The 2008 budget includes:
- $173 million for heavy oil projects, including the full-scale development of the North Midway diatomite, continued expansions at Poso Creek, South Midway and Brundage Canyon, as well as appraisal drilling at Lake Canyon in the Uinta Basin.
- $122 million targeting natural gas production growth in the Piceance and DJ assets, including infrastructure investments to aid in the long-term development of these assets.
Mr. Heinemann continued, "The 2008 budget was designed to invest in drill-ready oil projects to capture unprecedented crude oil prices. Our return on investment from our heavy oil assets is exceptional, and we plan to capture these strong oil economics through exploitation of several California opportunities on existing acreage. We also plan to expand the resource potential of the Brundage Canyon field in Utah and other areas through step-out drilling. The capital program assumes West Texas Intermediate crude prices of $70/Bbl and Henry Hub natural gas prices of $7.50/MMcf. We anticipate the capital expenditures will be fully funded through cash flow from operations."
In its North Midway diatomite asset, Berry will drill approximately 115 of the remaining 600 well locations and will invest in the steam generation and other infrastructure necessary for its five-year development plan. The Company will continue development at Poso Creek by drilling over 30 new wells and expanding the facilities needed for subsequent production increases. Berry is now exploiting the deeper down-dip flanks at South Midway and plans to drill 15 horizontal producing wells and 10 vertical wells for continuous steam injection into these flanks. At Brundage Canyon, the Company will drill its remaining 40-acre locations, assess the potential of additional downspacing and extend the southern development of the field into the Ashley Forest. Berry also intends to do additional appraisal drilling of the Green River oil trend in the adjacent Lake Canyon area to better define its development potential.
Berry has significantly improved its drilling performance in its Piceance assets over the course of 2007 and is currently adding a fourth rig for year-round operations. In 2008, the Company plans to drill and complete 60 wells at depths ranging from 9,500 to 12,000 feet on its Garden Gulch and N. Parachute Ranch acreage. Berry will also continue to invest in infrastructure here to improve access and to capture operational efficiencies. In its DJ assets Berry will add approximately 70 new wells and install 150 pumping units to maintain production near the current level of 19 MMcf/d.
As the Company has previously noted, its 2008 net income is relatively insensitive to natural gas prices company-wide, given its significant natural gas consumption for steaming operations in California and the existing 2008 natural gas hedges. In 2008, the Company estimates that a $1.00 per MMBtu change in NYMEX Henry Hub natural gas price would result in less than a $3 million change in annual net income.
Ralph J. Goehring, executive vice president and chief financial officer, said, "Based on our commodity price assumptions, we expect cash flow from operating activities to be in the $315 to $330 million range, and would be higher at the current NYMEX 2008 futures price for crude oil. Excess cash flow will be applied to debt reduction, acceleration of additional capital projects and/or towards potential acquisitions. The targets and forward-looking results in this news release do not reflect the impact of our plans to form a master limited partnership with certain of our crude oil and natural gas producing assets."
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