St. Mary Reports Results for Second Quarter of 2008; Provides Financial & Operational Update
-- Company reports net income of $33.6 million, or $0.53 per
diluted share
-- Adjusted net income of $1.29 per diluted share
-- Quarterly production of 28.6 BCFE exceeds guidance of 26.0 -
27.0 BCFE
-- Year over year production growth of 15% from retained asset
base
DENVER--(Business Wire)--
St. Mary Land & Exploration Company (NYSE: SM) today reports
financial results from the second quarter of 2008 and provides a brief
update of its financial condition and operations.
MANAGEMENT COMMENTARY
Tony Best, President and CEO, commented, "The second quarter was a
strong quarter for St. Mary. Year over year, we grew production 15%
from our retained properties. Commodity prices were very robust during
the quarter, which allowed us to generate strong cash flows. For the
year to date, we have exceeded the production goals that we set out at
the beginning of the year. We are executing well on our business plan
and our portfolio is improving every day. I am pleased with how we are
positioned as we enter the second half of the year."
SECOND QUARTER 2008 RESULTS
Earnings for the second quarter of 2008 were $33.6 million, or
$0.53 per diluted share, compared to $59.2 million, or $0.91 per
diluted share, for the same period in 2007. Adjusted net income, which
adjusts for significant non-recurring and non-cash items, was $80.8
million, or $1.29 per diluted share, for the quarter versus $55.3
million, or $0.85 per diluted share, for the second quarter of 2007.
For the second quarter of 2008, adjusted net income includes
significant adjustments related to the change in the Net Profits Plan
liability for the quarter and bad debt expense recorded as a result of
the bankruptcy of SemGroup L.P., a purchaser of a portion of the
Company's produced crude oil, which is discussed further below. The
adjustment related to the non-cash charge resulting from the change in
the Net Profits Plan liability was $43.3 million, or $0.69 per diluted
share, on an after-tax basis. The Net Profits Plan liability increased
significantly during the quarter as a result of the increase in
forecasted oil and natural gas prices from March 31 to June 30, 2008.
The Company's adjusted net income also includes an after-tax
adjustment of $6.3 million, or $0.10 per diluted share, for bad debt
expense recorded in the quarter as a result of the bankruptcy of
SemGroup L.P. Based upon information contained in available court
filings made by SemGroup L.P., the Company believes that the
bankruptcy of SemGroup L.P. may be attributable to circumstances
unique to SemGroup L.P., including significant margin requirements for
large futures and options trading positions by SemGroup L.P., which
are not representative of the liquidity and financial position of
other companies in the mid-stream sector. Accordingly, St. Mary
believes that the circumstances that led to the SemGroup L.P. bad debt
expense are highly unusual and unlikely to occur in the future with
respect to receivables from other purchasers of the Company's produced
oil and natural gas. See the header SemGroup Exposure below for more
discussion on this topic. Complete reconciliations of adjusted net
income to the nearest comparable GAAP financial measure for all
comparable periods are presented in the accompanying Financial
Highlights section at the end of this release.
Discretionary cash flow increased to $211.9 million for the second
quarter of 2008 from $153.8 million in the same period of the
preceding year. Net cash provided by operating activities increased to
$173.6 million for the second quarter of 2008 from $156.2 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.
Reported daily oil and gas production for the quarter increased
10% year over year to an average of 313.7 MMCFED in the second quarter
of 2008 from 286.1 MMCFED in the second quarter of 2007. Adjusting for
properties that were sold in January 2008, total oil and gas
production from the retained properties increased 15% or 3.7 BCFE year
over year. The Company's oil and gas production growth between the
periods is being driven by development of the Cotton Valley and James
Lime programs in the ArkLaTex region, drilling in the horizontal
Woodford shale program in eastern Oklahoma, drilling in the Wolfberry
tight oil program in West Texas, successful offshore activities in the
Gulf Coast region, and the acquisition and subsequent development of
Olmos shallow gas assets in South Texas.
Revenues for the quarter were $356.9 million compared to $247.2
million for the same period in 2007. Average realized prices,
inclusive of hedging activities, were $9.97 per Mcf and $88.40 per
barrel in the second quarter of 2008, which is an increase of 30% and
47%, respectively, from the same period a year ago. Average prices,
excluding hedging activities, were $10.83 per Mcf and $120.20 per
barrel during the quarter. These prices were 53% and 97% higher,
respectively, than the second quarter of 2007.
Lease operating expense, including transportation, increased 19%
or $0.26 per MCFE between the second quarters of 2007 and 2008 on a
per MCFE basis. Recurring lease operating costs were up approximately
8% or $0.09 per MCFE year over year. Consistent with many companies in
the exploration and production industry, St. Mary has been
experiencing higher recurring lease operating costs in recent months.
This is a result of strong commodity prices and high levels of
activity in many basins coupled with supply limitations for goods and
services. In particular, services that utilize fuel, such as water
handling and salt water disposal, have seen significant cost
increases. Between the comparative periods, workover expense was up
$0.13 per MCFE year over year. Workover expense was driven higher
primarily by several major workovers in the Gulf Coast and
Mid-Continent regions. Production taxes increased 70% year over year,
driven upward by higher commodity prices. The increase in depletion
and depreciation expense between the two periods reflects the higher
finding cost environment experienced by the industry in recent years
to acquire and develop properties. The increase in exploration expense
in the second quarter of 2008 is due to two exploratory dry holes
drilled by the Company testing completion designs in a potential
resource play.
General and administrative expense increased year over year
primarily due to compensation-related costs associated with increased
headcount. Costs such as salary and cash bonus have increased with the
number of employees, particularly as competition for employees has
grown. The Company also saw an increase in cash payments made to
participants in the Net Profits Plan due in large part to the increase
in commodity prices between the periods.
St. Mary recognized $9.9 million in bad debt expense before income
taxes in the second quarter of 2008 as a result of the bankruptcy of
SemGroup L.P. The Company sells a portion of its oil production to
affiliates of SemGroup L.P. and as a result of the SemGroup L.P.
bankruptcy, the receivables due from affiliates of SemGroup L.P. have
been reserved - see the header SemGroup Exposure below for more
details on this item.
The significant increase in the non-cash expense recognized in the
second quarter of 2008 relates to the increase in the Net Profits Plan
liability. The liability increased significantly during the quarter as
a result of the increase in forecasted commodity prices during the
quarter. This liability is a significant management estimate and is
based on a number of assumptions including estimated future commodity
prices, production rates, and operating costs.
FINANCIAL POSITION
As of June 30, 2008, St. Mary had total long-term debt of $582.5
million, comprised of $287.5 million in 3.50% Senior Convertible Notes
and $295.0 million drawn under our existing long-term credit facility.
The Company has a borrowing base of $1.4 billion and a commitment
amount of $500 million under its credit facility.
SEMGROUP EXPOSURE
On July 22, 2008, SemGroup L.P. and certain North American
subsidiaries filed voluntary petitions for reorganization under
Chapter 11 of the U.S. Bankruptcy Code. Affiliates of SemGroup L.P.
purchase a portion of our crude oil production in the Williston Basin,
Oklahoma, and Texas. As a result, the Company increased its allowance
for doubtful accounts and bad debt expense by approximately $9.9
million for June 2008 production that was recorded in the six-month
period ended June 30, 2008. St. Mary believes that it has maximum
additional potential exposure of $6.8 million with this purchaser for
a portion of production in July 2008. The Company is monitoring the
bankruptcy cases closely to pursue the best course of action to obtain
payment of the amounts owed and to continue crude oil sales in the
affected producing regions. This matter does not have a material
adverse effect on the Company's liquidity or overall financial
position.
OPERATIONAL UPDATE
In the Williston Basin, the Company is operating two drilling
rigs. St. Mary is currently drilling its second grass roots horizontal
Bakken well in Burke County and is in the process of completing the
first grass roots well which was drilled in northern Mountrail County.
The pilot hole for the first well was drilled through the Bakken
formation and logs confirmed the presence of the Three Forks
formation. St. Mary is also currently completing its first horizontal
Bakken re-entry well in McKenzie County. Additionally, the Company has
entered into an agreement to acquire additional leasehold in North
Dakota. The acquisition will increase the Company's acreage position
in the basin by approximately 6,200 net acres in eastern McKenzie
County and 18,500 net acres in northern Divide County.
In the Arkoma Basin, St. Mary will be adding a third rig in the
horizontal Woodford shale in mid-August. Earlier this year, the
Company increased the planned 2008 capital investment for this program
by $20 million based on improved results in the program. The average
EUR of the last ten wells drilled is approximately 3 BCFE per well,
which is marked improvement over the EURs of the Company's first ten
wells.
The Company has two rigs operating in East Texas and northern
Louisiana that are currently drilling Cotton Valley and James Lime
wells. The location for St. Mary's first horizontal well targeting the
Haynesville shale is currently being prepared in DeSoto Parish,
Louisiana and drilling is expected to begin in September of this year.
The Company has 50,000 net acres with potential in the Haynesville
shale.
The Company's operations in its other key programs continue to
progress according to plan with no material changes to report. St.
Mary currently has 16 rigs operating across the Company.
EARNINGS CALL INFORMATION
The Company has scheduled a teleconference call to discuss second
quarter 2008 earnings results on August 5, 2008, at 8:00 am (Mountain
Time). The call participation number is 888-424-5231. A digital
recording of the conference call will be available two hours after the
completion of the call, 24 hours per day through August 19, 2008, at
800-642-1687, conference number 55279667. International participants
can dial 706-634-6088 to take part in the conference call and can
access a replay of the call at 706-645-9291, conference number
55279667. In addition, the call will be broadcast live through
St. Mary's website at www.stmaryland.com and the earnings press
release and financial highlights will be available before the call. An
audio recording of the conference call will be available at
www.stmaryland.com through August 19, 2008.
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," "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 potential effects
of increased levels of debt financing, the imprecise nature of
estimating oil and gas reserves, the pending nature of the announced
acquisition in the Williston Basin as well as the ability to complete
the transaction, 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 our hedging strategy, and other such matters
discussed in the "Risk Factors" section of St. Mary's 2007 Annual
Report on Form 10-K/A and subsequent quarterly reports on Form 10-Q
filed with the SEC. 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 term "EUR" (estimated ultimate recovery), which SEC guidelines
prohibit from being included in filings with the SEC. EUR means those
quantities of petroleum which are estimated to be potentially
recoverable from an accumulation, plus those quantities already
produced therefrom. 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, our
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.
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ST. MARY LAND & EXPLORATION COMPANY
FINANCIAL HIGHLIGHTS
June 30, 2008
(Unaudited)
Production Data
------------------------
For the For the
Three Months Six Months
Ended June 30, Ended June 30,
-------------- ------- -------------- -------
Percent Percent
2008 2007 Change 2008 2007 Change
------- ------ --------------- ------ -------
Average realized sales
price, before hedging:
Oil (per Bbl) $120.20 $61.11 97% $106.17 $56.85 87%
Gas (per Mcf) $10.83 $7.09 53% $9.69 $6.96 39%
Average realized sales
price, net of hedging:
Oil (per Bbl) $88.40 $59.97 47% $82.28 $56.28 46%
Gas (per Mcf) $9.97 $7.68 30% $9.33 $7.86 19%
Production:
Oil (MMBbls) 1.6 1.7 -3% 3.3 3.4 -3%
Gas (Bcf) 18.7 15.8 18% 37.0 31.1 19%
BCFE (6:1) 28.6 26.0 10% 56.9 51.5 10%
Daily production:
Oil (MBbls per day) 18.1 18.7 -3% 18.2 18.8 -3%
Gas (MMcf per day) 205.3 174.2 18% 203.4 171.6 19%
MMCFE per day (6:1) 313.7 286.1 10% 312.6 284.6 10%
Margin analysis per
MCFE:
Average realized sales
price, before hedging $14.01 $8.30 69% $12.49 $7.96 57%
Average realized sales
price, net of hedging $11.61 $8.58 35% $10.86 $8.46 28%
Lease operating
expense and
transportation 1.63 1.37 19% 1.50 1.45 3%
Production taxes 0.95 0.56 70% 0.84 0.55 53%
General and
administrative 0.77 0.62 24% 0.76 0.56 36%
------- ------ ------- ------
Operating margin $8.26 $6.03 37% $7.76 $5.90 32%
------- ------ ------- ------
Depletion,
depreciation,
amortization, and
asset retirement
obligation liability
accretion $2.67 $2.10 27% $2.58 $2.01 28%
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Consolidated Statements of Operations
----------------------------------------------------------------------
(In thousands, except per For the For the
share amounts) Three Months Six Months
Ended June 30, Ended June 30,
------------------- -------------------
2008 2007 2008 2007
--------- --------- --------- ---------
Operating revenues and other
income:
Oil and gas production
revenue $399,961 $216,154 $710,393 $409,860
Realized oil and gas hedge
gain (loss) (68,396) 7,303 (92,346) 25,987
Marketed gas system and
other operating revenue 22,339 23,697 41,942 32,313
Gain on sale of proved
properties 3,038 - 59,055 -
--------- --------- --------- ---------
Total operating revenues
and other income 356,942 247,154 719,044 468,160
--------- --------- --------- ---------
Operating expenses:
Oil and gas production
expense 73,625 50,328 133,101 102,648
Depletion, depreciation,
amortization, and asset
retirement obligation
liability accretion 76,354 54,657 146,708 103,616
Exploration 17,401 11,074 31,709 30,093
Impairment of proved
properties 9,566 - 9,566 -
Abandonment and impairment
of unproved properties 2,056 1,465 3,064 2,949
General and administrative 21,867 16,266 43,004 29,157
Bad debt expense 9,951 - 9,942 -
Change in Net Profits Plan
liability 68,142 (1,160) 81,768 3,805
Marketed gas system and
other operating expense 20,915 15,341 39,360 23,293
Unrealized derivative (gain)
loss (1,186) 1,200 5,231 5,104
--------- --------- --------- ---------
Total operating expenses 298,691 149,171 503,453 300,665
--------- --------- --------- ---------
Income from operations 58,251 97,983 215,591 167,495
Nonoperating income (expense):
Interest income 59 154 156 257
Interest expense (5,528) (3,750) (10,499) (9,803)
--------- --------- --------- ---------
Income before income taxes 52,782 94,387 205,248 157,949
Income tax expense (19,232) (35,152) (75,702) (58,764)
--------- --------- --------- ---------
Net income $33,550 $59,235 $129,546 $99,185
========= ========= ========= =========
Basic weighted-average common
shares outstanding 61,714 63,583 62,287 60,316
========= ========= ========= =========
Diluted weighted-average
common shares outstanding 62,749 65,120 63,404 65,015
========= ========= ========= =========
Basic net income per common
share $0.54 $0.93 $2.08 $1.64
========= ========= ========= =========
Diluted net income per common
share $0.53 $0.91 $2.04 $1.54
========= ========= ========= =========
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Consolidated Balance Sheets
----------------------------------------
(In thousands, except share amounts) June 30, December 31,
ASSETS 2008 2007
------------- -------------
Current assets:
Cash and cash equivalents $36,919 $43,510
Short-term investments 1,000 1,173
Accounts receivable, net of allowance
for doubtful accounts of $10,094 in
2008 and $152 in 2007 194,517 157,149
Hedge margin deposit 30,900 2,000
Refundable income taxes 9,854 933
Prepaid expenses and other 18,212 14,129
Accrued derivative asset 974 17,836
Deferred income taxes 143,148 33,211
------------- -------------
Total current assets 435,524 269,941
------------- -------------
Property and equipment (successful
efforts method), at cost:
Proved oil and gas properties 3,012,306 2,721,229
Less - accumulated depletion,
depreciation, and amortization (870,105) (804,785)
Unproved oil and gas properties, net
of impairment allowance of $9,587 in
2008 and $10,319 in 2007 159,057 134,386
Wells in progress 122,742 137,417
Oil and gas properties held for sale
less accumulated depletion,
depreciation, and amortization 1,665 76,921
Other property and equipment, net of
accumulated depreciation of $12,466
in 2008 and $11,549 in 2007 10,175 9,230
------------- -------------
2,435,840 2,274,398
------------- -------------
Noncurrent assets:
Goodwill 9,452 9,452
Accrued derivative asset 2,208 5,483
Restricted cash subject to Section
1031 Exchange 25,266 -
Other noncurrent assets 12,548 12,406
------------- -------------
Total noncurrent assets 49,474 27,341
------------- -------------
Total Assets $2,920,838 $2,571,680
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $302,872 $254,918
Accrued derivative liability 382,552 97,627
Deposit associated with oil and gas
properties held for sale - 10,000
------------- -------------
Total current liabilities 685,424 362,545
------------- -------------
Noncurrent liabilities:
Long-term credit facility 295,000 285,000
Senior convertible notes 287,500 287,500
Asset retirement obligation 103,741 96,432
Asset retirement obligation associated
with oil and gas properties held for
sale 36 8,744
Net Profits Plan liability 293,174 211,406
Deferred income taxes 186,590 257,603
Accrued derivative liability 520,573 190,262
Other noncurrent liabilities 8,417 8,843
------------- -------------
Total noncurrent liabilities 1,695,031 1,345,790
------------- -------------
Stockholders' equity:
Common stock, $0.01 par value:
authorized - 200,000,000 shares;
issued: 62,306,691 shares in 2008 and
64,010,832 shares in 2007;
outstanding, net of treasury shares:
62,129,704 shares in 2008 and
63,001,120 shares in 2007 623 640
Additional paid-in capital 86,930 170,070
Treasury stock, at cost: 176,987
shares in 2008 and 1,009,712 shares
in 2007 (2,130) (29,049)
Retained earnings 1,005,122 878,652
Accumulated other comprehensive loss (550,162) (156,968)
------------- -------------
Total stockholders' equity 540,383 863,345
------------- -------------
Total Liabilities and Stockholders'
Equity $2,920,838 $2,571,680
============= =============
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Consolidated Statements of Cash Flows
----------------------------------------------------------------------
(In thousands) For the For the
Three Months Six Months
Ended June 30, Ended June 30,
------------------- -------------------
Cash flows from operating
activities: 2008 2007 2008 2007
--------- --------- --------- ---------
Reconciliation of net income
to net cash provided by
operating activities:
Net income $33,550 $59,235 $129,546 $99,185
Adjustments to reconcile net
income to net cash provided
by operating activities:
(Gain) loss on insurance
settlement 480 (6,325) 960 (6,325)
Gain on sale of proved
properties (3,038) - (59,055) -
Depletion, depreciation,
amortization, and asset
retirement obligation
liability accretion 76,354 54,657 146,708 103,616
Bad debt expense 9,951 - 9,942 -
Exploratory dry hole expense 5,916 1,651 6,606 11,220
Impairment of proved
properties 9,566 - 9,566 -
Abandonment and impairment
of unproved properties 2,056 1,465 3,064 2,949
Unrealized derivative loss (1,186) 1,200 5,231 5,104
Change in Net Profits Plan
liability 68,142 (1,160) 81,768 3,805
Stock-based compensation
expense (1) 3,747 3,312 7,057 6,279
Deferred income taxes 5,907 31,220 55,996 52,457
Other (2,381) (2,571) 766 (2,696)
Changes in current assets and
liabilities:
Accounts receivable (1,727) 4,745 (42,954) 12,507
Hedge margin deposit (28,900) - (28,900) -
Refundable income taxes (9,854) 775 (8,921) 775
Prepaid expenses and other (6,234) (7,439) (6,570) (5,120)
Accounts payable and accrued
expenses 19,992 18,330 14,850 2,327
Income tax benefit from the
exercise of stock options (8,705) (2,849) (9,565) (3,762)
--------- --------- --------- ---------
Net cash provided by operating
activities 173,636 156,246 316,095 282,321
--------- --------- --------- ---------
Cash flows from investing
activities:
Proceeds from insurance
settlement - 7,049 - 7,049
Proceeds from sale of oil
and gas properties 24,197 - 154,597 324
Capital expenditures (167,941) (143,800) (329,247) (278,983)
Acquisition of oil and gas
properties (9,896) (29,864) (62,927) (31,050)
Deposits to short-term
investments 173 (1,138) 173 (1,138)
Receipts from short-term
investments - 1,450 - 1,450
Deposits to restricted cash (25,266) - (25,266) -
Other 20 1 (9,987) 17
--------- --------- --------- ---------
Net cash used in investing
activities (178,713) (166,302) (272,657) (302,331)
--------- --------- --------- ---------
Cash flows from financing
activities:
Proceeds from credit
facility 249,000 273,914 638,000 292,914
Repayment of credit facility (230,500) (527,914) (628,000) (530,914)
Repayment of short-term note
payable - - - (4,469)
Income tax benefit from the
exercise of stock options 8,705 2,849 9,565 3,762
Net proceeds from issuance
of senior convertible debt - 281,194 - 281,194
Proceeds from sale of common
stock 10,356 4,599 10,684 5,378
Repurchase of common stock - - (77,202) -
Dividends paid (3,076) (3,140) (3,076) (3,140)
--------- --------- --------- ---------
Net cash provided by (used in)
financing activities 34,485 31,502 (50,029) 44,725
--------- --------- --------- ---------
Net change in cash and cash
equivalents 29,408 21,446 (6,591) 24,715
Cash and cash equivalents at
beginning of period 7,511 4,733 43,510 1,464
--------- --------- --------- ---------
Cash and cash equivalents at
end of period $36,919 $26,179 $36,919 $26,179
========= ========= ========= =========
(1) Stock-based compensation expense is a component of Exploration
expense and General and administrative expense on the consolidated
statements of operations. During the periods ended June 30, 2008, and
2007, respectively, approximately $2.2 million and $1.9 million of
stock-based compensation expense was included in Exploration expense.
During the periods ended June 30, 2008, and 2007, respectively,
approximately $4.9 million and $4.4 million of stock-based
compensation expense was included in General and administrative
expense.
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Adjusted Net Income
----------------------------------------
(In thousands, except per share data)
Reconciliation of Net Income For the For the
(GAAP) to Adjusted Net Three Months Six Months
Income (Non-GAAP): Ended June 30, Ended June 30,
------------------- -------------------
2008 2007 2008 2007
--------- --------- --------- ---------
Reported Net Income (GAAP) $33,550 $59,235 $129,546 $99,185
Change in Net Profits Plan
liability 68,142 (1,160) 81,768 3,805
Unrealized derivative (gain)
loss (1,186) 1,200 5,231 5,104
Gain on sale of proved
properties (3,038) - (59,055) -
(Gain) loss on insurance
settlement (2) 480 (6,325) 960 (6,325)
Bad debt expense associated
with SemGroup, L.P. 9,948 - 9,948 -
--------- --------- --------- ---------
Total of Adjustments 74,346 (6,285) 38,852 2,584
--------- --------- --------- ---------
Tax effect on adjustments (27,089) 2,341 (14,330) (961)
--------- --------- --------- ---------
Adjusted Net Income (Non-
GAAP) (3) $80,807 $55,291 $154,068 $100,808
========= ========= ========= =========
Adjusted Net Income Per Share
(Non-GAAP)
Basic $1.31 $0.87 $2.47 $1.67
========= ========= ========= =========
Diluted $1.29 $0.85 $2.43 $1.56
========= ========= ========= =========
Average Number of Shares
Outstanding
Basic 61,714 63,583 62,287 60,316
========= ========= ========= =========
Diluted 62,749 65,120 63,404 65,015
========= ========= ========= =========
(2) Included within line item marketed gas system and other operating
revenue on the consolidated statements of operations.
(3) Adjusted net income is calculated as net income adjusted for
significant non-cash and non-recurring items. Examples of non-cash
charges include non-cash gains or losses resulting from changes in
the Net Profits Plan liability, unusual and non-recurring bad debt
expense, and unrealized derivative gains and losses. Examples of non-
recurring items include gains from sales of properties and insurance
settlements. 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.
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Discretionary Cash Flow
----------------------------------------------------------------------
(In thousands)
Reconciliation of Net Cash
Provided by Operating
Activities (GAAP) to
Discretionary Cash Flow (Non-
GAAP):
For the For the
Three Months Six Months
Ended June 30, Ended June 30,
------------------- -------------------
2008 2007 2008 2007
--------- --------- --------- ---------
Net cash provided by
operating activities (GAAP) $173,636 $156,246 $316,095 $282,321
Exploration 17,401 11,074 31,709 30,093
Less: Exploratory dry hole
expense (5,916) (1,651) (6,606) (11,220)
Less: Stock-based
compensation expense
included in exploration (1,073) (885) (2,142) (1,889)
Other 2,381 2,571 (766) 2,696
Bad debt expense (9,951) - (9,942) -
Changes in current assets and
liabilities 35,428 (13,562) 82,060 (6,727)
--------- --------- --------- ---------
Discretionary cash flow (Non-
GAAP) (4) $211,906 $153,793 $410,408 $295,274
========= ========= ========= =========
(4) Discretionary cash flow is computed as net income adjusted for
gain (loss) on insurance settlement, gain on sale of proved
properties, depreciation, depletion, amortization, asset retirement
obligation liability accretion, impairments, deferred taxes,
exploration expense, stock-based compensation expense, change in Net
Profits Plan liability, and the effect of unrealized derivative
(gain) loss. 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.
*T
St. Mary Land & Exploration Company
Brent A. Collins, 303-861-8140
Copyright Business Wire 2008
