EXHIBIT
99.1
For
Information
Brent A. Collins
303-861-8140
FOR
IMMEDIATE RELEASE
ST.
MARY REPORTS RESULTS FOR FOURTH QUARTER OF 2008
AND
PROVED RESERVES AS OF YEAR-END 2008
|
·
|
Record
quarterly production of 30.0 BCFE exceeds guidance of 28.0 – 29.0
BCFE
|
|
·
|
Reported
GAAP net loss of ($126.0 million), or ($2.01) per diluted share; pre-tax
non-cash impairments of $336.3 million had significant impact on
earnings
|
|
·
|
Adjusted
net income of $27.1 million, or $0.43 per diluted
share
|
|
·
|
Proved
reserves at year-end 2008 of 865.5 BCFE; lower year-end commodity price
resulted in significant negative price
revisions
|
|
·
|
Drilling
and acquisition activity, excluding revisions, replaced 174% of production
in 2008
|
DENVER, February 23, 2009 –
St. Mary Land & Exploration Company (NYSE: SM) today reports financial
results from the fourth quarter of 2008 and provides a brief update of its
financial condition. The Company also is reporting its proved and 3P
reserves as of December 31, 2008.
FOURTH
QUARTER 2008 RESULTS
St. Mary
posted a net loss for the fourth quarter of 2008 of ($126.0) million, a loss of
($2.01) per diluted share. This compares to net income of $32.9
million or $0.51 per diluted share, for the same period in
2007. Adjusted net income for the quarter, which adjusts
for significant non-recurring and unusual non-cash items, was $27.1 million or
$0.43 per diluted share, versus $64.9 million or $1.00 per diluted share, for
the fourth quarter of 2007. A summary of the adjustments made to
arrive at adjusted net income is presented in the table below.
|
For
the Three Months Ended December 31,
|
||||||||||||
|
2008
|
2007
|
|||||||||||
|
Weighted-average
diluted share count (in
millions)
|
62.6 | 64.6 | ||||||||||
|
$
in millions
|
Per
Diluted Share
|
$
in millions
|
Per
Diluted Share
|
|||||||||
|
Reported
Net Income (Loss)
|
$ | (126.0 | ) | $ | (2.01 | ) | $ | 32.9 | $ | 0.51 | ||
| After-tax adjustments, assuming effective tax rate for respective period | ||||||||||||
|
Change
in Net Profits Plan liability
|
$ | (52.8 | ) | $ | (0.84 | ) | $ | 28.5 | $ | 0.44 | ||
|
Unrealized
derivative (gain) loss
|
(7.8 | ) | (0.13 | ) | 2.1 | 0.03 | ||||||
|
(Gain)
loss on sale of proved properties
|
(6.2 | ) | (0.10 | ) | 0.2 | 0.00 | ||||||
|
Loss
on insurance settlement
|
0.5 | 0.01 | 0.7 | 0.01 | ||||||||
|
Adjusted
net income, before non-cash impairments
|
$ | (192.5 | ) | $ | (3.07 | ) | $ | 64.4 | $ | 1.00 | ||
| After-tax adjustments for non-cash impairments, assuming effective tax rate for respective period | ||||||||||||
|
Impairment
of proved properties
|
$ | 190.7 | $ | 3.05 | $ | 0.0 | $ | 0.00 | ||||
|
Abandonment
& impairment of unproved properties
|
22.7 | 0.36 | 0.6 | 0.01 | ||||||||
|
Impairment
of goodwill
|
6.2 | 0.10 | 0.0 | 0.00 | ||||||||
|
Adjusted
net income
|
$ | 27.1 | $ | 0.43 | $ | 64.9 | $ | 1.00 | ||||
|
NOTE:
Totals may not add due to rounding
|
||||||||||||
Discretionary
cash flow decreased to $163.3 million for the fourth quarter of 2008 from $177.8 million in the same
period last year. Net cash provided by operating activities decreased
to $110.1 million for the fourth quarter of 2008 from $156.8 million in the same
period in 2007.
Adjusted
net income and discretionary cash flow are non-GAAP financial measures – please
refer to the respective reconciliation in the accompanying Financial Highlights
section at the end of this release.
St. Mary
reported record quarterly production of 30.0 BCFE which came in above the
guidance range of 28.0 to 29.0 BCFE. Strong performance in the
Mid-Continent region was the primary driver in exceeding production guidance for
the quarter. Year over year, the Company grew reported production 5%
from 28.5 BCFE in the fourth quarter of 2007. Adjusting for sales of
non-strategic assets that took place in 2008, year over year production growth
was 11%. The Company’s oil and gas production growth on retained
properties year over year is being driven primarily by development of the Cotton
Valley program in the ArkLaTex region, successful drilling in the Wolfberry
tight
2
oil
program in West Texas, and the horizontal Woodford shale program in the Arkoma
Basin.
Revenues for the quarter were
$258.2 million compared to
$275.2 million for the same period in 2007. Average realized
prices, excluding hedging activities, were $5.30 per Mcf and $50.17 per barrel
during the quarter. These prices were 25% and 41% lower,
respectively, than the fourth quarter of 2007. Compared to recent
history, the Company experienced wider price differentials during the fourth
quarter of 2008. Average realized prices, inclusive of hedging
activities, were $7.09 per Mcf and $55.63 per barrel in the fourth quarter of
2008, which is a decrease of 9% and 21%, respectively, from the same period a
year ago. In the fourth quarter of 2008, the Company’s average
equivalent price per MCFE, net of hedging, was $7.84 per MCFE, which is a
decrease of 15% from the $9.18 per MCFE realized in the comparable period in
2007.
Lease
operating expense increased 20%, or $0.27 per MCFE, between the fourth quarters
of 2007 and 2008 to $1.59 per MCFE. This amount is slightly below the
Company’s lease operating expense guidance range of $1.60 to $1.65 per MCFE.
Recurring lease operating costs were up approximately 11% or $0.13 per MCFE year
over year. This increase reflects the impact of stronger commodity
prices and high levels of activity in the first half of 2008 on the operating
cost structure of exploration and production companies. Sequentially,
recurring lease operating expense declined 2% or $0.03 per MCFE in the fourth
quarter of 2008 from the preceding quarter. St. Mary expects
that there will be continuing downward pressure on recurring lease operating
expense in 2009 as a result of lower commodity prices and decreased levels of
industry activity. Workover expense for the quarter increased by
approximately $2.6 million year over year, primarily as a result of optimization
efforts in the Rocky Mountain region.
Transportation
expense of $0.20 per MCFE in the fourth quarter of 2008 was below guidance of
$0.21 to $0.26 per MCFE. The reported per unit expense was an
increase from $0.13 per MCFE for the comparative period in 2007. The
increase is being driven primarily by the change in asset composition, and the
associated transportation arrangements, in the Gulf Coast and ArkLaTex regions
where the Company’s development activities are taking place in areas with
different transportation arrangements than what St. Mary has historically
used.
Significant
commodity price decreases for both oil and natural gas resulted in a 42%
decrease in production taxes between the fourth quarters of 2008 and
2007. Production taxes for the fourth quarter were $0.39 per MCFE,
which was below guidance of $0.46 to $0.51 per MCFE as a result of lower than
forecasted commodity prices throughout the quarter.
General
and administrative expense for the fourth quarter of 2008 was $0.41 per MCFE,
representing a 23% decrease from the $0.53 per MCFE recognized in the comparable
quarter a year ago. The decrease year over year relates to smaller
payments to participants in the Net Profits Plan, which was affected by lower
commodity prices
3
realized
in the fourth quarter of 2008. Offsetting a portion of these
decreases were increases between the periods in costs associated with headcount,
such as salary, benefits, and office space. Reported G&A for the
fourth quarter of 2008 was below guidance of $0.78 to $0.83 per
MCFE.
Depletion
and depreciation expense increased to $3.18 per MCFE in the fourth quarter of
2008 from $2.27 per MCFE in the comparable period in
2007. Sequentially, DD&A increased 22% from $2.61 per MCFE in the
third quarter of 2008. Guidance for DD&A in the fourth quarter
was $2.75 to $2.95 per MCFE. The increase in DD&A in the fourth
quarter of 2008 is the result of a decrease in the Company’s proved
reserves. Commodity prices used to determine the proved reserves at
year-end 2008 were significantly lower than those used in the prior
year. Additionally, the price differentials on oil in the Rocky
Mountain region were wider than what the Company has experienced historically,
which further lowered the oil price used to determine proved reserves at
year-end. As a result, St. Mary’s proved reserves decreased by
approximately 20% year over year due primarily to downward pricing
revisions. This decrease in reserves results in a smaller base to
amortize the capitalized costs related to our producing properties and therefore
results in a higher DD&A rate for the period.
St. Mary
recognized $336.3 million before income taxes in non-cash impairments in the
fourth quarter of 2008, compared to $870,000 in the same period in
2007. The largest part of this amount was the impairment of producing
properties of $292.1 million. The largest individual component was an
impairment of $154.0 million related to properties in South Texas targeting the
Olmos shallow gas formation. Additionally, St. Mary recognized
producing property impairments on properties in the Hanging Woman Basin coalbed
methane project, in the Greater Green River Basin, and in the Gulf of
Mexico. Significantly lower prices for oil and gas in effect at
year-end played a large part in triggering these impairments on producing
properties. St. Mary also recognized an impairment of non-producing
leasehold costs of $34.8 million in the fourth quarter of 2008. The
bulk of this impairment relates to value initially assigned to probable and
possible drilling locations in South Texas related to the Olmos shallow gas
assets purchased in 2007, as well as acreage value related to the Floyd
shale. Lastly, the Company recognized an impairment of goodwill for
$9.5 million associated with an acquisition made in 2005.
In fourth
quarter of 2008, St. Mary recognized a pre-tax non-cash benefit of $80.9 million
as a result of the decrease in the Net Profits Plan liability, which decreased
during the quarter as a result of the significant decrease in forecasted oil and
natural gas prices from September 30, 2008, to December 31,
2008. This liability is a significant management estimate and is
highly sensitive to a number of assumptions including future commodity prices,
production rates, and operating costs. The last pool created under
this legacy compensation plan was in 2007.
4
FINANCIAL
POSITION AND LIQUIDITY
As of
December 31, 2008, St. Mary had total long-term debt of $587.5 million,
comprised of $287.5 million in 3.50% Senior Convertible Notes and $300.0 million
drawn under the existing long-term credit facility. The Company’s
debt-to-book capitalization ratio was 34% as of the end of the
quarter. The long-term credit facility requires compliance with two
financial covenants, consisting of a leverage to trailing EBITDA limit and a
minimum modified current ratio multiple. St. Mary was in compliance
with both covenants at quarter-end.
The
borrowing base for the long-term credit facility was redetermined by St. Mary’s
bank group on October 1, 2008, at an amount of $1.4 billion. The bank
group is comprised of ten banks, led by Wells Fargo. The Company has
elected a commitment amount of $500 million given its expected near term
liquidity needs. The current credit facility is set to expire in
April of 2010. St. Mary has been in discussions with banks both
within and outside the existing bank group about replacing the existing credit
facility and potentially increasing the commitment amount. The
Company expects to have a new credit facility in place in the first half of
2009.
PROVED
RESERVES
Below is
a roll-forward of the Company’s proved reserves from year-end 2007 to year-end
2008.
|
(BCFE)
|
||
|
Beginning
of year
|
1,086.5 | |
|
Production
|
(114.6 | ) |
|
Purchase
of minerals in place
|
29.1 | |
|
Sales
of reserves
|
(61.4 | ) |
|
Discoveries
and extensions
|
45.1 | |
|
Infill
reserves in an existing proved field
|
125.0 | |
|
Performance
revisions
|
(44.5 | ) |
|
Pricing
revisions
|
(199.7 | ) |
|
End
of year
|
865.5 |
St.
Mary’s proved reserves as of December 31, 2008, were 865.5 BCFE, which is a
decrease of 20% from 1086.5 BCFE at the end of 2007. The reserves are
comprised of 51.4 MMBbl of oil and 557.4 Bcf of natural gas, and are 83% proved
developed. Over 80% of St. Mary’s proved reserves by value were
either prepared or reviewed by outside reserve engineering
firms. Prices used to determine the proved reserves decreased
significantly from 2007 to 2008; SEC-mandated pricing in effect at
December 31, 2008, was $5.71 per MMBtu and $44.60 per barrel, which are
down 16% and 54%, respectively, from the $6.80 per MMBtu and $95.98 per barrel
used on December 31, 2007. In addition to the drop in base commodity
prices used for the calculation of 2008’s reserves, the Company was impacted by
larger differentials for oil
5
and
natural gas liquids on this measurement date. In the Williston Basin
in the Rocky Mountain region, where St. Mary has a significant legacy
oil-dominated asset base, average oil differentials increased roughly from $7.00
per barrel to $15.00 per barrel as of year-end. In South Texas, the
natural gas liquid fractionation spread shrank from $10.34 per MMBtu at year-end
2007 to $0.29 per MMBtu at year-end 2008.
Proved
reserves were adversely impacted by negative pricing and performance revisions
at year-end 2008. St. Mary’s negative price revision for the year was
199.7 BCFE, of which 74% related to proved developed
reserves. Two-thirds of the 199.7 BCFE in negative price revisions
related to the Company’s oil-weighted properties in the Rocky Mountain region,
which bore the brunt of the reserve impact caused by a lower year-end oil price
and a wider price differential. Lower year-end prices for natural gas
liquids also led to a meaningful negative price revision on proved reserves in
South Texas.
The SEC
recently published new rules for reporting year-end reserves that will go into
effect for the calendar year 2009. Pursuant to the new rules, prices to be used
to calculate year-end reserves will be based on the average of the prices that
were in effect on the first trading day of each calendar month of the year
rather than on the price that was in effect on the last trading day of the
year. The table below details the amount of reserves the Company
would recapture at various pricing assumptions.
|
(in
BCFE)
|
Year-end
2008 at year-end 2007 SEC pricing and differentials
|
Year-end
2008 under new SEC pricing & differentials methodology
|
||
|
Assumed
pricing
|
$95.98/bbl
& $6.80 MMBtu
|
$102.06/bbl
& $8.91 MMBtu
|
||
|
Year-end
2008 SEC Proved Reserves
|
865.5 | 865.5 | ||
|
Recaptured
PDP reserves
|
147.0 | 157.0 | ||
|
Recaptured
PDN/PUD reserves
|
38.0 | 42.0 | ||
|
Drilling
adds
|
35.0 | 35.0 | ||
|
Year-end
2008 at assumed pricing
|
1,085.5 | 1,099.5 |
The largest component of the negative performance revision relates to Olmos shallow gas properties in South Texas that were acquired in 2007. Results from the Olmos development did not meet the Company’s expectations, and midway through 2008 development was stopped to conduct a technical review. While parts of the technical review are still underway, the initial results have cast doubt on the viability of Olmos development on the scale originally contemplated at the time these acquisitions were made. Compared to the Company’s original assumptions, the reservoir is more compartmentalized than initially expected and lower reserve outcomes have been realized while attempting to infill parts of the field. While results from the Olmos
6
program
have been disappointing, St. Mary’s activities targeting the deeper formations
in the basin have been promising. The Company participated during the
year in a joint venture with two other exploration and production companies that
allows St. Mary to earn acreage in an area of the basin that is prospective for
the Eagle Ford and Pearsall shale formations, both of which appear to have
potential given recent industry activity.
3P
RESERVES
St.
Mary’s proved, probable, and possible (3P) reserves as of year-end 2008 were
negatively impacted by the same pricing conditions referred to above for proved
reserves. The following table provides the components of the
Company’s 3P reserves as of year-end 2007 and 2008.
|
December
31,
|
||||
|
2008
|
2007
|
|||
|
(in
BCFE)
|
||||
|
Proved
|
865.5 | 1,086.5 | ||
|
Probable
|
587.8 | 835.9 | ||
|
Possible
|
699.6 | 870.0 | ||
|
Total
3P
|
2,152.9 | 2,792.5 | ||
Not included in the 3P reserves for 2008 above is any potential related to the Company’s exposure to three emerging resource plays – the Haynesville shale, the Eagle Ford shale, and the Marcellus shale. St. Mary has approximately 50,000, 210,000, and 43,000 net acres, respectively, in these shale plays assuming all the acreage is earned.
Proved
reserves were evaluated using the parameters and pricing required by the
SEC. Probable and possible reserves were evaluated using the
parameters set forth by the Society of Petroleum Engineers.
EARNINGS
CALL INFORMATION
The
Company has scheduled a teleconference to discuss fourth quarter and full year
2008 results on February 24, 2009 at 8:00 a.m. Mountain time (10:00 a.m. Eastern
time). The call participation number is 888-811-1227. An
audio replay of the call will be available approximately two hours after the
call at 800-642-1687, conference number 84161206. International
participants can dial 706-679-9922 to take part in the conference call and can
access a replay of the call at 706-645-9291, conference number
84161206. Replays can be accessed through March 20,
2009.
In
addition, the call will be webcast live and can be accessed at St. Mary’s web
site at www.stmaryland.com. An audio recording of the conference call
will be available at that site through March 20, 2009.
7
INFORMATION
ABOUT FORWARD LOOKING STATEMENTS
This
release contains forward looking statements within the meaning of securities
laws, including forecasts and projections. The words “will,”
“believe,” “budget,” “anticipate,” “plan,” “intend,” “estimate,” “forecast,” and
“expect” and similar expressions are intended to identify forward looking
statements. These statements involve known and unknown risks, which
may cause St. Mary’s actual results to differ materially from results expressed
or implied by the forward looking statements. These risks include
such factors as the volatility and level of oil and natural gas prices, the
uncertain nature of the expected benefits from the acquisition and divestiture
of oil and gas properties, uncertainties inherent in projecting future rates of
production from drilling activities and acquisitions, the ability of purchasers
of production to pay for those sales, the availability of debt and equity
financing, the ability of the banks in the Company’s credit facility to fund
requested borrowings, the ability of hedge counterparties to settle hedges in
favor of the Company, the imprecise nature of estimating oil and gas reserves,
the availability of additional economically attractive exploration, development,
and property acquisition opportunities for future growth and any necessary
financings, unexpected drilling conditions and results, unsuccessful exploration
and development drilling, drilling and operating service availability, the risks
associated with the Company’s hedging strategy, and other such matters discussed
in the “Risk Factors” section of St. Mary’s 2008 Annual Report on Form 10-K,
which is expected to be filed on or around February 24,
2009. Although St. Mary may from time to time voluntarily update its
prior forward looking statements, it disclaims any commitment to do so except as
required by securities laws.
INFORMATION
ABOUT RESERVES AND RESOURCES
The SEC
permits oil and gas companies to disclose in their filings with the SEC only
proved reserves, which are reserve estimates that geological and engineering
data demonstrate with reasonable certainty to be recoverable in future years
from known reservoirs under existing economic and operating
conditions. St. Mary uses in this press release the terms “probable”,
“possible”, and “3P” reserves, which SEC guidelines prohibit from being included
in filings with the SEC. Probable reserves are unproved reserves
which are more likely than not to be recoverable. Possible reserves
are unproved reserves which are less likely to be recoverable than probable
reserves. Estimates of unproved reserves which may
potentially be recoverable through additional drilling or recovery techniques
are by their nature more uncertain than estimates of proved reserves and
accordingly are subject to substantially greater risk of not actually being
realized by the Company. In addition, presenting the estimated impact
of applying the 12-month-average pricing provisions of the oil and gas reserve
reporting rules recently promulgated by the SEC or the reserves that would be
recaptured at various price scenarios are strictly prohibited from being
included in filings with the SEC. Lastly, the Company’s production
forecasts and expectations for future periods are dependent upon many
assumptions, including estimates of production decline rates from existing wells
and the undertaking and outcome of future drilling activity, which may be
affected by significant commodity price declines or drilling cost
increases.
8
|
ST.
MARY LAND & EXPLORATION COMPANY
|
||||||||||||||||
|
FINANCIAL
HIGHLIGHTS
|
||||||||||||||||
|
December
31, 2008
|
||||||||||||||||
|
Production Data
|
For
the Three Months
|
For
the Years
|
||||||||||||||
|
Ended
December 31,
|
Ended
December 31,
|
|||||||||||||||
|
2008
|
2007
|
Percent
Change
|
2008
|
2007
|
Percent
Change
|
|||||||||||
|
Average
realized sales price, before hedging:
|
||||||||||||||||
|
Oil
(per Bbl)
|
$ | 50.17 | $ | 84.63 | -41% | $ | 92.99 | $ | 67.56 | 38% | ||||||
|
Gas
(per Mcf)
|
$ | 5.30 | $ | 7.07 | -25% | $ | 8.60 | $ | 6.74 | 28% | ||||||
|
Average
realized sales price, net of hedging:
|
||||||||||||||||
|
Oil
(per Bbl)
|
$ | 55.63 | $ | 69.99 | -21% | $ | 75.59 | $ | 62.60 | 21% | ||||||
|
Gas
(per Mcf)
|
$ | 7.09 | $ | 7.80 | -9% | $ | 8.79 | $ | 7.63 | 15% | ||||||
|
Production:
|
||||||||||||||||
|
Oil
(MMBbls)
|
1.7 | 1.7 | 1% | 6.6 | 6.9 | -4% | ||||||||||
|
Gas
(Bcf)
|
19.7 | 18.3 | 7% | 74.9 | 66.1 | 13% | ||||||||||
|
BCFE
(6:1)
|
30.0 | 28.5 | 5% | 114.6 | 107.5 | 7% | ||||||||||
|
Daily
production:
|
||||||||||||||||
|
Oil
(MBbls per day)
|
18.7 | 18.5 | 1% | 18.1 | 18.9 | -4% | ||||||||||
|
Gas
(MMcf per day)
|
213.8 | 199.1 | 7% | 204.7 | 181.0 | 13% | ||||||||||
|
MMCFE
per day (6:1)
|
326.0 | 310.2 | 5% | 313.1 | 294.5 | 6% | ||||||||||
|
Margin
analysis per MCFE:
|
||||||||||||||||
|
Average
realized sales price, before hedging
|
$ | 6.35 | $ | 9.59 | -34% | $ | 10.99 | $ | 8.48 | 30% | ||||||
|
Average
realized sales price, net of hedging
|
$ | 7.84 | $ | 9.18 | -15% | $ | 10.11 | $ | 8.71 | 16% | ||||||
|
Lease
operating expense
|
$ | 1.59 | $ | 1.32 | 20% | 1.46 | 1.31 | 11% | ||||||||
|
Transportation
|
$ | 0.20 | $ | 0.13 | 54% | 0.19 | 0.14 | 36% | ||||||||
|
Production
taxes
|
$ | 0.39 | $ | 0.67 | -42% | 0.71 | 0.58 | 22% | ||||||||
|
General
and administrative
|
$ | 0.41 | $ | 0.53 | -23% | 0.69 | 0.56 | 23% | ||||||||
|
Operating
margin
|
$ | 5.25 | $ | 6.53 | -20% | $ | 7.06 | $ | 6.12 | 15% | ||||||
|
Depletion,
depreciation, amortization, and
|
||||||||||||||||
|
asset
retirement obligation liability accretion
|
$ | 3.18 | $ | 2.27 | 40% | $ | 2.74 | $ | 2.12 | 29% | ||||||
|
ST.
MARY LAND & EXPLORATION COMPANY
|
||||||||||||
|
FINANCIAL
HIGHLIGHTS
|
||||||||||||
|
December
31, 2008
|
||||||||||||
|
Consolidated Statements of
Operations
|
||||||||||||
|
(In
thousands, except per share amounts)
|
For
the Three Months
|
For
the Year
|
||||||||||
|
Ended
December 31,
|
Ended
December 31,
|
|||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||
|
Operating
revenues and other income:
|
||||||||||||
|
Oil
and gas production revenue
|
$ | 190,499 | $ | 273,736 | $ | 1,259,400 | $ | 912,093 | ||||
|
Realized
oil and gas hedge gain (loss)
|
44,741 | (11,676 | ) | (101,096 | ) | 24,484 | ||||||
|
Marketed
gas system revenue
|
11,935 | 13,909 | 77,350 | 45,149 | ||||||||
|
Gain
(loss) on sale of proved properties
|
9,494 | (367 | ) | 63,557 | (367 | ) | ||||||
|
Other
revenue
|
1,500 | (355 | ) | 2,090 | 8,735 | |||||||
|
Total
operating revenues and other income
|
258,169 | 275,247 | 1,301,301 | 990,094 | ||||||||
|
Operating
expenses:
|
||||||||||||
|
Oil
and gas production expense
|
65,530 | 60,590 | 271,355 | 218,208 | ||||||||
|
Depletion,
depreciation, amortization,
|
||||||||||||
|
and
asset retirement obligation liability accretion
|
95,260 | 64,919 | 314,330 | 227,596 | ||||||||
|
Exploration
|
17,743 | 16,030 | 60,121 | 58,686 | ||||||||
|
Impairment
of proved properties
|
292,100 | - | 302,230 | - | ||||||||
|
Abandonment
and impairment of unproved properties
|
34,754 | 870 | 39,049 | 4,756 | ||||||||
|
Impairment
of goodwill
|
9,452 | - | 9,452 | - | ||||||||
|
General
and administrative
|
12,354 | 15,187 | 79,503 | 60,149 | ||||||||
|
Bad
debt expense
|
143 | - | 16,735 | - | ||||||||
|
Change
in Net Profits Plan liability
|
(80,941 | ) | 43,875 | (34,040 | ) | 50,823 | ||||||
|
Marketed
gas system expense
|
11,241 | 13,031 | 72,159 | 42,485 | ||||||||
|
Unrealized
derivative (gain) loss
|
(12,011 | ) | 3,234 | (11,209 | ) | 5,458 | ||||||
|
Other
expense
|
1,260 | 946 | 10,415 | 2,522 | ||||||||
|
Total
operating expenses
|
446,885 | 218,682 | 1,130,100 | 670,683 | ||||||||
|
Income
(loss) from operations
|
(188,716 | ) | 56,565 | 171,201 | 319,411 | |||||||
|
Nonoperating
income (expense):
|
||||||||||||
|
Interest
income
|
90 | 134 | 485 | 746 | ||||||||
|
Interest
expense
|
(4,417 | ) | (6,010 | ) | (20,275 | ) | (19,895 | ) | ||||
|
Income
(loss) before income taxes
|
(193,043 | ) | 50,689 | 151,411 | 300,262 | |||||||
|
Income
tax (expense) benefit
|
67,003 | (17,815 | ) | (59,858 | ) | (110,550 | ) | |||||
|
Net
income (loss)
|
$ | (126,040 | ) | $ | 32,874 | $ | 91,553 | $ | 189,712 | |||
|
Basic
weighted-average common shares outstanding
|
62,212 | 63,300 | 62,243 | 61,852 | ||||||||
|
Diluted
weighted-average common shares outstanding
|
62,630 | 64,635 | 63,133 | 64,850 | ||||||||
|
Basic
net income (loss) per common share
|
$ | (2.03 | ) | $ | 0.52 | $ | 1.47 | $ | 3.07 | |||
|
Diluted
net income (loss) per common share
|
$ | (2.01 | ) | $ | 0.51 | $ | 1.45 | $ | 2.94 | |||
|
ST.
MARY LAND & EXPLORATION COMPANY
|
||||||
|
FINANCIAL
HIGHLIGHTS
|
||||||
|
December
31, 2008
|
||||||
|
Consolidated Balance Sheets
|
||||||
|
(In
thousands, except share amounts)
|
December
31,
|
December
31,
|
||||
|
ASSETS
|
2008
|
2007
|
||||
|
Current
assets:
|
||||||
|
Cash
and cash equivalents
|
$ | 6,131 | $ | 43,510 | ||
|
Short-term
investments
|
1,002 | 1,173 | ||||
|
Accounts
receivable, net of allowance for doubtful accounts
|
||||||
|
of
$16,788 in 2008 and $152 in 2007
|
157,690 | 159,149 | ||||
|
Refundable
income taxes
|
13,161 | 933 | ||||
|
Prepaid
expenses and other
|
22,161 | 14,129 | ||||
|
Accrued
derivative asset
|
111,649 | 17,836 | ||||
|
Deferred
income taxes
|
- | 33,211 | ||||
|
Total
current assets
|
311,794 | 269,941 | ||||
|
Property
and equipment (successful efforts method), at cost:
|
||||||
|
Land
|
1,350 | - | ||||
|
Proved
oil and gas properties
|
3,007,946 | 2,721,229 | ||||
|
Less
- accumulated depletion, depreciation, and amortization
|
(947,207 | ) | (804,785 | ) | ||
|
Unproved
oil and gas properties, net of impairment allowance
|
||||||
|
of
$42,945 in 2008 and $10,319 in 2007
|
168,817 | 134,386 | ||||
|
Wells
in progress
|
90,910 | 137,417 | ||||
|
Oil
and gas properties held for sale less accumulated
depletion,
|
||||||
|
depreciation,
and amortization
|
1,827 | 76,921 | ||||
|
Other
property and equipment, net of accumulated depreciation
|
||||||
|
of
$13,848 in 2008 and $11,549 in 2007
|
13,458 | 9,230 | ||||
| 2,337,101 | 2,274,398 | |||||
|
Other
noncurrent assets:
|
||||||
|
Goodwill
|
- | 9,452 | ||||
|
Accrued
derivative asset
|
21,541 | 5,483 | ||||
|
Restricted
cash subject to Section 1031 Exchange
|
14,398 | - | ||||
|
Other
noncurrent assets
|
10,182 | 12,406 | ||||
|
Total
other noncurrent assets
|
46,121 | 27,341 | ||||
|
Total
Assets
|
$ | 2,695,016 | $ | 2,571,680 | ||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||
|
Current
liabilities:
|
||||||
|
Accounts
payable and accrued expenses
|
$ | 254,811 | $ | 254,918 | ||
|
Accrued
derivative liability
|
501 | 97,627 | ||||
|
Deposit
associated with oil and gas properties held for sale
|
- | 10,000 | ||||
|
Deferred
income taxes
|
41,289 | - | ||||
|
Total
current liabilities
|
296,601 | 362,545 | ||||
|
Noncurrent
liabilities:
|
||||||
|
Long-term
credit facility
|
300,000 | 285,000 | ||||
|
Senior
convertible notes
|
287,500 | 287,500 | ||||
|
Asset
retirement obligation
|
108,755 | 96,432 | ||||
|
Asset
retirement obligation associated with oil and gas
|
||||||
|
properties
held for sale
|
238 | 8,744 | ||||
|
Net
Profits Plan liability
|
177,366 | 211,406 | ||||
|
Deferred
income taxes
|
358,334 | 257,603 | ||||
|
Accrued
derivative liability
|
27,419 | 190,262 | ||||
|
Other
noncurrent liabilities
|
11,318 | 8,843 | ||||
|
Total
noncurrent liabilities
|
1,270,930 | 1,345,790 | ||||
|
Stockholders'
equity:
|
||||||
|
Common
stock, $0.01 par value: authorized - 200,000,000
shares;
|
||||||
|
issued: 62,465,572
shares in 2008 and 64,010,832 shares
|
||||||
|
in
2007; outstanding, net of treasury shares: 62,288,585
shares
|
||||||
|
in
2008 and 63,001,120 shares in 2007
|
625 | 640 | ||||
|
Additional
paid-in capital
|
99,440 | 170,070 | ||||
|
Treasury
stock, at cost: 176,987 shares in 2008 and 1,009,712
|
||||||
|
shares
in 2007
|
(1,892 | ) | (29,049 | ) | ||
|
Retained
earnings
|
964,019 | 878,652 | ||||
|
Accumulated
other comprehensive loss
|
65,293 | (156,968 | ) | |||
|
Total
stockholders' equity
|
1,127,485 | 863,345 | ||||
|
Total
Liabilities and Stockholders' Equity
|
$ | 2,695,016 | $ | 2,571,680 | ||
|
ST.
MARY LAND & EXPLORATION COMPANY
|
||||||||||||
|
FINANCIAL
HIGHLIGHTS
|
||||||||||||
|
December
31, 2008
|
||||||||||||
|
Consolidated Statements of Cash
Flows
|
||||||||||||
|
(In
thousands)
|
For
the Three Months
|
For
the Years
|
||||||||||
|
Ended
December 31,
|
Ended
December 31,
|
|||||||||||
|
Cash
flows from operating activities:
|
2008
|
2007
|
2008
|
2007
|
||||||||
|
Reconciliation
of net income to net cash provided
|
||||||||||||
|
by
operating activities:
|
||||||||||||
|
Net
income (loss)
|
$ | (126,040 | ) | $ | 32,874 | $ | 91,553 | $ | 189,712 | |||
|
Adjustments
to reconcile net income (loss) to net cash
|
||||||||||||
|
provided
by operating activities:
|
||||||||||||
|
Loss
related to hurricanes
|
- | - | 6,980 | - | ||||||||
|
(Gain)
loss on insurance settlement
|
696 | 1,097 | 2,296 | (5,243 | ) | |||||||
|
(Gain)
loss on sale of proved properties
|
(9,494 | ) | 367 | (63,557 | ) | 367 | ||||||
|
Depletion,
depreciation, amortization,
|
||||||||||||
|
and
asset retirement obligation liability accretion
|
95,260 | 64,919 | 314,330 | 227,596 | ||||||||
|
Bad
debt expense
|
143 | - | 16,735 | - | ||||||||
|
Exploratory
dry hole expense
|
240 | 1,651 | 6,823 | 14,365 | ||||||||
|
Impairment
of proved properties
|
292,100 | - | 302,230 | - | ||||||||
|
Impairment
of goodwill
|
9,452 | - | 9,452 | - | ||||||||
|
Abandonment
and impairment of unproved properties
|
34,754 | 870 | 39,049 | 4,756 | ||||||||
|
Unrealized
derivative (gain) loss
|
(12,011 | ) | 3,234 | (11,209 | ) | 5,458 | ||||||
|
Change
in Net Profits Plan liability
|
(80,941 | ) | 43,875 | (34,040 | ) | 50,823 | ||||||
|
Stock-based
compensation expense (1)
|
4,335 | 1,489 | 14,812 | 10,095 | ||||||||
|
Deferred
income taxes
|
(60,597 | ) | 13,666 | 40,634 | 92,955 | |||||||
|
Other
|
(97 | ) | (5,329 | ) | (3,593 | ) | (10,497 | ) | ||||
|
Changes
in current assets and liabilities:
|
||||||||||||
|
Accounts
receivable
|
25,128 | (6,349 | ) | (14,327 | ) | (6,557 | ) | |||||
|
Refundable
income taxes
|
(8,578 | ) | 2,164 | (12,228 | ) | 6,751 | ||||||
|
Prepaid
expenses and other
|
(3,533 | ) | (8,660 | ) | (1,504 | ) | 19,375 | |||||
|
Accounts
payable and accrued expenses
|
(47,111 | ) | 13,217 | (12,348 | ) | 40,769 | ||||||
|
Excess
income tax benefit from the exercise of stock options
|
(3,586 | ) | (2,275 | ) | (13,867 | ) | (9,933 | ) | ||||
|
Net
cash provided by operating activities
|
110,120 | 156,810 | 678,221 | 630,792 | ||||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Proceeds
from insurance settlement
|
- | (1,116 | ) | - | 5,948 | |||||||
|
Proceeds
from sale of oil and gas properties
|
23,664 | 171 | 178,867 | 495 | ||||||||
|
Capital
expenditures
|
(251,125 | ) | (137,637 | ) | (745,617 | ) | (637,748 | ) | ||||
|
Acquisition
of oil and gas properties
|
1,610 | (150,233 | ) | (81,823 | ) | (182,883 | ) | |||||
|
Deposits
to restricted cash
|
(14,398 | ) | - | (14,398 | ) | - | ||||||
|
Other
|
9 | 25,300 | (9,814 | ) | 10,316 | |||||||
|
Net
cash used in investing activities
|
(240,240 | ) | (263,515 | ) | (672,785 | ) | (803,872 | ) | ||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Proceeds
from credit facility
|
1,739,500 | 268,086 | 2,571,500 | 822,000 | ||||||||
|
Repayment
of credit facility
|
(1,609,500 | ) | (138,086 | ) | (2,556,500 | ) | (871,000 | ) | ||||
|
Excess
tax benefit from the exercise of stock options
|
3,586 | 2,275 | 13,867 | 9,933 | ||||||||
|
Net
proceeds from issuance of senior convertible debt
|
- | (7 | ) | - | 280,657 | |||||||
|
Proceeds
from sale of common stock
|
561 | 3,665 | 11,888 | 10,007 | ||||||||
|
Repurchase
of common stock
|
- | - | (77,202 | ) | (25,904 | ) | ||||||
|
Dividends
paid
|
(3,110 | ) | (3,144 | ) | (6,186 | ) | (6,284 | ) | ||||
|
Other
|
(182 | ) | 186 | (182 | ) | (4,283 | ) | |||||
|
Net
cash provided by (used in) financing activities
|
130,855 | 132,975 | (42,815 | ) | 215,126 | |||||||
|
Net
change in cash and cash equivalents
|
735 | 26,270 | (37,379 | ) | 42,046 | |||||||
|
Cash
and cash equivalents at beginning of period
|
5,396 | 17,240 | 43,510 | 1,464 | ||||||||
|
Cash
and cash equivalents at end of period
|
$ | 6,131 | $ | 43,510 | $ | 6,131 | $ | 43,510 | ||||
|
(1)
Stock-based compensation expense is a component of exploration expense and
general and administrative expense on the consolidated statements of
operations.
|
||||||||||||
|
For
the three-month periods ended December 31, 2008, and 2007, respectively,
approximately $2.0 million and $600,000 of stock-based compensation
expense
|
||||||||||||
|
was
included in exploration expense. For the years ended December 31,
2008, and 2007, respectively, approximately $5.8 million and $3.2
million
|
||||||||||||
|
of
stock-based compensation expense was included in exploration
expense. For the three-month periods ended December 31, 2008, and
2007, respectively,
|
||||||||||||
|
approximately
$2.3 million and $889,000 of stock-based compensation expense was included
in general and administrative expense. For the years
|
||||||||||||
|
ended
December 31, 2008, and 2007, respectively, approximately $9.0 million and
$6.9 million of stock-based compensation expense was included
in
|
||||||||||||
|
general and administrative expense.
|
||||||||||||
|
ST.
MARY LAND & EXPLORATION COMPANY
|
||||||||||||
|
FINANCIAL
HIGHLIGHTS
|
||||||||||||
|
December
31, 2008
|
||||||||||||
|
Adjusted Net Income
|
||||||||||||
|
(In
thousands, except per share data)
|
||||||||||||
|
Reconciliation
of Net Income (Loss) (GAAP)
|
For
the Three Months
|
For
the Years
|
||||||||||
|
to
Adjusted Net Income (Non-GAAP):
|
Ended
December 31,
|
Ended
December 31,
|
||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||
|
Reported
Net Income (Loss) (GAAP)
|
$ | (126,040 | ) | $ | 32,874 | $ | 91,553 | $ | 189,712 | |||
|
Adjustments:
|
||||||||||||
|
Change
in Net Profits Plan liability
|
(80,941 | ) | 43,875 | (34,040 | ) | 50,823 | ||||||
|
Unrealized
derivative (gain) loss
|
(12,011 | ) | 3,234 | (11,209 | ) | 5,458 | ||||||
|
(Gain)
loss on sale of proved properties
|
(9,494 | ) | 367 | (63,557 | ) | 367 | ||||||
|
(Gain)
loss on insurance settlement (2)
|
696 | 1,097 | 2,296 | (5,243 | ) | |||||||
|
Bad
debt expense associated with SemGroup, L.P.
|
(5 | ) | - | 16,635 | - | |||||||
|
(Gain)
loss related to hurricanes (3)
|
- | - | 6,980 | - | ||||||||
|
Tax
adjustment at effective rate for period
|
35,318 | (17,071 | ) | 32,771 | (18,926 | ) | ||||||
|
Adjusted
Net Income (Loss), before impairments
|
(192,477 | ) | 64,375 | 41,429 | 222,190 | |||||||
|
Non-cash
impairments:
|
||||||||||||
|
Impairment
of proved properties
|
292,100 | - | 302,230 | - | ||||||||
|
Abandonment
and impairment of unproved properties
|
34,754 | 870 | 39,049 | 4,756 | ||||||||
|
Impairment
of goodwill
|
9,452 | - | 9,452 | - | ||||||||
|
Tax
adjustment for impairments at effective rate for period
|
(116,728 | ) | (306 | ) | (138,656 | ) | (1,751 | ) | ||||
|
Adjusted
Net Income, non recurring items
|
||||||||||||
|
&
non cash impairments (4)
|
27,101 | 64,939 | 253,504 | 225,195 | ||||||||
|
Adjusted
Net Income Per Share (Non-GAAP)
|
||||||||||||
|
Basic
|
$ | 0.44 | $ | 1.03 | $ | 4.07 | $ | 3.64 | ||||
|
Diluted
|
$ | 0.43 | $ | 1.00 | $ | 4.02 | $ | 3.48 | ||||
|
Average
Number of Shares Outstanding
|
||||||||||||
|
Basic
|
62,212 | 63,300 | 62,243 | 61,852 | ||||||||
|
Diluted
|
62,630 | 64,635 | 63,133 | 64,850 | ||||||||
|
(2)
The (gain) loss on insurance settlement is included within line item other
revenue on the consolidated statements of operations.
|
||||||||||||
|
(3)
The loss related to hurricanes is included within line item other expense
on the consolidated statements of operations.
|
||||||||||||
|
(4)
Adjusted net income is calculated as net income (loss) adjusted for
significant non-cash and non-recurring items. Non-cash charges
include changes in
|
||||||||||||
|
the
Net Profits Plan liability, unusual and non-recurring bad debt expense,
unrealized derivative gains and losses, impairment of proved properties,
abandonment
|
||||||||||||
|
and
impairment of unproved properties, and impairment of
goodwill. Non-recurring items include (gain) loss from sales of
proved properties,
|
||||||||||||
|
(gain)
loss on insurance settlements, and (gain) loss related to
hurricanes. The non-GAAP measure of adjusted net income is presented
because management
|
||||||||||||
|
believes
it provides useful additional information to investors for analysis of St.
Mary’s fundamental business on a recurring basis. In addition,
management
|
||||||||||||
|
believes
that adjusted net income is widely used by professional research analysts
and others in the valuation, comparison, and investment recommendations
of
|
||||||||||||
|
companies
in the oil and gas exploration and production industry, and many investors
use the published research of industry research analysts in making
investment
|
||||||||||||
|
decisions.
Adjusted net income should not be considered in isolation or as a
substitute for net income, income from operations, cash provided by
operating activities
|
||||||||||||
|
or
other income, profitability, cash flow, or liquidity measures prepared
under GAAP. Since adjusted net income excludes some, but not all,
items that affect net income
|
||||||||||||
|
and
may vary among companies, the adjusted net income amounts presented may
not be comparable to similarly titled measures of other
companies.
|
||||||||||||
|
Discretionary Cash Flow
|
||||||||||||
|
(In
thousands)
|
||||||||||||
|
Reconciliation
of Net Cash Provided by Operating Activities
|
For
the Three Months
|
For
the Years
|
||||||||||
|
(GAAP)
to Discretionary Cash Flow (Non-GAAP):
|
Ended
December 31,
|
Ended
December 31,
|
||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||
|
Net
cash provided by operating activities (GAAP)
|
$ | 110,120 | $ | 156,810 | $ | 678,221 | $ | 630,792 | ||||
|
Exploration
|
17,743 | 16,030 | 60,121 | 58,686 | ||||||||
|
Less: Exploratory dry hole expense
|
(240 | ) | (1,651 | ) | (6,823 | ) | (14,365 | ) | ||||
|
Less: Stock-based compensation expense included in
exploration
|
(1,992 | ) | (599 | ) | (5,799 | ) | (3,215 | ) | ||||
|
Other
|
97 | 5,329 | 3,593 | 10,497 | ||||||||
|
Bad
debt expense
|
(143 | ) | - | (16,735 | ) | - | ||||||
|
Changes
in current assets and liabilities
|
37,680 | 1,903 | 54,274 | (50,405 | ) | |||||||
|
Discretionary
cash flow (Non-GAAP) (5)
|
$ | 163,265 | $ | 177,822 | $ | 766,852 | $ | 631,990 | ||||
|
(5)
Discretionary cash flow is computed as net income adjusted for (gain) loss
on sale of proved properties, (gain) loss on insurance
settlement, loss related
|
||||||||||||
|
to
hurricanes, depreciation, depletion, amortization and asset retirement
obligation liability accretion, exploration expense, impairment
of
|
||||||||||||
|
proved
properties, abandonment and impairment of unproved properties, impairment
of goodwill, unrealized derivative (gain) loss, change in Net Profits
Plan
|
||||||||||||
|
liability,
stock-based compensation expense, and deferred income taxes. The
non-GAAP measure of discretionary cash flow is presented since
management
|
||||||||||||
|
believes
that it provides useful additional information to investors for analysis
of St. Mary's ability to internally generate funds for exploration,
development, and
|
||||||||||||
|
acquisitions. In
addition, discretionary cash flow is widely used by professional research
analysts and others in the valuation, comparison, and
investment
|
||||||||||||
|
recommendations
of companies in the oil and gas exploration and production industry, and
many investors use the published research of industry
research
|
||||||||||||
|
analysts
in making investment decisions. Discretionary cash flow should not be
considered in isolation or as a substitute for net income, income from
operations,
|
||||||||||||
|
net
cash provided by operating activities or other income, profitability,
cash flow, or liquidity measures prepared under GAAP. Since
discretionary cash flow
|
||||||||||||
|
excludes
some, but not all items that affect net income and net cash provided by
operating activities and may vary among companies, the discretionary cash
flow
|
||||||||||||
|
amounts
presented may not be comparable to similarly titled measures of other
companies. See the Consolidated Statements of Cash Flows herein for
more
|
||||||||||||
|
detailed
cash flow information.
|
||||||||||||
|
ST.
MARY LAND & EXPLORATION COMPANY
|
||||||||
|
FINANCIAL
HIGHLIGHTS
|
||||||||
|
December 31,
2008
|
||||||||
|
Information on Reserves and Costs
Incurred
|
||||||||
|
Costs
incurred in oil and gas producing activities:
|
||||||||
|
For
the Year Ended
|
||||||||
|
December
31,
|
||||||||
|
2008
|
||||||||
|
Development
costs (6)
|
$ | 586,579 | ||||||
|
Exploration
costs
|
92,199 | |||||||
|
Acquisitions:
|
||||||||
|
Proved
properties
|
51,567 | |||||||
|
Unproved
properties - acquisitions of
|
||||||||
|
proved
properties (7)
|
43,274 | |||||||
|
Unproved
properties - other
|
83,078 | |||||||
|
Total,
including asset retirement obligation (8)
|
$ | 856,697 | ||||||
|
(6) Includes
capitalized interest of $3.7 million.
|
||||||||
|
(7)
Represents a portion of the allocated purchase price of unproved
properties acquired as part of the acquisition of proved
properties.
|
||||||||
|
(8)
Includes amounts relating to estimated asset retirement obligations of
$15.4 million.
|
||||||||
|
Proved
oil and gas reserve quantities:
|
||||||||
|
For
the Year Ended
|
||||||||
|
December
31, 2008
|
||||||||