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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 March 31, 2001
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. Box 925, Taft, California 93268-0925
(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 March 31, 2001, was 21,134,655 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.
BERRY PETROLEUM COMPANY
MARCH 31, 2001
INDEX
PART I. Financial Information Page No.
Item 1. Financial Statements
Condensed Balance Sheets at
March 31, 2001 and December 31, 2000 3
Condensed Income Statements for the Three Month Periods
Ended March 31, 2001 and 2000 4
Condensed Statements of
Comprehensive Income for the Three Month Periods
Ended March 31, 2001 and 2000 4
Condensed Statements of
Cash Flows for the Three Month Periods
Ended March 31, 2001 and 2000 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis
Of Financial Condition and Results of Operations 7
PART II. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 11
Page 2
BERRY PETROLEUM COMPANY
Part I. Financial Information
Item 1. Financial Statements
Condensed Balance Sheets
(In Thousands, Except Share Information)
March 31, December 31,
2001 2000
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 31,549 $ 2,731
Short-term investments available for sale 582 582
Accounts receivable 31,266 26,420
Prepaid expenses and other 4,591 5,190
------- -------
Total current assets 67,988 34,923
Oil and gas properties (successful efforts
basis), buildings and equipment, net 199,406 201,643
Other assets 993 1,793
------- -------
$ 268,387 $ 238,359
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,526 $ 28,678
Accrued Liabilities 5,318 2,288
Federal and state income taxes payable 5,734 5,110
------- -------
Total current liabilities 18,578 36,076
Long-term debt 70,000 25,000
Deferred income taxes 32,165 32,059
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; 21,134,655 shares issued
and outstanding at March 31, 2001 211 211
(21,134,667 at December 31, 2000)
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 53,728 53,686
Accumulated other comprehensive income - 441
Retained earnings 93,696 90,877
------- -------
Total shareholders' equity 147,644 145,224
------- -------
$ 268,387 $ 238,359
======= =======
The accompanying notes are an integral part of these financial statements.
Page 3
BERRY PETROLEUM COMPANY
Part I. Financial Information
Item 1. Financial Statements
Condensed Income Statements
Three Month Periods Ended March 31, 2001 and 2000
(In Thousands, Except Per Share Information)
(Unaudited)
2001 2000
Revenues:
Sales of oil and gas $ 30,697 $ 25,990
Sales of electricity 17,218 9,110
Interest and other income, net 622 147
------- -------
48,537 35,247
------- -------
Expenses:
Operating costs - oil and gas production 11,005 8,385
Operating costs - electricity generation 16,654 7,430
Depreciation, depletion and amortization 4,779 3,312
General and administrative 1,917 2,710
Write-off of electricity receivables 6,645 -
Interest 1,157 935
------- -------
42,157 22,772
------- -------
Income before income taxes 6,380 12,475
Provision for income taxes 1,358 3,616
------- -------
Net income $ 5,022 $ 8,859
======= =======
Basic net income per share $ .23 $ .40
======= =======
Diluted net income per share $ .23 $ .40
======= =======
Cash dividends per share $ .10 $ .10
======= =======
Weighted average number of shares
of capital stock outstanding (used to
calculate basic net income per share) 22,034 22,018
Effect of dilutive securities:
Stock options 46 160
Other 17 20
------- -------
Weighted average number of shares of
capital stock used to calculate
diluted net income per share 22,097 22,198
======= =======
Condensed Statements of Comprehensive Income
Three Month Periods Ended March 31, 2001 and 2000
(in Thousands)
2001 2000
Net income $ 5,022 $ 8,859
Reclassification adjustment for realized
gains included in net income (441) -
------- -------
Comprehensive income $ 4,581 $ 8,859
======= =======
The accompanying notes are an integral part of these financial statements.
Page 4
BERRY PETROLEUM COMPANY
Part I. Financial Information
Item 1. Financial Statements
Condensed Statements of Cash Flows
Three Month Periods Ended March 31, 2001 and 2000
(In Thousands)
(Unaudited)
2001 2000
Cash flows from operating activities:
Net income $ 5,022 $ 8,859
Depreciation, depletion and amortization 4,779 3,312
Deferred income tax liability 106 1,388
Other, net (476) (70)
------- -------
Net working capital provided by
operating activities 9,431 13,489
Increase in accounts receivable, prepaid
expenses and other (4,246) (2,412)
Increase (decrease) in current liabilities (17,498) 6,471
------- -------
Net cash provided by (used in)
operating activities (12,313) 17,548
Cash flows from investing activities:
Capital expenditures (1,666) (4,053)
Property acquisitions - (3,034)
Other, net - 12
------- -------
Net cash used in investing activities (1,666) (7,075)
Cash flows from financing activities:
Payment of long-term debt - (8,000)
Proceeds from issuance of long-term debt 45,000 -
Dividends paid (2,203) (2,203)
Other - 133
------- -------
Net cash provided by (used in)
financing activities 42,797 (10,070)
Net increase in cash and cash equivalents 28,818 403
Cash and cash equivalents at beginning of year 2,731 980
------- -------
Cash and cash equivalents at end of period $ 31,549 $ 1,383
======= =======
The accompanying notes are an integral part of these financial statements.
Page 5
BERRY PETROLEUM COMPANY
Part I. Financial Information
Item 1. Financial Statements
Notes to Condensed Financial Statements
March 31, 2001
(Unaudited)
1. All adjustments which are, in the opinion of management,
necessary for a fair presentation of the Company's financial
position at March 31, 2001 and December 31, 2000 and results of
operations and cash flows for the three month periods ended March
31, 2001 and 2000 have been included. All such adjustments are
of a normal 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, 2000 financial statements.
The December 31, 2000 Form 10-K 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 accounting principles generally accepted
in the United States Of America.
3. The Company performed a review of its receivables due from
electricity sales. As of March 31, 2001, Southern California
Edison Company (Edison) owed the Company $14.8 million for sales
from November 2000 forward. Pacific Gas and Electric Company
(PG&E), which filed for bankruptcy protection on April 6, 2001,
owed the Company $12.1 million related to sales from December
2000 forward. The total due from both companies at the end of
March was $26.9 million. The Company has deemed it necessary to
write-off $6.6 million of the receivables at March 31, 2001 due
to the bankruptcy of PG&E and the insolvency of Edison. This
amount is netted in the Increases in accounts receivable, prepaid
expenses and other in the Condensed Statements of Cash Flows.
4. The Company has terminated all of its four power sale
contracts related to its three cogeneration facilities. Two
contracts were with PG&E and two contracts were with Edison. The
PG&E contracts were terminated April 2, 2001 and one contract
with Edison was terminated on March 19, 2001 and the other on
April 6, 2001. As of May 2, 2001, the Company had commenced
proceedings in the bankruptcy court with respect to PG&E and
filed litigation against Edison for the courts' confirmation of
the prior terminations of the contracts.
5. In December 2000, the Company entered into a series of
derivative contracts to reduce exposure to unfavorable changes in
natural gas prices. These contracts limited the price the
Company paid for 4,500 Mmbtu/day of natural gas used in its
cogeneration operations for the three-month period ended March
31, 2001. The Company recorded a $1.7 million pre-tax realized
gain related to these contracts in the first quarter. The
Company has not entered into any similar contracts since their
expiration.
Page 6
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 earned net income of $5.0 million, or $.23 per
share, on revenues of $48.5 million in the first quarter of 2001.
These results were 44% lower than $8.9 million, or $.40 per
share, on revenues of $35.2 million in the first quarter of 2000
and 49% lower than $9.9 million, or $.45 per share, on revenues
of $54.2 million in the fourth quarter of 2000.
The following table presents certain comparative operating
data for the three month periods:
Three Months Ended
Mar 31, Mar 31, Dec 31,
2001 2000 2000
Net Production - BOE per day 15,289 14,297 15,701
Per BOE:
Average sales price $22.19 $19.99 $23.11
Operating costs 8.00 5.70 9.27
Production taxes .41 .45 .37
----- ----- -----
Total operating costs 8.41 6.15 9.64
Depreciation, depletion and amortization
(DD&A) 3.47 2.48 2.62
General and administrative expenses (G&A) 1.39 2.08 1.05
Interest expense .84 .72 .42
Operating income in the first quarter of 2001 was $15.6
million, down 3% from $16.1 million in the first quarter of 2000
and 5% from $16.4 million in the fourth quarter of 2000.
Operating income from oil and gas producing operations was
$15.0 million, up 4% from $14.4 million in the first quarter of
2000, but down 6% from $16.0 million in the fourth quarter of
2000. The largest factor in the increase from the first quarter
of 2000 was oil and gas revenues which increased by $4.7 million,
or 18%, to $30.7 million in the first quarter of 2001 from $26.0
million in the first quarter of 2000 due to higher production and
higher realized oil prices. Average posting for the Company's 13
degree gravity crude for the current quarter was $20.38, down
from $22.59 in the first quarter of 2000. Higher realized prices
for the Company's heavy crude oil were primarily due to more
favorable crude contracts which allowed the Company to realize
$2.20 per barrel over applicable postings for the period. In
addition, the Company's realized price of $19.99 in the first
quarter of 2000 was 12% lower than the average posted price due
primarily to the Company's hedging agreements which expired
December 31, 2000. However, oil and gas revenues in the first
quarter of 2001 were down 9% from $33.6 million earned in the
fourth quarter of 2000 due to a 4% decline in oil prices and a 3%
decline in average daily production volume.
Page 7
The effect of higher oil and gas revenues on operating
income from oil and gas operations was partially offset by higher
operating costs, which were $11 million, or $8.41 per BOE, up 31%
from $8.4 million, or $6.15 per BOE, in the first quarter of
2000, but down from $13.9 million, or $9.64 per BOE in the fourth
quarter of 2000. Steam costs, which represent the most
significant component of the Company's overall cost structure,
were impacted by significantly higher natural gas prices which
averaged $14.15/Mmbtu in the 2001 period compared to $2.61/Mmbtu
in the first quarter of 2000. The Company injected 2.1 million
barrels of steam in the 2001 period, down from 4.7 million
barrels in the first quarter of 2000.
As the California electricity crisis unfolded during the
quarter, the Company took significant steps to safeguard the
assets of its shareholders and preserve capital. The two major
utility customers breached the Company's electricity sales
contracts by refusing to pay for electricity generation dating
back as far as November 2000. The Company has, therefore,
suspended all cogeneration operations with 77 megawatts of
electricity generation capacity shut-in in February 2001 and the
remaining 21 megawatts being shut-in on April 6, 2001. In
addition, the Company has terminated all of its four power sale
contracts related to its three cogeneration facilities. Two
contracts were with Pacific Gas and Electric Company (PG&E) and
two contracts were with Southern California Edison Company
(Edison). The PG&E contracts were terminated April 2, 2001 and
one contract with Edison was terminated on March 19, 2001 and the
other on April 6, 2001. As of May 2, 2001, the Company had
commenced proceedings in the bankruptcy court with respect to
PG&E and filed litigation against Edison for the courts'
confirmation of the prior terminations of the contracts.
Management is diligently pursuing alternative purchasers for
the Company's power generation and anticipates resumption of
operations at the Company's cogeneration plants in the second
quarter of 2001. The Company also anticipates that power can be
sold at a price which will result in both profitable cogeneration
operations and, as long as a healthy crude oil market is
maintained in California, acceptable steam costs for its heavy
oil operations. Although the electricity sale contracts have been
terminated, the Company cannot enter into new sales contracts
until the generator scheduling coordinator I.D. number on file
with the California Independent System Operator and associated
with each cogeneration facility is released by the previous
buyer, PG&E or Edison, as the case may be. The Company has
scheduled a hearing in May 2001 before the bankruptcy court
handling the PG&E Chapter 11 bankruptcy in an effort to obtain
the releases related to the 38 megawatt and 18 megawatt
cogeneration facilities located on the Company's Midway-Sunset
properties. Edison, the purchaser of electricity from the
Company's 42 megawatt facility in the Placerita field, has been
unwilling to sign a release. The Company has filed litigation
against Edison seeking a court order confirming the terminations
and ordering Edison's full cooperation. The Company is hopeful
that the resolution of these terminations will occur in the
second quarter of 2001, however, there can be no guarantee that
this will occur. Because the electricity crisis in California
has been impacted by various federal and state regulatory
agencies and the political process, it is possible that
resolution will not occur for some time.
Conventionally generated steam is uneconomic at current
natural gas prices. Therefore, it is not anticipated that
conventional steaming will resume in the near future. In order
to replace this source of steam, the Company is investigating the
viability of expansion of its cogeneration capacity at both its
Midway-Sunset and Placerita operating areas.
Page 8
Oil and gas production (BOE per day) in the first quarter
was 15,289, up from 14,297 in the first quarter of 2000, but down
from 15,701 in the fourth quarter of 2000. Management estimates
production may decrease another 20% in the next few months as the
oil reservoirs cool. Consequently, it is of vital importance
that the Company resume its cogeneration operations including
electricity sales as soon as possible so that it can resume steam
injection into the Company's oil properties to arrest this
decline.
DD&A for the first quarter was $4.8 million, or $3.47/BOE,
up from $3.3 million, or $2.48/BOE, in the first quarter of 2000
and $3.8 million, or $2.62/BOE, in the fourth quarter of 2000.
The increase was due primarily to a $.7 million write-off of the
remaining unamortized costs of the Company's power sale contracts
and depreciation of the capital projects completed in 2000.
G&A expenses were $1.9 million in the first quarter of 2001,
down from $2.7 million in the first quarter of 2000, but up
slightly from $1.8 million in the fourth quarter of 2000. The
decrease from the first quarter of 2000 was due primarily to
lower legal costs in the current quarter. Unusually high legal
costs in the first quarter of 2000 were due primarily to the
Company's defense in a lawsuit in Los Angeles Superior Court
which was settled in March 2000. The Company anticipates that
legal costs may again impact G&A costs in future quarters due to
the numerous legal issues related to California's electricity
crisis.
The Company performed a review of its receivables due from
electricity sales. As of March 31, 2001, Edison owed the Company
$14.8 million for sales from November 2000 forward. PG&E owed
the Company $12.1 million related to sales from December 2000 to
the present. The total due from both companies at the end of
March was $26.9 million. Due to the bankruptcy filing by PG&E
and the potential insolvency of Edison, the Company has deemed it
necessary to write-off $6.6 million of the receivables due from
the utilities at March 31, 2001. After the write-off, the
Company is carrying $9 million and $11.2 million in receivables
from PG&E and Edison, respectively.
The Company experienced an effective tax rate of 21% for the
three-month period ending March 31, 2001 compared to an effective
tax rate of 29% for the same period last year. The decrease was
primarily due to the write-off of the electricity receivables.
On April 18, 2001, the Company completed its acquisition of
a 15.833% non-operated working interest in the Fort Union coalbed
methane leases in the South Joe Creek field in the Powder River
Basin, Wyoming for $2.1 million. The Company estimates the
proved reserves, net to its interest, to be approximately 2.2
Bcf. This small acquisition was made as an entry into the
developing area of coalbed methane gas production in the mid-
continent area.
Liquidity and Capital Resources
Working capital at March 31, 2001 was $49.4 million, up from
$4.8 million at March 31, 2000 and negative $1.2 million at
December 31, 2000. Working capital increased primarily due to a
$45 million drawdown of the Company's available line of credit.
Net cash used in operations was $12.3 million for the first three
months of 2001, down dramatically from $17.5 million provided by
operations in the first quarter of 2000 and $19.2 million
provided by operations in the fourth
Page 9
quarter of 2000. The largest factors in the decrease were the increase
in the outstanding receivable from the non-performing major utility
customers of $11 million and the payment in early 2001 of an
annual revenue sharing royalty of $9.4 million. Other uses of
cash included $1.7 million in capital expenditures and a
quarterly dividend payment of $2.2 million.
The Company entered 2001 poised to implement a very
aggressive capital budget of $25 million. However, due to the
restraints placed on Berry's operating capabilities by the
current outcome of California's electricity crisis and extremely
high natural gas prices in California, management has decided
that it is prudent to postpone much of the current capital
program until electricity generation and steaming operations
resume. The Company currently anticipates a much lower budget
under $10 million.
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, but are not limited to, the timing and extent of
changes in commodity prices for oil, gas and electricity, So Cal
border pricing for natural gas, pipeline capacity for natural gas
to and within California, the non-existence of a liquid
marketplace for electricity purchases and sales within
California, competition, environmental risks, litigation
uncertainties, drilling, development and operating risks,
uncertainties about the estimates of reserves, the prices of
goods and services, the availability of drilling rigs and other
support services, legislative, California Public Utilities
Commission, Federal Energy Regulatory Commission, and/or judicial
decisions and other government regulations.
Page 10
BERRY PETROLEUM COMPANY
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
On April 16, 2001, the Company filed a Form 8-K reporting on
Item 5. Other Events to disclose the fact that Berry Petroleum
Company ("Berry" or "Company") was a party to four power sale
contracts related to its three cogeneration facilities. Two
contracts were with Pacific Gas and Electric Company ("PG&E") and
two contracts were with Southern California Edison Company
("Edison"), collectively the "Utilities". Berry has terminated
all four contracts (two contracts with PG&E effective on April 2,
2001, and two contracts with Edison - one effective on March 19
and one effective on April 6, 2001) by delivering the required
notice under the contracts.
As of March 31, 2001, Berry is owed $12.1 million from PG&E
and $14.8 million from Edison for power deliveries as far back as
November in the case of Edison, and December in the case of PG&E.
Considering PG&E's filing for bankruptcy ("PG&E bankruptcy") on
April 6, 2001 and the signed Memorandum of Understanding between
Edison and the California Department of Water Resources ("Edison
MOU") dated April 9, 2001, the Company is uncertain as to the
impact of these developments on the collectibility of these
receivables.
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: May 8, 2001
Page 11