Berry Petroleum Company (NYSE:BRY) reported a net loss of $228 million, or $4.21 per diluted share in 2011. Oil and gas revenues were $871 million and discretionary cash flow totaled $462 million with cash provided by operating activities of $456 million.
Net earnings for 2011 were affected by a net non-cash impairment of the Company's natural gas properties in E. Texas, a net non-cash gain on derivative instruments, and other items. In total, these items decreased net earnings by $377 million. Adjusted net earnings were $149 million, or $2.69 per diluted share.
Production for the full year 2011 was 35,687 BOE/D. Oil production increased 14% in 2011 to 24,771 BOE/D and the Company's oil mix increased from 66% of production in 2010 to 70% of production in 2011. Total production volumes were up 9% from 32,666 BOE/D in 2010. Development capital for 2011 was $527 million.
Total Proved Reserves of 275 MMBOE; Pre-Tax PV10 of $5.7 Billion, 95% of value from Berry's three oil basins
Proved oil and gas reserves were estimated at 275 million BOE at December 31, 2011. Proved oil reserves were up a total of 12% to 186 million barrels with oil reserves increasing to 68% of total reserves. Reserve growth was driven by activity in Berry's three oil basins where the Company invested $527 million of development capital and made $158 million of oil acquisitions during 2011. These basins make up 73% of proved reserves with 44% in California, 21% in the Permian basin and 8% in the Uinta. Natural gas reserves were down 15%, or 16 million BOE, to 89 million BOE. The year-end reserve estimate includes 20 MMBOE of natural gas reserves in E. Texas that were reclassified from proved to probable due to current low natural gas prices and the assumption that these reserves will not be developed within five years of the date they were originally recorded as proved. Excluding this revision, the company added a total of 36 million BOE of proved reserves after production of 13 million BOE, replacing approximately 275% of 2011 production. At year-end 2011, the Company's proved reserve mix includes 186 million barrels of oil, condensate and natural gas liquids, and 534 billion cubic feet of natural gas, or 68% oil and 32% natural gas. Proved developed reserves increased to 53% of total reserves from 49% in 2010. Berry's pre-tax PV10 increased to $5.7 billion, a 50% increase from the year-end 2010 value of $3.8 billion, with 95% of the value coming from Berry's oil assets. The Company's after tax PV10 at year-end 2011 was $4.0 billion compared to $2.8 billion at year-end 2010.
Robert Heinemann, president and chief executive officer said, 'Berry delivered another year of double digit oil growth in 2011. Investing our 2011 capital in our three oil basins provided oil growth of 14% during the year. While we were impacted by regulatory delays that slowed the pace of development in the diatomite, our portfolio of high return oil assets allowed us to accelerate the growth of our next generation steam floods and Permian assets and begin to appraise our large resource base in the Uinta. Our operating margin grew to $45 per BOE in 2011 from $36 per BOE in 2010 driven by oil production which increased from 66% of production in 2010 to 70% of production in 2011. Our investment in 2011 also delivered solid oil reserve growth. Proved oil reserves increased 29 million BOE in 2011 after oil production of 9 million BOE and our pre-tax PV10 increased 50% over the same period."
Fourth Quarter 2011 - Adjusted Earnings of $0.76 per share, Production of 35,790 BOE/D and Discretionary Cash Flow of $134 million
For the fourth quarter of 2011 the Company reported a net loss of $415 million, or $7.62 per diluted share. The fourth quarter earnings included a non-cash impairment of the Company's E. Texas natural gas assets, a non-cash loss on derivative instruments, and other items that decreased earnings by $457 million. Adjusted net earnings were $42 million or $0.76 per diluted share. Discretionary cash flow during the fourth quarter was $134 million with an operating margin of $48 per BOE.
Production in the fourth quarter of 2011 was 35,790 BOE/D, down 3% from the third quarter of 2011. As expected, diatomite production decreased 820 BOE/D during the fourth quarter to 3,000 BOE/D, as a portion of the Company's active wells were off line pending required well testing and regulatory approvals. While Permian production increased from 5,200 BOE/D in the third quarter to 5,600 BOE/D in the fourth quarter, fourth quarter production was impacted by gas plant curtailments which reduced production by approximately 800 BOE/D. Production in the Uinta basin was flat during the quarter at approximately 5,500 BOE/D.
Mr. Heinemann commented on Berry's outlook: 'In 2012, we will continue to focus on growing oil production in California, the Permian and Utah which should drive improved margins and cash flow. We plan to invest between $600 - $650 million and grow total production to between 38,000 BOE/D and 39,000 BOE/D. While the mid-point of our guidance reflects eight percent total production growth over 2011, our oil production is expected to grow by nearly 20% in 2012 and our production stream should increase to over 75% oil for the year. We expect our natural gas assets will decline approximately 20% during the year. Growth in our oil assets should allow us to continue growing our margin to approximately $50 per BOE in 2012 at current prices.
In California, our 2012 plans will focus on returning to growth in the diatomite and aggressively developing our next generation steam floods. In the Permian we will focus on our Wolfberry vertical program and appraising our acreage position. We will continue to appraise our large acreage position in the Uinta focusing on the oil weighted Uteland Butte and Wasatch developments.'
Michael Duginski, executive vice president and chief operating officer, stated, 'In the Permian, we drilled 14 wells during the fourth quarter of 2011. Permian production increased 8% from 5,200 BOE/D in the third quarter to 5,600 BOE/D in the fourth quarter. While Permian production grew during the quarter, production was impacted by gas plant curtailments which reduced the quarter's production by approximately 800 BOE/D. We are working to address potential gas plant curtailment in the Permian. However, we do expect that curtailments will impact our Permian production periodically throughout 2012 as gas plants expand and infrastructure in the basin is upgraded to meet current demand. In 2012, we plan to invest $250 million to operate a five rig drilling program and drill approximately 100 gross operated wells. In addition to our traditional Wolfberry vertical program we will drill approximately four appraisal wells on our newly acquired prospective acreage.'
'In Utah, we have completed three operated Uteland Butte horizontal wells. We were not able to achieve a full completion on one of these three wells. While we do not have 30 days of production from the two remaining wells, we expect our 30-day average initial production rates on these two wells will be approximately 300 BOE/D with approximately 90% of the production stream being oil. The 24-hour peak production rate for these two wells was in the 600 BOE/D - 675 BOE/D range. We are in the early stages of the development in this play and estimate that we could have between 800 and 1,400 locations in our development of the Uteland Butte and Wasatch. Results from our vertical Wasatch test wells have also been positive with average initial production rates in the 100 BOE/D range and with oil making up approximately 90% of the production stream on average. In the Uinta, we plan to run a three rig program and invest approximately $130 million to drill approximately 85 wells focused on developing areas of higher oil potential in the Green River, Uteland Butte and Wasatch formations.'
'In the diatomite, average production decreased during the quarter to 3,000 BOE/D. During 2011, Berry was impacted by new operating requirements which were part of the regulatory approval process for diatomite development. Implementation of these operating requirements negatively impacted the pace of drilling and steam injection. In our third quarter 2011 earnings call, we described a set of activities which included improved field surveillance and the redesign of our steam injection process which we expected to require six to nine months to complete. These changes to our surveillance and design processes remain on track to be completed in the second quarter of 2012. We are also working constructively with DOGGR to return wells to production and enable an increase in the pace of our development in 2012. We expect to drill approximately 70 wells during the year and invest approximately $85 million including the installation of surface facilities and equipment. We plan to bring these wells online during the summer. Diatomite production should remain flat during the first quarter of 2012 and begin to grow in the back half of 2012 as we complete our development program and bring wells online.'
"Outside the diatomite, we plan to invest $120 million in California to maintain our high margin assets in S. Midway-Sunset and grow production from our new steam floods including McKittrick 21Z. At McKittrick, we drilled 44 wells during 2011 and these wells should begin to contribute to production during the first quarter of 2012. We plan to drill approximately 50 additional wells in 2012. We also plan to drill 35 wells in our other steam flood projects at Fairfield, Pan and Main Camp during the year."
David Wolf, executive vice president and chief financial officer, stated, 'Berry's financial position remains strong. We expect that we will be able to generate approximately $600 million of cash flow in 2012 at current prices which would fund our planned development capital expenditures. The sizable additions to our oil reserves at year-end 2011 should also allow us to maintain a strong liquidity position which was approximately $650 million at year-end.'