Berry Petroleum Company

Berry Petroleum Company (BRY - Snapshot Report), the oil explorer, has seen its share price hammered as crude has sold off yet the company increased production 18% in 2008. The company has also hedged 90% of its oil production in 2009 to guard against losses. Berry Petroleum is cheap. It trades at only 3.9x forward earnings.

Company Description

Berry Petroleum is an independent exploration and production company with operations in California, Colorado, Texas and Utah.

As of Dec 31, 2008, proved oil and gas reserves had grown 45% to 246 million BOE compared to 169 million BOE at the end of 2007. The company's proved reserve mix was 51% oil and 49% natural gas by the end of 2008.

The company is geographically diverse, with 45% of proved reserves in California, 35% in the Rocky Mountain region and 20% in East Texas.

Berry Beat Wall Street Estimates by 26.09% in the Fourth Quarter

On Feb 24, Berry Petroleum reported fourth quarter and full year earnings which surprised analysts' estimates by 6 cents per share. Net income was a loss of $12 million, or a loss of 27 cents per share, compared to $32.3 million, or 71 cents, in the fourth quarter of 2007.

The loss was a result of the write-off of $38.5 million (pre-tax) of accounts receivable due from Big West of California as a result of its bankruptcy filing in Dec 2008.

Excluding the write-off, Berry earned 29 cents per share. Analysts expected 23 cents.

For the year, net income rose 3% to $2.94 from $2.89 in 2007. Total revenue jumped 37.6% to $802 million from $583 million in the year ago period. Operating cash flow was $410 million for the year compared to $239 million in 2007 due to strong mid-year commodity prices and increasing production.

2008 production rose 19% to an average of 31,970 barrels of oil equivalent per day (BOE/D) from the 26,900 BOE/D in 2007.

Outlook for 2009

The company is optimistic about 2009 despite falling commodity prices.

"We expect our 2009 operating cash flow to be between $175 and $200 million, which will fund our entire 2009 development program," said David Wolf, executive vice president and chief financial officer.

"Our hedge position makes our 2009 operating cash flow fairly insensitive to changes in commodity prices with a $10 change in WTI prices impacting our cash flow by approximately $2 million and a $1 change in Henry Hub prices impacting our cash flow by approximately $6 million."

The company will be hedging over 90% of its oil production, so that if WTI averages $40 per barrel, the realization will be $65.50 per barrel. It also expects to increase production slightly to 32,000 BOE/D.

2009 Consensus Estimates Rise

Given the company's outlook, covering analysts are bullish about 2009. Full year consensus estimates rose 17.9% to $1.71 in just the last week with 2 out of 4 analysts raising estimates.

Value Fundamentals

Berry Petroleum is a Zacks #1 Rank (strong buy) stock. It has surprised on estimates 3 out of the last 4 quarters by an average of 8.46%.

BRY is cheap, trading at only 3.9x forward earnings. Its price-to-book is just 0.36. The company has an outstanding 5-year average return on equity (ROE) of 30.01%.

Additionally, because of the recent drop in the share price, the company's dividend currently yields 4.51%.