.50 average premium to WTI."

Total production for the third quarter of 2012 and second quarter of 2012 was as follows:

Third Quarter 2012

Second Quarter 2012

Oil (BOE/D)

27,493

76

%

26,296

74

%

Natural gas (BOE/D)

8,793

24

%

9,045

26

%

Total (BOE/D)

36,286

100

%

35,341

100

%

Mr. Heinemann continued, "Our Diatomite asset delivered another quarter of sequential production growth, averaging 3,500 BOE/D. Our 2012 completions continue to meet our expectations, and we remain pleased with our revised development approach. Based on these results, we have accelerated our 2013 development into this year, with a slight increase in capital spending. In 2013, we plan to accelerate the development of our drilling pads and infrastructure so that we will have more drilling flexibility as we fully develop the asset over the next several years.

"Third quarter production from the Company's New Steam Floods projects averaged 1,925 BOE/D, up 10% from the second quarter. We added a number of steam flood patterns at McKittrick to accelerate our heavy oil recovery. The Company plans to drill additional wells here in the fourth quarter of 2012. Our legacy South Midway properties averaged 12,720 BOE/D in the third quarter, in-line with second quarter production.

"The Company is pleased to announce the purchase of approximately 14,000 net acres with a 96% working interest in the Uinta for $40 million. This acreage is contiguous to our Brundage Canyon asset. The acquisition is expected to add approximately 200 identified drilling locations in addition to the 350 Ashley Forest locations gained from the EIS approval we received in the second quarter. Overall, Berry has added approximately 28,000 net acres to our Uinta position in 2012."

In the third quarter, production from the Company's Uinta properties averaged 5,940 BOE/D, 5% higher than the second quarter. The Company utilized a four-rig program and drilled 37 commingled Green River / Wasatch wells targeting higher oil potential areas. Across the basin, Berry's 2012 Uinta wells have delivered 30-day average IPs ranging between 70 and 190 BOE/D. The Company plans to drill an additional 26 commingled wells in the fourth quarter.

Michael Duginski, Executive Vice President and Chief Operating Officer, stated, "Production from our Permian properties was 6% higher during the third quarter at approximately 6,860 BOE/D. We drilled 20 wells with a six-rig program, and expect to drill 16 additional wells with four rigs during the fourth quarter of 2012. Appraisal of our prospective acreage outside the Wolfberry fairway is progressing on schedule and we expect to determine its development potential by year-end. While our Permian production continues to grow, we are still experiencing higher line pressure, periodic gas plant downtimes, and ethane rejection as a result of record activity levels in the Permian basin."

Mr. Heinemann continued, "We are pleased to see our four major oil projects continue to add production in the third quarter. However, ongoing gas processing constraints in the Permian and a temporary facility issue in the Diatomite have caused 2012 average production to be approximately 36,200 BOE/D. Capital spending will be about $675 million, which includes the accelerated development of the Diatomite."

2013 Outlook

Mr. Heinemann said, "While still in the process of finalizing 2013 development plans, Berry expects its capital investments will grow oil production by approximately 10 - 15% in 2013 with total company production growth targeted at 5 - 10%. We anticipate our 2013 development capital budget to range between $500 - 600 million. The distribution of capital will be about 50% in California and about 25% each in the Permian and Uinta. Including the acceleration into 2012, the Company plans to drill 175 Diatomite wells as part of its 2013 development plan. We will also continue to expand our Diatomite infrastructure. These investments, along with the ability to drill wells near areas with active steam, should give Berry more operational flexibility as it develops the asset going forward. We will continue to pursue small bolt-on acquisition opportunities in our three oil basins in 2013 to expand our footprint and grow our drilling inventory."

2012 Guidance

For 2012 the Company is issuing the following per BOE guidance:

Three Months

Nine Months

Anticipated range

Ended

Ended

2012

09/30/2012

09/30/2012

Operating costs—oil and natural gas production

$

17.00

-

19.50

21.20

19.35

Production taxes

2.75

-

3.50

2.91

3.10

DD&A—oil and natural gas production

15.00

-

18.00

17.64

16.40

General and administrative

4.25

-

5.50

5.32

5.52

Interest expense

5.50

-

6.25

6.16

6.34

Total

$

44.50

-

52.75

$

53.23

$

50.71

Teleconference Call

An earnings conference call will be held Thursday, November 1, 2012 at 12:00 p.m. Eastern Time (10:00 a.m. Mountain Time). Dial 877-881-2598 to participate, using passcode 43445818. International callers may dial 973-638-3235, using passcode 43445818. For a digital replay available until November 11, 2012, dial 855-859-2056, passcode 43445818. Listen live or via replay on the web at www.bry.com.

Non-GAAP Financial Measures

This press release includes discussion of "discretionary cash flow," "adjusted net earnings," and "operating margin per BOE," each of which are "non-GAAP financial measures" as defined in Regulation G of the Securities Exchange Act of 1934, as amended. Discretionary cash flow consists of cash provided by operating activities before changes in working capital items. The Company uses discretionary cash flow as a measure of liquidity and believes it provides useful information to investors because it assesses cash flow from operations for each period before changes in working capital, which fluctuates due to the timing of collections of receivables and the settlements of liabilities. Adjusted net earnings consists of net earnings before non-cash derivatives gains (losses), oil and natural gas property impairments and charges related to the extinguishment of debt. The Company believes that adjusted net earnings is useful for evaluating the Company's operational performance from oil and natural gas properties. Operating margin per BOE consists of oil and natural gas revenues less oil and natural gas operating expenses and production taxes divided by the total BOEs produced during the period. The Company uses operating margin per barrel as a measure of profitability and believes it provides useful information to investors because it relates the Company's oil and natural gas revenue and oil and natural gas operating expenses to its total units of production providing a gross margin per unit of production, allowing investors to evaluate how the Company's profitability varies on a per unit basis each period. These measures should not be considered in isolation or as a substitute for their most directly comparable GAAP measures. Other companies calculate non-GAAP measures differently and, therefore, the non-GAAP measures presented in this release may not be comparable to similarly titled measures used by other companies.

Explanation and Reconciliation of Non-GAAP Financial Measures

Discretionary Cash Flow ($ millions):

Three Months Ended

9/30/2012

6/30/2012

Net cash provided by operating activities

$

143.5

$

92.7

Net decrease (increase) current assets

6.5

(14.9

)

Net (increase) decrease in current liabilities including book overdraft

(24.7

)

6.2

Cash premiums for repurchases of notes

34.7

Discretionary cash flow

$

125.3

$

118.7

Adjusted Net Earnings ($ millions):

Three Months Ended

9/30/2012

Adjusted net earnings

$

39.3

After tax adjustments:

Non-cash derivative loss

(20.0

)

Legal Matter

0.1

Dry hole expense

(1.4

)

Gain on sale of rigs

0.1

Net earnings, as reported

$

18.1

Operating Margin Per BOE:

Three Months Ended

9/30/2012

6/30/2012

Average sales price including cash derivative settlements

$

71.45

$

70.40

Operating cost—oil and natural gas production

21.20

19.42

Production taxes

2.91

3.01

Operating margin

$

47.34

$

47.97

About Berry Petroleum Company

Berry Petroleum Company is a publicly traded independent oil and natural gas production and exploitation company with operations in California, Texas, Utah, and Colorado. 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.

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 "estimate," "expect," "would," "will," "target," "goal," "potential," and forms of those words and others indicate forward-looking statements. These statements include but are not limited to forward-looking statements about the expectations of plans, strategies, objectives and anticipated financial and operating results of the Company, including the Company's drilling program, production, 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 the Company's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K under the headings "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."

CONDENSED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(unaudited)

Three Months Ended

9/30/2012

6/30/2012

REVENUES

Oil and natural gas sales

$

232,916

$

221,781

Electricity sales

9,514

5,860

Natural gas marketing

1,939

1,580

Gain (loss) on sale of assets

170

(163

)

Interest and other income, net

286

645

244,825

229,703

EXPENSES

Operating costs—oil and natural gas production

70,778

62,461

Operating costs—electricity generation

4,727

4,256

Production taxes

9,700

9,690

Depreciation, depletion & amortization—oil and natural gas production

58,887

52,026

Depreciation, depletion & amortization—electricity generation

461

455

Natural gas marketing

1,753

1,387

General and administrative

17,767

17,965

Interest

20,572

20,789

Dry hole, abandonment, impairment and exploration

2,729

1,547

Extinguishment of debt

41,526

Realized and unrealized loss (gain) on derivatives, net

28,287

(113,082

)

Impairment of oil and natural gas properties

38

215,661

99,058

Earnings before income taxes

29,164

130,645

Income tax provision

11,038

49,629

Net earnings

$

18,126

$

81,016

Basic net earnings per share

$

0.33

$

1.47

Diluted net earnings per share

$

0.33

$

1.46

Dividends per share

$

0.08

$

0.08

CONDENSED BALANCE SHEETS

(In thousands)

(unaudited)

9/30/2012

12/31/2011

ASSETS

Current assets

141,221

167,634

Oil and natural gas properties, (successful efforts basis) buildings and equipment, net

3,010,126

2,531,393

Derivative instruments

11,122

7,027

Other assets

30,891

28,898

$

3,193,360

$

2,734,952

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities

253,358

231,173

Deferred income taxes

248,018

185,450

Long-term debt

1,612,542

1,380,192

Derivative instruments

1,358

15,505

Other long-term liabilities

101,798

81,903

Shareholders' equity

976,286

840,729

$

3,193,360

$

2,734,952

CONDENSED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

Three Months Ended

9/30/2012

6/30/2012

Cash flows from operating activities:

Net earnings

$

18,126

$

81,016

Depreciation, depletion and amortization

59,348

52,481