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 June 30, 1998
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 June 30, 1998 was 21,109,762 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
JUNE 30, 1998
INDEX
PART I. Financial Information Page No.
Report of PricewaterhouseCoopers LLP, Independent Accountants . . . . 3
Item 1. Financial Statements
Condensed Balance Sheets at
June 30, 1998 and December 31, 1997 . . . . . . . . . . . . . . . . 4
Condensed Income Statements
for the Three Month Periods
Ended June 30, 1998 and 1997 . . . . . . . . . . . . . . . . . . . 5
Condensed Income Statements
for the Six Month Periods
Ended June 30, 1998 and 1997 . . . . . . . . . . . . . . . . . . . 6
Condensed Statements of
Cash Flows for the Six Month Periods
Ended June 30, 1998 and 1997 . . . . . . . . . . . . . . . . . . 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 4. Submission of Matters to a Vote of Security Holders . . . . 12
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 13
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2
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 June 30, 1998, the condensed statements of income
for the three and six month periods ended June 30, 1998 and 1997, and the
condensed statements of cash flows for the six month periods ended June 30,
1998 and 1997. 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, 1997, 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 20, 1998, 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, 1997 is fairly stated, in all material respects,
in relation to the balance sheet from which it has been derived.
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
July 31, 1998
3
BERRY PETROLEUM COMPANY
Part I. Financial Information
Item 1. Financial Statements
Condensed Balance Sheets
(In Thousands, Except Share Information)
June 30, December 31,
1998 1997
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 7,301 $ 7,756
Short-term investments available for sale 714 718
Accounts receivable 6,606 8,990
Prepaid expenses and other 1,939 1,979
_________ _________
Total current assets 16,560 19,443
Oil and gas properties (successful efforts
basis), buildings and equipment, net 157,410 157,441
Other assets 737 840
_________ _________
$ 174,707 $ 177,724
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,413 $ 4,432
Accrued liabilities 2,104 2,459
Federal and state income taxes payable 2,151 1,053
_________ _________
Total current liabilities 7,668 7,944
Long-term debt 30,000 32,000
Deferred income taxes 26,043 25,909
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;
21,109,762 shares issued and outstanding at
June 30, 1998 (21,094,494 at December 31, 1997) 211 211
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 53,363 53,442
Retained earnings 57,413 58,229
_________ _________
Total shareholders' equity 110,996 111,871
_________ _________
$ 174,707 $ 177,724
========= =========
The accompanying notes are an integral part of these financial statements.
4
BERRY PETROLEUM COMPANY
Part I. Financial Information
Item 1. Financial Statements
Condensed Income Statements
Three Month Periods Ended June 30, 1998 and 1997
(In Thousands, Except Per Share Data)
(Unaudited)
1998 1997
Revenues:
Sales of oil and gas $ 9,602 $ 16,004
Interest and other income (expense), net (147) 236
________ ________
9,455 16,240
________ ________
Expenses:
Operating costs 4,038 4,938
Depreciation, depletion and amortization 2,520 2,353
General and administrative 941 1,347
Interest and other, net 480 581
________ ________
7,979 9,219
________ ________
Income before income taxes 1,476 7,021
Provision (benefit) for income taxes (38) 2,369
________ ________
Net income $ 1,514 $ 4,652
======== ========
Basic net income per share $ .07 $ .21
======== ========
Diluted net income per share $ .07 $ .21
======== ========
Cash dividends per share $ .10 $ .10
======== ========
Weighted average number of shares of
capital stock outstanding used to
calculate basic net income per share 22,009 21,973
Effect of dilutive securities:
Stock options 38 106
Warrants 3 7
________ ________
Weighted average number of shares of
capital stock used to calculate
diluted net income per share 22,050 22,086
======== =======
The accompanying notes are an integral part of these financial statements.
5
BERRY PETROLEUM COMPANY
Part I. Financial Information
Item 1. Financial Statements
Condensed Income Statements
Six Month Periods Ended June 30, 1998 and 1997
(In Thousands, Except Per Share Data)
(Unaudited)
1998 1997
Revenues:
Sales of oil and gas $ 21,088 $ 33,046
Interest and other income (expense), net (56) 777
21,032 33,823
________ ________
Expenses:
Operating costs 8,517 10,506
Depreciation, depletion and amortization 5,046 4,972
General and administrative 2,132 2,948
Interest and other, net 985 1,156
16,680 19,582
________ ________
Income before income taxes 4,352 14,241
Provision for income taxes 767 4,772
________ ________
Net income $ 3,585 $ 9,469
======== ========
Basic income per share $ .16 $ .43
======== ========
Diluted net income per share $ .16 $ .43
======== ========
Cash dividends per share $ .20 $ .20
======== ========
Weighted average number of shares of
capital stock outstanding used to
calculate basic net income per share 22,005 21,970
Effect of dilutive securities:
Stock options 70 93
Warrants 7 5
________ ________
Weighted average number of shares of
capital stock used to calculate
diluted net income per share 22,082 22,068
======== ========
The accompanying notes are an integral part of these financial statements.
BERRY PETROLEUM COMPANY
Part I. Financial Information
Item 1. Financial Statements
Condensed Statements of Cash Flows
Six Month Periods Ended June 30, 1998 and 1997
(In Thousands)
(Unaudited)
1998 1997
Cash flows from operating activities:
Net income $ 3,585 $ 9,469
Depreciation, depletion and amortization 5,046 4,972
Increase in deferred income tax liability 134 2,307
Other, net (119) (665)
________ ________
Net working capital provided by operating
activities 8,646 16,083
Decrease in accounts receivable,
prepaid expenses and other 2,423 1,594
Decrease in current liabilities (275) (2,538)
________ ________
Net cash provided by operating activities 10,794 15,139
Cash flows from investing activities:
Capital expenditures (4,902) (9,357)
Return of restricted cash - 2,570
Other, net 55 491
________ ________
Net cash used in investing activities (4,847) (6,296)
Cash flows from financing activities:
Dividends paid (4,402) (4,395)
Payment of short-term notes payable (2,000) (6,900)
Proceeds from issuance of long-term debt - 3,000
Payment of long-term debt - (3,000)
Other, net - 14
________ ________
Net cash used in financing activities (6,402) (11,281)
________ ________
Net decrease in cash and cash equivalents (455) (2,438)
Cash and cash equivalents at beginning of year 7,756 9,970
________ ________
Cash and cash equivalents at end of period $ 7,301 $ 7,532
======== ========
Supplemental disclosures of cash flow information:
Income taxes paid (refund) $ (230) $ 2,685
======== ========
Interest paid $ 968 $ 1,238
======== ========
The accompanying notes are an integral part of these financial statements.
7
BERRY PETROLEUM COMPANY
Part I. Financial Information
Item 1. Financial Statements
Notes to Condensed Financial Statements
June 30, 1998
(Unaudited)
1. All adjustments which are, in the opinion of Management, necessary for
a fair presentation of the Company's financial position at June 30, 1998
and December 31, 1997, results of operations and cash flows for the six
month periods ended June 30, 1998 and 1997 and results of operations for
the three month periods ended June 30, 1998 and 1997 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.
2. The accompanying unaudited financial statements have been prepared on
a basis consistent with the accounting principles and policies reflected in
the December 31, 1997 financial statements. The December 31, 1997 Form
10-K and the Form 10-Q for the period ended March 31, 1998 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.
3. In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The provisions of the
statement are effective for quarters beginning in the year 2000, but
Management does not believe its implementation will have a material impact
on the Company's financial statements.
8
BERRY PETROLEUM COMPANY
Part I. Financial Information
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
The Company had net income of $3.6 million for the six months ended
June 30, 1998, or $.16 per share, down 62% from $9.5 million, or $.43 per
share, for the first half of 1997. For the Company's second quarter, which
ended on June 30, 1998, the Company had net income of $1.5 million, or $.07
per share, down 68% from $4.7 million, or $.21 per share, in the second
quarter of 1997.
Three Months Ended Six Months Ended
June 30 March 31 June 30 June 30 June 30
1998 1998 1997 1998 1997
Net Production-BOE/day 11,973 12,639 12,253 12,304 11,976
Per BOE data:
Average sales price $ 8.81 $10.03 $14.26 $ 9.43 $15.18
Operating costs 3.05 3.26 3.83 3.15 4.21
Production taxes .66 .68 .60 .67 .64
Total operating costs 3.71 3.94 4.43 3.82 4.85
Depreciation & Depletion
(DD&A) 2.31 2.22 2.11 2.27 2.29
General and Administrative
expenses(G&A) .86 1.05 1.21 .96 1.36
Operating income was $3.1 million in the second quarter of 1998 and
$7.7 million for the six months ended June 30, 1998, down 64% and 56%,
respectively, from $8.7 million and $17.5 million for the second quarter
and the first six months of 1997.
The decreases in operating income in the second quarter of 1998 and
the first six months of 1998 from the same periods in 1997 were due to
lower oil prices. Oil prices for the second quarter of 1998 of $8.81 and
$9.43 in the first six months of 1998 were 38% lower than $14.26 for the
three months ended June 30, 1997 and $15.18 for the first six months of
1997. In addition, the prices received in the second quarter and the first
six months of 1998 include benefits of $.75/BOE and $.73/BOE, respectively,
from a crude oil hedge contract with a California refiner which expires at
the end of August 1998. Posted prices for the Company's 13 degree API crude
oil remained at historically low levels for virtually all of the second
quarter. They began the quarter at $8.69, reached a low of $6.56 on June
15, 1998, then rebounded slightly to close the quarter at $8.00.
Production of 11,973 BOE/day in the second quarter of 1998 was down from
12,253 BOE/day in the second quarter of 1997 and 12,639 BOE/day in the
first quarter of 1998. However, production for the six months ended June
30, 1998 was 12,304 BOE/day, 328 BOE/day higher than the equivalent period
in 1997.
9
Due to low oil prices, the Company implemented many cost reduction
measures in the first quarter of 1998. These included the reduction in
usage of conventional steam generators, the shut-in of marginal wells and
the reduction in the utilization of service rigs. These three factors
helped the Company achieve very low operating costs, but also resulted in
lower production for the second quarter. Approximately 350 BOPD in
marginal production was shut-in at June 30, 1998. Late in the second
quarter of 1998, the Company re-evaluated its steam program and adjusted to
smaller steam cycles to maximize the effectiveness of the steam available
for injection and has resumed production of steam from a portion of the
conventional sources which were idled in the first quarter. The number of
service rigs was also increased so that all the Company's economical
producers are kept on production and to accommodate smaller steam cycles.
These measures combined with our 1998 drilling and development program have
resulted in the elimination of the decline trend experienced this year and
the Company expects these measures to result in higher production rates for
the balance of the year.
Operating costs for the three months ended June 30, 1998 were $4.0
million, down 18% and 11%, respectively, from $4.9 million in the second
quarter of 1997 and $4.5 million in the first quarter of 1998. Due to its
cost control efforts, the Company has achieved record low operating costs
on a per BOE basis of $3.71 in the second quarter, down from $3.94 in the
first quarter of 1998 and $4.43 in the second quarter of 1997. The
reductions were due primarily to the decrease in the number of service rigs
utilized, a 10% reduction in the salaries of all operating personnel and
personnel reductions, a mandated 10% reduction in power rates and the shut-
in of marginal wells. The overall cost of steaming increased from both the
first quarter of 1998 and the second quarter of 1997 due primarily to
slightly less favorable pricing conditions related to the Company's two
cogeneration facilites.
DD&A/BOE was $2.31 in the three months ended June 30, 1998, up from
$2.11 in the second quarter of 1997 and $2.22 in the first quarter of 1998.
The increases were due primarily to capital additions related to the
development of the Company's properties.
The Company achieved another record low G&A on a per BOE basis during
the second quarter. G&A in the period was $.9 million, or $.86/BOE, down
31% from $1.3 million, or $1.21/BOE in the second quarter of 1997 and 25%
from $1.2 million, or $1.05/BOE, in the first quarter of 1998.
Comprehensive measures were taken in many areas to reduce costs and cope
with the low oil price environment which the Company currently faces.
Along with other measures, the Company benefited from actions taken in
March 1998 to reduce staff and implement a 10% salary reduction for all
employees, with certain members of management taking an even larger
percentage reduction.
The Company experienced an effective tax rate of 18% for the six-month
period ending June 30, 1998, down from 34% for the same period in 1997.
This substantial decrease was due to the Company's continuing significant
investment in qualifying enhanced oil recovery projects and applying the
respective credits to lower earnings. The Company expects its effective
tax rate to increase upon a recovery in oil prices.
10
To conserve the Company's working capital, management reduced the
Company's capital development program from $13.5 million to the present
level of $6.3 million. This revised program was close to completion as of
June 30, 1998, with 20 new development wells, including 3 horizontal wells
in the Company's core South Midway-Sunset field and 14 of the 20 budgeted
workovers completed. Management continues to evaluate its capital program
and may elect to reinstate portions of the original program if oil prices
improve in the second half of the year. The Company is continuing its
efforts to become year 2000 compliant and believes its original budget of
$.6 million is sufficient to achieve this goal.
Liquidity and Capital Resources
Working capital at June 30, 1998 was $8.9 million, down $1.5 million
from $10.4 million at March 31, 1998 and down $2.6 million from $11.5
million at December 31, 1997. Net cash provided by operations was $10.8
million for the six months ended June 30, 1998, down 28% from $15.1 million
in the six months ended June 30, 1997. Cash was used to pay dividends of
$4.4 million and for capital expenditures of $4.9 million in the 1998
period. The Company continues to maintain its borrowing base at $35
million under its existing credit facility.
Future Developments
The Company has been involved in a lawsuit related to a receivable due
on the sale of its Rincon properties in 1995. In the second quarter of
1998, a jury trial was concluded and a judgment was entered in favor of the
Company for the amount due plus legal fees, interest and other costs. The
total judgment was $1 million, of which only $.5 million had been recorded
as a receivable due the Company. The Company was paid $.1 million on the
total due in June 1998. The Company is taking the necessary steps to
collect the remaining amount due.
On July 31, 1998, the Company purchased oil and gas properties,
representing approximately 280 acres, from a large independent oil and gas
company for $3.1 million in cash. The properties are adjacent to the
Company's core South Midway-Sunset properties and presently produce
approximately 260 B/D of heavy crude oil from 14 wells with estimated
proved reserves of 1.3 million barrels. The acquisition included the
assignment of a contract calling for delivery of a minimum of 2,000 B/D of
steam to the Company.
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.
11
BERRY PETROLEUM COMPANY
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting, which was held at the Company's corporate
offices on May 15, 1998, ten incumbent directors were re-elected. Also,
the Company's Amended and Restated 1994 Stock Option Plan was approved as
was the Non-Employee Director Deferred Stock and Compensation Plan. The
results of voting as reported by the inspector of elections are noted
below:
1. There were 22,008,654 shares of the Company's capital stock issued,
outstanding and entitled to vote as of the record date, March 16, 1998.
2. There were present at the meeting, in person or by proxy, the holders of
19,636,831 shares, representing 89.22% of the total number of shares
outstanding and entitled to vote at the meeting, such percentage
representing a quorum.
PROPOSAL ONE: Election of Directors
NOMINEE FOR VOTES PERCENTAGE WITHHELD AUTHORITY
W. Berry 19,601,004 99.82% 35,827
R. Busch, III 19,600,504 99.82% 36,327
R. Downs 19,600,904 99.82% 35,927
J. Hoffman 19,601,104 99.82% 35,727
R. Martin 19,601,004 99.82% 35,827
G. Biller 19,600,904 99.82% 35,927
W. Bush 19,600,604 99.82% 36,227
J. Hagg 19,601,104 99.82% 35,727
T. Jamieson 19,601,104 99.82% 35,727
J. Middleton 19,595,704 99.79% 41,127
PROPOSAL TWO: To approve the Company's Amended and Restated 1994 Stock
Option Plan.
SHARES PERCENTAGE
FOR VOTE 13,142,254 66.93%
AGAINST VOTE 4,766,244 24.27%
ABSTAIN VOTE 390,621 1.99%
BROKER NON-VOTE 1,337,712 6.81%
19,636,831 100.00%
Percentages are based on the shares represented and voting at the
meeting in person or by proxy.
12
Item 4. Submission of Matters to a Vote of Security Holders (cont'd)
PROPOSAL THREE: To approve the Non-Employee Director Deferred Stock and
Compensation Plan.
SHARES PERCENTAGE
FOR VOTE 14,540,057 74.05%
AGAINST VOTE 2,687,043 13.68%
ABSTAIN VOTE 1,204,474 6.13%
BROKER NON-VOTE 1,205,257 6.14%
19,636,831 100.00%
Percentages are based on the shares represented and voting at the
meeting in person or by proxy.
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: August 3, 1998
13
EXHIBIT 15. ACCOUNTANTS AWARENESS LETTER
PricewaterhouseCoopers LLP
350 South Grand Avenue
Los Angeles, CA 90071-3405
telephone (213) 356-6000
facsimile (213) 356-6363
July 31, 1998
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 July 31, 1998 on our review of the
interim condensed financial statements of Berry Petroleum Company for the
three and six month periods ended June 30, 1998, 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. 33-61337). 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/ PricewaterhouseCoopers LLP
14
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