UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~June~~September 30, 2016



¨		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from_______________ to _______________

Commission file number 1-9735

BERRY PETROLEUM COMPANY, LLC

(Successor in interest to Berry Petroleum Company)

(Exact name of registrant as specified in its charter)



Delaware (State of incorporation or organization)		77-0079387 (I.R.S. Employer Identification Number)

600 Travis~~, Suite 5100~~

Houston, Texas 77002

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code:

(281) 840-4000

600 Travis, Suite 5100

Houston, Texas 77002

(Former address of principal executive offices)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No x

Pursuant to the terms of its senior note indentures, the registrant is a voluntary filer of reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, and has filed all such reports as required by its senior note indentures during the preceding 12 months.

The registrant meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q as it is an indirect wholly owned subsidiary of Linn Energy, LLC, which is a reporting company under the Securities Exchange Act of 1934 and which has filed with the SEC all materials required to be filed pursuant to Section 13, 14 or 15(d) thereof, and the registrant is therefore filing this Form 10-Q with a reduced disclosure format.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer x	Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

On December 16, 2013, the registrant was acquired (see Note 1 of Notes to Condensed Financial Statements), as a result of which 100% of its membership interest is currently held by a single member and the registrant deregistered its equity under the Securities Exchange Act of 1934.

TABLE OF CONTENTS

		Page
	Glossary of Terms	ii
	Part I – Financial Information
Item 1.	Financial Statements
	Condensed Balance Sheets as of June 30, 2016, and December 31, 2015	1
	Condensed Balance Sheets as of September 30, 2016, and December 31, 2015	1
	Condensed Statements of Operations for the three months and six months ended June 30, 2016, and June 30, 2015	2
	Condensed Statements of Operations for the three months and nine months ended September 30, 2016, and September 30, 2015	2
	Condensed Statement of Member’s Equity for the six months ended June 30, 2016	3
	Condensed Statement of Member’s Equity for the nine months ended September 30, 2016	3
	Condensed Statements of Cash Flows for the six months ended June 30, 2016, and June 30, 2015	4
	Condensed Statements of Cash Flows for the nine months ended September 30, 2016, and September 30, 2015	4
	Notes to Condensed Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4341
Item 4.	Controls and Procedures	4442
	Part II – Other Information
Item 1.	Legal Proceedings	4544
Item 1A.	Risk Factors	4544
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4948
Item 3.	Defaults Upon Senior Securities	4948
Item 4.	Mine Safety Disclosures	4948
Item 5.	Other Information	4948
Item 6.	Exhibits	5049
	Signatures	5150

Table of Contents

GLOSSARY OF TERMS

As commonly used in the oil and natural gas industry and as used in this Quarterly Report on Form 10-Q, the following terms have the following meanings:

Bbl. One stock tank barrel or 42 United States gallons liquid volume.

Bbls/d. Bbls per day.

Bcf. One billion cubic feet.

BOE. Barrel of oil equivalent, determined using the ratio of one Bbl of oil, condensate or natural gas liquids to six Mcf of natural gas.

BOE/d. BOE per day.

Btu. One British thermal unit, which is the heat required to raise the temperature of a one-pound mass of water from 58.5 degrees to 59.5 degrees Fahrenheit.

MBbls. One thousand barrels of oil or other liquid hydrocarbons.

MBbls/d. MBbls per day.

Mcf. One thousand cubic feet.

MMBbls. One million barrels of oil or other liquid hydrocarbons.

MBOE. One thousand barrels of oil equivalent.

MBOE/d. MBOE per day.

MMBOE. One million barrels of oil equivalent.

MMBtu. One million British thermal units.

MMcf. One million cubic feet.

MMcf/d. MMcf per day.

Mwh. One thousand kilowatts of electricity used continuously for one hour.

Mwh/d. Mwh per day.

NGL. Natural gas liquids, which are the hydrocarbon liquids contained within natural gas.

Table of Contents

PART I – FINANCIAL INFORMATION


Item 1.	Financial Statements

BERRY PETROLEUM COMPANY, LLC (DEBTOR-IN-POSSESSION)

CONDENSED BALANCE SHEETS

(Unaudited)

	June 30, 2016			December 31, 2015
	September 30, 2016			December 31, 2015
	(in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	1529,~~008~~647		$	1,023
Accounts receivable – trade, net	5147,~~304~~458			46,053
Derivative instruments	~~185~~—			13,218
Other current assets	19,~~213~~551			20,897
Total current assets	8596,~~710~~656			81,191
Noncurrent assets:
Oil and natural gas properties (successful efforts method)	5,~~019~~022,~~722~~076			5,011,061
Less accumulated depletion and amortization	(2,~~719~~755,~~219~~015		)	(1,596,165		)
	2,300,503			3,414,896
	2,267,061			3,414,896
Other property and equipment	~~118~~120,~~875~~317			111,495
Less accumulated depreciation	(1618,~~571~~659		)	(12,522		)
	102,304			98,973
	101,658			98,973
Restricted cash	197,~~418~~624			250,359
Other noncurrent assets	1718,~~548~~257			16,057
	214,966			266,416
	215,881			266,416
Total noncurrent assets	2,~~617~~584,~~773~~600			3,780,285
Total assets	$	2,~~703~~681,~~483~~256		$	3,861,476
LIABILITIES AND MEMBER’S EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	~~122~~104,~~892~~841		$	125,748
Derivative instruments	1,694			2,241
Current portion of long-term debt	~~874~~891,~~959~~259			873,175
Other accrued liabilities	2,~~810~~499			16,735
Total current liabilities	1,~~002~~000,~~355~~293			1,017,899
Long-term debt, net	—			845,368
Other noncurrent liabilities	~~180~~174,~~522~~423			212,050
Liabilities subject to compromise	~~852~~936,~~426~~798			—
Commitments and contingencies (Note 8)
Member’s equity:
Additional paid-in capital	2,798,713			2,798,713
Accumulated deficit	(2,~~130~~228,~~533~~971		)	(1,012,554		)
	668,180			1,786,159
	569,742			1,786,159
Total liabilities and member’s equity	$	2,~~703~~681,~~483~~256		$	3,861,476

The accompanying notes are an integral part of these condensed financial statements.

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BERRY PETROLEUM COMPANY, LLC (DEBTOR-IN-POSSESSION)

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months EndedJune 30,						Six Months EndedJune 30,
	Three Months EndedSeptember 30,						Nine Months EndedSeptember 30,
	2016			2015			2016			2015
	(in thousands)
Revenues and other:
Oil, natural gas and natural gas liquids sales	$	99102,~~831~~241		$	~~173~~140,~~381~~252		$	~~183~~285,~~297~~538		$	~~329~~470,~~967~~219
Electricity sales	58,~~118~~244			68,~~609~~610			917,~~329~~573			1120,~~760~~370
Gains (losses) on oil and natural gas derivatives	1,026			(4,474		)	1,534			(1,207		)
Gains on oil and natural gas derivatives	108			27,664			1,642			26,457
Marketing revenues	~~851~~859			~~839~~1,109			12,~~884~~743			34,~~220~~329
Other revenues	1,~~813~~773			1,~~535~~672			35,~~861~~634			35,~~431~~103
	108,639			177,890			199,905			347,171
	113,225			179,307			313,130			526,478
Expenses:
Lease operating expenses	4246,~~416~~048			4967,~~896~~341			92138,~~509~~557			~~117~~184,~~085~~426
Electricity generation expenses	34,~~941~~375			4,~~993~~759			712,~~743~~118			914,~~563~~322
Transportation expenses	108,~~945~~644			1213,~~978~~794			2332,~~874~~518			2539,~~584~~378
Marketing expenses	~~637~~883			~~1,005~~967			12,~~290~~173			23,~~080~~047
General and administrative expenses	2415,~~748~~393			3721,~~102~~564			4965,~~920~~313			5879,~~289~~853
Depreciation, depletion and amortization	4139,~~186~~951			63,~~052~~057			~~100~~139,~~029~~980			~~136~~199,~~031~~088
Impairment of long-lived assets	—			—510,631			1,030,588			~~272~~782,~~000~~631
Taxes, other than income taxes	9(3,~~995~~694		)	2214,~~196~~520			2420,~~308~~614			4560,~~528~~048
(Gains) losses on sale of assets and other, net	~~425~~(370		)	~~(811~~2,633		)	~~233~~(137		)	(52,~~284~~651		)
	134,293			190,411			1,330,494			660,876
	111,230			699,266			1,441,724			1,360,142
Other income and (expenses):
Interest expense, net of amounts capitalized	(1612,~~352~~415		)	(2221,~~690~~484		)	(3648,~~304~~719		)	(4465,~~111~~595		)
Gain on extinguishment of debt	—			64,~~831~~378			—			611,~~831~~209
Other, net	(7669		)	(~~463~~90		)	(1079		)	(~~633~~723		)
	(16,428		)	(16,322		)	(36,314		)	(37,913		)
	(12,484		)	(17,196		)	(48,798		)	(55,109		)
Reorganization items, net	49(87,~~086~~915		)	—			49(38,~~086~~829		)	—
Income (loss) before income taxes	7,004			(28,843		)	(1,117,817		)	(351,618		)
Loss before income taxes	(98,404		)	(537,155		)	(1,216,221		)	(888,773		)
Income tax expense (benefit)	~~164~~34			~~(11~~3		)	~~162~~196			(6158		)
Net income (loss)	$	6,840		$	(28,832	)	$	(1,117,979	)	$	(351,557	)
Net loss	$	(98,438	)	$	(537,158	)	$	(1,216,417	)	$	(888,715	)

The accompanying notes are an integral part of these condensed financial statements.

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BERRY PETROLEUM COMPANY, LLC (DEBTOR-IN-POSSESSION)

CONDENSED STATEMENT OF MEMBER’S EQUITY

(Unaudited)

	Additional Paid-In Capital		Accumulated Deficit			Total Member’s Equity
	(in thousands)
December 31, 2015	$	2,798,713	$	(1,012,554	)	$	1,786,159
Net loss	—		(1,~~117~~216,~~979~~417		)	(1,~~117~~216,~~979~~417		)
June 30, 2016	$	2,798,713	$	(2,130,533	)	$	668,180
September 30, 2016	$	2,798,713	$	(2,228,971	)	$	569,742

The accompanying notes are an integral part of these condensed financial statements.

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BERRY PETROLEUM COMPANY, LLC (DEBTOR-IN-POSSESSION)

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months EndedJune 30,
	Nine Months EndedSeptember 30,
	2016			2015
	(in thousands)
Cash flow from operating activities:
Net loss	$	(1,~~117~~216,~~979~~417	)	$	(~~351~~888,~~557~~715	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, depletion and amortization	~~100~~139,~~029~~980			~~136~~199,~~031~~088
Impairment of long-lived assets	1,030,588			~~272~~782,~~000~~631
Gain on extinguishment of debt	—			(611,~~831~~209		)
Amortization and write-off of deferred financing fees	~~602~~1,226			~~854~~1,121
Gains on sale of assets and other, net	(~~642~~874		)	(21,~~991~~521		)
Deferred income taxes	71			(6158		)
Reorganization items, net	~~(56~~22,~~968~~866		)	—
Derivatives activities:
Total (gains) losses	2,~~871~~963			(129,~~853~~355		)
Cash settlements	8,~~022~~007			3248,~~943~~054
Cash settlements on canceled derivatives	1,~~593~~701			—
Changes in assets and liabilities:
(Increase) decrease in accounts receivable – trade, net	(82,~~296~~839		)	1543,~~281~~709
(Increase) decrease in other assets	(13,~~035~~175		)	31,~~515~~519
Increase in accounts payable and accrued expenses	25,677			11,378
Increase (decrease) in accounts payable and accrued expenses	17,866			(15,171		)
Decrease in other liabilities	(2,556		)	(10,310		)
Increase (decrease) in other liabilities	1,306			(20,789		)
Net cash provided by (used in) operating activities	(18,023		)	98,399
Net cash provided by operating activities	3,269			109,304
Cash flow from investing activities:
Development of oil and natural gas properties	(1216,~~360~~168		)	(3,076		)
Purchases of other property and equipment	(710,~~599~~366		)	(212,~~982~~760		)
Settlement of advance to affiliate	—			129,217
Decrease in restricted cash	53,418			—
Proceeds from sale of properties and equipment and other	~~142~~172			1122,~~302~~486
Net cash provided by investing activities	3327,~~601~~056			5135,~~244~~867
Cash flow from financing activities:
Repayments of debt	(1,~~593~~701		)	(4555,~~353~~418		)
Financing fees and other, net	—			11
Distribution to affiliate	—			(57,223		)
Capital contributions from affiliate	—			148,678
Net cash used in financing activities	(1,593		)	(102,565		)
Distributions to affiliate	—			(57,223		)
Net increase in cash and cash equivalents	13,985			1,078
Net cash provided by (used in) financing activities	(1,701		)	36,048
Net increase in cash and cash equivalents	28,624			281,219
Cash and cash equivalents:
Beginning	1,023			1,586
Ending	$	1529,~~008~~647		$	2282,~~664~~805

The accompanying notes are an integral part of these condensed financial statements.

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BERRY PETROLEUM COMPANY, LLC (DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

Note 1 – Basis of Presentation

Nature of Business

Berry Petroleum Company, LLC (“Berry” or the “Company”) was formed as a Delaware limited liability company on December 16, 2013, and is an indirect wholly owned subsidiary of Linn Energy, LLC (“LINN Energy”) engaged in the production and development of oil and natural gas. The Company’s predecessor, Berry Petroleum Company, was publicly traded from 1987 until December 2013. On December 16, 2013, the Company completed the transactions contemplated by the merger agreement between LINN Energy, LinnCo, LLC (“LinnCo”), an affiliate of LINN Energy, and Berry under which LinnCo acquired all of the outstanding common shares of Berry and the contribution agreement between LinnCo and LINN Energy, under which LinnCo contributed Berry to LINN Energy in exchange for LINN Energy units. Linn Acquisition Company, LLC, a direct subsidiary of LINN Energy, is currently the Company’s sole member.

The Company’s properties are located in the United States (“U.S.”), in California (San Joaquin Valley and Los Angeles basins), Kansas and the Oklahoma Panhandle (Hugoton Basin), Utah (Uinta Basin), Colorado (Piceance Basin) and east Texas.

Principles of Reporting

The information reported herein reflects all normal recurring adjustments that are, in the opinion of management, necessary for the fair presentation of the results for the interim periods. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted under Securities and Exchange Commission (“SEC”) rules and regulations; as such, this report should be read in conjunction with the financial statements and notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. The results reported in these unaudited condensed financial statements should not necessarily be taken as indicative of results that may be expected for the entire year.

Investments in noncontrolled entities over which the Company exercises significant influence are accounted for under the equity method.

The condensed financial statements for previous periods include certain reclassifications that were made to conform to current presentation. Such reclassifications have no impact on previously reported net income (loss), member’s equity or cash flows.

Bankruptcy Accounting

As discussed further in Note 2, on May 11, 2016 (the “Petition Date”), the Company, LINN Energy and LinnCo (collectively, the “Debtors”), filed voluntary petitions (“Bankruptcy Petitions”) for relief under Chapter 11 of the U.S. Bankruptcy Code (“Bankruptcy Code”) in the U.S. Bankruptcy Court for the Southern District of Texas (“Bankruptcy Court”). During the pendency of the Chapter 11 proceedings, the Debtors will operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code.

The condensed financial statements have been prepared as if the Company is a going concern and reflect the application of Accounting Standards Codification 852 “Reorganizations” (“ASC 852”). ASC 852 requires that the financial statements, for periods subsequent to the Chapter 11 filing, distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain expenses, gains and losses that are realized or incurred in the bankruptcy proceedings are recorded in “reorganization items, net” on the Company’s condensed statements of operations. In addition, prepetition unsecured and under-secured obligations that may be impacted by the bankruptcy reorganization process have been classified as “liabilities subject to compromise” on the Company’s condensed balance sheet at ~~June~~September 30, 2016. These liabilities are reported at the amounts expected to be allowed as claims by the Bankruptcy Court, although they may be settled for less.

The accompanying condensed financial statements do not purport to reflect or provide for the consequences of the Chapter 11 proceedings. In particular, the condensed financial statements do not purport to show: (i) the realizable value of assets on a ~~liquidation basis or their availability to satisfy liabilities; (ii) the amount of prepetition liabilities that may be allowed for claims~~

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BERRY PETROLEUM COMPANY, LLC (DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED FINANCIAL STATEMENTS – Continued

(Unaudited)

liquidation basis or their availability to satisfy liabilities; (ii) the amount of prepetition liabilities that may be allowed for claims or contingencies, or the status and priority thereof; (iii) the effect on member’s equity accounts of any changes that may be made to the Company’s capitalization; or (iv) the effect on operations of any changes that may be made to the Company’s business. While operating as debtor-in-possession under Chapter 11 of the Bankruptcy Code, the Company may sell or otherwise dispose of or liquidate assets or settle liabilities in amounts other than those reflected on its condensed financial statements, subject to the approval of the Bankruptcy Court or otherwise as permitted in the ordinary course of business. Further, a plan of reorganization could materially change the amounts and classifications on the Company’s historical condensed financial statements.

Use of Estimates

The preparation of the accompanying condensed financial statements in conformity with GAAP requires management of the Company to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amount of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. The estimates that are particularly significant to the financial statements include estimates of the Company’s reserves of oil, natural gas and natural gas liquids (“NGL”), future cash flows from oil and natural gas properties, depreciation, depletion and amortization, asset retirement obligations, certain revenues and operating expenses, fair values of commodity derivatives and fair values of assets acquired and liabilities assumed. As fair value is a market-based measurement, it is determined based on the assumptions that market participants would use. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. Such estimates and assumptions are adjusted when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ from these estimates. Any changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.

Recently Issued Accounting Standards

In February 2016, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) that is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet. This ASU will be applied retrospectively as of the date of adoption and is effective for fiscal years beginning after December 15, 2018, and interim periods within those years (early adoption permitted). The Company is currently evaluating the impact of the adoption of this ASU on its financial statements and related disclosures.

In November 2015, the FASB issued an ASU that is intended to simplify the presentation of deferred taxes by requiring that all deferred taxes be classified as noncurrent, presented as a single noncurrent amount for each tax-paying component of an entity. The ASU is effective for fiscal years beginning after December 15, 2016; however, the Company early adopted it on January 1, 2016, on a retrospective basis. The adoption of this ASU did not have a material impact on the Company’s financial statements or related disclosures.

In April 2015, the FASB issued an ASU that is intended to simplify the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The Company adopted this ASU on January 1, 2016, on a retrospective basis. The adoption of this ASU had no impact on the Company’s financial statements or related disclosures, as the Company’s only debt issuance costs relate to the Credit Facility, as defined in Note 4, which were not reclassified.

In August 2014, the FASB issued an ASU that provides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. This ASU is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter (early adoption permitted). The Company does not expect the adoption of this ASU to have a material impact on its financial statements or related disclosures.

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BERRY PETROLEUM COMPANY, LLC (DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED FINANCIAL STATEMENTS – Continued

(Unaudited)

In May 2014, the FASB issued an ASU that is intended to improve and converge the financial reporting requirements for revenue from contracts with customers. This ASU will be applied either retrospectively or as a cumulative-effect adjustment as of the date of adoption and is effective for fiscal years beginning after December 15, 2017, and interim periods within those years (early adoption permitted for fiscal years beginning after December 15, 2016, including interim periods within that year). The Company is currently evaluating the impact, if any, of the adoption of this ASU on its financial statements and related disclosures.

Note 2 – Chapter 11 Proceedings, Ability to Continue as a Going Concern and Covenant Violations

Chapter 11 Proceedings

On the Petition Date, the Debtors filed Bankruptcy Petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The Debtors’ Chapter 11 cases are being administered jointly under the caption In re Linn Energy, LLC., et al., Case No. 16‑60040.

The Debtors are operating their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code. The Bankruptcy Court has granted certain relief requested by the Debtors, allowing the Company to use its cash to fund the Chapter 11 proceedings, pursuant to an agreement with the first lien lenders, and giving the Company the authority to, among other things, continue to utilize its current cash management system and to make royalty payments. During the pendency of the Chapter 11 proceedings, all transactions outside the ordinary course of the Company’s business require prior approval of the Bankruptcy Court. For goods and services provided following the Petition Date, the Company intends to pay vendors in full under normal terms.

~~Restructuring~~Bank ~~Support Agreement~~RSA

Prior to the Petition Date, on May 10, 2016, the Debtors entered into a restructuring support agreement (“~~Restructuring~~Bank ~~Support Agreement~~RSA”) with certain holders (“Consenting Bank Creditors”) collectively holding or controlling at least 66.67% by aggregate outstanding principal amounts under (i) the Company’s Second Amended and Restated Credit Agreement (“Credit Facility”) and (ii) LINN Energy’s Sixth Amended and Restated Credit Agreement (“LINN Credit Facility”).

The ~~Restructuring~~Bank ~~Support~~RSA ~~Agreement~~ sets forth, subject to certain conditions, the commitment of the Consenting Bank Creditors to support a comprehensive restructuring of the Debtors’ long-term debt ~~(“Restructuring Transactions”)~~. The ~~Restructuring~~restructuring ~~Transactions~~transactions contemplated by the Bank RSA will be effectuated through one or more plans of reorganization (“Plan”) ~~to be~~ filed in the Chapter 11 proceedings.

The ~~Restructuring~~Bank ~~Support~~RSA ~~Agreement~~ provides that the Consenting Bank Creditors will support the use of Berry’s cash collateral under specified terms and conditions, including adequate protection terms. The ~~Restructuring~~Bank ~~Support~~RSA ~~Agreement~~ obligates the Debtors and the Consenting Bank Creditors to, among other things, support and not interfere with consummation of the ~~Restructuring~~restructuring ~~Transactions~~transactions contemplated by the Bank RSA and, as to the Consenting Bank Creditors, vote their claims in favor of the Plan. The ~~Restructuring~~Bank ~~Support~~RSA ~~Agreement~~ may be terminated upon the occurrence of certain events, including the failure to meet specified milestones relating to, among other requirements, the filing, confirmation and consummation of the Plan, and in the event of certain breaches by the parties ofunder ~~certain provisions of~~ the ~~Restructuring~~Bank ~~Support Agreement~~RSA. The ~~Restructuring~~Bank ~~Support~~RSA ~~Agreement~~ is subject to termination if the effective date of the Plan has not occurred within 250 days of the Petition Date. There can be no assurance that the ~~Restructuring~~restructuring ~~Transactions~~transactions contemplated by the Bank RSA will be consummated.

Magnitude of Potential Claims

On July 11, 2016, the Debtors filed with the Bankruptcy Court schedules and statements setting forth, among other things, the assets and liabilities of the Debtors, subject to the assumptions filed in connection therewith. The schedules and statements may be subject to further amendment or modification after filing. Holders of prepetition claims ~~will~~are be required to file proofs of claims by the applicable deadline for filing certain proofs of claims in the Debtors’ Chapter 11 cases~~. The~~, ~~court~~which ~~has~~was ~~not~~September 16, ~~yet~~2016, ~~confirmed~~for ~~the~~general claims ~~deadlines~~and November 7, 2016, for governmental claims. Differences between amounts scheduled by the Debtors and claims by creditors will be investigated and resolved in connection with the claims resolution process.

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BERRY PETROLEUM COMPANY, LLC (DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED FINANCIAL STATEMENTS – Continued

(Unaudited)

Liabilities Subject to Compromise

The Company’s condensed balance sheet includes amounts classified as “liabilities subject to compromise,” which represent prepetition liabilities that have been allowed, or that the Company anticipates will be allowed, as claims in its Chapter 11 cases. The amounts represent the Company’s current estimate of known or potential obligations to be resolved in connection with the Chapter 11 proceedings. The differences between the liabilities the Company has estimated and the claims filed, or to be filed, will be investigated and resolved in connection with the claims resolution process. The Company will continue to evaluate these liabilities throughout the Chapter 11 process and adjust amounts as necessary. Such adjustments may be material.

The following table summarizes the components of liabilities subject to compromise included on the condensed balance sheet:

	June 30, 2016
	September 30, 2016
	(in thousands)
Accounts payable and accrued expenses	$	387,~~388~~760
Accrued interest payable	15,238
Debt	833,800
Liabilities subject to compromise	$	~~852~~936,~~426~~798

Reorganization Items, Net

The Company has incurred and is expected to continue to incur significant costs associated with the reorganization. These costs, which are expensed as incurred, are expected to significantly affect the Company’s results of operations. Reorganization items represent costs and income directly associated with the Chapter 11 proceedings since the Petition Date, and also include adjustments to reflect the carrying value of certain liabilities subject to compromise at their estimated allowed claim amounts, as such adjustments are determined.

The following table summarizes the components of reorganization items included on the condensed statements of operations:

	Three Months and Six Months Ended June 30, 2016
	Three Months Ended September 30, 2016			Nine Months Ended September 30, 2016
	(in thousands)
Legal and other professional advisory fees	$	(78,~~059~~890	)	$	(15,949	)
Unamortized premiums	~~10,923~~—			10,923
Terminated contracts	45(79,~~109~~834		)	(34,725		)
Other	~~113~~809			922
Reorganization items, net	$	49(87,~~086~~915	)	$	(38,829	)

~~Effect~~Rejection of ~~Filing~~Executory ~~on Creditors~~Contracts

Subject to certain exceptions, under the Bankruptcy Code, the ~~filing~~Debtors may assume, assign or reject certain executory contracts and unexpired leases subject to the approval of the Bankruptcy ~~Petitions~~Court ~~automatically~~and ~~enjoined,~~satisfaction orof ~~stayed~~certain other conditions. Generally, the ~~continuation~~rejection of ~~most~~an ~~judicial~~executory contract or ~~administrative~~unexpired ~~proceedings~~lease oris ~~filing~~treated ofas ~~other~~a ~~actions~~prepetition ~~against~~breach ~~the~~of ~~Debtors~~such orexecutory ~~their~~contract ~~property~~or tounexpired ~~recover~~lease and, ~~collect~~subject orto ~~secure~~certain aexceptions, ~~claim~~relieves ~~arising~~the ~~prior~~Debtors toof ~~the~~performing ~~Petition~~their ~~Date. Absent~~future anobligations ~~order~~under ofsuch ~~the~~executory ~~Bankruptcy~~contract ~~Court,~~or ~~substantially~~unexpired ~~all~~lease ofbut entitles the ~~Debtors’~~contract ~~prepetition~~counterparty ~~liabilities~~or ~~are~~lessor ~~subject~~ to ~~settlement~~a ~~under~~prepetition ~~the~~general ~~Bankruptcy~~unsecured ~~Code. Although~~claim ~~the~~for ~~filing~~damages ofcaused ~~Bankruptcy~~by ~~Petitions~~such ~~triggered~~deemed ~~defaults~~breach. Counterparties onto ~~the~~such ~~Debtors’~~rejected ~~debt~~contracts ~~obligations,~~or ~~creditors~~leases ~~are~~may ~~stayed~~assert ~~from~~unsecured ~~taking~~claims ~~any~~in ~~actions~~the Bankruptcy Court against the applicable Debtors’ asestate afor ~~result~~damages. Generally, ofthe ~~such~~assumption ~~defaults,~~of ~~subject~~an toexecutory ~~certain~~contract ~~limited~~or ~~exceptions~~unexpired ~~permitted~~lease byrequires the ~~Bankruptcy~~Debtors ~~Code. The~~to ~~Company~~cure ~~did~~existing ~~not~~monetary ~~record~~defaults ~~interest~~under ~~expense~~such onexecutory ~~its~~contract ~~senior~~or ~~notes~~unexpired ~~for~~lease ~~the~~and ~~period~~provide ~~from~~adequate ~~May 12,~~assurance ~~2016,~~of ~~through~~future ~~June 30, 2016~~performance. ~~For that period~~Accordingly, ~~contractual~~any ~~interest~~description onof ~~the~~an ~~senior~~executory ~~notes~~contract ~~was~~or ~~approximately~~unexpired $7lease ~~million.~~

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BERRY PETROLEUM COMPANY, LLC (DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED FINANCIAL STATEMENTS – Continued

(Unaudited)

with any of the Debtors in this Quarterly Report on Form 10-Q, including where applicable a quantification of the Company’s obligations under any such executory contract or unexpired lease with the applicable Debtor, is qualified by any overriding rejection rights the Company has under the Bankruptcy Code. Further, nothing herein is or shall be deemed an admission with respect to any claim amounts or calculations arising from the rejection of any executory contract or unexpired lease and the Debtors expressly preserve all of their rights with respect thereto.

Effect of Filing on Creditors

Subject to certain exceptions, under the Bankruptcy Code, the filing of Bankruptcy Petitions automatically enjoined, or stayed, the continuation of most judicial or administrative proceedings or filing of other actions against the Debtors or their property to recover, collect or secure a claim arising prior to the Petition Date. Absent an order of the Bankruptcy Court, substantially all of the Debtors’ prepetition liabilities are subject to settlement under the Bankruptcy Code. Although the filing of Bankruptcy Petitions triggered defaults on the Debtors’ debt obligations, creditors are stayed from taking any actions against the Debtors as a result of such defaults, subject to certain limited exceptions permitted by the Bankruptcy Code. The Company did not record interest expense on its senior notes for the three months ended September 30, 2016, or for the period from May 12, 2016, through September 30, 2016. For those periods, unrecorded contractual interest was approximately $14 million and $21 million, respectively.

The ultimate recovery to creditors, if any, will not be determined until confirmation and implementation of a plan or plans of reorganization. No assurance can be given as to what values, if any, will be ascribed in the Chapter 11 proceedings to each of these constituencies or what types or amounts of settlements, if any, they will receive. A plan of reorganization could result in holders of the Debtors’ liabilities receiving no settlement on account of their interests and cancellation of their holdings.

Appointment of Creditors Committee

On May 23, 2016, the Bankruptcy Court appointed the official committee for unsecured creditors (the “Creditors Committee”). The Creditors Committee and its legal representatives have a right to be heard on all matters that come before the Bankruptcy Court with respect to the Debtors.

Rejection of Executory Contracts

Subject to certain exceptions, under the Bankruptcy Code, the Debtors may assume, assign or reject certain executory contracts and unexpired leases subject to the approval of the Bankruptcy Court and satisfaction of certain other conditions. Generally, the rejection of an executory contract or unexpired lease is treated as a prepetition breach of such executory contract or unexpired lease and, subject to certain exceptions, relieves the Debtors of performing their future obligations under such executory contract or unexpired lease but entitles the contract counterparty or lessor to a prepetition general unsecured claim for damages caused by such deemed breach. Counterparties to such rejected contracts or leases may assert unsecured claims in the Bankruptcy Court against the applicable Debtors’ estate for damages. Generally, the assumption of an executory contract or unexpired lease requires the Debtors to cure existing monetary defaults under such executory contract or unexpired lease and provide adequate assurance of future performance. Accordingly, any description of an executory contract or unexpired lease with any of the Debtors in this Quarterly Report on Form 10-Q, including where applicable a quantification of the Company’s obligations under any such executory contract or unexpired lease with the applicable Debtor, is qualified by any overriding rejection rights the Company has under the Bankruptcy Code. Further, nothing herein is or shall be deemed an admission with respect to any claim amounts or calculations arising from the rejection of any executory contract or unexpired lease and the Debtors expressly preserve all of their rights with respect thereto.

Process for Plan of Reorganization

In order to successfully exit bankruptcy, the Debtors will need to propose, and obtain confirmation by the Bankruptcy Court of, a Plan that satisfies the requirements of the Bankruptcy Code. A Plan would, among other things, resolve the Debtors’ prepetition obligations, set forth the revised capital structure of the newly reorganized entity and provide for corporate governance subsequent to exit from bankruptcy.

The Debtors have an exclusive right to file a Plan within 120 days from the Petition Date, subject to an extension for cause. If the Debtors’ exclusive filing period lapses, any party in interest may file a Plan for any of the Debtors.

In addition to being voted on by holders of impaired claims, a Plan must satisfy certain requirements of the Bankruptcy Code and must be approved, or confirmed, by the Bankruptcy Court in order to become effective. A Plan would be accepted by holders of claims against the Debtors if at least one-half in number and two-thirds in dollar amount of claims actually voting in each class of claims impaired by the Plan have voted to accept the Plan. A class of claims that does not receive or retain any property under the Plan on account of such claims or interests is deemed to have voted to reject the Plan.

Under certain circumstances set forth in Section 1129(b) of the Bankruptcy Code, the Bankruptcy Court may confirm a Plan even if such Plan has not been accepted by all impaired classes of claims and equity interests. The precise requirements and evidentiary showing for confirming a Plan notwithstanding its rejection by one or more impaired classes of claims depends upon a number of factors, including the status and seniority of the claims in the rejecting class (i.e., unsecured or secured claims, subordinated or senior claims).

~~The~~On ~~timing of filing a Plan by the Debtors will depend on the timing and outcome of numerous other ongoing matters in the Chapter~~October 1121, ~~proceedings. Although~~2016, the Debtors ~~expect~~filed ~~to file~~ a proposed Plan ~~that~~with ~~provides for emergence from bankruptcy as a going concern, there can be no assurance at this time that~~ the ~~Debtors~~Bankruptcy ~~will be able to successfully develop, confirm and consummate one or more plans of reorganization or other alternative restructuring transactions, including a sale of all or substantially all of~~ Court.

Ability to Continue as a Going Concern

Continued low commodity prices have resulted in significantly lower levels of cash flow from operating activities and have limited the Company’s ability to access the capital markets. In addition, the Company’s Credit Facility is subject to scheduled redeterminations of its borrowing base, semi-annually, based primarily on reserve reports using lender commodity price expectations at such time. The lenders under the Credit Facility agreed to defer the April 2016 borrowing base redetermination to May 11, 2016. Continued low commodity prices, reductions in the Company’s capital budget and the resulting reserve write-downs were expected to adversely impact upcoming redeterminations and have a significant negative impact on the Company’s liquidity. The Company’s filing of the Bankruptcy Petitions constituted an event of default that accelerated the Company’s obligations under its Credit Facility and its senior notes.

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BERRY PETROLEUM COMPANY, LLC (DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED FINANCIAL STATEMENTS – Continued

(Unaudited)

the Debtors’ assets, that satisfies the conditions of the Bankruptcy Code and is confirmed by the Bankruptcy Court, or that any such Plan will be implemented successfully.

As of August 11, 2016, the Debtors have not yet filed a Plan.

Ability to Continue as a Going Concern

Continued low commodity prices have resulted in significantly lower levels of cash flow from operating activities and have limited the Company’s ability to access the capital markets. In addition, the Company’s Credit Facility is subject to scheduled redeterminations of its borrowing base, semi-annually in April and October, based primarily on reserve reports using lender commodity price expectations at such time. The lenders under the Credit Facility agreed to defer the April 2016 borrowing base redetermination to May 11, 2016. Continued low commodity prices, reductions in the Company’s capital budget and the resulting reserve write-downs were expected to adversely impact upcoming redeterminations and have a significant negative impact on the Company’s liquidity. The Company’s filing of the Bankruptcy Petitions constituted an event of default that accelerated the Company’s obligations under its Credit Facility and its senior notes.

The significant risks and uncertainties related to the Company’s liquidity and Chapter 11 proceedings described above raise substantial doubt about the Company’s ability to continue as a going concern. The condensed financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities and commitments in the normal course of business. The condensed financial statements do not include any adjustments that might result from the outcome of the going concern uncertainty. If the Company cannot continue as a going concern, adjustments to the carrying values and classification of its assets and liabilities and the reported amounts of income and expenses could be required and could be material.

In order to decrease the Company’s level of indebtedness and maintain the Company’s liquidity at levels sufficient to meet its commitments, the Company undertook a number of actions, including minimizing capital expenditures and further reducing its recurring operating expenses. Despite taking these actions, the Company did not have sufficient liquidity to satisfy its debt service obligations, meet other financial obligations and comply with its debt covenants. As a result, the Debtors filed Bankruptcy Petitions for relief under Chapter 11 of the Bankruptcy Code.

Covenant Violations

The Company’s filing of the Bankruptcy Petitions constituted an event of default that accelerated the Company’s obligations under its Credit Facility and its senior notes. Additionally, other events of default, including cross-defaults, are present, including the failure to make interest payments on ~~certain of~~ the Company’s senior notes and the receipt of a going concern explanatory paragraph from the Company’s independent registered public accounting firm on the Company’s financial statements for the year ended December 31, 2015. Under the Bankruptcy Code, the creditors under these debt agreements are stayed from taking any action against the Company as a result of an event of default. See Note 4 for additional details about the Company’s debt.

Credit Facility

The Company’s Credit Facility contains a requirement to deliver audited financial statements without a going concern or like qualification or exception. Consequently, the filing of the Company’s 2015 Annual Report on Form 10-K which included such explanatory paragraph resulted in a default under the Credit Facility as of the filing date, March 28, 2016, subject to a 30 day grace period.

On April 12, 2016, the Company entered into an amendment to the Credit Facility. The amendment provided for, among other things, an agreement that (i) certain events ~~(the “Specified Events”)~~ would not become defaults or events of default until May 11, 2016, (ii) the borrowing base would remain constant until May 11, 2016, unless reduced as a result of swap agreement terminations or collateral sales, (iii) the Company would have access to $45 million in cash that iswas ~~currently~~previously restricted in order to fund ordinary course operations and (iv) the Company, the administrative agent and the lenders would negotiate in good faith the terms of a restructuring support agreement in furtherance of a restructuring of the capital structure of the Company.

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BERRY PETROLEUM COMPANY, LLC (DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED FINANCIAL STATEMENTS – Continued

(Unaudited)

Pursuant to the amendment, the Specified Events consisted of:

• The receipt of a going concern qualification or explanatory statement in the auditors’ report on the Company’s financial statements for the year ended December 31, 2015;

• The receipt of a going concern qualification or explanatory statement in the auditors’ report on LINN Energy’s consolidated financial statements for the year ended December 31, 2015;

• The failure of the Company or LINN Energy to make certain interest payments on their unsecured notes;

• The failure to maintain the ratio of Adjusted EBITDAX to Interest Expense (as each term is defined in the Credit Facility) (“Interest Coverage Ratio”);

• Any cross-defaults that may arise on account of any of the foregoing, provided that no event of default is continuing under any document giving rise to such cross default; and

• Any failure to provide notice of any of the events described above.

As a condition to closing the amendment, the Company provided control agreements over certain deposit accounts.

Senior Notes

The Company deferred making an interest payment totaling approximately $18 million due March 15, 2016, on the Company’s 6.375% senior notes due September 2022, which resulted in the Company being in default under these senior notes. The indenture governing the notes provided the Company a 30 day grace period to make the interest payment.

On April 14, 2016, within the 30 day interest payment grace period provided for in the indenture governing the notes, the Company made an interest payment of approximately $18 million in satisfaction of its obligations.

The Company failed to make an interest ~~payment~~payments ~~of approximately $9 million~~ due ~~May 1, 2016,~~ on ~~the~~its ~~Company’s 6.75%~~ senior notes ~~due~~subsequent ~~November~~to ~~2020~~April 14, 2016.

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BERRY PETROLEUM COMPANY, LLC (DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED FINANCIAL STATEMENTS – Continued

(Unaudited)

The filing of the Bankruptcy Petitions constituted an event of default that accelerated the Company’s obligations under the indentures governing the senior notes. However, under the Bankruptcy Code, holders of the senior notes are stayed from taking any action against the Company as a result of the default.

Note 3 – Oil and Natural Gas Properties

Oil and Natural Gas Capitalized Costs

Aggregate capitalized costs related to oil, natural gas and NGL production activities with applicable accumulated depletion and amortization are presented below:

	June 30, 2016			December 31, 2015
	September 30, 2016			December 31, 2015
	(in thousands)
Oil and natural gas:
Proved properties	$	4,~~246~~248,~~192~~546		$	4,231,836
Unproved properties	773,530			779,225
	5,019,722			5,011,061
	5,022,076			5,011,061
Less accumulated depletion and amortization	(2,~~719~~755,~~219~~015		)	(1,596,165		)
	$	2,~~300~~267,~~503~~061		$	3,414,896

Impairment of Proved Properties

The Company evaluates the impairment of its proved oil and natural gas properties on a field-by-field basis whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The carrying values of proved properties are reduced to fair value when the expected undiscounted future cash flows of proved and risk-adjusted probable and possible reserves are less than net book value. The fair values of proved properties are measured using valuation techniques consistent with the income approach, converting future cash flows to a single discounted amount. Significant inputs used to determine the fair values of proved properties include estimates of: (i) reserves; (ii) future operating and development costs; (iii) future commodity prices; and (iv) a market-based weighted average cost of capital rate. These inputs require significant judgments and estimates by the Company’s management at the time of the valuation and are the most sensitive and subject to change.

Based on the analysis described above, the Company recorded the following noncash impairment charges (before and after tax) associated with proved oil and natural gas properties:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
	(in thousands)

California operating area	$	—	$	330,311	$	984,288	$	537,511
Uinta Basin operating area	—		111,339		26,677		111,339
East Texas operating area	—		13,637		6,387		78,437
Piceance Basin operating area	—		55,344		—		55,344
	$	—	$	510,631	$	1,017,352	$	782,631

The Company recorded no impairment charges for proved properties for the three months ended September 30, 2016. The impairment charges in 2016 were due to a decline in commodity prices, changes in expected capital development and a decline in the Company’s estimates of proved reserves. The impairment charges in 2015 were due to a decline in commodity prices and the Company’s estimates of proved reserves. The carrying values of the impaired proved properties were reduced to fair value,

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BERRY PETROLEUM COMPANY, LLC (DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED FINANCIAL STATEMENTS – Continued

(Unaudited)

~~Impairment~~estimated using inputs characteristic of ~~Proved~~a ~~Properties~~Level 3 fair value measurement. The impairment charges are included in “impairment of long-lived assets” on the condensed statements of operations.

Based on the analysis described above, the Company recorded the following noncash impairment charges (before and after tax) associated with proved oil and natural gas properties:

	Six Months EndedJune 30,
	2016		2015
	(in thousands)
California operating area	$	984,288	$	207,200
Uinta Basin operating area	26,677		—
East Texas operating area	6,387		64,800
	$	1,017,352	$	272,000

The Company recorded no impairment charges for proved properties for the three months ended June 30, 2016, or June 30, 2015. The impairment charges in 2016 were due to a decline in commodity prices, changes in expected capital development and a decline in the Company’s estimates of proved reserves. The impairment charges in 2015 were due to a decline in commodity prices. The carrying values of the impaired proved properties were reduced to fair value, estimated using inputs characteristic of a Level 3 fair value measurement. The impairment charges are included in “impairment of long-lived assets” on the condensed statements of operations.

Impairment of Unproved Properties

The Company evaluates the impairment of its unproved oil and natural gas properties whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The carrying values of unproved properties are reduced to fair value based on management’s experience in similar situations and other factors such as the lease terms of the properties and the relative proportion of such properties on which proved reserves have been found in the past. For the ~~six~~nine months ended ~~June~~September 30, 2016, the Company recorded noncash impairment charges (before and after tax) of approximately $13 million associated with unproved oil and natural gas properties in California. The Company recorded no impairment charges for unproved properties for the three months ended ~~June~~September 30, 2016, or the ~~six~~nine months ended ~~June~~September 30, 2015.

The impairment charges in 2016 were due to a decline in commodity prices and changes in expected capital development. The carrying values of the impaired unproved properties were reduced to fair value, estimated using inputs characteristic of a Level 3 fair value measurement. The impairment charges are included in “impairment of long-lived assets” on the condensed statement of operations.

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BERRY PETROLEUM COMPANY, LLC (DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED FINANCIAL STATEMENTS – Continued

(Unaudited)

Note 4 – Debt

The following summarizes the Company’s outstanding debt:

	June 30,2016			December 31, 2015
	September 30,2016			December 31, 2015
	(in thousands, except percentages)
Credit facility (1)	$	~~874~~891,~~959~~259		$	873,175
6.75% senior notes due November 2020	261,100			261,100
6.375% senior notes due September 2022	572,700			572,700
Net unamortized premiums (2)	—			11,568
Total debt, net	1,~~708~~725,~~759~~059			1,718,543
Less current portion (3)	(~~874~~891,~~959~~259		)	(873,175		)
Less liabilities subject to compromise (4)	(833,800		)	—
Long-term debt, net	$	—		$	845,368

(1) Variable interest rates of 5.25% and 3.17% at ~~June~~September 30, 2016, and December 31, 2015, respectively.


⁽²⁾	Approximately $11 million in premiums were written off to reorganization items in connection with the filing of the Bankruptcy Petitions.

(3) Due to existing and anticipated covenant violations, the Company’s credit facility was classified as current at ~~June~~September 30, 2016, and December 31, 2015.

(4) The Company’s senior notes were classified as liabilities subject to compromise at ~~June~~September 30, 2016.

Fair Value

The Company’s debt is recorded at the carrying amount on the condensed balance sheets. The carrying amount of the Company’s Credit Facility, as defined below, approximates fair value because the interest rate is variable and reflective of market rates. The Company uses a market approach to determine the fair value of its senior notes using estimates based on prices quoted from third-party financial institutions, which is a Level 2 fair value measurement.

June 30, 2016

December 31, 2015

September 30, 2016

December 31, 2015

Carrying Value

Fair Value

Carrying Value

Fair Value

(in thousands)

Senior notes, net

833,800

~~280~~455,~~365~~463

845,368

200,249

Credit Facility

The Company’s Second Amended and Restated Credit Agreement (“Credit Facility”) provides for a senior secured revolving credit facility, subject to the then-effective borrowing base. The maturity date is April 2019. At ~~June~~September 30, 2016, the Company had approximately $898 million in total borrowings outstanding (including outstanding letters of credit) under the Credit Facility and there was no remaining availability.

See Note 2 for ~~additional~~ details onof the amendment to the Credit Facility entered into on April 12, 2016.

Redetermination of the borrowing base under the Credit Facility, based primarily on reserve reports using lender commodity price expectations at such time, occurs semi-annually~~, in April and October~~. The lenders under the Credit Facility agreed to defer the April 2016 borrowing base redetermination to May 11, 2016.

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BERRY PETROLEUM COMPANY, LLC (DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED FINANCIAL STATEMENTS – Continued

(Unaudited)

The Company’s obligations under the Credit Facility are secured by mortgages on its oil and natural gas properties and other personal property. Berry is required to maintain: 1) mortgages on properties representing at least 90% of the present value of oil and natural gas properties included on its most recent reserve report, and 2) an EBITDAX to Interest Expense ratio of at least 2.0 to 1.0 currently, 2.25 to 1.0 from March 31, 2017 through June 30, 2017 and 2.5 to 1.0 thereafter. In accordance with the amendment described in Note 2, the lenders had agreed that the failure to maintain the EBITDAX to Interest Expense ratio would not result in a default or event of default until May 11, 2016.

At the Company’s election, interest on borrowings under the Credit Facility is determined by reference to either the LIBOR plus an applicable margin between 1.75% and 2.75% per annum (depending on the then-current level of borrowings under the Credit Facility) or a Base Rate (as defined in the Credit Facility) plus an applicable margin between 0.75% and 1.75% per annum (depending on the then-current level of borrowings under the Credit Facility). Interest is generally payable ~~quarterly~~monthly for loans bearing interest based on the Base Rate and at the end of the applicable interest period for loans bearing interest at the LIBOR. The Company is required to pay a commitment fee to the lenders under the Credit Facility, which accrues at a rate per annum of 0.50% on the average daily unused amount of the maximum commitment amount of the lenders.

The filing of the Bankruptcy Petitions constituted an event of default that accelerated the Company’s obligations under the Credit Facility. However, under the Bankruptcy Code, the creditors under these debt agreements are stayed from taking any action against the Company as a result of the default. The automatic stay under the Bankruptcy Code does not apply to letters of credit issued under the prepetition Credit Facility and third parties may draw on their letters of credit if the terms of a particular letter of credit so provide. During the three months and ~~six~~nine months ended ~~June~~September 30, 2016, approximately $316 million and $20 million, respectively, in letters of credit draws were made from the Credit Facility.

Repurchases of Senior Notes

The Company made no repurchases of its senior notes during the nine months ended September 30, 2016. During the nine months ended September 30, 2015, the Company repurchased, on the open market and through a privately negotiated transaction, approximately $65 million of its outstanding senior notes including approximately $39 million of its 6.75% senior notes due November 2020 and approximately $26 million of its 6.375% senior notes due September 2022. In connection with the repurchases, the Company paid approximately $55 million in cash and recorded a gain on extinguishment of debt of approximately $11 million for the nine months ended September 30, 2015.

Senior Notes Covenants

The Company’s senior notes contain covenants that, among other things, may limit its ability to: (i) incur or guarantee additional indebtedness; (ii) pay distributions or dividends on its equity or redeem its subordinated debt; (iii) create certain liens; (iv) enter into agreements that restrict distributions or other payments from the Company’s restricted subsidiaries to the Company; (v) sell assets; (vi) engage in transactions with affiliates; and (vii) consolidate, merge or transfer all or substantially all of the Company’s assets.

In addition, any cash generated by the Company is currently being used by the Company to fund its activities. To Historically, to the extent that the Company ~~generates~~generated cash in excess of its needs and ~~determines~~determined to distribute such amounts to LINN Energy, the indentures governing the Company’s senior notes ~~limit~~limited the amount it ~~may~~could distribute to LINN Energy to the amount available under a “restricted payments basket,” and the Company ~~may~~could not distribute any such amounts unless it is permitted by the indentures to incur additional debt pursuant to the consolidated coverage ratio test set forth in the Company’s indentures. ~~The~~ During ~~Company’s restricted payments basket may be increased in accordance with~~ the ~~terms~~pendency of the ~~Company’s~~bankruptcy ~~indentures by~~proceedings, ~~among other things, 50% of~~ the Company’s ~~future~~will ~~net~~not ~~income,~~distribute ~~reductions~~cash into ~~its~~LINN ~~indebtedness~~Energy ~~and~~using the restricted ~~investments,~~payments ~~and future capital contributions~~basket.

The Company may from time to time seek to repurchase its outstanding debt through open market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, may be material and will depend on prevailing market conditions, the Company’s liquidity requirements, contractual restrictions and other factors.

The filing of the Bankruptcy Petitions constituted an event of default that accelerated the Company’s obligations under the senior notes. However, under the Bankruptcy Code, holders of the senior notes are stayed from taking any action against the Company as a result of the default.

Covenant Violations

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BERRY PETROLEUM COMPANY, LLC (DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED FINANCIAL STATEMENTS – Continued

(Unaudited)

aThe ~~going~~filing ~~concern~~of ~~explanatory~~the ~~paragraph~~Bankruptcy ~~from~~Petitions ~~the~~constituted ~~Company’s~~an ~~independent~~event ~~registered~~of ~~public~~default ~~accounting~~that ~~firm~~accelerated on the Company’s ~~financial~~obligations ~~statements~~under ~~for~~ the ~~year~~senior ~~ended December 31, 2015~~notes. ~~Under~~However, under the Bankruptcy Code, ~~the~~holders ~~creditors~~of ~~under~~the ~~these~~senior ~~debt~~notes ~~agreements~~ are stayed from taking any action against the Company as a result of anthe ~~event of~~ default.

Covenant Violations

The Company’s filing of the Bankruptcy Petitions described in Note 2 constituted an event of default that accelerated the Company’s obligations under its Credit Facility and its senior notes. Additionally, other events of default, including cross-defaults, are present, including the failure to make interest payments on the Company’s senior notes and the receipt of a going concern explanatory paragraph from the Company’s independent registered public accounting firm on the Company’s financial statements for the year ended December 31, 2015. Under the Bankruptcy Code, the creditors under these debt agreements are stayed from taking any action against the Company as a result of an event of default.

Note 5 – Derivatives

Historically, the Company has hedged a portion of its forecasted production to reduce exposure to fluctuations in oil and natural gas prices. The Company also, from time to time, has entered into derivative contracts for a portion of its natural gas consumption. The current direct NGL hedging market is constrained in terms of price, volume, duration and number of counterparties, which limits the Company’s ability to effectively hedge its NGL production. The Company has also hedged its exposure to natural gas differentials in certain operating areas but does not currently hedge exposure to oil differentials.

The Company has historically entered into commodity hedging transactions primarily in the form of swap contracts, collars and three-way collars. Swap contracts are designed to provide a fixed price. Collar contracts specify floor and ceiling prices to be received as compared to floating market prices. Three-way collar contracts combine a short put (the lower price), a long put (the middle price) and a short call (the higher price) to provide a higher ceiling price as compared to a regular collar and limit downside risk to the market price plus the difference between the middle price and the lower price if the market price drops below the lower price.

The Company enters into these transactions with respect to a portion of its projected production or consumption to provide an economic hedge of the risk related to the future commodity prices received or paid. The Company does not enter into derivative contracts for trading purposes. The Company did not designate any of its contracts as cash flow hedges; therefore, the changes in fair value of these instruments are recorded in current earnings. See Note 6 for fair value disclosures about oil and natural gas commodity derivatives.

The ~~following~~Company ~~table~~did ~~presents~~not enter into any commodity derivative ~~positions~~contracts ~~for~~during the ~~period~~nine ~~indicated~~months ended September 30, 2016, and as of ~~June~~September 30, 2016:, the Company had no outstanding derivative contracts.

	July 1 - December 31, 2016
Natural gas basis differential positions: (1)
SoCal basis swaps: (2)
Hedged volume (MMMBtu)	1,840
Hedged differential ($/MMBtu)	$	(0.03	)

In May 2016 and July 2016, as a result of the Chapter 11 proceedings, the Company’s counterparties canceled (prior to the contract settlement dates) all of the Company’s then-outstanding derivative contracts and the Company received net cash proceeds of approximately $2 million. The net cash proceeds received were used to make permanent repayments of a portion of the borrowings outstanding under the Credit Facility.

(1) Settle on the respective pricing index to hedge basis differential to the NYMEX Henry Hub natural gas price.

(2) For positions which hedge exposure to differentials in consuming areas, the Company pays the NYMEX Henry Hub natural gas price plus the respective spread and receives the specified index price. Cash settlements are made on a net basis.

The Company did not enter into commodity derivative contracts during the six months ended June 30, 2016. During the six months ended June 30, 2015, the Company entered into commodity derivative contracts consisting of natural gas basis swaps for May 2015 through December 2016 to hedge exposure to differentials in certain producing areas and oil swaps for April 2015 through December 2015. In addition, the Company entered into natural gas basis swaps for May 2015 through December 2016 to hedge exposure to the differential in California, where it consumes natural gas in its heavy oil development operations.

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BERRY PETROLEUM COMPANY, LLC (DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED FINANCIAL STATEMENTS – Continued

(Unaudited)

Balance Sheet Presentation

The Company’s commodity derivatives are presented on a net basis in “derivative instruments” on the condensed balance sheets. The following table summarizes the fair value of derivatives outstanding on a gross basis:

	June 30, 2016		December 31, 2015
	December 31, 2015
	(in thousands)
Assets:
Commodity derivatives	$	~~200~~13,807	$	~~13,807~~
Liabilities:
Commodity derivatives	$	12,~~709~~830	$	~~2,830~~

By using derivative instruments to economically hedge exposures to changes in commodity prices, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk. The Company minimized the credit risk in derivative instruments by: (i) limiting its exposure to any single counterparty; (ii) entering into derivative instruments only with counterparties that meet the Company’s minimum credit quality standard, or have a guarantee from an affiliate that meets the Company’s minimum credit quality standard; and (iii) monitoring the creditworthiness of the Company’s counterparties on an ongoing basis. In accordance with the Company’s standard practice, its commodity derivatives are subject to counterparty netting under agreements governing such derivatives and therefore the risk of loss due to counterparty nonperformance is somewhat mitigated.

Gains (Losses) on Derivatives

A summary of gains and losses on the derivatives included on the condensed statements of operations is presented below:

	Three Months EndedJune 30,						Six Months EndedJune 30,
	Three Months EndedSeptember 30,						Nine Months EndedSeptember 30,
	2016			2015			2016			2015
	(in thousands)
Gains (losses) on oil and natural gas derivatives	$	1,026		$	(4,474	)	$	1,534		$	(1,207	)
Gains on oil and natural gas derivatives	$	108		$	27,664		$	1,642		$	26,457
Lease operating expenses (1)	(~~1,036~~200		)	~~3,986~~(162		)	(4,~~405~~605		)	32,~~060~~898
Total gains (losses) on oil and natural gas derivatives	$	(1092	)	$	~~(488~~27,502	)	$	(2,~~871~~963	)	$	129,~~853~~355


⁽¹⁾	Consists of gains and (losses) on derivatives entered into in March 2015 to hedge exposure to differentials in consuming areas.

For the three months and ~~six~~nine months ended ~~June~~September 30, 2016, the Company received net cash settlements of approximately $193,000 ~~million~~ and $10 million, respectively. For the three months and ~~six~~nine months ended ~~June~~September 30, 2015, the Company received net cash settlements of approximately $515 million and $3348 million, respectively.

Note 6 – Fair Value Measurements on a Recurring Basis

The Company accounts for its commodity derivatives at fair value (see Note 5) on a recurring basis. The Company determines the fair value of its oil and natural gas derivatives utilizing pricing models that use a variety of techniques, including market quotes and pricing analysis. Inputs to the pricing models include publicly available prices and forward price curves generated from a compilation of data gathered from third parties. Company management validates the data provided by third parties by understanding the pricing models used, obtaining market values from other pricing sources, analyzing pricing data in certain situations and confirming that those instruments trade in active markets. Assumed credit risk adjustments, based on published credit ratings, public bond yield spreads and credit default swap spreads are applied to the Company’s commodity derivatives.

Fair Value Hierarchy

In accordance with applicable accounting standards, the Company has categorized its financial instruments, based on the priority of inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

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BERRY PETROLEUM COMPANY, LLC (DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED FINANCIAL STATEMENTS – Continued

(Unaudited)

Fair Value Hierarchy

The following presents the fair value hierarchy for assets and liabilities measured at fair value on a recurring basis:

	June 30, 2016
	Level 2		Netting (1)			Total
	(in thousands)
Assets:
Commodity derivatives	$	200	$	(15	)	$	185
Liabilities:
Commodity derivatives	$	1,709	$	(15	)	$	1,694



	December 31, 2015
	Level 2		Netting ⁽¹⁾			Total
	(in thousands)
Assets:
Commodity derivatives	$	13,807	$	(589	)	$	13,218
Liabilities:
Commodity derivatives	$	2,830	$	(589	)	$	2,241


⁽¹⁾	Represents counterparty netting under agreements governing such derivatives.

Note 7 – Asset Retirement Obligations

The Company has the obligation to plug and abandon oil and natural gas wells and related equipment at the end of production operations. Estimated asset retirement costs are recognized as liabilities with an increase to the carrying amounts of the related long-lived assets when the obligation is incurred. The liabilities are included in “other accrued liabilities” and “other noncurrent liabilities” on the condensed balance sheets. Accretion expense is included in “depreciation, depletion and amortization” on the statements of operations. The fair value of additions to the asset retirement obligations is estimated using valuation techniques that convert future cash flows to a single discounted amount. Significant inputs to the valuation include estimates of: (i) plug and abandon costs per well based on existing regulatory requirements; (ii) remaining life per well; (iii) future inflation factors; and (iv) a credit-adjusted risk-free interest rate. These inputs require significant judgments and estimates by the Company’s management at the time of the valuation and are the most sensitive and subject to change.

The following table presents a reconciliation of the Company’s asset retirement obligations (in thousands):

Asset retirement obligations at December 31, 2015	$	137,563
Liabilities added from drilling	100
Current year accretion expense	35,~~690~~562
Settlements	(3,~~293~~409		)
Revision of estimates	1,545
Asset retirement obligations at June 30, 2016	$	139,605
Asset retirement obligations at September 30, 2016	$	141,361

Note 8 – Commitments and Contingencies

Carry and Earning Agreement

In January 2011, the Company entered into an amendment relating to certain contractual obligations to a third-party co-owner of certain Piceance Basin assets in Colorado. The amendment waives a $200,000 penalty for each well not spud by February 2011 and requires the Company to reassign to such third party, by January 31, 2020, all of the interest acquired by the Company from the third party in each 160-acre tract in which the Company has not drilled and completed a well that is producing or capable of producing from a designated formation, or deeper formation, on January 1, 2020. The amendment also requires the Company to pay the first $9 million of costs incurred in connection with the construction of either an extension of the existing access road or a new access road, including the third party’s 50% share. Pursuant to the terms of a further amendment effective September 30, 2015, if by September 30, 2017, the Company does not expend $9 million on the construction of either the extension of the existing access road or a new access road, the Company is obligated to pay the third party 50% of the difference between $12 million and the actual amount expended on road construction as of such date. Under the terms of the 2015 amendment, this deadline is subject to further extension to no later than December 31, 2017. Due to the need to obtain regulatory approvals, among other reasons, the Company has not yet commenced construction of either an extension of the existing access road or a new access road and may be unable to do so by the extended deadline, thus triggering the payment of the obligation to the third party.

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BERRY PETROLEUM COMPANY, LLC (DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED FINANCIAL STATEMENTS – Continued

(Unaudited)

Note 8 – Commitments and Contingencies

Carry and Earning Agreement

Legal Matters

The Company is involved in various lawsuits, claims and inquiries, most of which are routine to the nature of its business. In the opinion of management, the resolution of these matters will not have a material adverse effect on its overall business, financial position, results of operations or liquidity; however, cash flow could be significantly impacted in the reporting periods in which such matters are resolved.

During the ~~six~~nine months ended ~~June~~September 30, 2016, and ~~June~~September 30, 2015, the Company made no significant payments to settle any legal, environmental or tax proceedings. The Company regularly analyzes current information and accrues for probable liabilities on the disposition of certain matters as necessary. Liabilities for loss contingencies arising from claims, assessments, litigation or other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated.

The commencement of the Chapter 11 proceedings automatically stayed certain actions against the Company, including actions to collect prepetition liabilities or to exercise control over the property of the Company’s bankruptcy estates. The Company intends to seek authority to pay all general claims in the ordinary course of business notwithstanding the commencement of the Chapter 11 proceedings in a manner consistent with the ~~Restructuring~~Bank ~~Support Agreement~~RSA. The Plan in the Chapter 11 proceedings, if confirmed, will provide for the treatment of claims against the Company’s bankruptcy estates, including prepetition liabilities that have not otherwise been satisfied or addressed during the Chapter 11 proceedings. See Note 2 for additional information.

Note 9 – Income Taxes

Note 10 – Supplemental Disclosures to the Condensed Balance Sheets and Condensed Statements of Cash Flows

“Other current assets” reported on the condensed balance sheets include the following:



	September 30, 2016		December 31, 2015
	(in thousands)

California carbon allowance inventories	$	6,096	$	7,073
Oil inventories	3,393		3,446
Deferred financing fees	6,237		8,108
Prepaid expenses and other	3,825		2,270
	$	19,551	$	20,897

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BERRY PETROLEUM COMPANY, LLC (DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED FINANCIAL STATEMENTS – Continued

(Unaudited)

Note 10 – Supplemental Disclosures to the Condensed Balance Sheets and Condensed Statements of Cash Flows

“Other current assets” reported on the condensed balance sheets include the following:

	June 30, 2016		December 31, 2015
	(in thousands)
California carbon allowance inventories	$	6,096	$	7,073
Oil inventories	3,049		3,446
Deferred financing fees	6,861		8,108
Prepaid expenses and other	3,207		2,270
	$	19,213	$	20,897

Supplemental disclosures to the condensed statements of cash flows are presented below:

	Six Months EndedJune 30,
	Nine Months EndedSeptember 30,
	2016		2015
	(in thousands)
Cash payments for interest, net of amounts capitalized	$	3446,~~307~~034	$	4470,~~608~~853
Cash payments for income taxes	$	—347	$	—
Cash payments for reorganization items, net	$	3,138	$	—
Noncash investing activities:
Accrued capital expenditures	$	31,~~088~~975	$	2820,~~468~~959

For the ~~six~~nine months ended ~~June~~September 30, 2015, LINN Energy spent approximately $~~123~~165 million of capital expenditures in respect of Berry’s operations. Berry recorded the $~~123~~165 million to oil and natural gas properties with an offset to the advance due from LINN Energy. AtOn ~~June~~September 30, ~~2016, and December 31,~~ 2015, ~~“restricted cash” on the condensed balance sheets includes approximately $197 million and $250 million, respectively, related to the $250 million that~~ LINN Energy ~~contributed~~repaid ~~to Berry~~ in ~~May~~full ~~2015 to post with Berry’s lenders in connection with~~ the ~~reduction~~remaining inadvance ~~the~~of ~~Credit~~approximately ~~Facility’s~~$129 ~~borrowing base, as well as associated interest income~~million.

~~During~~At September 30, 2016, and December 31, 2015, “restricted cash” on the ~~three~~condensed ~~months~~balance ~~and~~sheets ~~six~~includes ~~months~~approximately ~~ended~~$197 ~~June 30~~million and $250 million, ~~2016~~respectively, ~~approximately~~related to the $3250 million that LINN Energy contributed to Berry in ~~letters~~May of2015 ~~credit~~to ~~draws~~post ~~were~~with ~~made~~Berry’s ~~from~~lenders in connection with the ~~Credit~~reduction ~~Facility~~in asthe ~~requested~~Credit byFacility’s ~~certain~~borrowing ~~vendors~~base, ~~owed~~as ~~prepetition~~well ~~amounts~~as ~~from~~associated ~~the~~interest ~~Company~~income.

During the three months and nine months ended September 30, 2016, approximately $16 million and $20 million, respectively, in letters of credit draws were made from the Credit Facility as requested by certain vendors owed prepetition amounts from the Company.

Note 11 – Related Party Transactions

LINN Energy

The Company has no employees. The employees of Linn Operating, Inc. (“LOI”), a subsidiary of LINN Energy, provide services and support to the Company in accordance with an agency agreement and power of attorney between the Company and LOI. For the three months and ~~six~~nine months ended ~~June~~September 30, 2016, the Company incurred management fee expenses of approximately $1814 million and $4156 million, respectively, for services provided by LOI. For the three months and ~~six~~nine months ended ~~June~~September 30, 2015, the Company incurred management fee expenses of approximately $3320 million and $5373 million, respectively, for services provided by LOI. The Company also had affiliated accounts payable due to LINN Energy of approximately $3936 million and $9 million at ~~June~~September 30, 2016, and December 31, 2015, respectively, included in “accounts payable and accrued expenses” on the condensed balance sheets.

The Company made no cash distributions to LINN Energy during the nine months ended September 30, 2016. During the nine months ended September 30, 2015, the Company made cash distributions of approximately $57 million to LINN Energy.

For the nine months ended September 30, 2015, LINN Energy spent approximately $165 million of capital expenditures in respect of Berry’s operations. Berry recorded the $165 million to oil and natural gas properties with an offset to the advance due from LINN Energy. On September 30, 2015, LINN Energy repaid in full the remaining advance of approximately $129 million.

During the nine months ended September 30, 2015, Linn Energy made capital contributions of approximately $399 million to Berry, including $250 million which was deposited on Berry’s behalf and posted as restricted cash with Berry’s lenders in connection with the reduction in its borrowing base.

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BERRY PETROLEUM COMPANY, LLC (DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED FINANCIAL STATEMENTS – Continued

(Unaudited)

The Company made no cash distributions to LINN Energy during the three months or six months ended June 30, 2016. During the three months and six months ended June 30, 2015, the Company made cash distributions of approximately $13 million and $57 million, respectively, to LINN Energy.

In May 2015, LINN Energy made a capital contribution of $250 million to Berry which was deposited on Berry’s behalf and posted as restricted cash with Berry’s lenders in connection with the reduction in its borrowing base.

Other

One of LINN Energy’s directors is the President and Chief Executive Officer of Superior Energy Services, Inc. (“Superior”), which provides oilfield services to the Company. The Company incurred no significant expenditures related to services rendered by Superior and its subsidiaries for the three months or ~~six~~nine months ended ~~June~~September 30, 2016. For the three months and ~~six~~nine months ended ~~June~~September 30, 2015, the Company incurred expenditures of approximately $~~218~~24,000 and $~~318~~342,000, respectively, related to services rendered by Superior and its subsidiaries.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the financial statements and related notes included in this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. The following discussion contains forward-looking statements based on expectations, estimates and assumptions. Actual results may differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, market prices for oil, natural gas and NGL, production volumes, estimates of proved reserves, capital expenditures, economic and competitive conditions, credit and capital market conditions, regulatory changes and other uncertainties, as well as those factors set forth in “Cautionary Statement Regarding Forward-Looking Statements” below and in Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, and elsewhere in the Annual Report.

The reference to a “Note” herein refers to the accompanying Notes to Condensed Financial Statements contained in Item 1. “Financial Statements.”

Executive Overview

The Company has five operating areas in the United States (“U.S.”): California, Hugoton Basin, Uinta Basin, Piceance Basin and East Texas.

Results for the three months ended ~~June~~September 30, 2016, included the following:

• oil, natural gas and NGL sales of approximately $~~100~~102 million compared to $~~173~~140 million for the three months ended ~~June~~September 30, 2015;

• average daily production of approximately 4039.70 MBOE/d compared to 48.73 MBOE/d for the three months ended ~~June~~September 30, 2015;

• net ~~income~~loss of approximately $798 million compared to ~~net loss of~~ $29537 million for the three months ended ~~June~~September 30, 2015;

• capital expenditures of approximately $54 million compared to $4434 million for the three months ended ~~June~~September 30, 2015; and

• 2no wells drilled ~~(both successful)~~ compared to 3419 wells drilled (all successful) for the three months ended ~~June~~September 30, 2015.

Results for the ~~six~~nine months ended ~~June~~September 30, 2016, included the following:

• oil, natural gas and NGL sales of approximately $~~183~~286 million compared to $~~330~~470 million for the ~~six~~nine months ended ~~June~~September 30, 2015;

• average daily production of approximately 4140.67 MBOE/d compared to 49.51 MBOE/d for the ~~six~~nine months ended ~~June~~September 30, 2015;

• net loss of approximately $1.12 billion compared to $~~352~~889 million for the ~~six~~nine months ended ~~June~~September 30, 2015;

• net cash ~~used~~provided inby operating activities of approximately $183 million compared to ~~net cash provided by operating activities of~~ $98109 million for the ~~six~~nine months ended ~~June~~September 30, 2015;

• capital expenditures of approximately $1518 million compared to $~~101~~135 million for the ~~six~~nine months ended ~~June~~September 30, 2015; and

• 16 wells drilled (all successful) compared to 119 wells drilled (all successful) for the ~~six~~nine months ended ~~June~~September 30, 2015.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Chapter 11 Proceedings

On May 11, 2016 (the “Petition Date”), the Company, LINN Energy and LinnCo (collectively, the “Debtors”), filed voluntary petitions (“Bankruptcy Petitions”) for relief under Chapter 11 of the U.S. Bankruptcy Code (“Bankruptcy Code”) in the U.S. Bankruptcy Court for the Southern District of Texas (“Bankruptcy Court”). The Debtors’ Chapter 11 cases are being administered jointly under the caption In re Linn Energy, LLC., et al., Case No. 16‑60040.

~~Restructuring~~Bank ~~Support Agreement~~RSA

~~Certain~~The ~~principal~~Bank RSA provides that the Consenting Bank Creditors will support the use of Berry’s cash collateral under specified terms and conditions, including adequate protection terms. The Bank RSA obligates the Debtors and the Consenting Bank Creditors to, among other things, support and not interfere with consummation of the ~~Plan~~restructuring ~~are~~transactions ~~outlined~~contemplated ~~below~~by the Bank RSA and, as to the Consenting Bank Creditors, vote their claims in favor of the Plan. ~~See~~The ~~Item~~Bank ~~1A.~~RSA ~~“Risk~~may ~~Factors”~~be ~~for~~terminated ~~risks~~upon the occurrence of certain events, including the failure to meet specified milestones relating to, ~~Chapter 11~~among ~~proceedings~~other requirements, ~~including~~the filing, confirmation and consummation of the ~~risk~~Plan, ~~that~~and in the ~~Company~~event ~~may~~of ~~not~~certain bebreaches ~~able~~by the parties under the Bank RSA. The Bank RSA is subject to ~~obtain~~termination ~~confirmation~~if the effective date of athe ~~Chapter 11~~Plan ~~plan~~has not occurred within 250 days of ~~reorganization~~the Petition Date. There can be no assurance that the restructuring transactions contemplated by the Bank RSA will be consummated.

•Magnitude The Restructuring Support Agreement contemplates that Berry will separate from LINN Energy under the Plan. Claims under the Credit Facility will receive participation in a new Berry exit facility, if any, and a to-be-determined allocation of ~~equity~~Potential ~~in reorganized Berry (“New Berry Common Stock”).~~Claims

•On ~~Unsecured~~July 11, ~~claims~~2016, ~~against~~the ~~Berry,~~Debtors ~~including~~filed ~~under~~with ~~Berry’s~~the ~~unsecured~~Bankruptcy ~~notes~~Court schedules and statements setting forth, ~~will~~among ~~receive~~other athings, the assets and liabilities of the Debtors, subject to- the assumptions filed in connection therewith. The schedules and statements may be~~-determined~~ ~~allocation~~subject ofto ~~New~~further ~~Berry~~amendment ~~Common~~or ~~Stock~~modification upafter filing. Holders of prepetition claims are required to file proofs of claims by the ~~full~~applicable ~~amount~~deadline for filing certain proofs of ~~Berry~~claims in the Debtors’s ~~unencumbered~~Chapter 11 ~~collateral~~cases, which was September 16, 2016, for general claims and~~/or~~ ~~collateral~~November 7, ~~value~~2016, infor ~~excess~~governmental ofclaims. Differences between amounts ~~outstanding~~scheduled ~~under~~by the ~~Berry~~Debtors ~~Credit~~and ~~Facility~~claims by creditors will be investigated and resolved in connection with the claims resolution process.

• Cash payments under the Plan may be funded by rights offerings or other new-money investments. The Restructuring Support Agreement contemplates that Berry may undertake a marketing process for the opportunity to sponsor its Plan.

• All existing equity interests of Berry will be extinguished without recovery.

The Plan will provide for the establishment of a customary management incentive plan at the Company under which no less than 10% of the New Berry Common Stock will be reserved for grants made from time to time to the officers and other key employees of the reorganized entity. The Plan will provide for releases of specified claims held by the Debtors, the Consenting Creditors and certain other specified parties against one another and for customary exculpations and injunctions.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

The Restructuring Support Agreement provides that the Consenting Creditors will support the use of Berry’s cash collateral under specified terms and conditions, including adequate protection terms. The Restructuring Support Agreement obligates the Debtors and the Consenting Creditors to, among other things, support and not interfere with consummation of the Restructuring Transactions and, as to the Consenting Creditors, vote their claims in favor of the Plan. The Restructuring Support Agreement may be terminated upon the occurrence of certain events, including the failure to meet specified milestones relating to, among other requirements, the filing, confirmation and consummation of the Plan, and in the event of breaches by the parties of certain provisions of the Restructuring Support Agreement. The Restructuring Support Agreement is subject to termination if the effective date of the Plan has not occurred within 250 days of the Petition Date. There can be no assurance that the Restructuring Transactions will be consummated.

Magnitude of Potential Claims

On July 11, 2016, the Debtors filed with the Bankruptcy Court schedules and statements setting forth, among other things, the assets and liabilities of the Debtors, subject to the assumptions filed in connection therewith. The schedules and statements may be subject to further amendment or modification after filing. Holders of prepetition claims will be required to file proofs of claims by the applicable deadline for filing certain proofs of claims in the Debtors’ Chapter 11 cases. The court has not yet confirmed the claims deadlines. Differences between amounts scheduled by the Debtors and claims by creditors will be investigated and resolved in connection with the claims resolution process.

Effect of Filing on Creditors

Subject to certain exceptions, under the Bankruptcy Code, the filing of Bankruptcy Petitions automatically enjoined, or stayed, the continuation of most judicial or administrative proceedings or filing of other actions against the Debtors or their property to recover, collect or secure a claim arising prior to the Petition Date. Absent an order of the Bankruptcy Court, substantially all of the Debtors’ prepetition liabilities are subject to settlement under the Bankruptcy Code. Although the filing of Bankruptcy Petitions triggered defaults on the Debtors’ debt obligations, creditors are stayed from taking any actions against the Debtors as a result of such defaults, subject to certain limited exceptions permitted by the Bankruptcy Code. The Company did not record interest expense on its senior notes for the period from May 12, 2016, through June 30, 2016. For that period, contractual interest on the senior notes was approximately $7 million.

Appointment of Creditors Committee

Rejection of Executory Contracts

23Effect of Filing on Creditors

~~Table~~Subject to certain exceptions, under the Bankruptcy Code, the filing of ~~Contents~~Bankruptcy Petitions automatically enjoined, or stayed, the continuation of most judicial or administrative proceedings or filing of other actions against the Debtors or their property to recover, collect or secure a claim arising prior to the Petition Date. Absent an order of the Bankruptcy Court, substantially all of the Debtors’ prepetition liabilities are subject to settlement under the Bankruptcy Code. Although the filing of Bankruptcy Petitions triggered defaults on the Debtors’ debt obligations, creditors are stayed from taking any actions against the Debtors as a result of such defaults, subject to certain limited exceptions permitted by the Bankruptcy Code. The Company did not record interest expense on its senior notes for the three months ended September 30, 2016, or for the period from May 12, 2016, through September 30, 2016. For those periods, unrecorded contractual interest was approximately $14 million and $21 million, respectively.

~~Item~~The ultimate recovery to creditors, if any, will not be determined until confirmation and implementation of a plan or plans of reorganization. No assurance can be given as to what values, if any, will be ascribed in the Chapter 211 proceedings to each of these constituencies or what types or amounts of settlements, if any, they will receive. ~~Management~~ A plan of reorganization could result in holders of the Debtors’s ~~Discussion~~liabilities ~~and~~receiving ~~Analysis~~no settlement on account of ~~Financial~~their ~~Condition~~interests and ~~Results~~cancellation of ~~Operations~~their ~~- Continued~~holdings.

Process for Plan of Reorganization

~~The~~On ~~timing~~October 21, of2016, ~~filing a Plan by~~ the Debtors ~~will~~filed ~~depend~~a onproposed ~~the~~Plan ~~timing~~with ~~and outcome of numerous other ongoing matters in~~ the ~~Chapter 11~~Bankruptcy ~~proceedings~~Court. ~~Although~~Certain ~~the~~principal ~~Debtors~~terms ~~expect~~of tothe ~~file~~proposed a Plan, ~~that provides for emergence from bankruptcy~~ as afiled ~~going~~on ~~concern~~October 21, ~~there~~2016, ~~can~~with berespect ~~no assurance at this time that the Debtors will be able~~ to ~~successfully develop, confirm and consummate one or more plans of reorganization or other alternative restructuring transactions, including a sale of all or substantially all of~~ the ~~Debtors’~~Company ~~assets, that satisfies the conditions of the Bankruptcy Code and is confirmed by the Bankruptcy Court, or that any such Plan will be implemented successfully.~~include:

~~As of August 11, 2016, the Debtors have not yet filed a Plan.~~23

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

•

The holders of claims under the Berry Credit Facility will receive a full recovery consisting of one or more of the following: (i) a to-be-determined exit financing facility; (ii) a to-be-determined cash paydown; (iii) a to-be-determined percentage of new common stock or limited liability company interests (“New Berry Common Stock”) in the reorganized Company or its successor in interest (“New Berry”) up to the value of the collateral securing the Berry Credit Facility claims; and (iv) proceeds of any asset sales solely to the extent such assets are the collateral securing the Berry Credit Facility claims.


•	The holders of the Company’s unsecured notes (the “Berry Unsecured Notes”) will receive one or more of the following: (i) New Berry Common Stock; (ii) rights to purchase New Berry Common Stock or other security in New Berry; and (iii) proceeds of any asset sales, after accounting for proceeds required to satisfy the Berry Credit Facility claims.


•	The holders of unsecured claims against the Company other than the Berry Unsecured Notes will receive one or more of the following: (i) New Berry Common Stock; (ii) rights to purchase New Berry Common Stock or other security in New Berry; and (iii) proceeds of any asset sales, after accounting for proceeds required to satisfy the Berry Credit Facility claims.


•	The Company will settle all intercompany claims against the LINN Debtors pursuant to a settlement to be approved as part of the Plan, which settlement provides that the Company will have a $25 million general unsecured claim against LINN Energy.


•	The governance terms of New Berry, as well as the terms of any employee incentive plan, are to be determined. New Berry will be a standalone company, separate from LINN Energy and the LINN Debtors.


•	All existing equity interests of the Company and Linn Acquisition Company, LLC will be extinguished without recovery.

There can be no assurance at this time that the Debtors will be able to successfully confirm and consummate the Plan.

For the duration of the Company’s Chapter 11 proceedings, the Company’s operations and ability to develop and execute its business plan are subject to the risks and uncertainties associated with the Chapter 11 process as described in Item 1A. “Risk Factors.” As a result of these risks and uncertainties, the Company’s, assets, liabilities, officers and/or directors could be significantly different following the outcome of the Chapter 11 proceedings, and the description of the Company’s operations, properties and capital plans included in this quarterly report may not accurately reflect its operations, properties and capital plans following the Chapter 11 process.

Ability to Continue as a Going Concern

Continued low commodity prices have resulted in significantly lower levels of cash flow from operating activities and have limited the Company’s ability to access the capital markets. In addition, the Company’s Credit Facility is subject to scheduled redeterminations of its borrowing base, semi-annually ~~in April and October~~, based primarily on reserve reports using lender commodity price expectations at such time. The lenders under the Credit Facility agreed to defer the April 2016 borrowing base redetermination to May 11, 2016. Continued low commodity prices, reductions in the Company’s capital budget and the resulting reserve write-downs were expected to adversely impact upcoming redeterminations and have a significant negative impact on the Company’s liquidity. The Company’s filing of the Bankruptcy Petitions constituted an event of default that accelerated the Company’s obligations under its Credit Facility and its senior notes.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

going concern, adjustments to the carrying values and classification of its assets and liabilities and the reported amounts of income and expenses could be required and could be material.

Filing Compare · Berry Petroleum Company, LLC