The Company's production averaged a record 26,423 barrels of oil equivalent per day (BOE/D), an increase of 12% over a year ago and up 7% from the second quarter of 2006. The average realized sales price of $47.28 per BOE was up 7% from the $44.25 per BOE achieved in the third quarter of 2005 and down 5% from $49.75 in the second quarter of 2006. The Company had no mark-to-market earnings impact in the third quarter related to its derivative positions. The Company was very active during the third quarter of 2006, drilling 155 gross (126.8 net) wells, realizing a gross success rate of 99 percent, according to Robert F. Heinemann, president and chief executive officer.
For the nine months ending September 30, 2006, Berry's net income was $88.8 million, or $1.98 per diluted share, up 8% from net income of $82 million, or $1.82 per diluted share, for the nine months ending September 30, 2005. Revenues were $370 million in the first nine months of 2006, up 27% from $291 million in the first nine months of 2005. Berry achieved record discretionary cash flow of $195 million in the first nine months of 2006, an increase of 48% over the comparable 2005 period (see Explanation and Reconciliation of Non-GAAP Financial Measures). Berry's 2006 year-to-date results include, on a pre-tax basis, $7 million in dry hole charges and $4 million in exploration costs. The Company drilled 406 gross (289.7 net) wells during the first nine months of 2006, realizing a gross success rate of 99 percent.
Mr. Heinemann stated, "We had an excellent third quarter as our production increased as expected and our earnings were the highest for the year, excluding the impact of commodity derivatives on prior quarters. We achieved an increase in quarterly production of almost 1,700 BOE/D over the second quarter of 2006, primarily through drilling and additional steam applied to new or emerging heavy oil opportunities. Our production for the nine months ended September 30, 2006, averaged 24,896 BOE/D, which was up 9% from the same period last year. We are on track to achieve double-digit production growth year-on-year and are forecasting average production of between 25,500 BOE/D and 25,800 BOE/D for 2006.
"We are having success with our exploration programs, and in the third quarter we drilled four shallow Green River wells at Lake Canyon, with initial production from these four wells averaging 140 BOE/D each, which is consistent with the results of our Brundage Canyon wells just to the east. We are in the permitting process for an additional 32 wells, which are intended to continue exploratory and development drilling on the eastern portion of our Lake Canyon acreage. We expect to begin drilling these wells in the second quarter of 2007. In the fourth quarter of 2006, Berry will participate in two Wasatch wells at Lake Canyon, which are following up on earlier success, with as much as a 25% working interest.
"On November 1, we announced that we are proceeding with full-scale development of our diatomite oil resource in California. In 2007, we intend to spend $50 million for the first 100-well development phase on this asset and expect to average 1,000 BOE/D of heavy oil from the diatomite in 2007. Piceance production is increasing as expected, and in the third quarter of 2006, we drilled or started six additional wells, four on the Garden Gulch property and two on the North Parachute Ranch property. The Garden Gulch acreage now has 20 wells producing, and we anticipate production from the North Parachute Ranch property late in the fourth quarter. Our net production from the Piceance basin in the third quarter 2006 averaged approximately 5,800 Mcf/D. We are building our Piceance asset team so that we can be as efficient as possible in the development of this significant asset.
"We are in the process of determining our capital budget for 2007, but expect our program to target at least $250 million. We also believe that we can achieve another year of double-digit production growth, which would be at least 28,000 BOE/D."
Ralph J. Goehring, executive vice president and chief financial officer, said, "Our third quarter was another solid quarter operationally and financially for Berry. For the three months ended September 30, 2006, our discretionary cash flow was $73 million, up 40% from the comparable 2005 period and up 11% from the second quarter of 2006. With our recent acquisitions and diatomite development plans, Berry now has significantly more drilling opportunities available for funding than our annual cash generated from operations, thus, we will pace our development. While we intend to keep our capital expenditure program close to our cash flow, we expect to be very active in drilling these locations to add production and reserves in a meaningful way. Given our significant drilling inventory and our desire to maintain financial flexibility, we recently completed a debt offering of $200 million of senior subordinated notes with an 8.25% interest rate. This fixes the interest rate on a portion of our long-term debt and provides us with increased credit availability under our existing credit facility."
Berry Petroleum Company is a publicly traded independent oil and gas production and exploitation company with its headquarters in Bakersfield, California.
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