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Berry Petroleum Company (BRY)

Q1 FY08 Earnings Call

April 29, 2008, 1:30 PM ET

Executives

Robert F. Heinemann - President and CEO

Ralph J. Goehring - EVP and CFO

Analysts

David Tameron - Wachovia Capital Markets

Kevin Smith - Raymond James

Sunil Jagwani - Catapult

Presentation

Operator

Good day ladies and gentlemen, and welcome to the First Quarter 2008 Berry Petroleum Earnings Conference call. My name is Katie, and I'll be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. [Operator Instructions]. I would like to now turn the call over to your host for today, Mr. Bob Heinemann, President and CEO. Sir, you may proceed.

Robert F. Heinemann - President and Chief Executive Officer

Thank you, good day. Let me remind you that we are conducting the call under Safe Harbor provisions. Today, Berry Petroleum Company posted its first quarter results for 2008. Net income was $43 million, $0.95 a share for the quarter, compared to $18.9 million or $0.42 per share in the first quarter of 2007. This year's results included a $0.08 per share increase from a combination of the gain on the sale of an asset, abandonment of three wells, exploration costs, a correction arising from a multi-year royalty adjustment and an ineffective commodity hedge.

Discretionary cash flow was the highlight of the quarter and was a company record of $101.7 million, up 113% compared to $48 million recorded in the first quarter of 2007. Oil and gas revenues rose by over 60% to $164 million, compared to last year's number of $102 million. Our realized price of $60.43 a barrel was 38% higher than the prices for the comparable quarter last year. Production was 28,070 barrels per day, up 10% from our Q1 2007 production of 25,490 barrels a day. The company is reaffirming its outlook for 2008 production of between 29,500 and 30,500 barrels of oil equivalent per day.

We're averaging over 28,700 barrels for the month of April and expect to average over 29,000 barrels a day for the second quarter. As we have previously discussed, Berry plans to invest $295 million of capital in 2008 to develop reserves in the range of 22 million barrels to 32 million barrels of additional reserves at a F&D cost of $10 to $12 per barrel. Our plans remain on track at this point to meet those deliverables. A total of $173 million or about 60% of the total will be targeted at developing our drill-ready oil projects at the diatomite, at S. Midway, Poso Creek and Brundage Canyon, and for the longer term benefit of the company approximately the other 40% will be used to develop our gas resources in the Piceance and DJ Basin.

I next want to summarize some highlights of our major growth areas for this year. In the diatomite in California, we are embarked on a full-scale continuous development program with this asset and expect to continuously drill here over the next four-plus years. Over 70 new producers have been drilled since last October. We have just recently started to bring these wells online as the necessary infrastructure was installed to adequately steam and produce the wells. We will nearly triple our producing well count this year from 80 wells at the end of last year to approximately 240 wells by the end of 2008.

Our steam generation capacity, which stood at 10,000 barrels a day of steam per day at the end of last year, will increase to 25,000 barrels a day of injection by the end of 2008. The additional wells, steam and supporting infrastructure should enable us to increase production which is now at almost 1,800 barrels a day after averaging 1,400 barrels a day for the first quarter. We expect to exit at over 3,000 barrels a day by year end 2008.

At Poso Creek in California, the accelerated development and expansion of the steam flood has worked very effectively for us, helping us to bridge the gap between the production decline associated with our legacy assets in California and the ramp-up of production from the diatomite. This year's plans call for further expansion, including the addition of a fourth steam generator, drilling 28 producers and expanding the flood. To date, 26 of the 28 producers have been drilled and the steam generator was installed in February.

In the first quarter, we did not receive adequate electrical power at Poso Creek from utility companies, which did have a slight impact on our production for the quarter. We have now installed a temporary generator recently and production has responded; it is currently up to 3200 barrels a day. Remaining producers in the steam flood pattern injectors will be drilled over the next few months and should help further improve our production.

In the Piceance in the Rockies, we're currently drilling our 20th well of the year and 90th well since Berry acquired our original acreage in early 2006. We're operating four rigs and continue to drill Mesa wells in the 14 to 16 day range. Production increased 15% over the fourth quarter of 2007, although we continue to be impacted by intermittent downstream shut-ins. Current production is 16 million a day. We expect significant gains over the next quarter as we move into the prime summer completion season. As we have consistently reported, the production of the wells is as expected, with the 30 day IP rates, slightly above our target of 1.2 million cubic feet per day.

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