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, 1999
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 (661) 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, 1999 was 21,112,354 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, 1999
INDEX
PART I. Financial Information Page No.
Item 1. Financial Statements
Condensed Balance Sheets at
September 30, 1999 and December 31, 1998 . . . . . . . . . . . . . 3
Condensed Statements of
Operations for the Three Month Periods
Ended September 30, 1999 and 1998 . . . . . . . . . . . . . . . . 4
Condensed Statements of
Operations for the Nine Month Periods
Ended September 30, 1999 and 1998 . . . . . . . . . . . . . . . . 5
Condensed Statements of
Cash Flows for the Nine Month Periods
Ended September 30, 1999 and 1998 . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . 12
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2
<PAGE> 3
BERRY PETROLEUM COMPANY
Part I. Financial Information
Item 1. Financial Statements
Condensed Balance Sheets
(In Thousands, Except Share Information)
September 30, December 31,
1999 1998
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 3,704 $ 7,058
Short-term investments available for sale 595 710
Accounts receivable 13,960 5,495
Prepaid expenses and other 1,528 4,049
_________ _________
Total current assets 19,787 17,312
Oil and gas properties (successful efforts
basis), buildings and equipment, net 188,415 155,571
Other assets 1,348 921
_________ _________
$ 209,550 $ 173,804
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,566 $ 5,491
Accrued liabilities 1,720 2,108
Federal and state income taxes payable 1,440 632
_________ _________
Total current liabilities 10,726 8,231
Long-term debt 60,000 30,000
Deferred income taxes 28,552 28,649
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;
21,112,354 shares issued and outstanding at
September 30, 1999 (21,109,729 at December 31, 1998) 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 53,461 53,400
Retained earnings 56,591 53,304
_________ _________
Total shareholders' equity 110,272 106,924
_________ _________
$ 209,550 $ 173,804
========= =========
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
BERRY PETROLEUM COMPANY
Part I. Financial Information
Item 1. Financial Statements
Condensed Statements of Operations
Three Month Periods Ended September 30, 1999 and 1998
(In Thousands, Except Per Share Data)
1999 1998
Revenues:
Sales of oil and gas $ 19,143 $ 10,117
Interest and other income, net 217 3
_________ _________
19,360 10,120
_________ _________
Expenses:
Operating costs 5,887 4,767
Depreciation, depletion and amortization 3,090 2,508
General and administrative 1,427 980
Interest 1,028 479
_________ _________
11,432 8,734
_________ _________
Income before income taxes 7,928 1,386
Provision for income taxes 1,829 8
_________ _________
Net income $ 6,099 $ 1,378
========= =========
Basic net income per share $ .28 $ .06
========= =========
Diluted net income per share $ .28 $ .06
========= =========
Cash dividends per share $ .10 $ .10
========= =========
Weighted average number of shares of
capital stock outstanding used to
calculate basic net income per share 22,011 22,009
Effect of dilutive securities:
Stock options 85 15
Other 8 1
_________ _________
Weighted average number of shares of
capital stock used to calculate
diluted net income per share 22,104 22,025
========= =========
The accompanying notes are an integral part of these financial statements.
4
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BERRY PETROLEUM COMPANY
Part I. Financial Information
Item 1. Financial Statements
Condensed Statements of Operations
Nine Month Periods Ended September 30, 1999 and 1998
(In Thousands, Except Per Share Data)
1999 1998
Revenues:
Sales of oil and gas $ 42,842 $ 31,204
Interest and other income (expense), net 735 (52)
_________ _________
43,577 31,152
_________ _________
Expenses:
Operating costs 15,439 13,284
Depreciation, depletion and amortization 8,978 7,554
General and administrative 3,687 3,112
Interest 2,994 1,464
_________ _________
31,098 25,414
_________ _________
Income before income taxes 12,479 5,738
Provision for income taxes 2,589 775
_________ _________
Net income $ 9,890 $ 4,963
========= =========
Basic net income per share $ .45 $ .23
========= =========
Diluted net income per share $ .45 $ .23
========= =========
Cash dividends per share $ .30 $ .30
========= =========
Weighted average number of shares of
capital stock outstanding used to
calculate basic net income per share 22,010 22,007
Effect of dilutive securities:
Stock options 31 36
Other 7 1
_________ _________
Weighted average number of shares of
capital stock used to calculate
diluted net income per share 22,048 22,044
========= =========
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
Nine Month Periods Ended September 30, 1999 and 1998
(In Thousands)
(Unaudited)
1999 1998
Cash flows from operating activities:
Net income $ 9,890 $ 4,963
Depreciation, depletion and amortization 8,978 7,554
Other, net (295) (8)
_________ _________
Net working capital provided by operating
activities 18,573 12,509
Decrease (increase) in accounts receivable,
prepaid expenses and other (5,944) 3,695
Increase (decrease) in current liabilities 2,495 (222)
_________ ________
Net cash provided by operating activities 15,124 15,982
Cash flows from investing activities:
Property acquisitions (34,692) (3,136)
Capital expenditures (6,801) (6,051)
Proceeds from sale of short-term investments 727 -
Purchase of short-term investments (611) -
Other, net (9) 99
_________ _______
Net cash used in investing activities (41,386) (9,088)
Cash flows from financing activities:
Dividends paid (6,603) (6,603)
Proceeds from issuance of long-term debt 34,598 -
Payment of long-term debt (5,000) (2,000)
Other, net (87) 21
_________ _______
Net cash provided by (used in)
financing activities 22,908 (8,582)
Net decrease in cash and cash
equivalents (3,354) (1,688)
Cash and cash equivalents, beginning of year 7,058 7,756
_________ _______
Cash and cash equivalents, end of period $ 3,704 $ 6,068
========= =======
Supplemental disclosures of cash flow:
Income taxes paid (refunded) $ 1,578 $ (610)
========= =======
Interest paid $ 3,316 $ 1,457
========= =======
The accompanying notes are an integral part of these financial statements.
6
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BERRY PETROLEUM COMPANY
Part I. Financial Information
Item 1. Financial Statements
Notes to Condensed Financial Statements
September 30, 1999
(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, 1999 and
December 31, 1998, results of operations and cash flows for the nine month
periods ended September 30, 1999 and 1998 and results of operations for the
three month periods ended September 30, 1999 and 1998 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, 1998 financial statements. The December 31, 1998 Form 10-K and
the Form 10-Q's for the periods ended June 30 and March 31, 1999 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 is a cross-defendant in litigation pending in the Los
Angeles County Superior Court. The original lawsuit was filed in June 1996,
and the Company was served as a Doe cross-defendant in June 1997. The
complaint involves an oil and gas lease located in Los Angeles County and seeks
to recover approximately $.6 million in clean up costs allegedly incurred by
the plaintiff/lessor after the lease that dated back to the late 1940's was
terminated by the then lessee. Substantially all of the lessees in the chain
of title from the late 1940's to the date of termination were named as
defendants. The cross-complaint by Placerita Oil Company, Inc. ("POCI"), the
last of the lessees, seeks indemnification from the other lessees in the chain
of title as to the plaintiff's claims. Although the Company was never a lessee
in the chain of title, Berry acquired all of the stock of one of the lessees
(TEORCO) that had been in the chain of title in prior years. TEORCO assigned
the leases to POCI approximately two years prior to Berry's acquiring the stock
of TEORCO. POCI's cross-complaint also seeks an unknown amount, but which
could be as much as $34 million in damages from TOSCO Corporation and from
TEORCO, the entity that in 1986 assigned to POCI the lease and two other
leases, on the basis of alleged fraud by TOSCO, et al. in overstating the oil
and gas reserves to POCI. TOSCO is the same entity that sold the stock of its
subsidiary, TEORCO, to Berry in 1988. Berry has potential successor liability
because of its acquisition of the stock of TEORCO. Berry has cross-complained
against TOSCO for equitable indemnity. The scope of the litigation recently
broadened and is requiring increasing resources to defend. The Company is
vigorously defending itself. The case is currently scheduled for trial in
January 2000. Although Management believes it has a strong defense in the
lawsuit, the final outcome cannot be determined at this time. Therefore, no
receivable or liability has been recorded by the Company.
7
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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 $9.9 million, or $.45 per share, for the
first nine months of 1999, an increase of 98% from $5.0 million, or $.23 per
share, for the first nine months of 1998. For the third quarter of 1999, the
Company earned $6.1 million, or $.28 per share, up 336% from $1.4 million, or
$.06 per share, in the third quarter of 1998.
Three Months Ended Nine Months Ended
Sept 30, June 30, Sept 30, Sept 30, Sept 30,
1999 1999 1998 1999 1998
Net production-BOEPD* 14,267 13,982 12,011 13,681 12,205
Per BOE data:
Average sales price $14.58 $11.37 $ 9.17 $11.46 $ 9.35
Operating costs 4.01 3.55 3.79 3.49 3.36
Production taxes .48 .45 .53 .55 .63
Total operating costs 4.49 4.00 4.32 4.04 3.99
Depreciation/Depletion (DD&A) 2.35 2.39 2.27 2.40 2.27
General & administrative expenses
(G&A) 1.09 .90 .89 .99 .93
Interest expense .78 .82 .43 .80 .44
*Barrel of oil equivalent per day
Operating income was $10.2 million for the third quarter of 1999, up 252%
from $2.9 million in the third quarter of 1998. For the nine months ended
September 30, 1999, operating income was $18.6 million, or 75% higher than
$10.6 million for the same period in 1998.
The increases in operating income for the nine months and three months
ended September 30, 1999 compared to the same periods in 1998 were primarily
related to higher crude oil prices and higher production. Average oil prices
of $11.46 and $14.58 for the nine and three months ended September 30, 1999
were 23% and 59% higher than the first nine months and third quarter of 1998,
respectively. The average oil prices received in the first nine months of 1999
and the three month period ended September 30, 1999 were reduced by $.22 per
barrel and $.88 per barrel, respectively, due to the effect of the Company's
hedge contracts. In the same periods of 1998, the effect of hedged barrels was
an increase of $.66 per barrel for the nine month period and $.51 for the three
month period ended September 30, 1998. The Company currently has two hedge
contracts in effect, representing 6,500 barrels of oil per day (BOPD), or
approximately 43% of Berry's current daily output.
8
<PAGE> 9
Oil and gas production in the third quarter of 1999 averaged 14,267 BOEPD,
up 19% or 2,256 BOEPD, from 12,011 BOEPD in the third quarter of 1998. For the
nine months ended September 30, 1999, production averaged 13,681 BOEPD, up 12%
or 1,476 BOE/day from 12,205 BOEPD in the same 1998 period. The primary
reasons for the increase were the purchase in February 1999 of certain
properties in the Placerita field located in Los Angeles County, the drilling
of a total of 20 new wells companywide in the second and third quarters of 1999
and increased steaming operations. The purchased properties produced
approximately 2,800 BOPD on the date of acquisition and are presently producing
approximately 3,300 BOPD.
Operating costs/BOE for the three months ended September 30, 1999 were
$4.49, up 4% from $4.32 in the third quarter of 1998 and 13% from $4.00 in the
second quarter of 1999. The Company anticipated higher oil prices beginning in
the second quarter of 1999 and made several operational changes to increase oil
production and maximize revenues. The most prominent of these was to fire
additional steam generators on the Company's Midway-Sunset properties. Prices
for natural gas, which is used to fire these generators and the Company's
cogeneration plants, increased during the first nine months of 1999 and was the
primary reason for the increase in operating costs. It should be noted,
however, the cost to produce steam from the Company's cogeneration plants is
significantly lower than from conventional steam generators. The effects of
higher gas prices and additional steam from conventional generators was
partially offset by the purchase in February 1999 of a 42 megawatt cogeneration
facility connected with the Placerita properties acquisition and a steam
purchase contract which is priced at a cost below conventional steam generation
rates.
As part of the Company's 1999 capital program, the Company drilled 20
development wells, completed 10 workovers and other projects for a total
expenditure of $6.8 million in the first nine months of the year. Included in
the development wells were 11 horizontal wells. The preliminary results of
these wells were very encouraging with cumulative incremental production from
these wells alone at approximately 510 BOPD in September which should increase
to over 800 BOPD after all of the initial steam cycles have been completed on
the new wells.
G&A expenses for the three months ended September 30, 1999 were $1.4
million, or $1.09/BOE, up from $1.0 million, or $.89/BOE, in the third quarter
of 1998. For the first nine months of 1999, G&A expenses increased to $.99/BOE
from $.93/BOE in the comparable period of 1998. The Company incurred $.2
million in legal fees, or $.15/BOE, in the third quarter of 1999 related to the
TEORCO lawsuit described in Note 3 of "Notes to Condensed Financial Statements"
which represented a significant portion of the increase in both the quarter and
year-to-date comparisons. If the case continues to trial, the Company expects
this suit to increase G&A expenses in both the fourth quarter of 1999 and the
first quarter of 2000. The impact on later quarters is unknown and will depend
upon the outcome of the case and the timing of subsequent actions, if any.
The Company experienced an effective tax rate of 21% for the nine month
period ending September 30, 1999, up from 14% for the same period in 1998.
While the Company continues to invest in qualifying enhanced oil recovery
projects, this substantial increase in the effective rate was due to the
increase in oil prices. The Company anticipates that the effective tax rate
will trend upward if oil prices maintain their current levels or improve.
9
<PAGE> 10
Liquidity and Capital Resources
Working capital at September 30, 1999 was $9.1 million, up 44% from $6.3
million at September 30, 1998 and equal to the $9.1 million at December 31,
1998. Net cash provided by operations was $15.1 million, down 6% from $16.0
million for the first nine months of 1998. Although working capital was up,
the cash provided by operations was down, due to the timing of cash receipts
related to oil and electricity sales. The Company purchased producing
properties and a 42 megawatt cogeneration facility located in the Placerita
field, Los Angeles County, California for $35.0 million in February 1999. In
addition, cash was used for development projects of $6.8 million, dividends of
$6.6 million and long-term debt reduction of $5.0 million. In 2000, the
Company anticipates a capital budget of approximately $13 million which
includes the drilling of over 60 development wells and 20 remedial activities
on the Company's properties.
Year 2000
In 1997, the Company began a review of its computer hardware, software
applications and process control equipment with embedded semiconductor chips to
determine which components, if any, would not function correctly in the years
2000 and beyond. In the third quarter of 1998, the Company created a Year 2000
(Y2k) team to monitor the results of the review on an ongoing basis to better
ensure that the Company's operations will not experience any material adverse
effects when the year 2000 arrives.
As part of the review, the Company determined that its accounting software
would have to be modified or replaced. The Company identified new software
that is represented to be Y2k compliant. All but one of the modules have been
replaced. The remaining module is being replaced in November 1999. The total
cost of the software and hardware purchased to complete all installations is
estimated to be approximately $.6 million. If, for some reason, the final
software module cannot be installed by the year 2000, the Company intends to
modify its existing software to handle Y2k. These modifications would be made
by the Company's in-house information systems personnel. The Company has
evaluated all of its other software, which is predominantly purchased from
third party providers, and determined that it was Y2k compliant as of the end
of 1998.
The Company has performed an evaluation of its computer hardware and
determined that with only a few minor exceptions, it was Y2k compliant. Minor
upgrades were completed on the remaining equipment to make them compliant at no
material cost to the Company.
The Company has worked with the operator of the Company's three
cogeneration facilities to ensure that all equipment is Y2k compliant. These
facilities provide approximately two-thirds of the Company's steam, which is
necessary to produce the Company's heavy oil reserves. These facilities have
been tested and the Company believes that they are materially Y2k compliant at
this time.
The Company's customers are predominantly major oil companies or
independent refiners. If any of these customers were not Y2k compliant by the
end of 1999 and could not buy the Company's crude oil, it could have a material
10
<PAGE> 11
impact on the Company's operations. The Company's operations could also be
materially impacted if the pipeline companies that transport the crude oil or
if any of the utility or critical service providers were not Y2k compliant and
could not provide their products and services. However, Management anticipates
that these companies will be substantially prepared for the year 2000 and,
therefore, the Company's operations should not be materially impacted when the
year 2000 arrives. The Company has communicated with the financial
institutions that are business partners of the Company. It is anticipated that
they will be Y2k compliant by the year 2000 resulting in no material impact to
the Company. If any of the Company's other business partners are not Y2k
compliant by the year 2000, Management does not believe it should have a
material impact on the Company's operations.
The Company is finalizing its contingency plan to handle potential
problems that might occur on January 1, 2000 if any of the Company's software,
hardware, field equipment, etc., or if any of its suppliers or customers have
problems that could materially effect the operations of 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, competition, litigation
uncertainties, environmental risks, drilling and operating risks, uncertainties
about the estimates of reserves, Y2K non-compliance by key vendors, customers,
the Company, etc. and government regulation.
11
<PAGE> 12
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
None
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 9, 1999
12
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