Estimated Net Present Value (NPV) of $40 a share is more than five times stock price for high-debt, hold-rated Berry Petroleum (BRY). Released today, fourth quarter results displayed lower unlevered cash flow (Ebitda) driven by crude oil and natural gas prices.
While our present value estimate remains reasonable for a long-term oil price of $75 a barrel, the implied unlevered multiple (PV/Ebitda) looks high because of low Ebitda for 2009. Berry’s oil operations have high fixed costs that increase the company’s sensitivity to oil price change. At the same time, our estimates of cash flow are before price insurance that mitigates the impact. We include the current market value of hedges in estimating debt.
Meanwhile, with a billion dollars of bank loans, BRY is close to its limit and has little cushion should credit or industry conditions decline further. On the brighter side pointing to expected oil price recovery, futures prices for the next six years averaged US$60 a barrel recently
Originally published on February 25, 2009.