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We believe Berry Petroleum (BRY) is priced near present value of $65 a share where it offers an unlevered 7% per year real return. Taking account of latest quarterly results, our correlation of 30 companies indicates net present value about $9 a share higher than estimated.

Neither the present value estimate nor the correlation includes the company’s diatomite project that has the promise of expanding reserves by a third, or more. An active Rocky Mountain exploration and development program appears promising. Our projections reflect the loss of favorable terms in a crude oil sales contract expiring at year end that fixed the difference between light, sweet crude oil and the company’s heavy grade.

Cash Flow and Reserve Life Point to Present Value

McDep analysis presumes that fundamental value is measured by the projection of cash flows far into the future and discounting them to the present at a rate of return, currently 7% a year before inflation. Next Twelve Months (NTM) cash flow represents the volumes and costs that form the base for future projections. Reserve life index tells how long cash flow will last. NTM cash flow and reserve life are the two main variables in our correlation by function for about 30 companies. Net present value indicated by the current combined correlation is about $9 a share higher than our ongoing standard estimate for the company:

BRY 1-yr chart:

Original publication: 11/4/05

Kurt Wulff's McDep Associates offers realtime, independent research services for investors in the energy and utilities sectors. For more information, go to www.mcdep.com or email Mr. Wulff at kurt@mcdep.com.

Source: Berry Petroleum 'Expanding On Multiple Fronts' (BRY)