UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K/A
(AMENDMENT
NO. 2)
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of
the
Securities Exchange Act of 1934
Date of
Report: April 14, 2005
(Date of
Earliest Event Reported): (January 27, 2005)
BERRY
PETROLEUM COMPANY
(Exact
name of registrant as specified in its charter)
|
DELAWARE |
1-9735 |
77-0079387 |
|
(State
or Other Jurisdiction |
(Commission
File |
(IRS
Employer |
|
of
corporation or organization) |
Number) |
Identification
Number) |
5201
Truxtun Avenue, Suite 300
Bakersfield,
California 93309
(Address
of principal executive offices, including zip code)
Registrant's
telephone number, including area code: (661)
616-3900
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the Registrant
under any of the following provisions (see General Instruction A.2.
below):
| r |
Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425) |
| r |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12) |
| r |
Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b)) |
| r |
Pre-commencement communications pursuant to Rule 13e-4(C) under the
Exchange Act (17 CFR 240.13e-4(c)) |
EXPLANATORY
NOTES:
On January 28, 2005, Berry Petroleum Company (Berry)
filed on Form 8-K announcing that on January 27, 2005 Berry closed its
previously announced Purchase and Sale Agreement with multiple parties comprised
of J.W. Operating Company, three of its subsidiaries, a trust, and two
individuals, referred to collectively as J-W or the Sellers, to acquire their
interests in the Niobrara natural gas fields in northeastern Colorado (J-W
properties) for approximately $105 million, financed by bank borrowings under
Berry's existing credit facility.
On February 3, 2005, Berry filed on Form 8-K/A (the Report) amending the foregoing Form 8-K, stating under 9.01 of the Report that the required financial statements with respect to the J-W acquisition would be filed by an amendment to the Report. The Report is hereby amended to replace Item 9.01 of the Report. Furthermore, Item 2.01 of the Report is hereby amended with additional information regarding the compression facilities and pipeline gathering system as described below.
ITEM 2.01
COMPLETION OF ACQUISITION OR DISPOSAL OF ASSETS
Approximately
10% of the value of acquired properties is attributed to compression facilities
and approximately 200 miles of pipeline gathering systems which are used to
gather gas from wells within the acquired J-W properties and delivery into
interstate gas lines. The expected remaining lives of compression facilities and
pipelines are from 10 to 12 years. Berry does not anticipate any significant
changes to operating expenses or general and administrative expenses as a result
of operating the compression facilities and pipeline gathering
systems.
ITEM 9.01
FINANCIAL STATEMENTS AND EXHIBITS
|
(a) |
FINANCIAL
STATEMENT OF BUSINESSES ACQUIRED. |
Audited
Statement of Combined Revenues and Direct Operating Expenses for the Oil and Gas
Properties purchased by Berry from J.W. Operating Company, a privately-held
company, three of its subsidiaries, a trust, and two individuals for the year
ended December 31, 2004, and the related notes thereto, together with the Report
of Independent Auditors of Travis, Wolff & Company, L.L.P. concerning the
Statement and related notes. Copies of such Audited Statement of Combined
Revenues and Direct Operating Expenses for the Oil and Gas Properties are
attached hereto as Exhibit 99.3.
|
(b) |
PRO
FORMA FINANCIAL INFORMATION. |
Unaudited
Pro Forma Condensed Combined Statement of Income of Berry Petroleum Company, for
the year ended December 31, 2004, the Unaudited Pro Forma Condensed Combined
Balance Sheet of Berry Petroleum Company, as of December 31, 2004, and the
related notes thereto, show the pro forma effects of Berry's acquisition of the
J-W Properties. Copies of such financial statements are attached hereto as
Exhibit 99.4. The financial statements contained in Exhibit 99.4 incorporate by
reference the financial statements of Berry Petroleum Company contained in its
Annual Report on Form 10-K for the fiscal year ended December 31,
2004.
|
(c) |
EXHIBITS. |
|
EXHIBIT
NO. |
DESCRIPTION |
|
*23.1 |
Consent
of Independent Registered Public Accounting Firm. |
|
**
99.1 |
News
Release, dated January 28, 2005, announcing the closing of the acquisition
with J-W Operating Company and others. |
|
**
99.2 |
Purchase
and Sale Agreement, dated December 3, 2004, among Berry Petroleum Company
and J-W Operating Company and others. |
|
*99.3 |
Audited Statement of Combined Revenues and Direct Operating Expenses for
the Oil and Gas Properties (the "J-W Properties") purchased by Berry
Petroleum Company from J-W Operating Company, a privately-held company,
three of its subsidiaries, a trust, and two individuals, for the year
ended December 31, 2004, and the related notes thereto, together with the
Report of Independent Registered Public Accounting Firm of Travis, Wolff & Company, L.L.P. concerning the Statement and related notes. |
|
*99.4 |
Unaudited
Pro Forma Condensed Combined Statement of Income of Berry Petroleum
Company for the year ended December 31, 2004, the Unaudited Pro Forma
Condensed Combined Balance Sheet of Berry Petroleum Company, as of
December 31, 2004, and the related notes thereto, to show the pro forma
effects of Berry's acquisition of the J-W Properties. The financial
statements contained herein incorporate by reference the financial
statements of Berry Petroleum Company contained in its Annual Report on
Form 10-K for the fiscal year ended December 31,
2004. |
________
* filed
herewith
**
previously filed
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 hereunto
duly authorized.
| |
|
BERRY PETROLEUM
COMPANY
|
| Date: April 14, 2005 | /s/ Kenneth A. Olson | |
|
Kenneth A. Olson | ||
| Corporate Secretary | ||
INDEX TO EXHIBITS
|
EXHIBIT
NO. |
DESCRIPTION |
|
*23.1 |
Consent
of Independent Registered Public Accounting Firm |
|
**
99.1 |
News
Release, dated January 28, 2005, announcing the closing of the acquisition
with J-W Operating Company and others. |
|
**
99.2 |
Purchase
and Sale Agreement, dated December 3, 2004, among Berry Petroleum Company
and J-W Operating Company and others. |
|
*99.3 |
Audited Statement of Combined Revenues and Direct Operating Expenses for
the Oil and Gas Properties (the "J-W Properties") purchased by Berry
Petroleum Company from J-W Operating Company, a privately-held company,
three of its subsidiaries, a trust, and two individuals, for the year
ended December 31, 2004, and the related notes thereto, together with the
Report of Independent Registered Public Accounting Firm of Travis, Wolff & Company, L.L.P. concerning the Statement and related notes. |
|
*99.4 |
Unaudited
Pro Forma Condensed Combined Statement of Income of Berry Petroleum
Company for the year ended December 31, 2004, the Unaudited Pro Forma
Condensed Combined Balance Sheet of Berry Petroleum Company, as of
December 31, 2004, and the related notes thereto, to show the pro forma
effects of Berry's acquisition of the J-W Properties. The financial
statements contained herein incorporate by reference the financial
statements of Berry Petroleum Company contained in its Annual Report on
Form 10-K for the fiscal year ended December 31,
2004. |
________
* filed
herewith
**
previously filed
EXHIBIT
23.1
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby
consent to the incorporation by reference in the Registration Statement on Form
S-8 (Nos. 333-62871, 333-62799, 333-98379) of Berry Petroleum Company of our
report dated February 28, 2005 relating to the Statement of Combined Revenues
and Direct Operating Expenses of the oil and gas properties purchased by Berry
Petroleum Company from J-W Operating Company, three of its subsidiaries, a
trust, and two individuals for the year ended December 31, 2004, which appears
in the Current Report on Form 8-K of Berry Petroleum Company dated April 13,
2005.
/s/Travis,
Wolff & Company, L. L. P.
Dallas,
Texas
April 13,
2005
EXHIBIT
99.3
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of Berry Petroleum Company:
In our opinion, the accompanying statement of combined revenues and direct operating expenses of the oil and gas properties purchased by Berry Petroleum Company (from J-W Operating Company, three of its subsidiaries, a trust, and two individuals), presents fairly, in all material respects, the results of their operations for the year ended December 31, 2004. This financial statement is the responsibility of the management of Berry Petroleum Company and J-W Operating Company. Our responsibility is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
The accompanying financial statement was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in Berry Petroleum Company's Form 8-K and is not intended to be a complete financial presentation of the properties described above.
In our opinion, the financial statement referred to above presents fairly, in all material respects, the combined revenues and direct operating expenses of the oil and gas properties purchased by Berry Petroleum Company from J-W Operating Company, a privately-held company, three of its subsidiaries, a trust, and two individuals, for the year ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.
/s/
Travis, Wolff & Company, L.L.P.
Dallas,
Texas
February
28, 2005
A-1
STATEMENT
OF COMBINED REVENUES AND DIRECT OPERATING EXPENSES
OF THE
OIL AND GAS PROPERTIES PURCHASED BY BERRY PETROLEUM COMPANY
FROM J-W
OPERATING COMPANY, THREE OF ITS SUBSIDIARIES, A TRUST,
AND TWO
INDIVIDUALS
(IN
THOUSANDS)
|
FOR
THE YEAR
ENDED
DECEMBER
31, 2004 |
||||
|
Revenues
|
$ |
19,965 |
||
|
Direct
operating expenses |
6,579 |
|||
|
Excess
of revenues over direct operating expenses |
$ |
13,386 |
||
The
accompanying notes are an integral part of this financial
statement.
A-2
NOTES TO
STATEMENT OF COMBINED REVENUES AND
DIRECT
OPERATING EXPENSES OF THE OIL AND GAS PROPERTIES
PURCHASED
BY BERRY PETROLEUM COMPANY
FROM J-W
OPERATING COMPANY, THREE OF ITS SUBSIDIARIES, A TRUST,
AND TWO
INDIVIDUALS
|
(1) |
THE
PROPERTIES |
On
December 3, 2004, Berry Petroleum Company (Berry) entered into a Purchase and
Sale Agreement with multiple parties comprised of J.W. Operating Company, three
of its subsidiaries, a trust, and two individuals, referred to collectively as
J-W or the Sellers, to acquire their interests in the Niobrara natural gas
fields in northeastern Colorado (J-W properties) for approximately $110 million,
subject to normal closing adjustments, with an effective date of November 1,
2004. The transaction closed January 27, 2005.
|
(2) |
BASIS
FOR PRESENTATION |
During
the period presented, the J-W properties were not accounted for or operated as a
separate division by the Sellers. Certain costs, such as depreciation, depletion
and amortization, interest, accretion, general and administrative expenses, and
corporate income taxes were not allocated to the individual properties.
Accordingly, full separate financial statements prepared in accordance with
accounting principles generally accepted in the United States of America do not
exist and are not practicable to obtain in these circumstances.
Combined
revenues and direct operating expenses included in the accompanying statement
represent Berry's net working interest in the properties acquired. Direct lease
operating expenses are recognized on the accrual basis and consist of all costs
incurred in producing, marketing and distributing gas produced by the J-W
properties as well as production taxes. Excluded from direct lease operating
expenses are depreciation, depletion and amortization, interest, accretion,
general and administrative expenses, and corporate income taxes. The financial
statement presented is not indicative of the results of operations of the
acquired properties going forward due to changes in the business and the need to
include the above mentioned expenses on a prospective basis.
Revenue
associated with sales of natural gas is recognized when title passes to the
customer, net of royalties, discounts and allowances, as applicable. Natural gas
produced and used in operations are not included in revenues. Revenue from
natural gas production from properties in which J-W has an interest with other
producers is recognized on the basis of J-W's net working interest (entitlement
method).
|
(3) |
COMMITMENTS
AND CONTINGENCIES |
Pursuant
to the terms of the Purchase and Sale Agreement between the Sellers and Berry,
any claims, litigation or disputes pending as of the effective date (November 1,
2004) or any matters arising in connection with ownership of the J-W properties
prior to the effective date are retained by the Sellers. Notwithstanding this
indemnification, management of J-W is not aware of any legal, environmental or other
commitments or contingencies that would have a material effect on the statement
of combined revenues and direct operating expenses.
A-3
SUPPLEMENTAL
INFORMATION ABOUT OIL AND GAS PRODUCING PROPERTIES
(UNAUDITED)
The
following estimates of proved oil and gas reserves, both developed and
undeveloped, represent interests acquired by Berry in the transaction described
above, and are located solely within the United States. Proved reserves
represent estimated quantities of crude oil and natural gas which geological and
engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions. Proved developed oil and gas reserves are the quantities expected to
be recovered through existing wells with existing equipment and operating
methods. Proved undeveloped oil and gas reserves are reserves that are expected
to be recovered from new wells on undrilled acreage, or from existing wells for
which relatively major expenditures are required for completion.
Disclosures
of oil and gas reserves which follow are based on estimates as of December 31,
2003 and 2004, respectively, prepared by Berry's engineers and from information
provided by the Sellers, in accordance with guidelines established by the
Securities and Exchange Commission. Such estimates are subject to numerous
uncertainties inherent in the estimation of quantities of proved reserves and in
the projection of future rates of production and the timing of development
expenditures. These estimates do not include probable or possible reserves. The
information provided does not represent Berry's estimate of expected future cash
flows or value of proved oil and gas reserves.
Changes
in estimated reserve quantities
The net
interest in estimated quantities of proved developed and undeveloped reserves of
crude oil and natural gas at December 31, 2004 and changes in such quantities
during the year then ended were as follows (in thousands):
|
GAS |
OIL |
||||||
|
(MMcf) |
(Mbbl) |
||||||
Total
proved reserves: |
|||||||
|
Balance,
December 31, 2003 |
87,815 |
-- |
|||||
|
Production
|
(3,349 |
) |
-- |
||||
|
Revisions
of previous estimates |
2,614 |
-- |
|||||
|
Balance,
December 31, 2004 |
87,080 |
-- |
|||||
|
Proved
developed reserves: |
|||||||
|
Balance,
December 31, 2003 |
31,911 |
-- |
|||||
|
Balance,
December 31, 2004 |
33,806 |
-- |
|||||
A-4
SUPPLEMENTAL
INFORMATION ABOUT OIL AND GAS PRODUCING PROPERTIES - CONTINUED
(UNAUDITED)
The
standardized measure has been prepared assuming year end sales prices adjusted
for fixed and determinable contractual price changes, current costs and
statutory tax rates (adjusted for tax credits and other items), and a ten
percent annual discount rate. No deduction has been made for depletion,
depreciation or any indirect costs such as general corporate overhead or
interest expense. Cash outflows for future production and development costs
include cash flows associated with the ultimate settlement of the asset
retirement obligation.
The
following table sets forth unaudited information concerning future net cash
flows for oil and gas reserves, net of income tax expense. Future income tax
expense on the J-W properties is based on Berry's purchase price allocation.
This information does not purport to present the fair market value of the J-W
properties' oil and gas assets, but does present a standardized disclosure
concerning possible future net cash flows that would result under the
assumptions used.
Standardized
measure of discounted future net cash flows from estimated production of proved
oil and gas reserves (in thousands) as of December 31, 2004
:
|
Future
cash inflows |
$ |
536,980 |
||
|
Future
production costs |
(167,546 |
) | ||
|
Future
development costs |
(27,945 |
) | ||
|
Future
income tax expense |
(88,209 |
) | ||
|
Future
net cash flows |
253,280 |
|||
|
10%
annual discount for estimated timing of
cash flows |
(148,788 |
) | ||
|
Standardized
measure of discounted future net
cash flows |
$ |
104,492 |
||
|
Average
sales price at December 31, 2004: |
||||
|
Gas
($/Mcf) |
$ |
6.24 |
||
|
Oil
($/Bbl) |
$ |
- |
Principal
sources of change in discounted future net cash flows (in thousands) for the
year ended December 31, 2004:
|
Beginning
of year |
$ |
63,006 |
||
|
Sales,
net of production costs |
(13,386 |
) | ||
|
Net
change in sales prices and production costs |
61,945 |
|||
|
Change
in estimated future development costs |
1,054 |
|||
|
Development
costs incurred during the period |
3,107 |
|||
|
Accretion
of discount |
7,649 |
|||
|
Change
in income taxes |
(21,948 |
) | ||
|
Revisions
of previous quantity estimates |
4,889 |
|||
|
Change
in production rates and other |
(1,824 |
) | ||
|
End
of year |
$ |
104,492 |
A-5
EXHIBIT
99.4
BERRY
PETROLEUM COMPANY
UNAUDITED
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The
following unaudited pro forma condensed combined financial statements and
related notes give effect to the acquisition by Berry of oil and gas producing
properties from J-W for the year ended December 31, 2004.
The
unaudited pro forma condensed combined statement of income is based on the
individual statement of operations of Berry and the statement of combined
revenues and direct operating expenses of J-W, and combines the results of
operations of Berry and J-W for the year ended December 31, 2004 as if the
acquisition occurred on January 1, 2004. The unaudited pro forma condensed
combined balance sheet is based on the individual balance sheets of Berry and
J-W and has been presented to show the effect as if the acquisition occurred as
of December 31, 2004.
Pro forma
data is based on assumptions and include adjustments as explained in the notes
to the unaudited pro forma condensed combined financial statements. As
adjustments are based on currently available information, actual adjustments may
differ from the pro forma adjustments; therefore, the pro forma data is not
necessarily indicative of the financial results that would have been attained
had the J-W transaction occurred on the dates referenced above, and should not
be viewed as indicative of operations in future periods. The unaudited pro forma
condensed combined financial statements should be read in conjunction with the
notes thereto, Berry's Annual Report on Form 10-K for the year ended December
31, 2004 and the Statement of Combined Revenues and Direct Operating Expenses
included herein.
B-1
BERRY
PETROLEUM COMPANY
UNAUDITED
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE
YEAR ENDED DECEMBER 31, 2004
(In
thousands, except per share amounts)
|
BERRY
HISTORICAL |
J-W
HISTORICAL |
PRO
FORMA
ADJUSTMENTS
(SEE
NOTE 2) |
PRO
FORMA
COMBINED |
||||||||||
Revenues |
|||||||||||||
|
Sales
of oil and gas |
$ |
226,876 |
$ |
19,965 |
$ |
- |
$ |
246,841 |
|||||
|
Sales
of electricity |
47,644 |
- |
- |
47,644 |
|||||||||
|
Interest
and other income, net |
426 |
- |
- |
426 |
|||||||||
|
274,946 |
19,965 |
- |
294,911 |
||||||||||
|
Expenses |
|||||||||||||
|
Operating
costs - oil and gas |
82,419 |
6,579 |
- |
88,998 |
|||||||||
|
Operating
costs - electricity |
46,191 |
- |
- |
46,191 |
|||||||||
|
Depreciation,
depletion and amortization |
|||||||||||||
|
-
oil and gas |
29,752 |
- |
4,564
|
(a,d) |
34,316 |
||||||||
|
Depreciation,
depletion and amortization |
|||||||||||||
|
-
electricity |
3,490 |
- |
- |
3,490 |
|||||||||
|
General
and administrative |
20,354 |
- |
1,067
|
(b) |
21,421 |
||||||||
|
Interest |
2,067 |
- |
3,851
|
(c) |
5,918 |
||||||||
|
Loss
on disposal of assets |
410 |
- |
- |
410 |
|||||||||
|
Dry
hole, abandonment & impairment |
745 |
- |
- |
745 |
|||||||||
|
185,428 |
6,579 |
9,482 |
201,489 |
||||||||||
|
Income
before income taxes |
89,518 |
13,386 |
(9,482 |
) |
93,422 |
||||||||
|
Provision
for income taxes |
20,331 |
- |
1,253
|
(e) |
21,584 |
||||||||
|
Net
income |
$ |
69,187 |
$ |
13,386 |
$ |
(10,735 |
) |
$ |
71,838 |
||||
|
Basic
net income per share |
$ |
3.16 |
$ |
3.28 |
|||||||||
|
Diluted
net income per share |
$ |
3.08 |
$ |
3.20 |
|||||||||
|
Weighted
average number of shares of capital stock
outstanding (used to calculate basic net
income per share) |
21,894 |
21,894 |
|||||||||||
|
Effect
of dilutive securities: |
|||||||||||||
|
Stock
options |
523 |
523 |
|||||||||||
|
Other |
53 |
53 |
|||||||||||
|
Weighted
average number of shares of capital stock
outstanding used to calculate diluted net
income per share |
22,470 |
22,470 |
|||||||||||
B-2
UNAUDITED
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF
DECEMBER 31, 2004
(In
thousands)
|
PRO
FORMA
BERRY
HISTORICAL |
FINANCING
PRO
FORMA
ADJUSTMENTS
(SEE
NOTE 3) |
ACQUISITION
ADJUSTMENTS
(SEE
NOTE 3) |
PRO
FORMA
COMBINED |
||||||||||
Assets |
|||||||||||||
|
Current
assets |
$ |
61,001 |
$ |
102,663 |
(1)
|
$ |
(102,663)
|
(1)
|
$ |
61,321 |
|||
|
|
320 | (2) | |||||||||||
|
Property,
buildings & equipment, net |
338,706 |
- |
103,401 |
(2)
|
442,107 |
||||||||
|
Other
assets |
12,397 |
- |
432 |
(2)
|
12,829 |
||||||||
|
Total
assets |
$ |
412,104 |
102,663 |
1,490 |
$ |
516,257 |
|||||||
|
Liabilities
& Shareholders' Equity |
|||||||||||||
|
Current
liabilities |
$ |
64,841 |
- |
337
|
(2) |
$ |
65,178 |
||||||
|
Deferred
taxes |
47,963 |
- |
- |
47,963 |
|||||||||
|
Long-term
debt |
28,000 |
102,663
|
(1)
|
- |
130,663 |
||||||||
|
Abandonment
obligation |
8,214 |
- |
1,153
|
(2)
|
9,367 |
||||||||
|
Shareholders'
equity |
263,086 |
- |
- |
263,086 |
|||||||||
|
Total
liabilities and
shareholders' equity |
$ |
412,104 |
$ |
102,663 |
$ |
1,490 |
$ |
516,257 |
|||||
B-3
BERRY
PETROLEUM COMPANY
NOTES TO
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1 -
BASIS OF PRESENTATION
The
unaudited pro forma statement of income for the year ended December 31, 2004 is
based on the audited financial statements of Berry Petroleum Company for the
year ended December 31, 2004, the audited statement of combined revenues and
direct operating expenses for the J-W properties for the year ended December 31,
2004, and the adjustments and assumptions described below.
NOTE 2 -
ADJUSTMENTS TO PRO FORMA STATEMENT OF INCOME
The
unaudited pro forma statement of income gives effect to the following pro forma
adjustments necessary to reflect the acquisition and additional debt outlined in
Note 3 below:
|
a.
|
Record
incremental pro forma depreciation, depletion and amortization expense
recorded in accordance with the successful efforts method of accounting
for oil and gas activities based on the purchase price allocation to
depreciable and depletable assets. |
|
b. |
Record
assumed increase in general and administrative expenses as a result of the
purchase of the J-W properties primarily relating to an increase of seven
additional employees and other costs incurred to support increased
operating activities. |
|
c. |
Record
interest expense for the additional debt of approximately $103 million
incurred in conjunction with the purchase of J-W properties at a rate of
3.95% per annum based on the terms of Berry's credit agreement. A
one-tenth of one percent change in interest rate would have an
approximately $149,000 annual impact on interest
expense. |
|
d. |
Record
pro forma accretion of asset retirement obligation on properties acquired
in accordance Statement of Financial Accounting Standards No. 143,
"Accounting for Asset Retirement Obligations," computed using an inflation
rate of 2.5% and a discount rate of 6.5%. |
|
e. |
Record
a pro forma income tax provision on the incremental pre-tax income at a
net statutory rate approximating 40% and certain other tax
adjustments. |
B-4
BERRY
PETROLEUM COMPANY
NOTES TO
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3 -
ADJUSTMENTS TO PRO FORMA BALANCE SHEET
The
unaudited pro forma balance sheet has been prepared to show
the effect as if the acquisition of J-W properties by Berry had occurred as of
December 31, 2004. The pro forma balance sheet reflects the following
adjustments related to J-W acquisition activity as if the activity occurred on
December 31, 2004:
|
1. |
Record
the financing of acquisition funded by borrowings from Berry's existing
credit facility. |
|
2. |
Record
the preliminary pro forma allocation of the purchase price of the
acquisition of J-W properties using the purchase method of accounting. The
following is a calculation and allocation of purchase price to the
acquired assets and liabilities based on their relative fair values,
pending completion of Berry's valuation
analysis: |
Purchase
price (in thousands): |
||||
|
Cash
payment funded by borrowings from Berry's existing
credit facility |
$ |
104,936 |
||
|
Net
cash paid by J-W to Berry for operating revenues in
excess of operating expenses between the effective date
and closing date |
(2,273 |
) | ||
|
Total
purchase price |
$ |
102,663 |
||
|
Preliminary
allocation of purchase price (in thousands): |
||||
|
Current
assets |
$ |
320
|
(i) | |
|
Gas
properties |
92,761 |
|||
|
Pipeline |
6,100 |
|||
|
Compression
equipment and other |
4,540 |
|||
|
Deferred
tax asset |
432 |
(ii) | ||
|
Total
asset acquired |
104,153 |
|||
|
Current
liabilities |
337
|
(iii) | ||
|
Asset
retirement obligation |
1,153 |
|||
|
Net
assets acquired |
$ |
102,663 |
||
|
(i) |
Record
acquired inventories and current portion of deferred tax
asset. |
|
(ii) |
Record
deferred tax asset related to asset retirement obligation computed at a
net statutory rate of 40%. |
|
(iii) |
Record
accrual for transaction costs, which are primarily legal and accounting
fees. |
B-5
BERRY PETROLEUM COMPANY
NOTES TO
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 4 -
NET INCOME PER SHARE
Basic net
income per share is computed by dividing income available to common shareholders
(the numerator) by the weighted average number of shares of capital stock
outstanding (the denominator). The Company's Class B stock is included in the
denominator of basic and diluted net income. The computation of diluted net
income per share is similar to the computation of basic net income per share
except that the denominator is increased to include the dilutive effect of the
additional common shares that would have been outstanding if all convertible
securities had been converted to common shares during the period.
NOTE 5 -
SUPPLEMENTAL CASH FLOW INFORMATION
On a pro
forma basis and to the extent practicable, cash flows relate to operating,
financing and investing activities are estimated based on combining results of
operations of Berry and J-W for the year ended December 31, 2004 as if the
acquisition occurred on January 1, 2004. Pro forma cash flows from operations
are estimated to increase cash by approximately $7.2 million for the year ended
December 31, 2004 due primarily to net income before depreciation, depletion and
amortization expense. Pro forma cash flows related to investing activities for
the year ended December 31, 2004 are estimated to decrease cash by approximately
$106 million related to $103 million for cash outlays to purchase J-W properties
and approximately $3 million for development. Pro forma cash flows from
financing activities for the year ended December 31, 2004 are estimated to
increase cash by $103 million related to borrowing from Berry's credit facility
to fund the purchase of J-W properties. Overall, cash is estimated to increase
by approximately $4.2 million as a result of pro forma adjustments.
B-6
BERRY
PETROLEUM COMPANY
PRO FORMA
SUPPLEMENTAL OIL AND GAS DISCLOSURES
(UNAUDITED)
The
following table sets forth certain unaudited pro forma information concerning
Berry's proved oil and gas reserves at December 31, 2004, giving effect to the
J-W transaction as if it had occurred on January 1, 2004. The following
estimates of proved oil and gas reserves, both developed and undeveloped,
represent interests acquired by Berry in the transaction described above, and
are located solely within the United States. Proved reserves represent estimated
quantities of crude oil and natural gas which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions. Proved
developed oil and gas reserves are the quantities expected to be recovered
through existing wells with existing equipment and operating methods. Proved
undeveloped oil and gas reserves are reserves that are expected to be recovered
from new wells on undrilled acreage, or from existing wells for which relatively
major expenditures are required for completion.
Disclosures
of oil and gas reserves which follow are based on estimates as of December 31,
2003 and 2004, respectively, prepared by Berry's engineers and from information
provided by the Sellers, in accordance with guidelines established by the SEC.
Such estimates are subject to numerous uncertainties inherent in the estimation
of quantities of proved reserves and in the projection of future rates of
production and the timing of development expenditures. These estimates do not
include probable or possible reserves. The information provided does not
represent Berry's estimate of expected future cash flows or value of proved oil
and gas reserves.
Changes
in estimated reserve quantities:
|
OIL
(Mbbl) |
GAS
(MMcf) |
||||||||||||||||||
|
BERRY |
J-W |
PRO
FORMA COMBINED |
BERRY |
J-W |
PRO
FORMA COMBINED |
||||||||||||||
Proved
developed and
undeveloped reserves: |
|||||||||||||||||||
|
Beginning
of year |
106,640 |
-- |
106,640 |
19,680 |
87,815 |
107,495 |
|||||||||||||
|
Revision
of previous estimates |
2,974 |
-- |
2,974 |
8,246 |
2,614 |
10,860 |
|||||||||||||
|
Improved
recovery |
2,021 |
-- |
2,021 |
-- |
-- |
-- |
|||||||||||||
|
Extensions
and discoveries |
2,736 |
-- |
2,736 |
714 |
-- |
714 |
|||||||||||||
|
Property
sales |
(127 |
) |
-- |
(127 |
) |
(77 |
) |
-- |
(77 |
) | |||||||||
|
Production |
(7,043 |
) |
-- |
(7,043 |
) |
(2,839 |
) |
(3,349 |
) |
(6,188 |
) | ||||||||
|
Purchase
of reserves in place |
132 |
-- |
132 |
-- |
-- |
-- |
|||||||||||||
|
Royalties
converted to working interest |
(1,784 |
) |
-- |
(1,784 |
) |
-- |
-- |
-- |
|||||||||||
|
End
of year |
105,549 |
-- |
105,549 |
25,724 |
87,080 |
112,804 |
|||||||||||||
|
Proved
developed reserves: |
|||||||||||||||||||
|
Beginning
of year |
78,145 |
--
|
78,145 |
12,207 |
31,911 |
44,118 |
|||||||||||||
|
End
of year |
78,207 |
--
|
78,207 |
20,048 |
33,806 |
53,854 |
|||||||||||||
B-7
BERRY
PETROLEUM COMPANY
PRO FORMA
SUPPLEMENTAL OIL AND GAS DISCLOSURES - (CONTINUED)
(UNAUDITED)
The
following table sets forth unaudited pro forma information concerning the
discounted future net cash flows from proved oil and gas reserves of Berry as of
December 31, 2004, net of income tax expense, and giving effect to the
acquisition of the J-W properties as if it had occurred on January 1, 2004.
Income tax expense has been computed using assumptions relating to the future
tax rates and the permanent differences and credits under the tax laws relating
to oil and gas activities at December 31, 2004. Cash flows relating to the J-W
properties are based on Berry's evaluation of reserves and on information
provided by the Sellers. Future income tax expense on the J-W properties is
based on Berry's purchase price allocation. The information should be viewed
only as a form of standardized disclosure concerning possible future cash flows
that would result under the assumptions used, but should not be viewed as
indicative of fair market value. Reference is made to Berry's financial
statements for the fiscal year ended December 31, 2004, and the Statement of
Combined Revenues and Direct Operating Expenses included herein, for a
discussion of the assumptions used in preparing the information
presented.
Standardized
measure of discounted future net cash flows from estimated production of proved
oil and gas reserves (in thousands) as of December 31,
2004:
|
BERRY |
J-W |
PRO
FORMA COMBINED |
||||||||
|
Future
cash inflows |
$ |
3,281,155 |
$ |
536,980 |
$ |
3,818,135 |
||||
|
Future
production costs |
(1,405,432 |
) |
(167,546 |
) |
(1,572,978 |
) | ||||
|
Future
development costs |
(216,859 |
) |
(27,945 |
) |
(244,804 |
) | ||||
|
Future
income tax expenses |
(355,764 |
) |
(88,209 |
) |
(443,973 |
) | ||||
|
Future
net cash flows |
1,303,100 |
253,280 |
1,556,380 |
|||||||
|
10%
annual discount for estimated timing of cash flows |
(616,352 |
) |
(148,788 |
) |
(765,140 |
) | ||||
|
Standardized
measure of discounted future net cash flows |
$ |
686,748 |
$ |
104,492 |
$ |
791,240 |
||||
|
Average
sales prices at December 31, 2004: |
||||||||||
|
Oil
($/Bbl) |
$ |
29.49 |
$ |
- |
||||||
|
Gas
($/Mcf) |
$ |
6.61 |
$ |
6.24 |
||||||
B-8
BERRY
PETROLEUM COMPANY
PRO FORMA
SUPPLEMENTAL OIL AND GAS DISCLOSURES - (CONTINUED)
(UNAUDITED)
Changes
in standardized measure of discounted future net cash flows from proved oil and
gas reserves (in thousands):
|
BERRY |
J-W |
PRO
FORMA COMBINED |
||||||||
|
Standardized
measure - December 31, 2003 |
$ |
528,220 |
$ |
63,006 |
$ |
591,226 |
||||
|
Sales
of oil and gas produced, net of production costs |
(144,457 |
) |
(13,386 |
) |
(157,843 |
) | ||||
|
Revisions
to estimates of proved reserves: |
||||||||||
|
Net
changes in sales prices and production costs |
190,861 |
61,945 |
252,806 |
|||||||
|
Revisions
of previous quantity estimates |
40,419 |
4,889 |
45,308 |
|||||||
|
Improved
recovery |
18,787 |
- |
18,787 |
|||||||
|
Extensions
and discoveries |
26,541 |
- |
26,541 |
|||||||
|
Change
in estimated future development costs |
(56,314 |
) |
1,054 |
(55,260 |
) | |||||
|
Purchases
of reserves in place |
962 |
- |
962 |
|||||||
|
Sales
of reserves in place |
(1,043 |
) |
- |
(1,043 |
) | |||||
|
Development
costs incurred during the period |
65,971 |
3,107 |
69,078 |
|||||||
|
Accretion
of discount |
68,312 |
7,649 |
75,961 |
|||||||
|
Income
taxes |
(16,890 |
) |
(21,948 |
) |
(38,838 |
) | ||||
|
Other |
(21,430 |
) |
(1,824 |
) |
(23,254 |
) | ||||
|
Royalties
converted to working interest |
(13,191 |
) |
- |
(13,191 |
) | |||||
|
Net
increase |
158,528 |
41,486 |
200,014 |
|||||||
|
Standardized
measure - December 31, 2004 |
$ |
686,748 |
$ |
104,492 |
$ |
791,240 |
||||
B-9