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BRY > SEC Filings for BRY > Form 10-K on 28-Feb-2012All Recent SEC Filings

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Form 10-K for BERRY PETROLEUM CO


28-Feb-2012

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with Item 6. Selected Financial Data and the accompanying financial statements and related notes included elsewhere in this Annual Report on Form 10-K. The following discussion contains forward looking statements that reflect our future plans, estimates, beliefs and expected performance. Our actual results may differ materially because of a number of risks and uncertainties. Some of these risks and uncertainties are detailed in Part I, Item 1A. Risk Factors, and elsewhere in this Annual Report on Form 10-K.

Overview

Our results are directly related to the realized prices of oil, natural gas and electricity sold, the type and volume of oil and natural gas produced and electricity generated and the results of development, exploitation, acquisition and hedging activities. The realized prices for natural gas and electricity will fluctuate from one period to another due to regional market conditions and other factors, while oil prices are predominantly influenced by global supply and demand. Beginning in the second half of 2009 and through 2011, oil prices rebounded from the lows seen during the recent recession and financial crises. Natural gas prices have fallen significantly since their peak in the third quarter of 2008 and have remained low through 2011. The aggregate amount of oil and natural gas we produce may fluctuate based on the success of development and exploitation of oil and natural gas reserves pursuant to current reservoir management.

The principal influences on our operating costs include the cost of natural gas used in our steam operations and electrical generation, production rates, labor and equipment costs, maintenance expenses and production taxes. We have historically been a net producer of natural gas and have benefited operationally when natural gas prices increase. Our production of natural gas has, in the past, provided a form of natural hedge against rising steam costs. As our natural gas production continues to decrease and our use of natural gas for steaming operations increase, we may become a net consumer of natural gas and would no longer benefit operationally when natural gas prices increase.

Diatomite

We received a new full-field development approval in late July 2011 from the California Department of Conservation, Division of Oil, Gas and Geothermal Resources (DOGGR) with respect to our Diatomite assets. The approval contained operating requirements that were significantly more stringent than similar specifications contained in prior approvals from DOGGR. The development of our Diatomite assets and associated production growth were on track in 2011, but the implementation of these newer operating requirements negatively impacted the pace of drilling and steam injection, and this impact has continued into 2012. We are working constructively with DOGGR on the operating specifications for our Diatomite assets to enable an increase in the pace of our development.

On February 24, 2012, we received revisions to the July 2011 project approval letter, which, among other things, allow us to conduct mechanical integrity testing at least once every five years, rather than annually as provided in the original project approval letter. In addition, we are longer required to cease cyclic steaming operations on wells located within 150 feet of a failed well bore, subject to demonstrating to DOGGR that steam injection into such surrounding wells will be confined to the Diatomite zone. Our estimates of well performance and ultimate recovery for the asset remain unchanged. We are currently assessing the impact of the revised project approval letter on the development and operations of our Diatomite properties.


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