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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, 2002
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.)
5201 Truxtun Avenue, Suite 300, Bakersfield, California 93309-0640
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (661) 616-3900
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, 2002, was 20,833,601 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, 2002
INDEX
PART I. Financial Information Page No.
Item 1. Financial Statements
Condensed Balance Sheets at
March 31, 2002 and December 31, 2001 3
Condensed Income Statements for the Three Month Periods
Ended March 31, 2002 and 2001 4
Condensed Statements of
Comprehensive Income for the Three Month Periods
Ended March 31, 2002 and 2001 4
Condensed Statements of
Cash Flows for the Three Month Periods
Ended March 31, 2002 and 2001 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 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 10
2
BERRY PETROLEUM COMPANY
Part I. Financial Information
Item 1. Financial Statements
Condensed Balance Sheets
(In Thousands, Except Share Information)
March 31, December 31,
2002 2001
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 12,219 $ 7,238
Short-term investments available for sale 594 594
Accounts receivable 9,491 17,577
Prepaid expenses and other 4,505 2,792
-------- --------
Total current assets 26,809 28,201
Oil and gas properties (successful efforts
basis), buildings and equipment, net 203,763 203,413
Other assets 882 912
-------- --------
$ 231,454 $ 232,526
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,499 $ 11,197
Accrued liabilities 4,797 7,089
Federal and state income taxes payable 5,132 4,078
Fair value of derivatives 2,983 -
-------- --------
Total current liabilities 21,411 22,364
Long-term debt 20,000 25,000
Deferred income taxes 32,195 32,009
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; 20,833,601 shares issued
and
outstanding at March 31, 2002 208 208
(20,833,094 at December 31, 2001)
Class B Stock, 1,500,000 shares
authorized; 898,892 shares issued and
outstanding (liquidation preference of 9 9
$899)
Capital in excess of par value 48,943 48,905
Accumulated other comprehensive income (1,790) -
Retained earnings 110,478 104,031
-------- --------
Total shareholders' equity 157,848 153,153
-------- --------
$ 231,454 $ 232,526
======== ========
The accompanying notes are an integral part of these financial
statements.
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BERRY PETROLEUM COMPANY
Part I. Financial Information
Item 1. Financial Statements
Condensed Income Statements
Three Month Periods Ended March 31, 2002 and 2001
(In Thousands, Except Per Share Information)
(Unaudited)
2002 2001
Revenues:
Sales of oil and gas $ 19,678 $ 30,697
Sales of electricity 7,314 17,218
Interest and other income, net 378 622
-------- --------
27,370 48,537
Expenses: -------- --------
Operating costs - oil and gas production 8,086 10,640
Operating costs - electricity generation 6,983 17,019
Depreciation, depletion and amortization 3,992 4,779
General and administrative 1,862 1,917
Write-off (recovery) of electricity
receivables (3,631) 6,645
Interest 423 1,157
-------- --------
17,715 42,157
-------- --------
Income before income taxes 9,655 6,380
Provision for income taxes 1,035 1,358
-------- --------
Net income $ 8,620 $ 5,022
======== ========
Basic net income per share $ .40 $ .23
======== ========
Diluted net income per share $ .40 $ .23
======== ========
Cash dividends per share $ .10 $ .10
Weighted average number of shares ======== ========
of capital stock outstanding (used to
calculate basic net income per share) 21,732 22,034
Effect of dilutive securities:
Stock options 50 46
Other 29 17
-------- --------
Weighted average number of shares of
capital stock used to calculate
diluted net income per share 21,811 22,097
======== ========
Condensed Statements of Comprehensive Income
Three Month Periods Ended March 31, 2002 and 2001
(in Thousands)
2002 2001
Net income $ 8,620 $ 5,022
Unrealized losses on derivatives, (net of
income taxes of $1,193) (1,790) -
Reclassification of realized gain on - (441)
derivatives, (net of income taxes of $294)
-------- --------
Comprehensive income $ 6,830 $ 4,581
======== ========
The accompanying notes are an integral part of these financial
statements.
4
BERRY PETROLEUM COMPANY
Part I. Financial Information
Item 1. Financial Statements
Condensed Statements of Cash Flows
Three Month Periods Ended March 31, 2002 and 2001
(In Thousands)
(Unaudited)
2002 2001
Cash flows from operating activities:
Net income $ 8,620 $ 5,022
Depreciation, depletion and amortization 3,992 4,779
Deferred income tax liability 187 106
Other comprehensive income (loss) (1,790) (441)
Other, net 45 (35)
-------- --------
Net working capital provided by operating
activities 11,054 9,431
Decrease (increase) in accounts receivable,
prepaid expenses and other 6,362 (4,246)
Decrease in current liabilities (943) (17,498)
-------- --------
Net cash provided by (used in) operating
activities 16,473 (12,313)
Cash flows from investing activities:
Capital expenditures (4,333) (1,666)
Other, net 17 -
-------- --------
Net cash used in investing activities (4,316) (1,666)
Cash flows from financing activities:
Payment of long-term debt (5,000) -
Proceeds from issuance of long-term debt - 45,000
Dividends paid (2,173) (2,203)
Other (3) -
-------- --------
Net cash (used in) provided by
financing activities (7,176) 42,797
Net increase in cash and cash equivalents 4,981 28,818
Cash and cash equivalents at beginning of year 7,238 2,731
-------- --------
Cash and cash equivalents at end of period $ 12,219 $ 31,549
======== ========
The accompanying notes are an integral part of these financial
statements.
5
BERRY PETROLEUM COMPANY
Part I. Financial Information
Item 1. Financial Statements
Notes to Condensed Financial Statements
March 31, 2002
(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, 2002 and December 31, 2001 and results of
operations and cash flows for the three month periods ended March
31, 2002 and 2001 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, 2001 financial statements.
The December 31, 2001 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. As of December 31, 2001, the Company was owed $13.5 million
by Southern California Edison Company (Edison) for power produced
from November 2000 through March 2001. Of this balance, $9.3
million was recorded as collectible receivables at December 31,
2001. On March 1, 2002, Edison paid the Company $13.5 million,
representing the total amount due plus interest. The Company
recorded $4.2 million in income related to the proceeds received,
of which $3.6 million was recorded as recovery of previously
written-off electricity receivables, $.5 million was recorded in
electricity sales and $.1 million was recorded in interest
income.
4. In March 2002, the Company entered into a series of put and
call crude oil option contracts with two counterparties,
effectively creating a zero cost collar, on 5,000 barrels per day
covering the periods April 1, 2002 through March 31, 2003. At
March 31, 2002, no amount was owed either party, but due to the
change in fair value of the hedging instruments, the Company
recorded an after-tax charge of $1.8 million to "Accumulated
other comprehensive income" on the Company's balance sheet with
an offset to current liabilities.
5. In January 2002, the Company entered into an energy
conversion arrangement with an electricity customer for February,
March, May and June 2002. Under the terms of the agreement, the
Company will sell approximately 25 Mw/hr of electricity to a
customer in exchange for a sufficient volume of gas to produce
this electricity and the Company's payment of an additional fee.
This arrangement minimizes the Company's risk to fluctuating
natural gas and electricity prices related to these volumes and
provides steam at a cost less than $1/bbl to the Company's heavy
oil producing operations.
6. The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 144, "Accounting for the Impairment of
Disposal of Long-Lived Assets," effective January 1, 2002. This
statement superceded SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." This statement required that long-lived assets that are to
be disposed of by sale be measured at the lower of book value or
fair value, less costs to sell. The adoption of SFAS No. 144 did
not have a material impact on the Company's results of operations
or financial position.
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 $8.6 million, or $.40 per
share, on revenues of $27.4 million in the first quarter of 2002,
up 72% from $5 million, or $.23 per share, on revenues of $48.5
million in the first quarter of 2001 and up 115% from $4 million, or
$.19 per share, on revenues of $27.4 million in the fourth
quarter of 2001. The quarter's results included the recovery of
$3.6 million in electricity sales which were written off in the
first quarter of 2001 due to the nonpayment by two of
California's major utilities. Had these receivables been paid
timely, results would have been approximately $.24 per share and
$.39 per share for the first quarter of 2002 and 2001,
respectively.
The following table presents certain comparative operating
data for the first quarter of 2002, the first quarter of 2001 and
the fourth quarter of 2001.
Three Months Ended
Mar 31, Mar 31, Dec 31,
2002 2001 2001
Oil and gas:
Net production - BOE/day 13,799 15,289 13,444
Per BOE:
Average sales price $ 15.87 $ 22.19 $ 15.25
Operating costs(1) 5.95 7.32 6.50
Production taxes .56 .41 .55
Total operating costs 6.51 7.73 7.05
DD&A 3.21 3.47 3.22
G&A 1.50 1.39 1.37
Interest expense .34 .84 .36
Electricity:
Electric power produced - Mwh/day 1,890 1,089 1,988
Average sales price - $/Mwh $ 42.99 $ 175.73 $ 46.25
Fuel gas cost - $/Mmbtu 2.49 15.14 2.44
(1)Including monthly expenses in excess of monthly revenues from
cogeneration operations of $.31, $1.09 and $.48 in the three months
ended March 31, 2002, March 31, 2001 and December 31, 2001,
respectively.
Operating income in the first quarter of 2002 was $7.7
million, down from $15.4 million in the first quarter of 2001,
but up from $6.7 million in the fourth quarter of 2001.
Operating income declined from the first quarter of 2001
primarily due to lower oil sales which declined $11.0 million, or
36%. The reasons for this decline were lower production and
lower crude oil prices. The decline was partially offset by
lower operating costs which declined by $2.5 million to $8.1
million in the first quarter of 2002 from $10.6 million in the
first quarter of
7
2001. DD&A also decreased by $.7 million to $3.9 million from
$4.6 million in the first quarter of 2001. The increase in
operating income in the first quarter of 2002 compared to the
fourth quarter of 2001 was due to a $.7 million decline in
operating costs.
Production (BOE/day) in the first quarter of 2002 was
13,799, down 1,490, or 10%, from 15,289 in the first quarter of
2001, but up 355, or 3% from 13,444 in the fourth quarter of
2001. Production for the Company reached a peak in the first
quarter of 2001. Steam injection from all sources had been
maximized for an extended period due to favorable oil prices and
steam costs which resulted in higher reservoir temperatures and
production responses from the Company's Midway-Sunset and
Placerita properties. However, during the first quarter of 2001,
steaming of Company properties became uneconomic due to the
nonpayment of electricity sales by two California utilities and
was, therefore, halted. As a result, production declined rapidly
in the second and third quarters of 2001. However, cogeneration
produced steaming resumed in late June and conventionally
generated steaming resumed in the third quarter of 2001. The
decline in production ceased and has rebounded with the increased
level of steam volume. Current steam injection is approximately
60,000 barrels per day and current production has increased
further to approximately 14,200. The Company anticipates
continued improvement in production performance for the balance
of 2002 based on current steaming activities and projects 2002
production to average between 14,500 and 15,000.
The other major contributor to the decrease in operating
income from the first quarter of 2001 was the decrease in the
price of crude oil. The average price of crude oil per barrel in
the first quarter of 2002 was $15.87, down 28% from $22.19 in the
first quarter of 2001. Crude oil postings, which bottomed for
this cycle at $11.88 per barrel on January 17, 2002, have since
improved to an average of $21.94 on April 30, 2002. The Company
anticipates revenue from oil and gas operations will improve in
the second quarter of 2002 due to higher production compared to
the first quarter of 2002 and the higher crude oil price
environment.
Operating expenses for the first quarter of 2002 were $8.1
million, or $6.78/BOE, down 24% from $10.6 million, or $7.73/BOE
in the first quarter of 2001 and down 7% from $8.7 million, or
$7.05/BOE, in the fourth quarter of 2001. The largest factors in
the decline were lower cost of natural gas used in steaming and
oil treating operations, the conversion of the electricity
requirements at the South Midway-Sunset properties to Company
produced cogeneration power versus power provided by a utility
and other field and facility efficiencies. The Company's average
purchase cost of natural gas was $2.49 per Mmbtu in the first
quarter of 2002, down 84% from $15.14 per Mmbtu in the first
quarter of 2001, but comparable to $2.44 in the fourth quarter of
2001. Due to various factors, California border natural gas
prices reached unprecedented and unsustainable high levels in
early 2001.
DD&A for the first quarter of 2002 was $4.0 million, or
$3.21/BOE, down from $4.8 million, or $3.47/BOE, in the first
quarter of 2001 and equivalent to $4.0 million in the fourth
quarter of 2001. The decrease from the first quarter of 2001 was
due primarily to a $.7 million write-off of unamortized costs
related to the termination of the Company's power sales contracts
in the first quarter of 2001.
8
General and administrative costs in the current quarter were
$1.9 million, equivalent to $1.9 million in the first quarter of
2001, but up slightly from $1.7 million in the fourth quarter of
2001.
On March 1, 2002, the Company received $13.5 million as
payment in full from Southern California Edison Company for the
remaining outstanding balance for electricity generation from
November 2000 through March 2001. The Company recognized income
of $3.6 million for the recovery of the actual receivables, $.1
million in additional interest on the stipulated amount of the
receivable and $.5 million in additional capacity revenue for
periods in 2001 when the Company was compelled to shut-in its
cogeneration plants due to the payment default of the utility.
The Company experienced an effective tax rate of 11% for the
three-month period ending March 31, 2002 compared to an effective
tax rate of 21% for the same period last year. The decrease is
primarily a result of anticipated increased EOR capital
investment and EOR project steam volumes for 2002 and the lower
oil prices received during the three-month period. The Company
continues to invest in qualifying enhanced oil recovery projects
and anticipates an effective rate for 2002 below 25%.
Liquidity and Capital Resources
Working capital at March 31, 2002 was $5.4 million, down
from $49.4 million in the first quarter of 2001 and $5.8 million
at December 31, 2001. Working capital was very high in the first
quarter of 2001 due primarily to the drawdown of funds from the
Company's line of credit in order to provide operating
flexibility for the Company during the California energy crisis.
Uses of funds in the first quarter of 2002 included capital
expenditures of $4.2 million, payment of long-term debt of $5.0
million and the Company's quarterly dividend of $2.3 million.
For the first quarter of 2002, the cash provided by operations
was $16.5 million compared to a use of funds of $12.3 million in
the first quarter of 2001 and $6.5 million in cash provided by
operations in the fourth quarter of 2002.
The Company's capital budget program for the year 2002 calls
for total firm budget expenditures of $27.1 million. Included in
the program is the drilling of 88 new wells of which 15 will be
horizontal, 45 workovers and $8.6 million in surface and other
improvements. Ten new wells have been drilled to date,
including 8 horizontal wells, and 18 workovers have been
completed. With firm oil prices, it is currently anticipated
that the entire firm budget will be implemented in 2002 and
completed during the third quarter.
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, gas
transportation availability, 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 and/or judicial decisions and other
government regulation.
9
BERRY PETROLEUM COMPANY
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
None
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 6, 2002
10