Buy-recommended Berry Petroleum (BRY) offers unlevered appreciation potential of 11% to estimated net present value [NPV] of $65 a share. NPV jumped from $50 a share on May 13 when we raised long-term oil price for calculating present value to $100 from $80 a barrel.
A $620 million acquisition announced on June 10 concentrates NPV more on natural gas and extends geographical operations for the California and Rockies producer to Texas. Projected volumes along with current futures prices promise a continuing high level of unlevered cash flow (Ebitda).
Projected cash flow capitalized at unlevered multiples (PV/Ebitda) related to reserve life (Adjusted R/P) support NPV. Berry’s increase in natural gas emphasis to 42% of NPV appears timely considering the wide price gulf with oil. The company also takes advantage of time running out for sellers to deal before possible changes in taxation with a new government in Washington in 2009.
Originally published on June 16, 2008.