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 March 31, 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 March 31, 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
MARCH 31, 1998
INDEX
PART I. Financial Information Page No.
Report of Coopers & Lybrand L.L.P., Independent Accountants . . . . . 3
Item 1. Financial Statements
Condensed Balance Sheets at
March 31, 1998 and December 31, 1997 . . . . . . . . . . . . . . . 4
Condensed Income Statements for the Three Month Periods
Ended March 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . 5
Condensed Statements of
Cash Flows for the Three Month Periods
Ended March 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . 6
Notes to Condensed Financial Statements . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations . . . . . . . . . 8
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 March 31, 1998, and the condensed statements of
income and cash flows for the three-month periods ended March 31, 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 conducted 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.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
April 30, 1998
3
<PAGE> 4
BERRY PETROLEUM COMPANY
Part I. Financial Information
Item 1. Financial Statements
Condensed Balance Sheets
(In Thousands, Except Share Information)
March 31, December 31,
1998 1997
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 9,244 $ 7,756
Short-term investments available for sale 725 718
Accounts receivable 7,009 8,990
Prepaid expenses and other 2,371 1,979
__________ __________
Total current assets 19,349 19,443
Oil and gas properties (successful efforts
basis), buildings and equipment, net 156,529 157,441
Other assets 775 840
__________ __________
$ 176,653 $ 177,724
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,600 $ 4,432
Accrued liabilities 2,868 2,459
Federal and state income taxes payable 2,449 1,053
__________ __________
Total current liabilities 8,917 7,944
Long-term debt 30,000 32,000
Deferred income taxes 26,053 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
March 31, 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 53,422
Retained earnings 58,100 58,229
__________ _________
Total shareholders' equity 111,683 111,871
__________ _________
$ 176,653 $ 177,724
========== ==========
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
BERRY PETROLEUM COMPANY
Part I. Financial Information
Item 1. Financial Statements
Condensed Income Statements
Three Month Periods Ended March 31, 1998 and 1997
(In Thousands, Except Per Share Data)
(Unaudited)
1998 1997
Revenues:
Sales of oil and gas $ 11,485 $ 17,041
Interest and other income, net 91 540
__________ _________
11,576 17,581
__________ _________
Expenses:
Operating costs 4,479 5,568
Depreciation, depletion and amortization 2,526 2,618
General and administrative 1,191 1,601
Interest 504 575
__________ _________
8,700 10,362
__________ _________
Income before income taxes 2,876 7,219
Provision for income taxes 805 2,403
__________ _________
Net income $ 2,071 $ 4,816
========== =========
Basic net income per share $ .09 $ .22
========== =========
Diluted net income per share $ .09 $ .22
========== =========
Cash dividends per share $ .10 $ .10
========== =========
Weighted average number of shares
of capital stock outstanding (used to
calculate basic net income per share) 22,002 21,968
Effect of dilutive securities:
Stock options 82 96
Warrants 10 4
__________ _________
Weighted average number of shares of
capital stock used to calculate
diluted net income per share 22,094 22,068
========== =========
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 Cash Flows
Three Month Periods Ended March 31, 1998 and 1997
(In Thousands)
(Unaudited)
1998 1997
Cash flows from operating activities:
Net income $ 2,071 $ 4,816
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion and amortization 2,526 2,618
Other, net 39 364
_________ _________
Net working capital provided by operating
activities 4,636 7,798
Decrease in accounts receivable, prepaid
expenses and other 1,589 2,636
Increase (decrease) in current liabilities 973 (863)
_________ _________
Net cash provided by operating activities 7,198 9,571
Cash flows from investing activities:
Capital expenditures (1,538) (3,557)
Return of restricted cash - 2,570
Proceeds from sale of assets 13 501
Other, net 16 (50)
_________ _________
Net cash used in investing activities (1,509) (536)
Cash flows from financing activities:
Dividends paid (2,201) (2,197)
Payment of long-term debt (2,000) -
Payment of short-term note payable - (6,900)
Proceeds from issuance of long-term debt - 3,000
Other - 64
_________ _________
Net cash used in financing activities (4,201) (6,033)
_________ _________
Net increase in cash and cash equivalents 1,488 3,002
Cash and cash equivalents at beginning of year 7,756 9,970
_________ _________
Cash and cash equivalents at end of period $ 9,244 $ 12,972
========= =========
Supplemental disclosures of cash flow information:
Income taxes paid $ - $ -
========= =========
Interest paid $ 491 $ 611
========= =========
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
Notes to Condensed Financial Statements
March 31, 1998
(Unaudited)
1. All adjustments which are, in the opinion of management, necessary for
a fair presentation of the Company's financial position at March 31, 1998
and December 31, 1997 and results of operations and cash flows for the
three month periods ended March 31, 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
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. The Company adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income", in the first quarter of 1998 which
had no impact on the Company's financial statements.
4. In April 1998, the Company was informed that the U.S. Court of Appeals
(Ninth Circuit) upheld the decisions of the U.S. Tax Court which disallowed
certain tax deductions claimed by the Company in its 1987 through 1989
federal tax returns. This decision will have no impact on the Company's
financial statements, as all taxes related thereto have previously been
paid.
7
<PAGE> 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 earned net income of $2.1 million, or $.09 per share, on
revenues of $11.6 million for the first quarter of 1998, down 56% from net
income of $4.8 million, or $.22 per share, on revenues of $17.6 million in
the first quarter of 1997. Net income for the 1998 quarter was also down
from the fourth quarter 1997 net income of $4.7 million, or $.22 per share,
on revenues of $17.3 million.
The following table presents certain comparative operating data for
the three month periods:
Three Months Ended
Mar 31, Mar 31, Dec 31,
1998 1997 1997
Net Production - BOE per day 12,639 11,697 13,036
Per BOE:
Average sales price $10.03 $16.16 $14.41
Operating costs* $ 3.26 $ 4.61 $ 4.52
Production taxes $ .68 $ .68 $ .74
Total operating costs $ 3.94 $ 5.29 $ 5.26
Depreciation & depletion (DD&A) $ 2.22 $ 2.49 $ 2.16
General and administrative (G&A) expenses $ 1.05 $ 1.52 $ 1.42
* excludes production taxes
Operating income was $4.6 million in the first quarter of 1998, down
from $8.8 million in the first quarter of 1997 and $8.5 million in the
fourth quarter of 1997.
The decrease in operating income in the first quarter of 1998 compared
to both the first and fourth quarters of 1997 was primarily due to lower
oil prices. Oil prices in the first quarter of 1998 were significantly
lower, averaging $9.98 per barrel, down 38% and 31% from $16.15 and $14.38
in the first quarter and fourth quarters of 1997, respectively. The
Company's oil price received in the 1998 period included a $.71/bbl benefit
from a crude oil hedge contract with an independent California refiner
which expires in August 1998. Posted oil prices began 1998 at $12.19/bbl,
declined to a low of $6.50 on March 16, 1998, and rebounded slightly to
$8.69 at the end of the quarter. The price experienced on March 16th
represented the lowest inflation-adjusted price for the Company's 13 degree
API gravity crude for many decades. Production of 12,639 BOE/day in the
first quarter of 1998 was 942 BOE/day, or 8%, higher than 11,697 BOE/day
in the first quarter of 1997, but 397 BOE/day, or 3%, lower than
13,036 BOE/day in the fourth quarter of 1997.
8
<PAGE> 9
Due to the extremely low pricing conditions faced by the Company in
the first quarter, decisive steps were taken to reduce operating costs,
including the suspension of the operation of several conventional steam
generators. In addition, many low volume producing wells were shut-in and
service rig utilization was reduced. These three factors were largely
responsible for the decline in production from the fourth quarter of 1997.
The Company expects that these activities, coupled with the deferral of
significant capital expenditures, will negatively impact the Company's
production levels in the immediate term. However, upon the return of more
reasonable oil price levels, the Company expects to proceed with its
development program and increase its steaming activities to increase
production.
Operating costs in the 1998 quarter were $4.5 million, or $3.94/BOE,
down 20% from $5.6 million, or $5.29/BOE, in the first quarter of 1997 and
29% from $6.3 million, or $5.26/BOE, in the fourth quarter of 1997. To
reduce steam costs, all conventionally generated steam was curtailed on the
Company's South Midway-Sunset leases and the Company's cyclic steam
operations were maintained utilizing cogeneration generated steam. This
measure, together with favorable operating conditions in the first quarter
of 1998 for the Company's two cogeneration facilities, resulted in much
lower steam costs than in both the first and fourth quarters of 1997.
Other factors which contributed to lower operating costs were a reduction
in service rig utilization, a 10% reduction in power rates (mandated from
deregulation of the electricity market), the shut-in of marginal wells, a
10% reduction in all operating employee salaries and the suspension of
duct-firing at the Company's 38 megawatt cogeneration plant.
DD&A expense per BOE was $2.22 in the first quarter of 1998, down
$.27, or 11%, from $2.49 in the first quarter of 1997, but up $.06, or 3%,
from $2.16 in the fourth quarter of 1997.
G&A expenses were $1.2 million, or $1.05/BOE in the first quarter,
down 25% and 29%, respectively, from $1.6 million, or $1.52/BOE, in the
first quarter of 1997 and $1.7 million, or $1.42/BOE, in the fourth quarter
of 1997. The primary reasons for the decline were fewer charges for the
exercise of stock options, lower health care costs and cost reductions
implemented in 1998. The Company expects G&A expenses to decline in the
second quarter as the Company benefits from actions taken in mid-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 28% for the period
ending March 31, 1998 compared to 33% for the same period last year. The
decrease in the effective tax rate is due to significant enhanced oil
recovery tax credits applied to lower earnings.
In addition to the steps taken to reduce operating costs and G&A
expenses in response to the low oil prices, management has also reduced its
1998 capital development program from $13.5 million to a present level of
approximately $6.0 million. A total of 17 new development wells, including
three horizontal wells in the core South Midway-Sunset field, and 12
workovers are included in this revised budget. Management is continually
evaluating its capital development program and can quickly increase its
drilling activities upon sustained improvement in oil price levels.
9
<PAGE> 10
Liquidity and Capital Resources
Working capital at March 31, 1998 was $10.4 million, down $3.0 million
from $13.4 million at March 31, 1997 and $0.9 million from $11.5 million at
December 31, 1997. Net cash provided by operations for the first quarter
of 1998 was $7.2 million, down $2.4 million and $1.7 million from the first
and fourth quarters of 1997, respectively. Cash was used for capital
expenditures of $1.5 million, to pay dividends of $2.2 million and to
retire $2.0 million in long-term debt. The Company has maintained its
borrowing base of $35 million under its existing credit facility.
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.
10
<PAGE> 11
BERRY PETROLEUM COMPANY
Part II. Other Information
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: May 4, 1998
11
<PAGE> 12
EXHIBIT 15. ACCOUNTANTS' AWARENESS LETTER
April 30, 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 April 30, 1998 on our review of the
interim condensed financial statements of Berry Petroleum Company for the
three month period ended March 31, 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 statement 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 statement prepared or
certified by us within the meaning of Sections 7 and 11 of that Act.
/s/ Coopers & Lybrand L.L.P.
12
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