With 97% of its current production in heavy oil from California, Berry Petroleum Co., Bakersfield, Calif., is diversifying through pilot programs to develop coalbed natural gas (CBNG) in Kansas and Illinois and a major acquisition this year that gave it an operating position in the Rocky Mountains.
"Our primary focus will be in the Rocky Mountains and the Midcontinent. We will diversify into gas and light oil through acquisitions that have high development potential," said Berry Petroleum Chairman, Pres., and CEO Jerry V. Hoffman in a recent meeting with financial analysts.
Pioneer spirit
Apparently the company retains the adventurous spirit of its late founder, Clarence J. Berry, who made one fortune in the Klondike gold rush of the 1890s and another drilling for oil in California's San Joaquin Valley in 1909 when he formed the firm.
Late last year, Berry Petroleum began a pioneer five-well CBNG pilot in Jasper County, Ill., to test Pennsylvanian coals in the deeper Illinois basin (OGJ Online, Oct. 15, 2002). The company subsequently began a second six-well CBNG pilot in the Pennsylvanian Cherokee group in the Forest City basin in Kansas (OGJ Online, Nov. 11, 2002). Berry earlier acquired mineral rights under more than 170,000 acres of private lands in the Cherokee basin of Kansas and Oklahoma, including 110,000 acres in a single transaction from El Paso Production Co. for an undisclosed sum.
When its initial Kansas CBNG pilot proved unsuccessful, the company sold 43,000 net acres of nonproducing leases in the Forest City basin to Evergreen Resources Inc., Denver, for an undisclosed cash sum while retaining an override (OGJ Online, July 28, 2003). However, Hoffman said the company still holds "a significant position in nearby acreage and intends to pursue other coalbed methane opportunities."
Berry bought Brundage Canyon properties in the Uinta basin of northeastern Utah from a unit of Williams Cos. Inc., Tulsa, for $49 million, to establish an operating position in the Rockies (OGJ Online, May 13, 2003). Those 43,500 net contiguous acres produce 2,200 net boe/d of light crude oil and natural gas. "This is our largest purchase yet, outside of California, and little of it is yet developed," Hoffman told analysts.
Berry has acquired more than 11 million boe of reserves this year. The company expects to make yet another acquisition "before the end of the year" that will build on its current holdings, Hoffman said. It's targeting future acquisitions at $75-100 million, with emphasis on natural gas.
Spurred to diversify
Berry was spurred to diversify by the California energy crisis of 2001. The company has three cogeneration plants on its California properties that provide 55% of the steam for its heavy oil operations and generate 98 Mw of electrical power, of which Berry uses 8 Mw and sells the rest into California's power grid.
But the sharp spike in natural gas prices in California in 2001 torpedoed utilities' purchases of cogen power. Berry was forced to reduce its production of power, steam, and heavy oil. Its total oil production fell to less than 13,000 b/d in third quarter 2001 from more than 15,500 b/d in fourth quarter 2000. "One thing we learned in the energy crisis is that we were exposed to natural gas [market fluctuations]," Hoffman observed.
Berry's total production since has climbed to 17,700 boe/d and could hit 20,000 boe/d by yearend. Its production target for 2004 is 21,000 boe/d before acquisitions, on an expected budget of $45-55 million.
The company is "financially secure" to grow, said Hoffman, with a debt-to-capitalization ratio of 23%, long-term debt of $55 million, and available credit of $200 million.