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Berry Petroleum Company (BRY)

Q3 FY08 Earnings Call

October 29, 2008, 1:30 PM ET


Robert F. Heinemann - President and CEO

Michael Duginski - EVP and COO

David D. Wolf - EVP and CFO


Mike Jacobs - Tudor, Pickering, Holt & Co., LLC

Philip McPherson - Global Hunter Securities

Brian Singer - Goldman Sachs

David Tameron - Wachovia Capital Markets

Eric Hagen - Merrill Lynch

Chris Pikul - Morgan Keegan



Good day ladies and gentlemen, and welcome to the Third Quarter 2008 Berry Petroleum Company Earnings Conference Call. My name is Dan, and I'll be your operator for today. At this time all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. [Operator Instructions].

As a reminder, this conference is being recorded for replay purposes. I would like to now turn the call over to your host for today, Mr. Bob Heinemann, President and CEO. Please proceed sir

Robert F. Heinemann - President and Chief Executive Officer

Thank you. I would like to thank everyone for joining our call today and would like to remind everyone that we are conducting the call under safe harbour. Today, Michael Duginski, our Chief Operating Officer and David Wolf, our Chief Financial Officer are with me today to discuss our Q3 results.

Berry Petroleum has posted third quarter results for 2008 net income of $53 million, $1.17 per share for the quarter compared to $26.9 million or $0.60 per share in the third quarter of 2007. Discretionary cash flow was $122 million, up 70% compared to the $72 million recorded in the third quarter of 2007.

Revenues rose to over $208 million, our realized sales price of $64.98 per barrel with 36% higher than the prices for the comparable quarter last year. Our production for the quarter was 35,150 barrels of oil equivalent per day, up 31% from our Q2 2007 production of 26,873 and up 21% over the second quarter of this year.

Oil production was up about 10% over last year's numbers and gas production was up over 90%. Net income for the first nine months of 2008 was $145 million, up 49% from $98 million last year. Discretionary cash flow was total $332 million for the first nine months based on revenues of $642 million, realized sales price of $66.37 a barrel and production of 30,750 barrels a day, up 16% over last year.

Michael Duginski, our Chief Operating Officer will now update you on the performance of our major assets. Michael?

Michael Duginski - Executive Vice President and Chief Operating Officer

Thank you Bob. Our diatomite production continues to demonstrate strong growth averaging 2100 barrels a day, increase... a 24% increase from the second quarter. We drilled 23 wells in the quarter and injected over 14,000 barrels per day. We've also drilled 6 delineation wells this year, in the northern portion of the field. And as we previously announced in August, we're increasing our estimate of original oil in place by over 35% to 330 million barrels.

These wells encountered 300 foot to 400 foot thick oil column with reservoir characteristics similar to Berry's current diatomite development. As a result, we have increased our production expectation over 12,000 barrels a day by 2015.

Finding and development costs are expected to be between $6 and $8 a barrel.

Assuming a steam oil ratio of 6 to 1 and a natural gas price of $7.50 per MMBtu, operating cost should be approximately $20 a barrel. Even below $60 WTI price, this project delivers strong rates of return.

We continue to develop with one rig and are currently averaging 2400 barrels a day.

In the northern areas of the field, we are testing lower pressure stream injection for the shallower wells, and we are encouraged by the response to date. If this response continues, we expect to exit 2008 at 3000 barrels per day.

In the Piceance basin, we produced 22.7 million a day in the quarter, a 36% increase over the second quarter, including a 2 million a day curtailment for the month of September due to the Rockies maintenance shutdown. Production continues to grow surpassing 30 million a day as the summer completion season has progressed.

We drilled 26 wells with four rigs in the third quarter and realized further drilling efficiency with drilling times as low as 9 days, averaging 14 days for the quarter which includes rig moves. This represents an average well cost of just over $2 million per well. However, we have reduced our rig count to a single rig for the near term to control our capital spend rate.

The reservoir continues to perform as expected, and we're shifting our focus on new completion techniques to improve recovery now that we have a well cost under control.

We also closed our East Texas acquisition and the assets contribute 25.9 million a day in the quarter. We've assembled our asset team and production should increase from its current level of approximately 30 million a day as our team takes over the field operations, drilling and completions from the seller November 1ar, 2008.

We drilled nine wells on properties during the quarter but only brought two of these wells on to production. We plan to drill approximately eight wells during the fourth quarter and complete the remaining wells drilled during the third quarter of 2008. We're in the process of re-leasing three of the five rigs and plan to drill with two rigs going forward.

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