Berry Petroleum has reported net income of $19 million, or $0.41 per diluted share, for the third quarter of 2009, compared to net income of $53.3 million, or $1.16 per diluted share in the third quarter of 2008, according to Robert F. Heinemann, president and chief executive officer. Discretionary cash flow for the third quarter totaled $60 million.
Items that affected net income for the quarter included a non-cash gain on hedges, the write-off of certain costs related to the Company's credit facility, a net gain on asset sales, and inventoried volumes from Poso Creek that were sold in the third quarter. In total, for the third quarter of 2009, these items increased net income by approximately $3.3 million, or $0.07 per diluted share for an adjusted third quarter net income of $15.7 million, or $0.34 per diluted share.
Mr. Heinemann said, "Production averaged 28,400 BOE/D for the third quarter of 2009 generating discretionary cash flow of $60 million with a total of only $22 million of capital expenditures. Strong cash flow along with the completion of our East Texas midstream sale allowed us to repay $78 million of debt during the quarter. With our $938 million borrowing base reconfirmed during October, our liquidity today is approximately $550 million. As we complete our 2009 program, we are also preparing for an increased level of activity in 2010. In the Diatomite we are installing additional infrastructure and steam generation capacity to prepare for our drilling program which should increase production to 5,000 BOE/D by year-end 2010. During the fourth quarter we will also initiate a steam flood pilot on our recently acquired McKittrick 21Z property and expand our successful steam flood pilot at Ethel D. These activities are supported by continued strong demand for California crude oil which allowed us during the third quarter to execute twelve month contracts for most of our California production."
Three Months' Results
Sales from oil and gas were $127 million in the third quarter of 2009 compared to $194 million in the same 2008 period due primarily to lower oil and natural gas prices. For the same period, operating costs were lower by $2.94 per BOE due to lower natural gas prices which reduces the cost of steam in California and the continued results of company-wide cost reduction initiatives. General and administrative costs were also lower by $0.78 per BOE as the Company continues to realize the benefits of its cost reduction efforts. Interest expense was higher by $6.5 million compared to the third quarter of 2008 as a result of issuing $450 million of 10.25% senior unsecured notes during the second and third quarters of 2009.
Michael Duginski, executive vice president and chief operating officer, stated, "Our operating cost reductions have remained solid with a 25% reduction year to date compared to 2008 levels. These cost reductions, along with a narrowed California crude oil differential, allowed us to generate margins of approximately $28.75 per BOE during the third quarter. Our N. Midway Diatomite production continues to perform as expected averaging 3,120 BOE/D in the third quarter, up 50% from the comparable 2008 quarter and up 7% from the second quarter of 2009. The necessary land work in E. Texas has been completed and we plan to spud our first horizontal Haynesville well in the Darco field in the fourth quarter of 2009. During the third quarter, we also tested high volume completions in the Piceance with a 25% improvement in our initial production rate compared to our historical field average. We expect to increase production in the fourth quarter of 2009 as we complete our 2009 capital program and continue to expect companywide production to average 30,000 BOE/D in 2009."
2010 Capital and Production Guidance
While the Company is finalizing its 2010 capital plans, capital spending for 2010 is expected to range between $220 million and $260 million. This capital will likely be allocated approximately 65% to oil projects to fund the Diatomite development, steamflood developments at McKittrick 21Z and Ethel D and drilling at Brundage Canyon. With this level of investment, production should increase approximately 5% with strong quarterly increases throughout the year.
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