LETTER TO SHAREHOLDERS, continued

2007 — SOLID RESULTS

Berry is well into its fourth year of transformation from a California-based heavy crude oil producer to a steadily growing company with heavy and light oil and natural gas assets with significant potential for continued organic growth. Over this time we purposefully changed the Company to meet the objectives of providing more opportunities for near-and long-term growth and diversification from assets in new basins.

As a result of several natural gas and light oil acquisitions in the last few years and the continued development of our more mature California oil assets, Berry Petroleum is a larger, more active and stronger Company today. We have continued the exciting growth which began in 2003. In 2007 we grew net income, cash flow, production and proved reserves, just to name a few key measures. Berry earned net income of $130 million, or $2.89 per diluted share, up 20% compared to 2006 earnings of $108 million. We also generated operating cash flow of $248 million last year, up 2% over the 2006 results. Both of these are Company records as well as our 2007 production of 26,900 barrels of oil equivalent per day (BOE/D) and proved reserve additions of 35 million BOE.

We replaced 293% of our 2007 production, and our Company-wide finding and development cost was $10.07 per BOE, with a three-year average of $12.23 per BOE. Our production profile for 2007 was 73% oil and 27% natural gas compared to a split of 77% oil and 23% natural gas in 2006. The increase in natural gas production was primarily from a ramp-up of production from our Colorado Piceance basin assets which had a 138% increase in production over 2006, aided by a slight increase in production from our DJ basin assets.

Part of our growth strategy focuses on increasing proved reserves. On a Company-wide basis last year, we produced 9.8 million BOE and divested 6.7 million BOE of reserves in the West Montalvo field located along the California coast. We still managed to significantly increase year-end proved reserves to 169 million BOE, up from last year’s total of 150 million BOE. We added proved reserves from five of our six asset areas, showing that we are not dependent on one asset area for our growth. Berry’s proved reserve mix is now 117 million BOE of crude oil and 315 billion cubic feet of natural gas.

Investors recognized our results last year and rewarded our shareholders, the people for whom we work, with excellent returns. In 2007 our total shareholder return, including dividends, was 44%. Looking at the past five years, a $100 investment in Berry made at year-end 2002 resulted in a value of $560.32 at the end of 2007. This compares favorably to $439.43 for our 16-company peer group and $212.26 for the Russell 2000 index. For 2007 we achieved a 29% return on average shareholder equity and a 16% return on average capital employed. 2007 was the sixth consecutive year that we achieved a greater than 15% return on both of these measures.

Today, Berry is organized around six asset teams that are well supported by functional groups such as accounting, tax, finance and information systems. The asset team approach has coalesced at Berry over the last three years. Each team is structured to resemble a business within the Company and contains all the various operational, technical, compliance and business skills required to maximize the value of its assigned assets. This breadth of skills is needed by the teams because of the numerous activities included in the execution of their asset development plans. For example, not only are our teams concerned with reserves and production, they are also accountable for operating under the highest environmental, health and safety standards.

The growth we attained in 2007 and the related financial results were driven by $285 million of capital invested by these integrated teams, focused on development drilling and a disciplined approach to reservoir management to deliver incremental production from our more mature assets. The asset teams increased total production by 6% to 26,900 barrels a day in 2007. This was below our projected 2007 target of 10% growth, primarily due to shut-in production from our Uinta basin assets related to a refinery shut-down in the first quarter of 2007. We also experienced slower than anticipated drilling progress in the Piceance basin in the early part of 2007, but making no excuses, our people subsequently resolved those issues.

To illustrate the benefit of the asset team approach, we point to our N. Midway diatomite heavy oil asset. Here, the oil is held within diatomaceous earth so producing it is much different than our other heavy oil assets, which are produced from sandstone reservoirs. The drilling and completion techniques for the diatomite resource required that a team with a different focus have responsibility for its development. This asset is a key growth area for Berry as we plan to continuously drill here for the next four to five years to fully develop this property. A more aggressive steam cycling and fracturing program led to 215% production growth in the diatomite project in 2007, with production rates averaging around 1,000 barrels a day. We anticipate solid growth for at least the next five years from this asset.

The DJ basin in Yuma County, Colorado has experienced very strong growth since we acquired it in 2005 when it produced about 8.7 million cubic feet (MMcf) of gas per day. The DJ asset team focused on supply-chain type issues to improve drilling times, and in 2007 production averaged 18.7 MMcf per day. These improvements have contributed to the overall returns enjoyed by our shareholders.

In short, using just those two assets as examples, we see that our integrated teams can impact growth across all the Company’s assets. We seek to attract people who have a desire to fully use and develop their skills to add value to their team, to other teams and to the Company through means such as the application of technology, knowledge sharing and integrated economic analysis.

To motivate each team to be efficient and effective and achieve broader Company-wide goals of growth and profitability, each team has a unique scorecard used to calculate their performance-based incentive pay each year. We also use leading indicators of performance to focus a team on a specific area for improvement. An example of this approach can be seen in the significant reduction in the number of days it takes our Piceance team to drill a well. We struggled in the early part of 2007; drilling periods of 30 to 50 days were not acceptable, even though the wells met our forecasts for initial production when they began producing. A goal of reducing drill days was defined and a target set. Our people responded to the challenge and decreased the number of days to an average of 18. More efficient drilling allowed more wells to be drilled more quickly, and net production increased to an average 10.2 MMcf/D for 2007 and 14.5 MMcf/D in the fourth quarter.

All in all, 2007 was another excellent year for Berry and this is the type of overall Company growth that we want to continue to achieve year after year. We accomplished these solid results while being mindful of our commitment to operate in all areas with due regard to environmental, health and safety issues for our employees and the communities in which we operate.