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Berry Petroleum Co. (BRY)

Q3 2009 Earnings Call

October 30, 2009 10:00 am ET

Executives

Robert F. Heinemann – President and Chief Executive Officer

Michael Duginski – Chief Operating Officer

David D. Wolf – Chief Financial Officer

Analysts

Mike Jacobs – Tudor, Pickering & Company

David Tameron – Wells Fargo Securities

Philip McPherson – Global Hunter Securities

Andre Benjamin – Goldman Sachs

Chris Pikul – Morgan, Keegan & Company, Inc.

Jack Aydin – Keybanc Capital Markets

Evan Templeton – Jefferies

Gregg Boddy – JP Morgan

Presentation

Operator

Welcome to the Third Quarter 2009 Berry Petroleum Company Earnings conference call. (Operator Instructions). I would now like to turn the conference over to your host for today, Mr. Robert Heinemann, President and CEO.

Robert F. Heinemann

Let me welcome you to our third quarter earnings call and remind you that we will be conducting the call under Safe Harbor provisions. Michael Duginski our Chief Operating Officer and David Wolf our Chief Financial Officer are with me today and will make operational financial comments after my opening remarks.

Berry Petroleum posted its Q3 results for 2009 today. The company reported net income of $19 million or $0.41 a share, compared to net income of $53 million or $1.16 per share in the third quarter of 2008. These results include several non-recurring items affecting net income and include a non-cash gain on hedges, write-off of financing costs associated with our credit facility, a net gain on asset sales and the sale of inventory volumes of heavy oil produced in the second quarter.

The total impact of these items in the quarter was an increase of about $3.3 million. This brings the adjusted net income for Q3 to $15.7 million or $0.34 a share. Production for the quarter was 28,420 barrels of oil a day, down 3% from our Q2 2009 production of 29,270. The production mix for the quarter remains 68% oil and 32% natural gas. Capital spending for the quarter was $22 million reflecting our capital discipline, especially with regard to gas.

This level investment coupled with our continuing focus on operating costs and G&A expense produced strong cash flows in the quarter. Discretionary cash flow for Q3 totaled $60 million or $1.29 per share. This cash flow result coupled with the completion of our East Texas midstream sale allowed us to repay $78 million of debt in the quarter.

We expect to increase both capital spending and production in the fourth quarter and are remaining our production guidance of 30,000 barrels a day for full year 2009. Mike will be providing you some additional operating details in a moment.

Of course, at this time of the year we like other companies are in the process of developing our 2010 capital program. While we do not yet have board approval, we expect capital investment to be in the range of $220 million to $260 million, which should return Berry to growth.

Major focus will continue to be on crude assets and 65% of the capital will be allocated oil projects, including the diatomite and Ethel D developments, initiation of the steam flood on McKittrick 21Z and additional drilling in Brundage Canyon. We would expect production to increase by about 5% at this level of investment with good quarterly increases throughout next year.

Let me now turn the floor over to David Wolf, who will provide details on our financial performance for the quarter.

David D. Wolf

Our third quarter 2009 oil and gas revenues from continuing operations totaled $127.5 million. Our oil prices per barrel after hedging for continuing operations averaged $57.97 per barrel. Our gas sales price after hedging was $3.48 per Mcfe. This gave us an average price after hedging of $46.39 per BOE.

Operating cash flow from continuing operations was $89.2 million. Our capital expenditures for the third quarter totaled $22 million. We expect approximately $38 million of expenditures for the remainder of the year with a total target 2009 budget of $132 million.

Let me walk through our cost metrics for the quarter. Oil and gas operating costs were $39 million at $14.99 per BOE. Adjusting for the sale of inventory barrels at Poso, however, operating costs have been about $0.50 less or $14.52 per BOE.

Production taxes were $1.48 per BOE. Our DD&A was $12.81 per BOE. G&A was $4.09 per BOE. Interest was $5.57 per BOE. Total costs were $102 million or $38.94 per BOE. Again, adjusting for the sale of inventory barrels at Poso, operating costs would have been $0.50 per BOE less or $38.50 per BOE.

We have issued some updated 2009 guidance ranges which will be in our 10-Q. The only item that has changed since the second quarter is the DD&A rate range has come down $0.25 per BOE. The following is our anticipated range of full year costs.

Operating costs oil and gas production $13 to $15 per BOE. Production taxes $1.50 to $2.50 per BOE. DD&A oil and gas $12.50 to $13.50 per BOE, G&A $4.25 to $4.75 per BOE. And interest, $4.00 to $4.75 per BOE for a total cost of $35.25 per BOE to $40.50 per BOE. Year-to-date through three quarters, we are at $37.80 per BOE, which is at the midpoint of our guidance.

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