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 of 1934.
For the quarterly period ended September 30, 1997
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.)
28700 Hovey Hills Road, P.O. Bin X, Taft, California 93268
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (805) 769-8811
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 ( )
The number of shares of each of the registrant's classes of capital
stock outstanding as of September 30, 1997 was 21,081,199 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.
<PAGE> 2
BERRY PETROLEUM COMPANY
SEPTEMBER 30, 1997
INDEX
PART I. Financial Information Page No.
Report of Independent Accountants . . . . . . . . . . . . . . . . . . .3
Item 1. Financial Statements
Condensed Balance Sheets at
September 30, 1997 and December 31, 1996 . . . . . . . . . . . . . . 4
Condensed Statements of
Operations for the Three Month Periods
Ended September 30, 1997 and 1996 . . . . . . . . . . . . . . . . . 5
Condensed Statements of
Operations for the Nine Month Periods
Ended September 30, 1997 and 1996 . . . . . . . . . . . . . . . . . 6
Condensed Statements of
Cash Flows for the Nine Month Periods
Ended September 30, 1997 and 1996 . . . . . . . . . . . . . . . . . 7
Notes to Condensed Financial Statements . . . . . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations . . . . . . . . . 9
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 11
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
2
<PAGE> 3
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Berry Petroleum Company
We have reviewed the accompanying condensed balance sheet of Berry Petroleum
Company as of September 30, 1997, the condensed statements of income for the
three and nine month periods ended September 30, 1997 and 1996, and the
condensed statements of cash flows for the nine month periods ended September
30, 1997 and 1996. These interim financial statements are the responsibility
of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective
of which is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed financial statements for them to be
in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet as of December 31, 1996, and the related
statements of income, retained earnings and cash flows for the year then
ended (not presented herein); and in our report dated February 28, 1997, we
expressed an unqualified opinion on those financial statements. In our
opinion, the information set forth in the accompanying condensed balance
sheet as of December 31, 1996 is fairly stated, in all material respects, in
relation to the balance sheet from which it has been derived.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
October 31, 1997
3
<PAGE> 4
BERRY PETROLEUM COMPANY
Part I. Financial Information
Item I. Financial Statements
Condensed Balance Sheets
(In Thousands Except Share Information)
September 30, December 31,
1997 1996
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 7,901 $ 9,970
Cash-restricted - 2,570
Short-term investments - available for sale 705 704
Accounts receivable 9,139 11,701
Prepaid expenses and other 2,971 1,307
_________ _________
Total current assets 20,716 26,252
Oil and gas properties (successful efforts
basis), buildings and equipment, net 157,146 149,510
Other assets 831 641
_________ _________
$ 178,693 $ 176,403
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,758 $ 5,154
Accrued liabilities 1,829 5,300
Federal and state income taxes payable 2,590 1,048
Notes payable - 6,900
__________ _________
Total current liabilities 11,177 18,402
Long term debt 34,000 36,000
Deferred income taxes 24,388 20,992
Shareholders' equity:
Preferred stock, $.01 par value; 2,000,000
shares authorized; no shares outstanding - -
Capital stock, $.01 par value:
Class A Common Stock, 50,000,000 shares
authorized; 21,081,199 shares issued and
outstanding at September 30, 1997
(21,046,885 at December 31, 1996) 211 210
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 53,135 53,029
Retained earnings 55,773 47,761
_________ _________
Total shareholders' equity 109,128 101,009
_________ _________
$ 178,693 $ 176,403
========= =========
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
BERRY PETROLEUM COMPANY
Part I. Financial Information
Item I. Financial Statements
Condensed Statements of Operations
Three Month Periods Ended September 30, 1997 and 1996
(In Thousands, Except Per Share Data)
(Unaudited)
1997 1996
Revenues:
Sales of oil and gas $ 16,775 $ 13,433
Gain on disposition of assets 768 16
Interest and other income, net 115 591
________ ________
17,658 14,040
________ ________
Expenses:
Operating costs 5,599 4,671
Depreciation, depletion and amortization 2,578 1,809
General and administrative 1,262 1,229
Interest and other 607 -
________ ________
10,046 7,709
________ ________
Income before income taxes 7,612 6,331
Provision for income taxes 2,476 2,319
________ ________
Net income $ 5,136 $ 4,012
======== ========
Net income per share $ .23 $ .18
======== ========
Weighted average number of
shares of capital stock used
to calculate earnings per share 21,978 21,942
======== ========
Cash dividends per share $ .10 $ .10
======== ========
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
BERRY PETROLEUM COMPANY
Part I. Financial Information
Item 1. Financial Statements
Condensed Statements of Operations
Nine Month Periods Ended September 30, 1997 and 1996
(In Thousands, Except Per Share Data)
(Unaudited)
1997 1996
Revenues:
Sales of oil and gas $ 49,788 $ 38,797
Gain (loss) on disposition of assets 1,198 (25)
Interest and other income, net 493 1,597
________ ________
51,479 40,369
________ ________
Expenses:
Operating costs 16,105 12,233
Depreciation, depletion and amortization 7,549 5,124
General and administrative 4,209 3,622
Interest and other 1,763 75
________ ________
29,626 21,054
________ ________
Income before income taxes 21,853 19,315
Provision for income taxes 7,248 7,044
________ ________
Net income $ 14,605 $ 12,271
======== ========
Net income per share $ .66 $ .56
======== ========
Weighted average number of
shares of capital stock used
to calculate earnings per share 21,973 21,942
======== ========
Cash dividends per share $ .30 $ .30
======== ========
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
BERRY PETROLEUM COMPANY
Part I. Financial Information
Item 1. Financial Statements
Condensed Statements of Cash Flows
Nine Month Periods Ended September 30, 1997 and 1996
(In Thousands)
(Unaudited)
1997 1996
Cash flows from operating activities:
Net income $ 14,605 $ 12,271
Depreciation, depletion and amortization 7,549 5,124
Increase in deferred income tax liability 3,396 2,517
(Gain) loss on disposition of assets (1,198) 25
Other, net (294) 124
________ ________
Net working capital provided by operating
activities 24,058 20,061
Decrease (increase) in accounts receivable,
prepaid expenses and other 898 (909)
Decrease in current liabilities (325) (1,619)
________ ________
Net cash provided by operating activities 24,631 17,533
Cash flows from investing activities:
Capital expenditures (15,772) (7,420)
Proceeds from sale of assets 1,982 11
Maturities of short-term investments - 11,690
Return of restricted cash 2,570 -
Other, net (52) -
________ ________
Net cash provided by (used in)
investing activities (11,272) 4,281
Cash flows from financing activities:
Dividends paid (6,592) (6,582)
Payment of short-term notes payable (6,900) -
Proceeds from issuance of long-term debt 3,000 -
Payment of long-term debt (5,000) -
Other, net 64 148
________ ________
Net cash used in financing activities (15,428) (6,434)
________ ________
Net increase (decrease) in cash and cash
equivalents (2,069) 15,380
Cash and cash equivalents, beginning of year 9,970 18,759
________ ________
Cash and cash equivalents, end of period $ 7,901 $ 34,139
======== ========
Supplemental disclosures of cash flow:
Income taxes paid $ 3,510 $ 5,059
======== ========
Interest paid $ 1,763 $ -
======== ========
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 8
BERRY PETROLEUM COMPANY
Part I. Financial Information
Item 1. Financial Statements
Notes to Condensed Financial Statements
September 30, 1997
(Unaudited)
1. All adjustments which are, in the opinion of Management, necessary for
a fair presentation of the Company's financial position at September 30, 1997
and December 31, 1996, results of operations and cash flows for the nine month
periods ended September 30, 1997 and 1996 and results of operations for the
three month periods ended September 30, 1997 and 1996 have been included. All
such adjustments are of a recurring nature. The results of operations and cash
flows are not necessarily indicative of the results for a full year.
2. The accompanying unaudited financial statements have been prepared on a
basis consistent with the accounting principles and policies reflected in the
December 31, 1996 financial statements. The December 31, 1996 Form 10-K and
the Form 10-Q's for the periods ended June 30 and March 31, 1997 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 generally accepted accounting principles.
8
<PAGE> 9
BERRY PETROLEUM COMPANY
Part I. Financial Information
Item 2. Management?s Discussion and Analysis of
Financial Condition and Results of Operations
Forward-Looking Statements
"Safe harbor under the Private Securities Litigation Reform Act of 1995":
With the exception of historical information, the matters discussed in this
Form 10-Q are forward-looking statements that involve risks and uncertainties.
Although the Company believes that its expectations are based on reasonable
assumptions, it can give no assurance that its goals will be achieved.
Important factors that could cause actual results to differ materially from
those in the forward-looking statements herein include the timing and extent
of changes in commodity prices for oil and gas, environmental risks, drilling
and operating risks, uncertainties about the estimates of reserves and
government regulation.
Results of Operations
The Company had net income of $5.1 million for the three month period
ended September 30, 1997, or $.23 per share, up 28% from net income of $4.0
million, or $.18 per share, in the third quarter of 1996. Net income in the
third quarter of 1997 also increased $0.4 million, or 9%, from $4.7 million in
the second quarter of 1997. For the nine months ended September 30, 1997, the
Company had net income of $14.6 million, or $.66 per share, up 19% from $12.3
million, or $.56 per share, for the nine months ended September 30, 1996.
Three Months Ended Nine Months Ended
Sept 30, Jun 30, Sept 30, Sept 30, Sept 30,
1997 1997 1996 1997 1996
Net production - BOE/day 12,854 12,253 9,782 12,272 9,454
Average sales price/BOE $14.15 $14.26 $14.74 $14.82 $14.87
Operating costs/BOE * $ 4.73 $ 4.43 $ 5.19 $ 4.81 $ 4.72
Depreciation/Depletion
DD&A/BOE) $ 2.18 $ 2.11 $ 2.01 $ 2.25 $ 1.98
General & administrative
expenses (G&A/BOE) $ 1.07 $ 1.21 $ 1.37 $ 1.26 $ 1.40
* Includes production taxes. On a per barrel of oil equivalent (BOE) basis,
production taxes were $.69 in the third quarter of 1997 and $.65 for the nine
months ended September 30, 1997 compared to $.46/BOE and $.47/BOE for the third
quarter and first nine months of 1996, respectively.
Operating income from producing operations was up 21% to $8.6 million in
the third quarter of 1997 from $7.1 million in the same period of 1996 and for
the nine months ended September 30, 1997, it was up 22% to $26.1 million from
$21.4 million for the first nine months of 1996.
Although oil prices were weaker during the third quarter and the first
nine months of 1997, operating income improved from the same three and nine
month periods in 1996 due to higher oil production volumes. Production for
the third quarter of 1997 of 12,854 BOE/day was 31% higher than the third
quarter of 1996 (and 5% higher than the second quarter of 1997), and
production for the nine months ended September 30, 1997 of 12,272 BOE/day
was 30% higher than the first nine months of 1996. The increases were due
to production from properties acquired in the fourth quarter of 1996,
development drilling and intensified steaming operations on the Formax
properties and further development of Berry's other Midway-Sunset properties.
Production from the Formax properties, acquired in the fourth quarter of
1996, has continued to increase significantly and, as of this filing, is
approximately 2,400 BOE/day. Crude oil postings rebounded in the third
quarter. The average posting for the Company's 13 degree API gravity crude
oil began the quarter at $13.38, but had increased to $15.75 by the end of the
quarter. The average sales price per BOE was $14.15 in the third quarter of
1997, down approximately 1% and 4%, respectively, from the second quarter of
1997 and the third quarter of 1996.
9
<PAGE> 10
As of September 30, 1997, 79 development wells have been completed on the
Midway-Sunset properties, with 8 wells not yet on production. Approximately 11
development wells remain to be drilled in the fourth quarter which will
conclude the most active development year in the Company's history. With the
drilling of the remainder of the wells in this year's budget, the Company
expects to increase production on the Company's producing properties to at
least 13,500 BOE/day by year-end. Additionally, the Company planned to
perform remedial work on 93 shut-in or low producing wells during 1997. As of
September 30, 1997, 51 remedial operations have been performed with varying
results. The Company has postponed further remedial operations until the
analysis of these results has been completed. However, based upon the results
of the development and remedial operations of 1997, it is anticipated that
1998 will be another year of active development on the Company's core holdings.
Operating costs in the third quarter were $4.73/BOE, down 9% from $5.19 in
the third quarter of 1996, but 7% higher than $4.43 for the second quarter of
1997. Operating costs decreased from the third quarter of 1996 due primarily to
higher costs experienced in the third quarter of 1996 related to work performed
on four wells in the Montalvo field. Operating costs/BOE for the 1997 nine-
month period were $4.81, up slightly from $4.72 incurred in the first nine
months of 1996. Higher steam costs and higher production taxes in 1997 are
hindering the Company's ability to further reduce operating costs. Steam costs
have risen primarily for two reasons. First, as part of the 1997 development
program, the Company increased its steam injection volume 47% in the first nine
months of 1997 compared to the first nine months of 1996. Second, the cost of
natural gas, which is used as fuel for steam generation, has risen 56% in 1997
compared to 1996. Although the Company has experienced significantly higher
production volumes as a result of this increased activity, further benefit is
expected as certain "cold" areas of the reservoir respond to the increased heat
injection. Production taxes/BOE have increased $.18, or 38%, in the first nine
months of 1997 compared to the 1996 period due primarily to the 1996
acquisitions and above-market pricing assumptions used by Kern County to
calculate 1997/1998 property taxes.
DD&A/BOE for the third quarter and first nine months of 1997 was $2.18 and
$2.25, respectively. This continues the recent trend of slightly higher DD&A
due to the acquisition of the Formax and Tannehill properties acquired in the
fourth quarter of 1996.
G&A/BOE continued the recent trend by declining to $1.07 in the third
quarter and $1.26 for the first nine months of 1997 from $1.37 in the third
quarter of 1996 and $1.40 in the first nine months of 1996. This very positive
result was due to higher production volumes and continued cost controls by the
Company which brings G&A/BOE costs in line with Management's expectations.
The Company concluded the sale of its non-core Poso Creek (CA), Kern Front
(CA) and Frog Lake (LA) properties in the third quarter of 1997 for a small
after-tax gain. The properties had high operating costs and low reserve growth
potential and did not fit strategically into the long-term growth plans of the
Company.
Liquidity and Capital Resources
Working capital at September 30, 1997, was $9.5 million, down from $42.7
million at September 30, 1996 and $10.7 million at June 30, 1997. Net cash
provided by operations was $24.6 million for the first nine months of 1997, up
$7.1 million, or 41%, from $17.5 million in the same period in 1996. This
increase is the result of higher production and effective cost control in both
the operating and general and administrative expense areas.
Cash has been used in 1997 to retire $6.9 million in notes payable, $2
million in long-term debt, fund capital expenditures of $15.8 million and pay
dividends of $6.6 million. Proceeds from the sale of assets, net of income
taxes, have generated $1.5 million in cash flow for all of 1997. The Company
is reviewing and prioritizing its development opportunities for 1998. It is
anticipated that the 1998 capital expenditure program will be less than the
$16.4 million budget for 1997 and will be entirely funded by internally
generated funds.
10
<PAGE> 11
Item 6. Exhibits and Reports on Form 8-K
Exhibit 15 - Accountants' Awareness Letter
SIGNATURES
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 thereunto duly authorized.
BERRY PETROLEUM COMPANY
/s/ Jerry V. Hoffman
Jerry V. Hoffman
Chairman, President and
Chief Executive Officer
/s/ Ralph J. Goehring
Ralph J. Goehring
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ Donald A. Dale
Donald A. Dale
Controller
(Principal Accounting Officer)
Date: November 3, 1997
11
<PAGE> 12
EXHIBIT 15. ACCOUNTANTS AWARENESS LETTER
COOPERS 350 South Grand Avenue telephone (213) 356-6000
& LYBRAND L.L.P. Los Angeles, CA 90071-3405 facsimile (213) 356-6363
October 31, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington D.C. 20549
Re: Berry Petroleum Company
Commission File No. 1-9735
We are aware that our report dated October 31, 1997 on our review of the
interim condensed financial statements of Berry Petroleum Company for the three
and nine-month periods ended September 30, 1997, and included in the Company's
quarterly report on Form 10-Q for the quarter then ended, is incorporated by
reference in the registration statements on Form S-8 (File No. 33-23326 and 33-
61337). Pursuant to Rule 436(c) under the Securities Act of 1933, this report
should not be considered a part of the registration statements prepared or
certified by us within the meaning of Sections 7 and 11 of that Act.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P., a registered limited liability partnership, is a
member firm of Coopers & Lybrand (International)
12
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