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Gold/Mining/Energy : ENERGY EXPLORATION & PRODUCTION

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From: Dennis Roth	8/2/2007 6:28:30 PM
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Remains Buy-rated, with attractive MLP catalysts and oil leverage - Goldman Sachs - August 02, 2007 What's changed Berry reported 2Q 2007 results that were generally in line with our expectations. Adjusted EPS of $0.52 was below our estimate of $0.62, mostly due to higher than expected DD&A expense. Operating cash flow of $59 million and production of 27.2 MBOE/d were each slightly ahead of our expectations. Management also issued an operational update and revised guidance. Key growth assets such as the Diatomite heavy oil field and the Piceance Basin appear on track. No material update was provided regarding Berry's willingness to create an MLP structure for some of the company's long-lived E&P assets, though we continue to believe management is actively evaluating the opportunity. Implications We believe Berry shares currently provide at least two attractive investment considerations that are not fully reflected in the company's valuation. First, we continue to see a significant gap between valuations of E&P corporations in the equities market versus the yields they seem capable of attaining in an MLP structure. We believe the value of Berry's California oil assets in today's MLP market would be much greater than what is currently being priced into BRY shares. Second, Berry has significant leverage to our bullish outlook for crude oil prices. In addition, Berry appears to be executing well in its key projects, though we do not anticipate any too-significant operating catalysts in the near-term. Valuation We see 23% upside for Berry shares to a $45 12-month target, based on net asset value and cash flow analyses. This compares favorably with the 10% upside we see for small-cap E&Ps and 4% upside for E&Ps generally. We continue to rate Berry a Buy, relative to a Neutral coverage view. Key risks Commodity price and interest rate volatility, in addition to drilling results, are the key risks to our target price.

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