1.       Basis of Presentation

These Condensed Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial reporting.  All adjustments which are, in the opinion of management, necessary to present fairly Berry Petroleum Company’s (the Company) financial position at September 30, 2010, the results of operations for the three and nine months ended September 30, 2010 and 2009,  its cash flows for the nine months ended September 30, 2010 and 2009 and shareholders’ equity for the nine months ended September 30, 2010 have been included. Interim results are not necessarily indicative of expected annual results because of the impact of fluctuations in prices received for oil and natural gas, as well as other factors.  In the course of pr eparing the Condensed Financial Statements, management makes various assumptions, judgments and estimates to determine the reported amounts of assets, liabilities, revenues and expenses, and in the disclosures of commitments and contingencies. Changes in these assumptions, judgments and estimates will occur as a result of the passage of time and the occurrence of future events, and, accordingly, actual results could differ from amounts previously established.

The Company’s Condensed Financial Statements have been prepared on a basis consistent with the accounting principles and policies reflected in the Company’s audited financial statements as of and for the year ended December 31, 2009.  The year-end Condensed Balance Sheet was derived from audited Financial Statements included in such report, but does not include all disclosures required by GAAP.  The Company has revised comprehensive income (loss) to reflect the correction of a prior period presentation error.  The Company has concluded that the presentation error was immaterial to the previously filed financial statements. See Note 4 to the Condensed Financial Statements.

The Company’s cash management process provides for the daily funding of checks as they are presented to the bank. Included in accounts payable at September 30, 2010 and December 31, 2009 is $24.0 million and $15.7 million, respectively, representing outstanding checks in excess of the bank balance (book overdraft).

2.       Acquisitions and Divestitures

Acquisitions

In March 2010, the Company acquired interests in producing properties principally on 6,900 net acres in the Permian basin of West Texas (W. Texas) for $133 million, comprised of an initial purchase price of $126 million, and customary post-closing adjustments of approximately $7 million (the March Acquisition).  The March Acquisition was financed with the proceeds from the issuance of the Company’s Class A Common Stock in January 2010.  In April 2010, the Company closed on the acquisition of an additional 3,200 net acres in the Permian basin for approximately $14 million, including normal post closing adjustments (the April Acquisition and, together with the March Acquisition, the Permian Basin Acquisitions).  The Permian Basin Acquisitions included properties with total pr oved reserves of approximately 13 MMBOE, of which 83% were crude oil and 21% were proved developed.

The Permian Basin Acquisitions qualify as business combinations and, as such, the Company estimated the fair value of each property as of the acquisition date (the date on which the Company obtained control of the properties).  The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Fair value measurements also utilize assumptions of market participants.  The Company used a discounted cash flow model and made market assumptions as to future commodity prices, projections of estimated quantities of oil and natural gas reserves, expectations for timing and amount of future development and operating costs, projections of future rates of production, expected recovery rates and risk adjusted discount rates.  These assumptions re present Level 3 inputs.

The following table summarizes the consideration paid to the seller and the amounts of the assets acquired and liabilities assumed in the March Acquisition.

The March Acquisition had an effective date of January 1, 2010, and activity from January 1, 2010 through March 4, 2010 was treated as purchase price adjustments.  The preliminary purchase price allocation included an estimate for activity between January 1, 2010 and March 4, 2010; however, actual amounts were greater than the Company’s estimate which resulted in an increase to the total cash consideration paid to the seller.  As a result, the initial $1.4 million of gain on purchase of oil and natural gas properties recorded in the first quarter of 2010 was reversed in the second quarter of 2010 to reflect the purchase price adjustments.

The following table summarizes the consideration paid to the seller and the amounts of the assets acquired and liabilities assumed in the April Acquisition.

Acquisition costs of $0.0 million and $2.6 million have been recorded in the Condensed Statements of Income (Loss) under the caption Transaction costs on acquisitions in the three and nine months ended September 30, 2010, respectively.  Revenues of $8.4 million and $17.1 million generated by the acquired properties have been included in the accompanying Condensed Statements of Income (Loss) in the three and nine months ended September 30, 2010, respectively.  Earnings of $2.9 million and $5.5 million generated by the Permian Basin Acquisitions have been included in the accompanying Condensed Statements of Income (Loss) in the three and nine months ended September 30, 2010, respectively.

Divestitures

On March 3, 2009, the Company entered into an agreement to sell its assets in the Denver-Julesburg basin in Colorado (DJ basin) and related hedges for $154 million before customary closing adjustments. The closing date of the sale of the assets was April 1, 2009.  The Company recorded a pre-tax impairment loss of $9.6 million related to the sale, which is reflected within the $6.3 million Income (loss) from discontinued operations, net of taxes, on its Condensed Statement of Income (Loss) for the nine months ended September 30, 2009.

Income (loss) from discontinued operations, net of taxes, on the accompanying Condensed Statements of Income (Loss) is comprised of the following (in thousands):

3.       Shareholders’ Equity

In January 2010, the Company issued 8 million shares of Class A Common Stock at a price of $29.25 per share. Net proceeds from this offering were $224.3 million after deducting underwriting discounts and commissions and offering expenses. The Company used the net proceeds from the offering to fund the purchase of the March Acquisition (as defined above) and to repay a portion of the outstanding borrowings under the senior secured revolving credit facility.  See Note 2 to the Condensed Financial Statements.

4.       Earnings per Share and Comprehensive Income (Loss)

Basic (loss) earnings per common share is calculated by dividing adjusted income (loss) available to common shareholders by the weighted average number of common shares outstanding during each period.  Diluted (loss) earnings per common share is calculated by dividing (loss) income available to common shareholders by the weighted average number of diluted common shares outstanding, which includes the effect of potentially dilutive securities.  Potentially dilutive securities for the diluted earnings per share calculations consist of unvested restricted stock awards and outstanding stock options using the treasury method.  When a loss exists, all potentially dilutive securities are anti-dilutive and are therefore excluded from the computation of diluted earnings per share accordingly.

The two-class method of computing earnings (loss) per share is required for those entities that have participating securities. The two- class method is an earnings allocation formula that determines earnings per share for participating securities according to dividends declared (or accumulated) and participation rights in undistributed earnings.  Restricted stock issued prior to January 1, 2010 under the Company’s equity incentive plans has the right to receive non-forfeitable dividends, participating on an equal basis with common stock. Restricted stock issued subsequent to January 1, 2010 under the Company’s stock incentive plans no longer has the right to receive non-forfeitable dividends.  Stock units issued to directors under the Company’s nonemployee directors deferred compensation plan also have the right to be credited with non-forfeitable dividends, participating on an equal basis with common stock.  Therefore, unvested restricted stock and stock units issued to directors issued prior to January 1, 2010 must be allocated to both common stock and these participating securities under the two-class method.  Stock options issued under the Company’s stock incentive plans do not participate in dividends.

The following table shows the computation of basic and diluted earnings (loss) per share from continuing and discontinued operations for the three and nine months ended September, 2010 and 2009 (in thousands):