As filed with the Securities and Exchange Commission on
January 28, 1997
Securities Act File No. 333-
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ST. MARY LAND & EXPLORATION COMPANY
(Exact Name of Registrant as Specified in its Charter)
Delaware 41-0518430
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification
Number)
1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(303) 861-8140
Fax: (303) 861-0934
(Address, including Zip Code, and Telephone Number,
including Area Code, of Registrant's Principal Executive
Offices)
MARK A. HELLERSTEIN, President and Chief Executive Officer
1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(303) 861-8140
Fax: (303) 861-0934
(Name, Address, including Zip Code, and Telephone Number,
including Area Code, of Agent for Service)
Copies to:
Roger V. Davidson, Esq. George G. Young III, Esq.
Dwight R. Landes, Esq. Butler & Binion, L.L.P.
Cohen Brame & Smith 1000 Louisiana, Suite 1600
Professional Corporation Houston, Texas
1700 Lincoln Street, Suite 1800 (713) 237-3605
Denver, Colorado 80203 Fax: (713) 237-3202
(303) 837-8800
Fax: (303) 894-0475
Approximate date of commencement of proposed sale to public:
As soon as practicable after the registration statement becomes
effective
If the only securities being registered on this Form are
being offered pursuant to dividend or interest investment plans,
please check the following box. [ ]
If any of the securities being registered on this Form are
to be offered on a delayed or continuous basis pursuant to Rule
415 under the Securities Act of 1933, other than securities
offered only in connection with dividend or interest reinvestment
plans, check the following box. [ ]
If this Form is being filed to register additional
securities for an offering pursuant to Rule 462(b) under the
Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
[ ]
If the delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Title of Proposed Proposed Amount
each Class of Maximum Maximum of
Securities Amount Offering Aggregate Regi-
to be to be Price per Offering stration
Registered Registered Share Price Fee
Common Stock 2,300,000(1) $28.5625(2) $65,693,750(3) $19,908
$0.01 par
value
(1) Includes 300,000 shares to cover the Underwriters'
over-allotment option, if exercised.
(2) The average of the high and low prices reported on the
Nasdaq National Market as of January 24, 1997.
(3) Estimated solely for the purpose of determining the
registration fee and calculated pursuant to Rule 457(a).
_____________________
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
SUBJECT TO COMPLETION, DATED JANUARY 27, 1997
[LOGO]
2,000,000 Shares
ST. MARY LAND & EXPLORATION COMPANY
Common Stock
All of the shares of Common Stock, par value $0.01 per share
("Common Stock"), of St. Mary Land & Exploration Company ("St.
Mary" or the "Company") offered hereby are being sold by the
Company.
The Common Stock is traded on the Nasdaq National Market
under the trading symbol "MARY". The last reported sale price of
the Common Stock on the Nasdaq National Market on January 22,
1997, was $29 1/4 per share.
See "Risk Factors" beginning on page 9 for a discussion of
certain factors that should be considered in connection with an
investment in the Common Stock offered hereby.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
Per Share
Total
(1) The Company has agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the offering payable by the
Company estimated at $_________.
(3) The Company has granted the several Underwriters an option
for 30 days to purchase up to an additional 300,000 shares of
Common Stock at the Price to Public, less Underwriting Discount,
solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $_____________,
$____________ and $______________, respectively. See
"Underwriting."
____________________
The shares of Common Stock are offered by the several
Underwriters, subject to prior sale, when, as and if issued to
and
accepted by them, and subject to certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such
offer and to reject orders in whole or in part. It is expected
that delivery of the shares of Common Stock will be made on or
about ________________, 1997.
MORGAN KEEGAN & COMPANY, INC.
A.G. EDWARDS & SONS, INC.
HANIFEN, IMHOFF INC.
The date of this Prospectus is ____________, 1997
MAP OF U.S. DEPICTING AREAS OF ST. MARY'S OPERATIONS
SHOWING OUTLINES OF STATES AND COLORS
HIGHLIGHTING AREAS OF OPERATIONS
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY
OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE
MARKET PRICE OF THE SECURITIES OFFERED HEREBY AT A LEVEL ABOVE
THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY
ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK
OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH
RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the
detailed information and financial statements found elsewhere in
this Prospectus and the information incorporated herein by
reference. Unless otherwise indicated, all information in this
Prospectus assumes no exercise of the Underwriters'
over-allotment option. See "Underwriting." As used in this
Prospectus, the terms "St. Mary" and the "Company" refer to St.
Mary Land & Exploration Company and its subsidiaries, unless
otherwise stated or indicated by the context. Certain terms used
herein relating to the oil and gas industry are defined in the
"Glossary" included elsewhere in this Prospectus. Investors
should carefully consider the information set forth in "Risk
Factors."
The Company
St. Mary Land & Exploration Company is an independent energy
company engaged in the exploration, development, acquisition and
production of crude oil and natural gas. St. Mary's operations
are focused in five core operating areas in the United States:
the Mid-Continent region; the tri-state area of southern
Arkansas, northern Louisiana and eastern Texas ("ArkLaTex");
south Louisiana; the Williston Basin; and the Permian Basin. As
of December 31, 1996, the Company had estimated net proved
reserves of approximately 10.7 MMBbls of oil and 127.1 Bcf of
natural gas, or an aggregate of 31.9 MMBOE (84% proved developed,
66% gas) with a PV-10 Value of $296.5 million.
From January 1, 1994 through December 31, 1996, the Company
added estimated net proved reserves of 28.5 MMBOE at an average
Finding Cost of approximately $4.15 per BOE. Average daily
production increased from 7.1 MBOE per day in 1992 to over 12.0
MBOE per day in December 1996. The Company added 15.9 MMBOE of
estimated net proved reserves in 1996, representing a 58%
increase for the year, at an average Finding Cost of
approximately $3.50 per BOE. In 1996, the Company's estimated net
proved reserve additions replaced 424% of production, including
247% from drilling, 124% from property acquisitions and 53% from
revisions. The Company's 1997 capital budget of $65 million
includes (i) $43 million for ongoing development and exploration
programs in the core operating areas, including three 3-D seismic
surveys totaling approximately 90 square miles, (ii) $15 million
for niche acquisitions of properties and (iii) $7 million for
high-risk, large-target exploration prospects.
Business Strategy
St. Mary's objective is to build shareholder value through
consistent growth in per share reserves, production and the
resulting cash flow and earnings. A focused and balanced program
of low to medium-risk exploration, development and niche
acquisitions in each of its core operating areas is designed to
provide the foundation for steady growth while the Company's
portfolio of high-risk, large-target exploration prospects each
have the potential to significantly increase the Company's
reserves and production. Principal elements of the Company's
strategy are as follows.
Focused Geographic Operations. The Company focuses its
exploration, development and acquisition activities in five core
operating areas where it has built a balanced portfolio of proved
reserves, development drilling opportunities and high-risk,
large-target exploration prospects. Since 1992 St. Mary has
expanded its technical and operating staff and increased its
drilling, production and operating capabilities. Senior
technical managers, each with over 25 years of experience, are
based in regional offices located near core properties and are
supported by centralized administration in the Company's Denver
office. The Company believes that its long-standing presence,
its established networks of local industry relationships and its
strategic acreage holdings in its core operating areas provide a
significant competitive advantage. In addition, the Company
believes that its prior investment in experienced technical and
managerial personnel will facilitate the expansion of its
operations without the need to significantly increase overhead
costs.
Exploitation and Development of Existing Properties. The
Company uses its comprehensive base of geological, geophysical,
engineering and production experience in each of its core
operating areas to source ongoing, low to medium-risk development
and exploration programs. St. Mary conducts detailed geologic
studies and uses 3-D seismic imaging and advanced well completion
techniques to maximize the potential of its existing properties.
For example, in 1996 the Company had a significant exploration
success in the Box Church Field in east Texas which added 26.4
Bcf of estimated net proved reserves. During 1996, the Company
spent approximately $31 million on development and exploration,
including participation in 117 successful gross wells reflecting
an overall 82% success rate.
Large-Target Prospects. The Company invests 10% to 15% of
its annual capital budget in high-risk, large-target exploration
projects and currently has an inventory of seven such projects in
its core areas in various stages. The Company's strategy is to
test one or more of these large exploration targets each year
while furthering the development of early-stage projects and
continuing the evaluation of potential new exploration prospects.
St. Mary seeks to invest in a diversified mix of large-target
exploration projects and generally limits its capital exposure by
participating with other experienced industry partners. The
Company expects that three of its deep gas prospects in south
Louisiana will be drilled and tested during 1997, including its
South Horseshoe Bayou prospect which reached its target depth of
19,000 feet in January and is presently being completed.
Selective Acquisitions. The Company seeks to make selective
niche acquisitions of properties which complement its existing
operations, offer economies of scale and provide further
development and exploration opportunities based on proprietary
geologic concepts. Management believes that the Company's focus
on smaller, negotiated transactions where the Company has
specialized geologic knowledge or operating experience has
enabled it to acquire attractively-priced and under-exploited
properties. During the last three years, the Company completed
21 acquisitions totalling $41.5 million at an average acquisition
cost of $3.89 per BOE.
Strategic Relationships. Throughout its 89-year history the
Company has cultivated strategic partnerships with independent
oil and gas operators having specialized experience and technical
skills. The Company's strategy is to serve as operator or
alternatively to maintain a majority interest in such ventures to
ensure that it can exercise significant influence over
development and exploration activities. In addition the Company
seeks industry partners who are willing to co-invest on
substantially the same basis as the Company. For example, the
Company's operations in the Williston Basin are conducted
through Panterra Petroleum ("Panterra") in which St. Mary holds a
74% general partnership interest. The managing partner of
Panterra is Nance Petroleum Corporation, the principal of which
has over 25 years of experience in the Williston Basin.
Core Operating Areas
Continuing investment in technical staff, oil and gas leases,
geological studies, 3-D seismic data and advanced well completion
techniques has generated expanded exploration, development and
acquisition opportunities for St. Mary in each of its core
operating areas.
Mid-Continent Region. St. Mary has been active in the
Mid-Continent region since 1973 where its operations are managed
by the Company's 25-person, Tulsa, Oklahoma office. During 1996
the Company participated in 75 gross wells and recompletions,
including 17 Company-operated wells. The Mid-Continent region
accounted for 34% of the Company's estimated net proved reserve
volumes as of December 31, 1996 (92% proved developed and 94%
gas). The Company's 1997 Mid-Continent capital budget of
approximately $26.5 million is divided between low-risk
exploration and development of the Granite Wash formation, medium
to high-risk prospects in the Red Fork and Upper and Lower Morrow
sands and continued exploration and development in the
Sherman-Marietta Basin. The Company has arranged commitments for
three drilling rigs in the Mid-Continent region throughout 1997
and plans to drill as operator 25 to 30 gross wells in the area,
and to participate in an additional 30 gross wells. In addition,
St. Mary has a 24% working interest in a large-target prospect in
the Cotton Valley Reef play of east Texas.
ArkLaTex Region. St. Mary first acquired an interest in the
ArkLaTex region in 1992, and has since completed 8 additional
acquisitions of producing properties and undertaken an active
program of development and exploration in the area. St. Mary s
existing lease position totals 46,000 gross acres and the Company
owns over 6,000 miles of proprietary 2-D seismic data in the
region. The ArkLaTex region, which accounted for 27% of the
Company's estimated net proved reserve volumes as of December 31,
1996 (58% proved developed and 87% gas), is managed by St. Mary's
12-person office in Shreveport, Louisiana. In 1996 the Company
made a significant discovery in its Box Church Field in east
Texas which added 26.4 Bcf of estimated net proved reserves. The
Company's 1997 capital budget provides $7.5 million for ongoing
development and exploration in the region, including a 12-well
development program in the Box Church Field.
South Louisiana Region. The Company's operations in south
Louisiana include its royalty interests in St. Mary Parish and a
number of large-target prospects located both on its fee lands
and in separate prospect areas in the region. The south
Louisiana region accounted for 5% of the Company's estimated net
proved reserve volumes as of December 31, 1996 (100% proved
developed and 84% gas). St. Mary owns approximately 24,900 acres
of fee lands and associated oil and gas royalty interests on
these lands which include the Bayou Sale, Horseshoe Bayou and
Belle Isle Fields. In granting new leases on its fee lands the
Company seeks to retain the right to participate as a 25% working
interest owner in new wells. The completion and interpretation
of two 3-D seismic surveys by the Company's lessees and the
completion of St. Mary's own detailed geological and engineering
studies have contributed to renewed development and exploration
activity on the Company's fee lands, including additional
drilling and recompletion work as well as exploration interest in
deeper, untested horizons. St. Mary's historical presence in
south Louisiana, its established network of industry
relationships and its extensive technical database have enabled
the Company to assemble an inventory of large-target prospects in
this region, including two deep gas prospects which are
located on the Company's fee lands and are scheduled to be tested
during 1997.
Williston Basin Region. The Williston Basin region accounted
for 20% of the Company's estimated net proved reserve volumes as
of December 31, 1996 (93% proved developed and 90% oil). St.
Mary's operations in this basin are conducted through Panterra
which owns interests in approximately 360 gross producing wells
located in 60 fields. Since 1991, the Company's investment in
Panterra has totaled approximately $26 million and has included
participation in 11 Panterra-operated development and exploration
wells with a 100% success rate. The Company's successful
exploration and development in the basin have resulted from the
application of state-of-the-art 3-D seismic imaging to delineate
structural features together with porosity development. In 1994,
the Company conducted a 4.5 square mile 3-D seismic survey at the
North Bainville Field which led to the successful 1995 extension
of the field in the Red River formation. During 1996, St. Mary
completed an additional four wells at North Bainville and
conducted an additional 21 square mile 3-D seismic survey in the
area. The Company has also begun to apply the experience gained
at North Bainville to other fields in the basin where Panterra
holds significant leasehold interests, including the Brush Lake
and Nameless Fields where Panterra completed separate 3-D seismic
surveys in late 1995 and early 1996. The 1997 capital budget
provides $6 million for ongoing development and exploration in
the basin.
Permian Basin Region. The Permian Basin of New Mexico and
west Texas is the Company's newest area of concentration.
Management believes this region provides St. Mary with a solid
base of long-lived oil reserves, promising longer-term
exploration and development prospects and potential for water
flood secondary recovery projects. The Company established a
presence in the basin in 1995 through the acquisition of a 21.2%
working interest in a 30,450 acre top lease in Ward and Winkler
Counties, Texas which is believed to hold significant exploration
potential in the virtually untested deeper formations on the
lease. St. Mary increased its holdings in the region during 1996
with the acquisition of a 90% interest in the producing
properties of Siete Oil and Gas Company for $10.0 million. The
Permian Basin region accounted for 12% of the Company's estimated
net proved reserve volumes as of December 31, 1996 (96% proved
developed and 81% oil).
Recent Developments
Russian Partnership Interest. In order to focus on
development and exploration efforts in its five core operating
areas, the Company decided in 1996 to monetize its interests in
properties in Russia ("Russian Partnership Interest"). Upon the
closing, which the Company expects to occur in the first quarter
of 1997, the Company will receive cash consideration of
approximately $5.2 million, approximately $1.7 million of common
stock in Ural Petroleum Corporation and a receivable in the form
of a retained production payment of $10.3 million plus interest
at 10% per annum. See "Business and Properties - Other
Activities."
Risk Factors
See "Risk Factors" for a discussion of certain factors that
should be considered in connection with an investment in the
Common Stock offered hereby.
The Offering
Common Stock offered
by the Company......................2,000,000
Common Stock to be
outstanding after the Offering.....10,759,214(1)
Use of Proceeds................... The net proceeds of the
offering, together with
internally generated cash
flows and borrowings under the
Company's credit facility
with a commercial bank
("Credit Facility"), will be
utilized to fund the Company's
exploration and development
activities and potential
acquisitions and for general
corporate purposes. Pending
utilization of the net
proceeds, the funds will be
used to repay revolving bank
loans and to the extent that
net proceeds are in excess of
amounts outstanding under the
Credit Facility, the Company
will invest in short-term
investments.
Nasdaq National Market Symbol..... "MARY"
(1) Excludes 97,495 shares of Common Stock issuable upon exercise
of options outstanding as of January 22, 1997 and 262,372 shares
underlying options to be issued in exchange for the Company's
Stock Appreciation Rights ("SAR"). See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Summary Consolidated Financial Data
(In thousands, except per share data)
The following table sets forth certain consolidated financial
data for the Company as of and for each of the periods indicated.
The financial data for each year in the three-year period ended
December 31, 1995, are derived from the audited financial
statements of the Company. The financial data for the nine month
periods ended September 30, 1995 and 1996 are derived from the
Company's unaudited financial statements which, in the opinion of
management of the Company, have been prepared on the same basis
as the annual consolidated financial statements and include all
adjustments (consisting of only normal recurring adjustments)
necessary for a fair presentation of the financial data for such
periods. The following data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," which includes a discussion of factors
materially affecting the comparability of the information
presented, and the Company's financial statements included
elsewhere in this Prospectus. The results for the nine months
ended September 30, 1996 are not necessarily indicative of
results for the full year. Historical financial data are not
necessarily predictive of the Company's future results of
operations and financial condition.
Nine
Months
Ended
September
Year Ended December 31, 30,
1993 1994 1995 1995 1996
(Unaudited)
Income
Statement
Data:
Operating
revenues:
Oil and
gas
production $38,208 $38,239 $36,569 $25,860 $39,689
Gas contract
settlements
and other 424 6,546 2,081 1,580 490
Total operating
revenues 38,632 44,785 38,650 27,440 40,179
Operating
expenses:
Oil and gas
production 9,341 10,496 10,646 7,676 9,262
Depletion,
depreciation
and
amortization 8,775 10,134 10,227 7,184 9,144
Impairment
of proved
properties(1) 3,498 4,219 2,676 1,673 -
Exploration 5,457 8,104 5,073 3,683 5,688
Abandonment
and impairment
of unproved
properties 1,020 1,023 2,359 759 1,240
General and
admini-
strative (2) 4,712 5,261 5,328 4,129 5,066
Other 1,297 841 731 470 64
Total
operating
expenses 34,100 40,078 37,040 25,574 30,464
Income
from
operations 4,532 4,707 1,610 1,866 9,715
Net interest
expense 62 525 896 514 1,180
Income from
continuing
operations
before
income taxes 4,470 4,182 714 1,352 8,535
Income tax
expense (benefit) 1,065 445 (723) 72 (2,773)
Gain on sale of
discontinued
operations, net of
taxes - - 306 231 159
Cumulative
effect of
change in
accounting
principle 300 - - - -
Net income $ 3,705 $ 3,737 $ 1,743 $ 1,655 $ 5,921
Net income
per common
share:
Income from
continuing
operations $0.39 $0.43 $0.17 $0.16 $0.66
Gain on sale
of discontinued
operations - - 0.03 0.03 0.02
Cumulative
effect of
change in
accounting
principle 0.03 - - - -
Net income per
share $0.42 $0.43 $0.20 $0.19 $0.68
Dividends paid
per share $0.16 $0.16 $0.16 $0.12 $0.12
Weighted
average
common shares
outstanding 8,763 8,763 8,760 8,760 8,759
Other Data:
EBITDA (3) $13,307 $14,841 $11,837 $ 9,050 $18,859
Net cash
provided
by operating
activities 19,675 20,271 17,713 11,755 17,110
Capital and
exploration
expenditures(4) 22,787 30,934 32,419 23,591 36,680
September 30, 1996
Actual As Adjusted(5)
(Unaudited)
Balance Sheet Data:
Working capital. . . . . . $ 7,602 $ _____
Net property and equipment . . 92,804 92,804
Total assets. . . . . . . .132,680 _____
Long-term debt . . . 36,324 -
Total stockholders' equity . . 71,140 _____
(1) In March 1995, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," which
addresses the impairment of proved oil and gas properties. The
Company adopted SFAS No. 121 as of October 1, 1995 and recorded
an additional impairment charge for proved properties of
$1,003,000 in the fourth quarter of 1995.
(2) Includes compensation expense recognized under the Company's
SAR plan of $222,191, $268,286 and $220,247 in 1993, 1994 and
1995, respectively, and $243,000 and $604,000 during the nine
months ended September 30, 1995 and 1996, respectively. In
November 1996, the Company replaced the SAR plan with a stock
option plan, and accordingly SAR expense will be significantly
lower in 1997. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Accounting
Matters."
(3) EBITDA is defined as income before income taxes, interest,
depreciation, depletion and amortization. EBITDA is a financial
measure commonly used for the Company's industry and should not
be considered in isolation or as a substitute for net income,
cash flow provided by operating activities or other income or
cash flow data prepared in accordance with generally accepted
accounting principles or as a measure of a company's
profitability or liquidity. Because EBITDA excludes some, but
not all, items that affect net income and may vary among
companies, the EBITDA presented above may not be comparable to
similarly titled measures of other companies.
(4) Excludes certain international exploration costs. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations Liquidity and Capital Resources Capital and
Exploration Expenditures."
(5) As adjusted to give effect to the sale of 2,000,000 shares of
Common Stock offered hereby and the application of the estimated
net proceeds of approximately $__________. See "Use of
Proceeds."<PAGE>
Summary Reserve Data
The following table sets forth summary information with
respect to the Company's estimated net proved reserves as of
December 31, 1994, 1995 and 1996, as prepared by Ryder Scott
Company ("Ryder Scott"), independent petroleum engineers, and by
the Company.
As of December 31,
1994 1995 1996
Reserve Data: (1)
Oil (MBbls) . . . . . . . 6,677 7,509 10,691
Gas (MMcf). . . . . . . .62,515 75,705 127,057
MBOE . . . . . . . . . .17,096 20,127 31,867
PV-10 Value (in thousands) $84,688 $120,192 $296,461
Proved developed
reserves (%) . . . . . . . 93% 89% 84%
Production
replacement (%) . . . . . 207% 203% 424%
Reserve Life (years). . . . 6.1 6.5 7.2
(1) For limitations on the accuracy and reliability of estimated
net proved reserves and future net revenue estimates, see
"Risk Factors - Uncertainty of Estimates of Net Proved Reserves."
See also "Business and Properties - Estimated Net Proved
Reserves." Reserve data attributable to the Company's Russian
Partnership Interest have been excluded from this table. The
Company has agreed to monetize its Russian Partnership Interest,
and the closing is expected to occur in the first quarter of
1997. See "Business and Properties - Other Activities."
Summary Operating Data
Nine Months Ended
Year Ended December 31, September 30,
1993 1994 1995 1995 1996
Operating
Data:(1)
Net
production:
Oil (MBbls) 846 937 1,044 764 865
Gas (MMcf) 11,147 12,577 12,434 8,961 11,249
MBOE 2,704 3,033 3,116 2,258 2,739
Average net
daily
production:
Oil (Bbls) 2,319 2,567 2,852 2,798 3,156
Gas (Mcf) 30,539 34,458 33,973 32,824 41,053
BOE 7,408 8,310 8,514 8,270 9,998
Average realized
sales price:(2)
Oil
(per Bbl) $16.17 $14.95 $16.35 $16.33 $18.27
Gas
(per Mcf) $ 2.20 $ 1.93 $ 1.56 $ 1.49 $ 2.12
Additional
per BOE data:
Lease
operating
expenses $ 2.42 $ 2.54 $ 2.49 $ 2.51 $ 2.28
Production
taxes $ 1.04 $ 0.92 $ 0.93 $ 0.89 $ 1.10
Depletion,
depreciation
and
amortization$ 3.25 $ 3.34 $ 3.28 $ 3.18 $ 3.34
(1) Excludes operating data attributable to the Company's Russian
Partnership Interest.
(2) Includes the effects of the Company's hedging activities.
See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Overview."
RISK FACTORS
In addition to the other information contained in this
Prospectus, the following factors relating to the Company and
this offering should be considered carefully when evaluating an
investment in the shares of Common Stock offered hereby.
This Prospectus, including the documents incorporated by
reference, includes certain statements that may be deemed to be
"forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). All statements, other than
statements of historical facts, included in this Prospectus that
address activities, events or developments that the Company
expects, believes or anticipates will or may occur in the future,
including such matters as future capital, development and
exploration expenditures (including the amount and nature
thereof), drilling of wells, reserve estimates (including
estimates of future net revenues associated with such reserves
and the present value of such future net revenues), future
production of oil and gas, repayment of debt, business
strategies, expansion and growth of the Company's operations and
other such matters are forward-looking statements. These
statements are based on certain assumptions and analyses made by
the Company in light of its experience and its perception of
historical trends, current conditions, expected future
developments and other factors it believes are appropriate in the
circumstances. Such statements are subject to a number of
assumptions, risks and uncertainties, including the risk factors
discussed below, general economic and business conditions, the
business opportunities (or lack thereof) that may be presented to
and pursued by the Company, changes in laws or regulations and
other factors, many of which are beyond the control of the
Company. Prospective investors are cautioned that any such
statements are not guarantees of future performance and that
actual results or developments may differ materially from those
projected in the forward-looking statements.
Volatility of Oil and Gas Prices and Markets
The Company's revenues, cash flow, profitability and future
rate of growth are substantially dependent upon prevailing prices
for oil and gas. The Company's ability to maintain or increase
its borrowing capacity and to obtain additional capital on
attractive terms is also substantially dependent on oil and gas
prices. Historically, oil and gas prices and markets have been
volatile and are likely to continue to be volatile in the future.
Prices for oil and gas are subject to wide fluctuations in
response to relatively minor changes in supply of and demand for
oil and gas, market uncertainty and a variety of additional
factors that are beyond the control of the Company. These factors
include international political conditions, the domestic and
foreign supply of oil and gas, the level of consumer demand,
weather conditions, domestic and foreign governmental
regulations, the price and availability of alternative fuels and
overall economic conditions. In addition, various factors,
including the availability and capacity of gas gathering systems
and pipelines, the effect of federal and state regulation of
production and transportation, general economic conditions,
changes in supply due to drilling by other producers and changes
in demand may adversely affect the Company's ability to market
its oil and gas production. Any significant decline in the price
of oil or gas would adversely affect the Company's revenues,
operating income and borrowing capacity and may require a
reduction in the carrying value of the Company's oil and gas
properties.
Replacement of Reserves
The Company's future success depends upon its ability to
find, develop or acquire additional oil and gas reserves that are
economically recoverable. Except to the extent that the Company
conducts successful exploration or development activities or
acquires properties containing proved reserves, the estimated net
proved reserves of the Company will generally decline as reserves
are produced. There can be no assurance that the Company's
planned development and exploration projects and acquisition
activities will result in significant additional reserves or that
the Company will have continuing success drilling productive
wells at economic Finding Costs. If prevailing oil and gas prices
were to increase significantly, the Company's Finding Costs to
add new reserves could increase. The drilling of oil and gas
wells involves a high degree of risk, especially the risk of dry
holes or of wells that are not sufficiently productive to provide
an economic return on the capital expended to drill the wells. In
addition, the Company's drilling operations may be curtailed,
delayed or cancelled as a result of numerous factors, including
title problems, weather conditions, compliance with governmental
requirements and shortages or delays in the delivery of
equipment and availability of drilling rigs. Certain of the
Company's oil and gas properties are operated by third parties
and as a result the Company has limited control over the nature
and timing of exploration and development of such properties or
the manner in which operations are conducted on such properties.
A significant portion of the Company's cash flow is attributable
to royalty interests on its south Louisiana fee properties.
Without continued exploration on and development of the fee
properties, which the Company has only a limited ability to
control, production and cash flow from these properties will
decline.
Uncertainty of Estimates of Reserves and Future Net Revenues
This Prospectus, including the documents incorporated by
reference, includes estimates of the Company's net proved oil and
gas reserves and the future net revenues from those reserves
which have been prepared by the Company and its independent
petroleum engineers. There are numerous uncertainties inherent in
estimating quantities of proved oil and gas reserves, including
many factors beyond the control of the Company. Reserve
engineering is a subjective process of estimating the underground
accumulations of oil and gas that cannot be measured in an exact
manner. The estimates in this Prospectus are based on various
assumptions required by the Securities and Exchange Commission
(the "Commission"), including constant oil and gas prices,
operating expenses and capital expenditures, and, therefore, are
inherently imprecise indications of future net revenues. Actual
future production, revenues, taxes, operating expenses,
development expenditures and quantities of recoverable oil and
gas reserves may vary substantially from those assumed in the
estimates. Any significant variance in these assumptions could
materially affect the estimated quantity and value of reserves
set forth in this Prospectus. In addition, the Company's reserves
may be subject to downward or upward revision based upon
production history, results of future development, availability
of funds to acquire additional reserves, prevailing oil and gas
prices and other factors. In addition, the calculation of the
estimated present value of the future net revenue using a 10%
discount rate as required by the Commission is not necessarily
the most appropriate discount factor based on interest rates in
effect from time to time and risks associated with the Company's
reserves or the oil and gas industry in general. See "Business
and Properties - Estimated Net Proved Reserves."
It is also possible that reserve engineers may make different
estimates of reserves and future net revenues based on the same
available data. In calculating reserves on a BOE basis, gas was
converted to oil at the ratio of six Mcf of gas to one Bbl of
oil. While this convention approximates the energy equivalent of
oil and gas on a Btu basis, it may not represent the relative
prices received by the Company on the sale of its oil and gas
production.
The estimated future net revenues attributable to the
Company's net proved reserves are prepared in accordance with
Commission guidelines, and are not intended to reflect the fair
market value of the Company's reserves. In accordance with the
rules of the Commission, the Company's reserve estimates are
prepared using period end prices received for oil and gas. For
year end 1996, these prices were materially higher than for year
end 1995 and 1994. Future reductions in prices below those
prevailing at year end 1996 would result in the estimated
quantities and present values of the Company's reserves being
reduced.
Operating Hazards and Uninsured Risks
The oil and gas business involves a variety of operating
risks, including fire, explosions, blow-outs, pipe failure,
casing collapse, abnormally pressured formations and
environmental hazards such as oil spills, gas leaks, ruptures and
discharges of toxic gases, the occurrence of any of which could
result in substantial losses to the Company due to injury and
loss of life, severe damage to and destruction of property,
natural resources and equipment, pollution and other
environmental damage, clean-up responsibilities, regulatory
investigation and penalties and suspension of operations. The
Company and operators of properties in which it has an interest
maintain insurance against some, but not all, potential risks;
however, there can be no assurance that such insurance will be
adequate to cover any losses or exposure for liability. The
occurrence of a significant unfavorable event not fully covered
by insurance could have a material adverse effect on the
Company's financial condition and results of operations.
Furthermore, the Company cannot predict whether insurance will
continue to be available at a reasonable cost or at all.
Substantial Capital Requirements
The Company makes, and will continue to make, substantial
capital expenditures for the development, exploration and
acquisition and production of oil and gas reserves.
Historically, the Company has financed these expenditures
primarily with the proceeds of bank borrowings, the sale of
Common Stock and cash generated by operations. Management
believes that the net proceeds of this offering, bank borrowings
and cash generated from operations will be sufficient to fund its
planned operations through 1997. If revenues or the Company's
borrowing base decrease as a result of lower oil and gas prices,
operating difficulties or declines in reserves, the Company may
have limited ability to fund the capital requirements to
undertake or complete future development and exploration
programs. There can be no assurance that additional debt or
equity financing or cash generated by operations will be
available to meet these requirements. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
Acquisition Risks
The Company intends to continue acquiring oil and gas
properties. See "Business and Properties -- Business Strategy."
Although the Company performs a review of the acquired properties
that it believes is consistent with industry practices, such
reviews are inherently incomplete. It generally is not feasible
to review in depth every individual property involved in each
acquisition. Ordinarily, the Company will focus its due diligence
efforts on the higher valued properties and will sample the
remainder. However, even an in-depth review of all properties and
records may not necessarily reveal existing or potential problems
nor will it permit a buyer to become sufficiently familiar with
the properties to assess fully their deficiencies and
capabilities. Inspections may not be performed on every well, and
structural or environmental problems, such as ground water
contamination, are not necessarily observable even when an
inspection is undertaken. The Company may be required to assume
preclosing liabilities, including environmental liabilities, and
may acquire interests in properties on an "as is" basis. There
can be no assurance that the Company's acquisitions will be
successful.
Risks of Fixed Price Sales and Hedging Contracts
The Company manages the risk associated with fluctuations in
the price of gas and oil, primarily through certain fixed price
sales and hedging contracts. The Company's price risk management
strategy reduces the Company's sensitivity to changes in market
prices of oil and gas, but is subject to a number of other risks.
See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Overview."
Competition
The oil and gas industry is highly competitive. The Company
competes in the areas of property acquisitions and the
development, production and marketing of oil and gas with major
oil companies, other independent oil and gas concerns and
individual producers and operators. Many of these competitors
have substantially greater financial and other resources than the
Company. See "Business and Properties -- Competition."
Governmental Regulation and Environmental Risks
The Company's business is subject to various federal, state
and local laws and governmental regulations which may be changed
from time to time in response to economic or political
conditions. Matters subject to regulation include discharge
permits for drilling operations, drilling bonds, reports
concerning operations, the spacing of wells, unitization and
pooling of properties, taxation and environmental protection.
From time to time, regulatory agencies have imposed price
controls and limitations on production by restricting the rate of
flow of oil and gas wells below actual production capacity in
order to conserve supplies of oil and gas.
The Company's operations could result in liability for
personal injuries, property damage, oil spills, discharge of
hazardous materials, remediation and clean-up costs and other
environmental damages. The Company could be liable for
environmental damages caused by previous property owners. As a
result, substantial liabilities to third parties or governmental
entities may be incurred, the payment of which could have a
material adverse effect on the Company's financial condition and
results of operations. The Company maintains insurance coverage
for its operations, including limited coverage for sudden
environmental damages, but does not believe that insurance
coverage for environmental damages that occur over time is
available at a reasonable cost. Moreover, the Company does not
believe that insurance coverage for the full potential liability
that could be caused by sudden environmental damages is available
at a reasonable cost. Accordingly, the Company may be subject to
liability or may lose substantial portions of its properties in
the event of certain environmental damages. The Company could
incur substantial costs to comply with environmental laws and
regulations.
The Oil Pollution Act of 1990 imposes a variety of
regulations on "responsible parties" related to the prevention of
oil spills. The implementation of new, or the modification of
existing, environmental laws of regulations, including
regulations promulgated pursuant to the Oil Pollution Act of
1990, could have a material adverse impact on the Company.
The recent trend toward stricter standards in environmental
legislation and regulation is likely to continue. For instance,
legislation has been introduced in Congress that would reclassify
certain exploration and production wastes as "hazardous wastes"
which would make the reclassified wastes subject to much more
stringent handling, disposal and clean-up requirements. If such
legislation were enacted, it could have a significant impact on
the operating costs of the Company, as well as the oil and gas
industry in general. Initiatives to further regulate the
disposal of oil and gas wastes are also pending in certain
states, and these various initiatives could have a similar impact
on the Company.
Continuing Control by Existing Stockholders
The Chairman of the Board of Directors and members of his
extended family own approximately 45% of the outstanding Common
Stock of the Company. While no formal arrangements exist, these
extended family members may be inclined to act in concert with
the Chairman on matters related to control of St. Mary, including
for example, the election of directors or relative to an
unsolicited bid to acquire the Company. While the percentage
ownership of the extended family of the Chairman will be reduced
by approximately 9% after the offering, the Chairman and his
extended family may be able to control or influence matters
presented to the stockholders.
Risks Specific to the Company's Investment in Other Activities
The Company has invested a total of approximately $5.9
million to acquire a 49.9% interest in Summo Minerals Corporation
("Summo Minerals"). Summo Minerals is engaged in the business of
development of certain copper projects, the principal one being
located in southeast Utah. If Summo Minerals is unable to raise
the capital needed to fund the development of its first project,
the Company currently expects to invest no more than
approximately $1.0 to $2.0 million in Summo Minerals in 1997.
There can be no assurance that the Company's investment in Summo
Minerals will be successful or that it will ever recover its
investment. See "Business and Properties -- Other Activities."
USE OF PROCEEDS
The net proceeds from this offering are estimated to be
$[__________] ($__________ if the Underwriters' over-allotment
option is exercised in full), after deducting the underwriting
discount and estimated offering expenses. The Company intends to
use such net proceeds, together with internally generated funds
and borrowings under St. Mary's bank credit facility ("Credit
Facility") and Panterra's bank credit facility ("Panterra Credit
Facility"), to fund its 1997 capital budget estimated to total
$65 million and for general corporate purposes.
The following table sets forth the estimated allocation of
the Company's 1997 capital budget (in millions):
Ongoing Exploration and Development Projects:
Mid-Continent Region $26.5
ArkLaTex Region 7.5
Williston Basin 6.0
Permian Basin 2.0
Other 1.0
Large-Target Exploration Projects 7.0
Acquisitions 15.0
Total $65.0
Pending use of funds, the Company will use the net proceeds
of this offering to repay borrowings under its Credit Facility.
To the extent that net proceeds are in excess of amounts
outstanding under the Credit Facility, the Company will invest in
short-term investments. Amounts repaid under the revolving loan
provisions of the Credit Facility, which expire in June 1999,
will be available for re-borrowing (subject to borrowing base
limitations and other restrictions) until the Credit Agreement
expires, or until borrowings are converted, at the option of the
Company, into a term loan if earlier. As of January 17, 1997,
borrowings of $36.4 million were outstanding under the Credit
Facility, with a weighted average interest rate of 6.5%. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources - Credit
Facility."
CAPITALIZATION
The following table sets forth the capitalization of the
Company as of September 30, 1996 and as adjusted to reflect the
sale of the 2,000,000 shares of Common Stock offered by the
Company hereby and the application of the estimated net proceeds
of $__________ therefrom as described under "Use of Proceeds."
This table should be read in conjunction with the Consolidated
Financial Statements and notes thereto included in this
Prospectus.
September 30, 1996
Actual As Adjusted
(unaudited)
(in thousands)
Cash and cash equivalents . . . . $ 4,405 $
Long-term debt:
Credit Facility(1) . . . . . . 25,350 -
Panterra Credit Facility(2). . . 10,974 10,974
Total long-term debt . . . . . . . 36,324 10,974
Stockholders' equity(3):
Common Stock, $.01 par value,
15,000,000 shares authorized;
8,759,214 shares issued and
outstanding; 10,759,214
shares as adjusted. . . . . . . 85
Additional paid-in capital. . . 15,803 _____
Retained earnings . . . . . . .. 55,248 55,248
Unrealized gain on marketable
equity securities -
available for sale . . . . . . . 4 4
Total stockholders' equity. . . . 71,140 _____
Total capitalization . . . . . . $107,464 $
(1) As of January 17, 1997, the Credit Facility had an
outstanding balance of $36.4 million.
(2) The Company has a 74% general partnership interest in
Panterra and proportionately consolidates the outstanding balance
of the Panterra Facility. See Notes 1 and 5 to the Consolidated
Financial Statements as of December 31, 1995 and 1994, and for
each of the three years in the period ended December 31, 1995
included herein.
(3) Excludes 97,495 shares of Common Stock issuable upon exercise
of options outstanding as of January 22, 1997 and 262,372 shares
underlying options to be issued in exchange for the Company's
SAR. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National
Market under the symbol "MARY." The following table sets forth
the high and low closing sale prices for the periods presented:
High Low
Year Ended December 31, 1995:
First Quarter. . . . . . $14 $12 1/2
Second Quarter . . . . . 13 5/8 10 7/8
Third Quarter. . . . . . 14 7/8 12 7/8
Fourth Quarter . . . . . 15 13 1/4
Year Ended December 31, 1996:
First Quarter. . . . . . $16 5/8 $13 1/2
Second Quarter . . . . . 17 7/8 15 7/8
Third Quarter. . . . . . 17 14 1/4
Fourth Quarter . . . . . 27 3/8 16 1/2
Year Ending December 31, 1997:
First Quarter
(through January ___, 1997) $ $
On January 22, 1997, the closing sale price for the Common
Stock as reported on the Nasdaq National Market was $29 1/4 per
share. As of January 1, 1997, the number of record holders of
the Company's Common Stock was 154. Management believes, after
inquiry, that the number of beneficial owners of the Company's
Common Stock is in excess of 1,100.
DIVIDEND POLICY
The Company has paid cash dividends on its Common Stock for
the past 57 consecutive years. For the last nine years, the
Company has paid cash dividends of $.16 per share per year. The
Company increased its quarterly dividend to $.05 per share or
$.20 per share per year effective with the quarterly dividend
declared in January 1997 and payable in February 1997. The
Company currently intends to continue to pay comparable annual
cash dividends on its outstanding shares of Common Stock on a
quarterly basis. The terms of the Company's Credit Facility
contain restrictions on the payment of cash dividends to holders
of Common Stock. Accordingly, the Company's ability to pay cash
dividends will depend upon such restrictions and the Company's
results of operations, financial condition, capital requirements
and other factors deemed relevant by the Board of Directors.
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated
financial data for the Company as of the dates and for the
periods indicated. The financial data for the five years ended
December 31, 1995, were derived from the Consolidated Financial
Statements of the Company which have been audited by Coopers &
Lybrand L.L.P., independent accountants. The data set forth in
this table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and the
notes thereto presented elsewhere or incorporated by reference in
this Prospectus.
Nine Months Ended
Year Ended December 31, September 30,
1991 1992 1993 1994 1995 1995 1996
Income Statement Data:
Operating Revenues:
Oil production
7,608 11,949 13,685 14,006 17,090 12,473 15,799
Gas production
19,407 23,296 24,523 24,233 19,479 13,387 23,890
Gas contract settlements and other
773 15,413 424 6,546 2,081 1,580 490
Total operating revenues
27,788 50,658 38,632 44,785 38,650 27,440 40,179
Operating Expenses:
Oil and gas production
4,522 7,793 9,341 10,496 10,646 7,676 9,262
Depletion, depreciation and amortization
5,586 6,213 8,775 10,134 10,227 7,184 9,144
Impairment of proved properties (1)
790 1,565 3,498 4,219 2,676 1,673 -
Exploration
4,133 3,615 5,457 8,104 5,073 3,683 5,688
Abandonment and impairment of unproved properties
2,434 1,264 1,020 1,023 2,359 759 1,240
General and administrative (2)
3,187 4,544 4,712 5,261 5,328 4,129 5,066
Gas contract disputes and other
750 1,332 638 493 152 184 111
Loss (income) in equity investees
--- 1,026 659 348 579 286 (47)
Total operating expenses
21,402 27,352 34,100 40,078 37,040 25,574 30,464
Income from operations
6,386 23,306 4,532 4,707 1,610 1,866 9,715
Non-operating expense
1,000 791 62 525 896 514 1,180
Income tax expense (benefit)
1,874 7,328 1,065 445 (723) (72) 2,773
Income from continuing operations
3,512 15,187 3,405 3,737 1,437 1,424 5,762
Gain (loss) on sale of discontinued operations,
net of income taxes
(312) 430 --- --- 306 231 159
Income before cumulative effect of change in accounting principle
3,200 15,617 3,405 3,737 1,743 1,655 5,921
Cumulative effect of change in accounting principle
--- --- 300 --- --- --- ---
Net income
$3,200 $15,617 $3,705 $3,737 $1,743 $1,655 $5,921
Net income (loss) per common share:
Income from continuing operations
$0.49 $2.10 $0.39 $0.43 $0.17 $0.16 $0.66
Gain (loss) on sale of discontinued operations
(0.04) 0.06 --- --- 0.03 0.03 0.02
Cumulative effect of change in accounting principle
--- --- 0.03 --- --- --- ---
Net income per share
$0.45 $2.16 $0.42 $0.43 $0.20 $0.19 $0.68
Cash dividends per share
$0.16 $0.16 $0.16 $0.16 $0.16 $0.12 $0.12
Weighted average common shares outstanding
7,172 7,233 8,763 8,763 8,760 8,760 8,759
Other Financial Data:
EBITDA (3)
$11,972 $29,519 $13,307 $14,841 $11,837 $ 9,050 $18,859
Net cash provided by operating activities
11,740 26,989 19,675 20,271 17,713 11,755 17,110
Capital and exploration expenditures(4)
23,767 19,793 22,787 30,934 32,419 23,591 36,680
Balance Sheet Data (end of period):
Working capital
5,709 17,913 15,187 9,444 3,102 2,982 7,602
Net property and equipment
39,306 46,998 51,381 59,655 71,645 70,279 92,804
Total assets
53,781 75,896 81,797 89,392 96,126 91,144 132,680
Long-term debt
15,775 5,000 7,400 11,130 19,602 14,766 36,324
Total stockholders' equity
31,117 61,362 63,635 66,034 66,282 66,531 71,140
(1) In March 1995, the FASB issued SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," which addresses the impairment of proved oil and
gas properties. The Company adopted SFAS No. 121 as of October
1, 1995 and recorded an additional impairment charge for proved
properties of $1,003,000 in the fourth quarter of 1995.
(2) Includes compensation expense recognized under the Company's
SAR plan of $222,191, $268,286 and $220,247 in 1993, 1994 and
1995, respectively, and $243,000 and $604,000 during the nine
months ended September 30, 1995 and 1996, respectively. In
November 1996, the Company replaced the SAR plan with a stock
option plan, and accordingly the SAR expense will be
significantly lower in 1997. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations --
Accounting Matters."
(3) EBITDA is defined as income before income taxes, interest,
depreciation, depletion and amortization. EBITDA is a financial
measure commonly used for the Company's industry and should not
be considered in isolation or as a substitute for net income,
cash flow provided by operating activities or other income or
cash flow data prepared in accordance with generally accepted
accounting principles or as a measure of a company's
profitability or liquidity. Because EBITDA excludes some, but
not all, items that affect net income and may vary among
companies, the EBITDA presented above may not be comparable to
similarly titled measures of other companies.
(4) Excludes certain international exploration costs. See
"Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital
Resources - Capital and Exploration Expenditures."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
St. Mary was founded in 1908 and incorporated in Delaware in
1915. Since 1992 St. Mary has expanded its technical and
operating staff and increased its drilling, production and
operating capabilities in its five core operating areas in the
United States.
The Company's activities in the Williston Basin are
conducted through Panterra in which the Company owns a 74%
general partnership interest. The Company proportionally
consolidates its interest in Panterra.
The Company has two principal equity investments, Summo
Minerals, a Canadian copper mining company, and its Russian
Partnership Interest. The Company accounts for its Russian
Partnership Interest and investment in Summo Minerals under the
equity method and includes its share of the income or loss
from these entities. The Company has recently agreed to monetize
its Russian Partnership Interest.
The Company uses the successful efforts method to account
for its investment in oil and gas properties whereby costs of
productive wells, developmental dry holes and productive leases
are capitalized and amortized using the unit-of-production method
based on estimated net proved reserves. The costs of development
wells are capitalized, whether productive or nonproductive.
Exploratory drilling costs are initially capitalized but charged
to expense if and when the well is determined to be unsuccessful.
Geological and geophysical costs and the costs of carrying and
retaining undeveloped properties are expensed as incurred.
The Company seeks to protect its rate of return on
acquisitions of producing properties by hedging up to the first
24 months of an acquisition's production at prices equal to or
greater than those used in the Company's acquisition evaluation
and pricing model. The Company also periodically uses hedging
contracts to hedge or otherwise reduce the impact of oil and gas
price fluctuations on production from each of its core operating
areas. The Company's strategy is to ensure certain minimum
levels of operating cash flow and to take advantage of windows of
favorable commodity prices. The Company generally limits its
aggregate hedge position to no more than 50% of its total
production. The Company seeks to minimize basis risk and indexes
the majority of its oil hedges to NYMEX prices and the majority
of its gas hedges to various regional index prices associated
with pipelines in proximity to the Company's areas of gas
production. As of January 15, 1997, the Company had hedged
approximately 12% of its estimated 1997 gas production at an
average fixed NYMEX equivalent price of $2.12 per MMBtu and
approximately 14% of its estimated 1997 oil production at an
average fixed NYMEX price of $18.37 per barrel. The Company has
also purchased options resulting in price collars and price
floors on an additional 16% of the Company's estimated 1997 oil
production with price ceilings between $23 and $27 per Bbl and
price floors between $18 and $21 per Bbl.
Results of Operations
The following table sets forth selected operating data for
the periods and upon the basis indicated:
Nine Months Ended
Year Ended December 31, September 30,
1993 1994 1995 1995 1996
Operating
Data(1):
Net
Production:
Oil (MBbl) 846 937 1,044 764 865
Gas (MMcf) 11,147 12,577 12,434 8,961 11,249
MBOE 2,704 3,033 3,116 2,258 2,739
Average
sales price (2):
Oil (per Bbl) $16.17 $14.95 $16.35 $16.33 $18.27
Gas (per Mcf) $ 2.20 $ 1.93 $ 1.56 $ 1.49 $ 2.12
Additional
per BOE data:
Lease operating
expenses $ 2.42 $ 2.54 $ 2.49 $ 2.51 $ 2.28
Production
taxes $ 1.04 $ 0.92 $ 0.93 $ 0.89 $ 1.10
Depletion,
depreciation
and
amortization $ 3.25 $ 3.34 $ 3.28 $ 3.18 $ 3.34
(1) Excludes operating data attributable to the Company's
Russian Partnership Interest.
(2) Includes the effects of the Company's hedging activities.
Nine Months Ended September 30, 1996 Compared With Nine Months
Ended September 30, 1995
Oil and Gas Production Revenues. Oil and gas production
revenues increased $13.8 million, or 53% to $39.7 million for the
nine months ended September 30, 1996 compared with $25.9 million
in the 1995 period. Oil production volumes increased 13% while
gas production increased 26% for the first nine months of 1996
compared with the 1995 period. Average net daily production was
10.0 MBOE for the nine months ended September 30, 1996 compared
to 8.3 MBOE in the 1995 period. This production increase resulted
from new properties acquired and drilled during the past year.
The average oil price for the nine months ended September 30,
1996 increased 12% to $18.27 per Bbl, while gas prices increased
42% to $2.12 per Mcf, from their respective 1995 levels. The
Company hedged approximately 68% of its 1996 oil production at an
average NYMEX price of $19.17 per barrel and 18% of its 1996 gas
production at an average $1.91 per MMBtu. During the nine months
ended September 30, 1996, the Company incurred total hedging
losses of $1,493,000, including oil hedge losses of $846,000,
or $0.98 per barrel, and gas hedge losses of $647,000, or $0.06
per Mcf.
Oil and Gas Production Costs. Oil and gas production costs
consist of lease operating expense and production taxes. Total
production costs increased $1.6 million or 21% to $9.3 million
for the nine months ended September 30, 1996 compared with the
1995 period. The lease operating expense per BOE was $2.28 for
the nine months ended September 30, 1996 compared with $2.51 for
the first nine months of 1995 primarily due to higher south
Louisiana royalty production volume in 1996 and lower 1995 sales
volumes stemming from low gas prices.
Depreciation, Depletion, Amortization and Impairment.
Depreciation, depletion and amortization expense ("DD&A")
increased $1.9 million or 27% to $9.1 million for the nine months
ended September 30, 1996 compared with $7.2 million for the same
period in 1995 due to increased production from new drilling and
reserve acquisitions. DD&A per BOE was $3.34 in 1996 compared to
$3.18 for the same period in 1995 because of the higher unit rate
on reserve acquisitions. There was no impairment of proved
properties for the nine months ended September 30, 1996 compared
to $1.7 million for the same period in 1995 due to high cost
marginal wells and low natural gas prices.
Abandonment and impairment expenses for unproved properties
was $1.2 million for the nine months ended September 30, 1996
compared with $759,000 for the respective 1995 period.
Exploration. Exploration expense increased $2.0 million or
54% to $5.7 million for the nine months ended September 30, 1996
compared with $3.7 million in the 1995 period as a result of
higher exploratory dry hole expense from increased drilling
activity and a large 3-D seismic survey conducted in 1996.
General and Administrative. General and administrative
expense increased $937,000 or 23% to $5.1 million for the nine
months ended September 30, 1996 compared to $4.1 million in 1995
because of higher compensation costs, professional fees and a
$361,000 increase in the expense associated with the Company's
SAR Plan. In the fourth quarter of 1996, the Company expects to
recognize an additional expense of approximately $1 million
associated with the SAR plan. On November 21, 1996, the Company
exercised its right to terminate the SAR plan and adopted in lieu
thereof a stock option plan and, accordingly, SAR expense will be
substantially lower in 1997.
Gas Contract Settlements and Other. Costs related to gas
contract settlement and other, including legal expenses
associated with gas contract disputes, declined $73,000 or 40% to
$111,000 for the nine months ended September 30, 1996 compared to
$184,000 for the 1995 period because all remaining legal disputes
related to gas contracts with purchasers were settled in 1995.
Loss in Equity Investees. The Company's share of net income
from the Russian Partnership Interest was $405,000 for the nine
months ended September 30, 1996 compared to a net loss of $94,000
for the comparable 1995 period because production and product
prices increased significantly in 1996 from the 1995 levels. The
Company's share of the net loss for Summo Minerals was $358,000
for the nine months ended September 30, 1996 compared to a net
loss of $192,000 for the comparable 1995 period because of higher
general and administrative costs arising from Summo Minerals'
addition of personnel in anticipation of project financing and
the commencement of mine development in 1997. See "Business and
Properties -- Other Activities."
Non-Operating Expense. Net interest expense increased
$666,000 or 130% to $1.2 million for the nine months ended
September 30, 1996 compared to $514,000 for the same period in
1995 because of the higher debt incurred for acquisitions and
increased drilling activity.
Income Taxes. The effective tax rate for the nine months
ended September 30, 1996 increased to 34% compared to a 5% tax
benefit in the 1995 period. The effective tax rate in 1995
resulted from the use of capital loss carryovers and Section 29
tax credits.
Net Income. Net income for the nine months ended September
30, 1996 increased $4.3 million or 258% to $5.9 million compared
to $1.7 million in 1995 because of higher production volumes and
prices resulting in a $7.2 million increase in oil and gas
production revenues, partially offset by the associated higher
production expenses and DD&A, a $2.0 million increase in
exploration expense and a $937,000 increase in general and
administrative expenses. The 1995 net income also included a
pre-tax gain of $1.1 million on the sale of producing properties.
Comparison of Years Ended December 31, 1995, 1994 and 1993
Oil and Gas Production Revenues. Oil and gas production
revenues declined $1.7 million, or 4% to $36.6 million in 1995
compared to $38.2 million in 1994 due to lower gas prices. Oil
production volumes increased 11% while gas production volumes
declined 1% in 1995 compared to 1994. Average net daily
production reached 8,514 BOE in 1995 compared to 8,310 BOE in
1994. This production increase resulted from new properties
acquired and drilled during 1995. The average realized oil price
for 1995 increased 9% to $16.35 per barrel, while realized gas
prices declined 19% to $1.56 per Mcf, from their respective 1994
levels. The Company hedged approximately 50% of its oil
production for 1995 or 604,700 Bbls at an average NYMEX price of
$17.66 and approximately 41% of its 1996 gross production at an
average $18.34 NYMEX price. The Company realized a $131,000
decrease in oil revenue or $.13 per barrel for 1995 on these
contracts compared to a $67,000 decrease or $.07 per barrel in
1994. The Company also hedged 6% of its 1995 gas production or
695,000 MMBtu at an average NYMEX price of $1.89. The Company
realized a $121,000 increase in gas revenues or $.01 per Mcf for
1995 from these hedge contracts compared to a $51,000 increase in
1994. Oil and gas production revenue was unchanged at $38.2
million in 1994 and 1993. Oil and gas production volumes
increased 11% and 13%, respectively, for the year ended December
31, 1994 compared with the 1993 period. Average net daily
production reached 8,310 BOE in 1994 compared to 7,408 BOE in
1993. This production increase resulted from new properties
acquired and drilled during 1994 and 1993. However, 1994
averaged realized oil prices declined 8% to $14.95 per barrel,
while averaged realized gas prices declined 12% to $1.93 per Mcf,
from their respective 1993 levels.
Oil and Gas Production Costs. Oil and gas production costs
increased $150,000, or 1% in 1995 to $10.6 million compared with
$10.5 million in 1994. However, total oil and gas production
costs per BOE declined slightly to $3.42 in 1995 compared to
$3.46 per BOE in 1994. Oil and gas production costs increased
$1.2 million, or 12% to $10.5 million in 1994 compared with $9.3
million in 1993, due to additional operating costs on reserves
purchased and new wells drilled. However, total oil and gas
production costs per BOE were $3.46 in 1994, unchanged from 1993.
Depreciation, Depletion, Amortization and Impairment. DD&A
increased slightly to $10.2 million in 1995 compared with $10.1
million in 1994. However, DD&A expense per BOE declined 2% to
$3.28 in 1995 compared to $3.34 in 1994. Impairment of proved
oil and gas properties declined $1.5 million or 37% to $2.7
million in 1995 compared with $4.2 million in 1994 because high
cost marginal wells in newer fields and low year-end gas prices
required further ceiling test writedowns in 1994. The 1995
impairment provision included effects of the adoption of SFAS No.
121 as of October 1, 1995 resulting in an additional impairment
charge for proved properties of $1.0 million in the fourth
quarter of 1995. DD&A expense increased $1.3 million or 15% to
$10.1 million in 1994 compared with $8.8 million in 1993 because
of increased production from reserve acquisitions and drilling
activity. DD&A expense per BOE increased 3% to $3.34 in 1994
compared to $3.25 in 1993. Impairment of proved oil and gas
properties increased $721,000 or 21% to $4.2 million in 1994
compared with $3.5 million in 1993 because low year-end gas
prices and several high cost marginal wells in newer fields
required ceiling test writedowns.
Abandonment and impairment of unproved properties increased
$1.4 million or 141% to $2.4 million in 1995 compared to $1.0
million in 1994. The Company impaired $1.0 million of leasehold
costs in 1995 as a result of several unsuccessful prospects in
its drilling program. Abandonment and impairment expenses for
unproved properties were $1 million in 1994 and 1993.
Exploration. Exploration expense decreased $3.0 million or
37% to $5.1 million in 1995 compared to $8.1 million in 1994
because of reduced 1995 geophysical activity and better
exploratory drilling results in 1995 compared with 1994.
Exploration expense increased $2.6 million or 49% to $8.1 million
in 1994 compared to $5.5 million in 1993 because of geophysical
costs on 3-D seismic projects initiated in 1994 and higher
exploratory dry hole costs associated with the Company's
increased drilling activity.
General and Administrative. General and administrative
expenses were unchanged at $5.3 million for 1995 and 1994. Higher
compensation costs were offset by lower professional fees and
travel costs. General and administrative expenses increased
$549,000 or 12% in 1994 to $5.3 million compared to $4.7 million
in 1993, primarily because of compensation expense associated
with the Company's SARs, directors' and officers' insurance
expense and additional overhead due to the large number of
properties added from acquisitions and drilling in 1994 and 1993.
Gas Contract Settlements and Other. Legal expenses in
connection with gas contract disputes and the Company's mining
activities declined $341,000 or 69% to $152,000 in 1995 compared
with $493,000 in 1994 because all of the Company's mining
activities are now conducted through the Company's equity
investee, Summo Minerals. This expense declined $145,000 or 23%
to $493,000 in 1994 from $638,000 in 1993 because of lower legal
expense due to the resolution of the remaining gas contract
disputes.
Loss in Equity Investees. The equity in the net loss of the
Russian Partnership Interest was $322,000 in 1995, $328,000 in
1994 and $659,000 in 1993. The equity in the net loss of Summo
Minerals was $257,000 for 1995 and $20,000 in 1994 because of
Summo Minerals' higher general and administrative expenses due to
expansion of its Denver office in 1995.
Non-Operating Expense. Net interest and other non-operating
expense increased $371,000 or 71% to $896,000 in 1995 compared to
$525,000 in 1994 because of additional interest expense
associated with higher debt levels and the Company's increased
ownership interest in Panterra. Net interest and other
non-operating expense increased $463,000 or 747% to $525,000 in
1994 compared to $62,000 in 1993 because interest income declined
on lower cash investments and the additional ownership in
Panterra caused interest expense to increase.
Income Taxes. Income taxes provided a net tax benefit of
$723,000 for 1995 with the utilization of capital loss carryovers
and Section 29 tax credits compared with income tax expense of
$445,000 for 1994. The effective tax rate for 1994 declined to
11% compared to 24% in 1993 because of higher Section 29 tax
credits in 1994. State tax expense was $396,000 in 1995,
$445,000 in 1994 and $587,000 in 1993, primarily due to lower
Louisiana income taxes in 1995 and 1994. The Company also
recognized a $300,000 tax benefit for the cumulative effect of
adopting SFAS No. 109, "Accounting for Income Taxes" as of
January 1, 1993.
Net Income. Net income for 1995 declined $2.0 million or
53% to $1.7 million compared to $3.7 million in 1994. The
Company results in 1995 included a $1.3 million gain from the
sale of producing properties and $800,000 of other non-production
revenue while settlements of gas contracts and other
non-production income added $6.5 million to revenues in 1994.
Lower 1995 natural gas prices and associated revenue were more
than offset by reduced exploration and the Company's income tax
benefit. The Company also realized a $306,000 gain from the sale
of discontinued real estate in 1995 with no comparable activity
in 1994. Net income for 1994 was $3.7 million, unchanged from
1993. Higher production in 1994 was offset by lower product
prices and $5.7 million of gas contract revenue was offset by
higher DD&A and impairment of producing properties, higher
exploration costs due to 3-D seismic and exploratory drilling,
increased general and administrative and interest expense, when
compared to 1993.
Liquidity and Capital Resources
The Company's primary sources of liquidity are cash provided
by operating activities and borrowings under its Credit Facility.
The Company's principal cash needs are for the exploration and
development of oil and gas properties, acquisitions and payment
of dividends to stockholders. The Company continually reviews
its capital expenditure budget based on changes in cash flow and
other factors.
Cash Flow. The Company's net cash provided by operating
activities increased $5.4 million or 46% to $17.1 million for the
nine months ended September 30, 1996 compared with $11.8 million
in the 1995 period primarily due to increased revenue from oil
and gas sales. Net cash used in investing activities increased
$6.8 million or 29% to $30.1 million for the nine months ended
September 30, 1996 compared to $23.3 million in the 1995 period.
Increased capital expenditures from the Company's expanded
drilling programs and oil and gas property acquisitions accounted
for the increase.
Net cash provided by financing activities was $15.7 million
for the nine months ended September 30, 1996 consisting of net
debt proceeds for acquisitions and drilling activities, partially
offset by dividends compared with net cash provided of $2.5
million in the 1995 period.
In the first quarter of 1997, the Company will make a cash
payment of approximately $1.6 million in satisfaction of
liabilities previously accrued by the Company under its SAR plan.
The Company will not recognize any additional expense in
connection with this payment.
The Company's net cash provided by operating activities
decreased 13% to $17.7 million in 1995 compared to $20.3 million
in 1994. A $3.2 million decline in exploration costs for 1995
partially offset the last of the Company's gas contract disputes
settled in 1994 for $5.7 million. The Company's net cash
provided by operating activities increased 3% to $2.3 million in
1994 compared to $19.7 million in 1993. Gas contract settlements
received in 1994 were partially offset by higher operating and
exploration costs.
Net cash used in investing activities increased 43% to $33.0
million in 1995 compared with $23.1 million in 1994 primarily due
to increased capital expenditures, acquisition of oil and gas
properties and the investment in Summo Minerals, partially offset
by $2.3 million in proceeds from the sale of oil and gas
properties. Total capital expenditures, including acquisitions
of oil and gas properties, in 1995 increased to $30.8 million
compared to $22.0 million in 1994 due to increased drilling
activity and reserve acquisitions. The Company invested $4.5
million in Summo Minerals during 1995 increasing its ownership to
51%. Net cash used in investing activities increased 13% to
$23.1 million in 1994 compared with $20.5 million in 1993
primarily due to increased capital expenditures partially offset
by a decline in contributions to the Russian joint venture.
Total capital expenditures, including acquisitions of oil and gas
properties, in 1994 were $22.0 million compared to $18.3 million
in 1993 because of increased drilling activity and property
acquisitions.
Net cash provided by financing activities was $7.0 million
in 1995 compared to net cash used by financing activities of $2.0
million in 1994. The Company borrowed funds in 1995 for its
capital expenditure programs and mining investment compared with
debt repayment of $578,000 in 1994. Net cash used by financing
activities was $2.0 million in 1994 compared to net cash provided
by financing activities of $4.9 million in 1993. The Company
used funds to repay debt in 1994 while it borrowed funds in 1993
to finance a portion of the reserve acquisitions. The Company
also received proceeds from its common stock offering in 1993.
The Company paid dividends of $1.4 million in 1995, 1994 and
1993.
Credit Facility. On April 1, 1996, the Company amended and
restated its Credit Facility with two banks to provide a $60
million secured three-year revolving loan facility which
thereafter converts at the Company's option to a five-year term
loan. The amount which may be borrowed from time to time will
depend upon the value of the Company's oil and gas properties and
other assets. The Company's borrowing base, which is
redetermined annually, is currently $40 million and is expected
to increase for 1997 based on the increase in the Company's
estimated net proved reserves in 1996. See "Business and
Properties -- Estimated Net Proved Reserves." Outstanding
revolving loan balances under the Company's Credit Facility
accrue interest at rates determined by the Company's debt to
total capitalization ratio. During the revolving period of the
loan, loan balances accrue interest at the Company's option of
either the banks' prime rate or LIBOR plus 1/2% when the Company's
debt to total capitalization is less than 30%, up to a maximum of
either the banks' prime rate plus 1/8% or LIBOR plus 1-1/4% when
the Company's debt to total capitalization ratio exceeds 50%.
The Credit Facility is collateralized by a mortgage of
substantially all of the Company's domestic oil and gas
properties. The Credit Facility provides for, among other
things, covenants limiting additional recourse indebtedness of
the Company, investments or disposition of assets by the Company
and certain restrictions on the payment of cash dividends to
holders of the Common Stock.
Panterra, in which the Company has a 74% general partnership
ownership interest, has a separate credit facility with an $18.5
million borrowing base and $13.1 million outstanding as of
December 31, 1996. St. Mary guarantees its pro rata share of the
Panterra Credit Facility. The Panterra Credit Facility expires
on February 1, 2002. During January 1997, Panterra expects to
amend its Panterra Credit Facility to provide for a $26 million
borrowing base. The Company intends to use the available credit
under the Panterra Credit Facility to fund a portion of its 1997
capital expenditures in the Williston Basin.
Capital and Exploration Expenditures. The Company's
expenditures for exploration and development of oil and gas
properties and acquisitions are the primary use of its capital
resources. The following table sets forth certain information
regarding the costs incurred by the Company in its oil and gas
activities during the periods indicated.
Capital and Exploration Expenditures(1)
(dollars in thousands)
Nine Months
Year Ended December 31, Ended September 30,
1993 1994 1995 1995 1996
Development $ 7,079 $ 5,946 $12,625 $7,998 $13,406
Exploration 9,013 9,481 8,746 6,142 7,269
Acquisitions:
Proved 4,848 12,279 8,111 5,711 13,567
Unproved 1,847 4,228 2,937 3,740 2,438
Total $22,787 $30,934 $32,419 $23,591 $36,680
(1) Excludes certain international exploration costs.
The Company's total costs incurred for the nine months ended
September 30, 1996 increased 55% to $36.7 million compared to
$23.6 million for the comparable 1995 period. Proved property
acquisitions increased $7.9 million to $13.6 million for the
nine months ended September 30, 1996 compared to $5.7 million for
the 1995 period. The Company spent $23.1 million for domestic
exploration and development and unproved property acquisitions
for the nine months ended September 30, 1996 compared to $17.9
million for the 1995 period.
The Company's total costs incurred in 1995 increased 5% to
$32.4 million compared to $30.9 million in 1994. Proved property
acquisitions declined $4.2 million to $8.1 million in 1995
compared to $12.3 million in 1994. The Company spent $24.3
million in 1995 for unproved property acquisitions and domestic
exploration and development compared to $18.7 million in 1994 as
a result of the Company's expanded drilling programs.
The Company's total costs incurred in 1994 increased 36% to
$30.9 million compared to $22.8 million in 1993. Proved property
acquisitions increased $7.5 million to $12.3 million in 1994
compared to $4.8 million in 1993. The Company spent $18.7
million in 1994 for unproved property acquisitions and domestic
exploration and development compared to $17.9 million in 1993.
For 1997, the Company anticipates spending approximately $65
million for capital and exploration expenditures with $43 million
allocated for domestic exploration and development, $15 million
allocated for domestic property acquisitions and $7 million for
large-target, high-risk domestic exploration and development.
See "Use of Proceeds."
The amount and allocation of future capital and exploration
expenditures will depend upon a number of factors including the
number of available acquisition opportunities, the Company's
ability to assimilate such acquisitions, the impact of oil and
gas prices on investment opportunities, the availability of
capital and the success of its development and exploratory
activity which could lead to funding requirements for further
development.
Accounting Matters
The Company adopted SFAS No. 109, "Accounting for Income
Taxes" as of January 1, 1993 and recorded a $300,000 benefit in
the results of operations for the cumulative effect of a change
in accounting principle.
As of January 1, 1994, the Company adopted SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities," which provides for reporting of certain debt and
equity securities at fair value and the inclusion of unrealized
holding gains and losses in earnings or stockholders' equity.
On October 1, 1995 , the Company adopted the provisions of
SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," which
addresses the impairment of proved oil and gas properties. The
SFAS No. 121 impairment test compares the expected undiscounted
future net revenues from each producing field with the related
net capitalized costs at the end of each period. When the net
capitalized costs exceed the undiscounted future net revenues,
the cost of the property is written down to fair value using the
discounted future net revenues for the producing field. The
Company recorded an additional impairment charge for proved
properties of $1 million in the fourth quarter of 1995.
In November 1996, the Company adopted a stock option plan
which covers a maximum of 700,000 shares. Options granted under
the Plan are to be exercisable at the market price of Company
stock on the date of grant and have a term of ten years but may
not be exercised during the initial five years. Options vest
twenty-five percent on the date of grant and an additional
twenty-five percent upon the completion of each of the following
three years of employment with the Company. Options however will
be fully vested in the event of an employment termination due to
death, disability or normal retirement and options will terminate
upon any termination of employment for cause. In the event of
any acquisition of the Company, the options will also fully vest
and upon completion of such acquisition, unexercised options will
terminate. The Company will adopt SFAS No. 123, "Accounting for
Stock-Based Compensation," in its annual report on Form 10-K for
the year ended December 31, 1996 through compliance with the
disclosure requirements set forth in SFAS No. 123. Effective
November 21, 1996, the Company authorized the issuance of 262,372
options, exercisable at $20.50 per share, the fair market value
on the date of issuance, in connection with the termination of
future awards under the Company's SAR plan. The new stock option
plan is subject to shareholder approval.
Effects of Inflation and Changing Prices
The Company's results of operations and cash flow are
affected by changing oil and gas prices. Within the United
States inflation has had a minimal effect on the Company. The
Company cannot predict the extent of any such effect. If oil and
gas prices increase, there could be a corresponding increase in
the cost to the Company for drilling and related services as well
as an increase in revenues.
BUSINESS AND PROPERTIES
General
St. Mary Land & Exploration Company is an independent energy
company engaged in the exploration, development, acquisition and
production of crude oil and natural gas. St. Mary's operations
are focused in five core operating areas in the United States:
the Mid-Continent region; the ArkLaTex region; south Louisiana;
the Williston Basin; and the Permian Basin. As of December 31,
1996, the Company had estimated net proved reserves of
approximately 10.7 MMBbls of oil and 127.1 Bcf of natural gas, or
an aggregate of 31.9 MMBOE (84% proved developed, 66% gas) with a
PV-10 Value of $296.5 million.
From January 1, 1994 through December 31, 1996, the Company
added net estimated proved reserves of 28.5 MMBOE at an average
Finding Cost of approximately $4.15 per BOE. Average daily
production increased from 7.1 MBOE per day in 1992 to over 12.0
MBOE per day in December 1996. The Company added 15.9 MMBOE of
estimated net proved reserves in 1996, representing a 58%
increase for the year, at an average Finding Cost of
approximately $3.50 per BOE. In 1996 the Company's estimated
net proved reserve additions replaced 424% of production,
including 247% from drilling, 124% from property acquisitions and
53% from revisions. The Company's 1997 capital budget of $65
million includes (i) $43 million for ongoing development and
exploration programs in the core operating areas, including three
3-D seismic surveys totaling approximately 90 square miles, (ii)
$15 million for niche acquisitions of properties and (iii) $7
million for high-risk, large-target exploration prospects.
The principal offices of the Company are located at 1776
Lincoln Street, Suite 1100, Denver, Colorado 80203 and its
telephone number is (303) 861-8140.
Business Strategy
St. Mary's objective is to build shareholder value through
consistent growth in per share reserves, production and the
resulting cash flow and earnings. A focused and balanced program
of low to medium-risk exploration, development and niche
acquisitions in each of its core operating areas is designed to
provide the foundation for steady growth while the Company's
portfolio of high-risk, large-target exploration prospects each
have the potential to significantly increase the Company's
reserves and production. Principal elements of the Company's
strategy are as follows.
Focused Geographic Operations. The Company focuses its
exploration, development and acquisition activities in five core
operating areas where it has built a balanced portfolio of proved
reserves, development drilling opportunities and high-risk
large-target exploration prospects. Since 1992 St. Mary has
expanded its technical and operating staff and increased its
drilling, production and operating capabilities. Senior
technical managers, each with over 25 years of experience, are
based in regional offices located near core properties and are
supported by centralized administration in the Company's Denver
office. The Company believes that its long-standing presence,
its established networks of local industry relationships and its
strategic acreage holdings in its core operating areas provide a
significant competitive advantage. In addition, the Company
believes that its prior investment in experienced technical and
managerial personnel will facilitate the expansion of its
operations without the need to significantly increase overhead
costs.
Exploitation and Development of Existing Properties. The
Company uses its comprehensive base of geological, geophysical,
engineering and production experience in each of its core
operating areas to source ongoing, low to medium-risk development
and exploration programs. St. Mary conducts detailed geologic
studies and uses 3-D seismic imaging and advanced well completion
techniques to maximize the potential of its existing properties.
For example, in 1996 the Company had a significant exploration
success in the Box Church Field in east Texas which added 26.4
Bcf of estimated net proved reserves. During 1996, the Company
spent $31 million on development and exploration, including
participation in 117 successful gross wells reflecting an overall
82% success rate.
Large-Target Prospects. The Company invests 10% to 15% of
its annual capital budget in high-risk, large-target exploration
projects and currently has an inventory of seven such projects in
its core areas in various stages. The Company's strategy is to
test one or more of these large exploration targets each year
while furthering the development of early-stage projects and
continuing the evaluation of potential new exploration prospects.
St. Mary seeks to invest in a diversified mix of large-target
exploration projects and generally limits its capital exposure by
participating with other experienced industry partners. The
Company expects that three of its deep gas prospects in south
Louisiana will be drilled and tested during 1997, including its
South Horseshoe Bayou prospect which reached its target depth of
19,000 feet in January and is presently being completed.
Selective Acquisitions. The Company seeks to make selective
niche acquisitions of properties which complement its existing
operations, offer economies of scale and provide further
development and exploration opportunities based on proprietary
geologic concepts. Management believes that the Company's focus
on smaller, negotiated transactions where the Company has
specialized geologic knowledge or operating experience has
enabled it to acquire attractively-priced and under-exploited
properties. During the last three years, the Company completed
21 acquisitions totalling $41.5 million at an average acquisition
cost of $3.89 per BOE.
Strategic Relationships. Throughout its 89-year history the
Company has cultivated strategic partnerships with independent
oil and gas operators having specialized experience and technical
skills. The Company's strategy is to serve as operator or
alternatively to maintain a majority interest in such ventures to
ensure that it can exercise significant influence over
development and exploration activities. In addition the Company
seeks industry partners who are willing to co-invest on
substantially the same basis as the Company. For example, the
Company's operations in the Williston Basin are conducted
through Panterra in which St. Mary holds a 74% general
partnership interest. The managing partner of Panterra is Nance
Petroleum Corporation, the principal of which has over 25 years
of experience in the Williston Basin.
Properties - Principal Areas of Operations
The Company's exploration, development and acquisition
activities are focused in five core operating areas: the
Mid-Continent region; the ArkLaTex region; south Louisiana; the
Williston Basin in North Dakota and Montana; and the Permian
Basin in west Texas and New Mexico. Set forth below is
information concerning each of the Company's major areas of
operations based on the Company's estimated net proved reserves
as of December 31, 1996.
Oil Gas MBOE PV-10 Value
(MBbls)(MMcf) Amount Percent ($/thousands)Percent
Mid-
Continent
Region 628 61,806 10,929 34.3% $113,466 38.3%
ArkLaTex
Region 1,066 44,684 8,513 26.7 89,740 30.3
South
Louisiana 230 7,386 1,461 4.6 19,424 6.6
Williston
Basin 5,648 3,734 6,270 19.7 46,006 15.5
Permian
Basin 2,980 4,150 3,672 11.5 19,499 6.6
Other (1) 139 5,297 1,022 3.2 8,326 2.8
Total 10,691 127,057 31,687 100.0% $296,461 100.0%
(1) Excludes amounts attributable to the Company's Russian
Partnership Interest. The Company has agreed to monetize
the Russian Partnership Interest, and the closing is
expected to occur in the first quarter of 1997. See "-Other
Activities."
Mid-Continent Region. The Company has been active in the
Mid-Continent region since 1973 where the Company's operations
are managed by its 25- person, Tulsa, Oklahoma office. The
Company has ongoing exploration and development programs in the
Anadarko Basin of Oklahoma and the Sherman- Marietta Basin of
southern Oklahoma and northern Texas. The Mid-Continent region
accounted for 34% of the Company's estimated net proved reserves
as of December 31, 1996 or 10.9 MMBOE (92% proved developed and
94% gas). The Company participated in 75 gross wells and
recompletions in this region in 1996, including 17
Company-operated wells. The Company's 1997 Mid-Continent capital
budget of $26.5 million is divided between low-risk exploration
and development of the Granite Wash formation, medium- to
high-risk prospects in the Red Fork and Upper and Lower Morrow
sands and continued exploration and development in the
Sherman-Marietta Basin. In addition, the Company has a 24%
working interest in a large-target prospect in the Cotton Valley
Reef play of east Texas. The Company has arranged commitments
for three drilling rigs in the Mid-Continent region throughout
1997 and plans to drill 25 to 30 wells to be operated by the
Company and participate in an additional 30 wells to be operated
by other entities.
Anadarko Basin. An extensive geologic study of the Granite
Wash formation in Washita and Beckham Counties, Oklahoma,
undertaken by the Company in 1993 and 1994, has led to an
ongoing, multi-year development program. Enhanced understanding
of the subsurface geology and application of advanced well
completion techniques have enabled the Company to exploit by-
passed oil and gas reserves and to improve reservoir recoveries.
In 1995 and 1996 the Company drilled or participated in a total
of 28 gross wells in the Granite Wash, with an overall 94%
success rate. The Company's 1997 capital budget provides for
continuation of the Granite Wash program. The Company's
activities in the Granite Wash are balanced and complemented by
its strategy to drill prospects, particularly in the Red Fork and
Lower and Upper Morrow formations in Beckham and Roger Mills
Counties, Oklahoma. These prospects target potential reserves at
depths ranging from 15,000 to 18,000 feet. St. Mary operated or
participated in three successful completions of exploratory wells
in the Morrow channel sands during 1996 and approximately
one-half of the Company's 1997 Mid-Continent exploration and
development budget is allocated to additional Red Fork and Morrow
prospects.
Sherman- Marietta Basin. In the geologically complex
Sherman-Marietta Basin the Company has established a significant
acreage position in Cooke and Grayson Counties, Texas in
partnership with an independent operator with extensive
experience in the area. A twelve square mile 3-D seismic survey
at the Company's South Dexter prospect area in 1994 enabled the
Company to interpret the area's complex faulting and led to
discoveries in the Ordovician Oil Creek sands during 1994 and
1995. In 1997, the Company plans to conduct a 21 square mile 3-D
seismic survey and to continue further exploration in its Red
Branch prospect area where it has an average 43% working
interest. The Company continues to lease acreage in the basin
and plans additional 3-D projects during 1997 and 1998. See
"--Large- Target Exploration Projects."
Cotton Valley Reef Play. Within its inventory of
large-target prospects, the Company holds a 24% working interest
in 10,060 acres in Leon County, Texas in the rapidly developing
Cotton Valley pinnacle reef play. The Company's Carrier
Prospect acreage is located approximately nine miles east of the
industry's initial prolific reef discoveries and targets
potentially larger reefs that are postulated to have developed in
the deeper waters of the basin during the Jurassic period. The
Company has identified a large structural anomaly on its acreage
at a depth of approximately 17,000 feet based on interpretation
of existing 2-D seismic data, and together with its partners,
plans to conduct a 52 square mile 3-D seismic survey in early
1997. The Company expects to complete processing and
interpretation of the seismic data and final evaluation of the
prospective acreage by the end of 1997. See "--Large-Target
Exploration Projects."
ArkLaTex Region. The Company's operations in the ArkLaTex
area are managed by the Company's 12-person office in
Shreveport, Louisiana. In 1992 the Company acquired the ArkLaTex
oil and gas properties of T. L. James Company as well as rights
to over 6,000 miles of proprietary seismic data covering 30
counties in east Texas. St. Mary's holdings in the ArkLaTex
region are comprised of interests in approximately 450 producing
wells, including 51 Company-operated wells, and interests in
approximately 1,235 leases totaling approximately 46,000 gross
acres and 193 mineral servitudes totaling approximately 20,400
gross acres. Since 1992, the Company has completed eight
additional acquisitions of producing properties in the region
totaling $6.5 million and has undertaken an active program of
additional development and exploration in the ArkLaTex area. The
ArkLaTex area accounted for 27% of the Company's estimated net
proved reserves as of December 31, 1996 or 8.5 MMBOE (58% proved
developed and 87% gas). Activity in the Company's Shreveport
office has increased substantially from participation in 6 wells
during 1995 to participation in 15 wells and 30 workovers and
recompletions during 1996, including Company-operated wells. The
Company's 1997 capital budget provides for approximately $7.5
million for ongoing development, including continuation of a
significant Company-operated development program at its Box
Church Field in east Texas. In 1994 and 1995 the Company
extended the Bayou D' Arbonne Field in Union Parish, Louisiana
with a total of six successful wells in the Cotton Valley Sand
formation. In addition, following the Company's discovery in
1995 at the Haynesville Field in Clairborne Parish, Louisiana,
St. Mary drilled three successful offset wells in the
Haynesville sands during 1996. Three additional wells are
planned at Haynesville in 1997.
Box Church Field. The Company and its partner acquired the
Box Church Field (approximately 2,112 gross acres) in Limestone
County, Texas in four separate transactions during 1995 and 1996.
The Company's net acquisition cost totaled $2.6 million, and the
Company operates and holds an average 58% working interest in
three units comprising this Field. At the time of the
acquisition of the Box Church Field, production was from the deep
Smackover formation at a depth of approximately 10,500 feet.
Since acquiring this Field, St. Mary has increased production
from the deep Smackover formation from approximately 2.5 MMcf per
day to over 5.0 MMcf per day in December 1996.
During 1996, the Company made a significant exploration
discovery in the Box Church Field in the Upper and Lower Travis
Peak (approximately 7,500 feet) and Cotton Valley formations
(approximately 9,000 feet). The discovery well encountered 200
feet of pay in the Upper and Lower Travis Peak formations and the
well was completed in the Cotton Valley formation with multiple
behind pipe zones in the Travis Peak formations. During 1996,
the Company drilled five development wells, four completed in the
Cotton Valley formation and one in the Travis Peak formation. In
addition, the Company re-completed a previously drilled well in
the Cotton Valley formation and is currently drilling a fifth
Cotton Valley well. This exploration and development program in
1996 resulted in the addition of 26.4 Bcf of estimated net proved
reserves as of December 31, 1996, approximately 73% of which are
classified as proved undeveloped. Average daily gross production
during December 1996 for the Cotton Valley and Travis Peak wells
was over 16 MMcf per day. During 1997 and 1998, the Company
plans to drill seven Cotton Valley and five Travis Peak wells to
fully develop this field. The Company has arranged a commitment
for a drilling rig throughout 1997 and expects to drill one well
per month at an anticipated completed per well cost of $850,000.
South Louisiana Region. The Company's operations in south
Louisiana include its royalty interests in St. Mary Parish and a
number of large-target prospects located both on its fee lands
and in separate prospect areas in south Louisiana. The south
Louisiana region accounted for 5% of the Company's estimated net
proved reserves as of December 31, 1996 or 1.5 MMBOE (100% proved
developed, 84% gas).
Fee Lands. The Company owns approximately 24,900 acres of
fee lands and associated mineral rights in St. Mary Parish,
located approximately 85 miles southwest of New Orleans. St. Mary
also owns a 25% working interest in approximately 300 acres
located offshore and immediately south of the Company's fee
lands. Since the initial discovery on the Company's fee lands
in 1938, which established the Horseshoe Bayou Field, cumulative
oil and gas revenues, primarily landowner's royalties, to the
Company from its south Louisiana properties have exceeded $200
million. St. Mary owns royalty interests on these lands,
including production from the Bayou Sale, Horseshoe Bayou and
Belle Isle Fields on its fee lands. Approximately 15,970 acres
are leased or subject to lease options and 9,000 acres are
presently unleased. The Company's principal lessees are Texaco,
Vastar and Oryx. Since 1994, several factors have contributed to
renewed development and exploration activity on the Company's
fee lands. In 1992 the Company's lessees conducted two separate
3-D seismic surveys over portions of the Company's fee
properties. Subsequent interpretation of this data by the
lessees has contributed to expanded drilling activity in 1995 and
1996 on the Company s fee lands, including successful completion
of 7 new wells, 31 recompletions and 18 workovers during this two
year period. In addition, during the same time period, St. Mary
undertook an independent geological and engineering review of its
fee properties and developed a comprehensive technical data base.
Based on this study the Company has encouraged development by its
lessees, facilitated the development of new prospects on acreage
not held by production and stimulated exploration interest
in deeper, untested horizons. These expanded activities,
particularly at the Belle Isle Field, have together largely
offset the natural decline rate of the existing production on the
Company's fee lands during the past several years with net
production increasing by 16% in 1996. The Company's fee
properties currently have gross production of over 60 MMcf per
day and 2.9 MBbls per day and contributed approximately $8.6
million, or 15%, of St. Mary's gross revenues in 1996. St.
Mary's independent engineering studies have identified over 70
prospective zones of behind pipe reserves in existing wells on
its fee lands. St. Mary's historical presence in southern
Louisiana, its established network of industry relationships and
its extensive technical database on the area have enabled the
Company to assemble an inventory of large-target prospects in the
south Louisiana region, including two deep gas prospects
which are located on the Company's fee lands and are scheduled
to be tested during 1997. The Company believes that a successful
deep test on its fee lands, in addition to adding potentially
significant reserves to the Company, would likely encourage
exploration activity on its fee lands in the largely untested
horizons below 15,000 feet.
South Horseshoe Bayou Prospect. The South Horseshoe Bayou
prospect is located on St. Mary's fee lands in St. Mary Parish
and is the first of three significant deep gas tests in the
region scheduled for 1997. St. Mary holds an approximate 22%
royalty interest and a 25% working interest, resulting in an
approximate 41% net revenue interest in this 3-D seismic-defined
test of the Operc sands at a depth of approximately 17,300 feet.
See "-Large-Target Exploration Projects."
Mustang Sale Prospect. St. Mary holds an approximate 12.5%
royalty interest in the Mustang Sale prospect which is also
located on the Company's south Louisiana fee lands. This 3-D
seismic-defined prospect is expected to spud in early 1997 and is
scheduled to test two Rob C sands on an untested fault block at a
depth of approximately 16,000 feet. See "--Large-Target
Exploration Projects."
Roanoke Prospect. St. Mary and its partners control
approximately 8,800 gross acres at the Roanoke Prospect in
Jefferson Davis Parish through a combination of seismic permits,
options and leases. The Roanoke Field, originally discovered in
1934, has produced over 25 MMBbls oil and 100 Bcf of gas and is
considered by the Company to be an excellent candidate for
re-evaluation using modern 3-D seismic imaging. The Company
holds a 33.3% working interest in the prospect which is targeting
potential by-passed pays and untested fault blocks in this
mature, complexly faulted salt dome field. In late 1995 the
Company conducted a 31 square mile 3-D seismic survey and
completed processing and interpretation of the seismic data
during 1996. The first prospect was spud in the first quarter
1997 and plans to test multiple potential pays, including the
Frio and Hackberry sands, on an untested fault block near the top
of the structure. See "--Large-Target Exploration Projects."
Patterson Prospect. The Company's Patterson prospect is
located to the north of the Company's fee lands in St. Mary
Parish. St. Mary holds a 25% working interest in leases and
options totaling approximately 5,000 acres in the prospect area
which lies within a major east-west producing trend between the
Garden City and Patterson Fields. In 1995 the Company and its
partners drilled an unsuccessful 19,000 foot test based on 2-D
seismic data and existing well control. St. Mary and its
partners believe that the prospect area remains prospective in
several zones, including the Marge A formation, and the group
will participate in a 20 square mile 3-D seismic survey in early
1997 to further delineate this prospect. See "--Large-Target
Exploration Projects."
Williston Basin Region. The Company's operations in the
Williston Basin are conducted through Panterra which was formed
in June 1991. The Company holds a 74% general partnership
interest in Panterra and the managing partner, Nance Petroleum
Corporation ("Nance Petroleum"), owns a 26% interest. Nance
Petroleum's principal activity is the management of Panterra's
interest in the Williston Basin. All of St. Mary's and Nance
Petroleum's activities in the Williston Basin are conducted
through Panterra, which currently owns interests in 360 producing
wells, including 60 Panterra-operated wells located in 60 fields
within the basin's core producing area.
The Williston Basin region accounted for 20% of the
Company's estimated net proved reserves as of December 31, 1996
or 6.3 MMBOE (93% proved developed and 90% oil). Since 1991 the
Company's investment in Panterra has totaled approximately $26
million and has included participation in 11 Panterra-operated
development and exploration wells with a 100% success rate. St.
Mary has budgeted approximately $6 million as its share of
Panterra's 1997 development and exploration program which
includes five Panterra-operated wells.
The Company's exploration and development activities in the
Williston Basin have focused on the application of 3-D seismic
data to delineate structural features together with porosity
development which were not previously discernible using
conventional 2-D seismic. In 1994 the Company conducted a 4.5
square-mile 3-D seismic survey at the North Bainville Field in
Roosevelt County, Montana. This survey lead to the successful
1995 extension to the field in the Red River formation. During
1996 the Company completed an additional four wells at North
Bainville and completed an additional 21 square mile 3-D seismic
survey. Panterra has increased gross production at North
Bainville from approximately 330 BOPD in 1991 to over 2,000 BOPD
at the end of 1996. Three additional wells are planned in the
North Bainville area in 1997.
The Company has begun to apply the experience gained at
North Bainville to several other fields in the Williston Basin
where the Company holds significant leasehold interests. In late
1995 and 1996 3-D seismic surveys were conducted over the Brush
Lake and Nameless Fields in Sheridan County, Montana and
McKenzie County, North Dakota. During 1996 the Company
completed two successful Red River tests at Brush Lake. Two
additional wells are planned at the Brush Lake and Nameless
fields in 1997.
Permian Basin Region. The Permian Basin of New Mexico and
west Texas is the Company's newest area of concentration.
Management believes that its Permian Basin operations provide St.
Mary with a solid base of long lived oil reserves, promising
longer term exploration prospects and potential for water flood
secondary recovery projects. The Company established a presence
in the basin in 1995 through the acquisition of a 21.2% working
interest in a top lease in Ward and Winkler Counties, Texas which
is believed to have significant deep exploration potential in the
virtually untested deeper formations on the lease. The Company
expanded its holdings in the basin during 1996 with the
acquisition of a 90% interest in the producing properties of
Siete Oil and Gas Company for $10.0 million. The Permian Basin
region accounted for 12% of the Company's estimated net proved
reserves as of December 31, 1996 or 3.7 MMBOE (96% proved
developed and 81% oil).
Ward Estes. The Company acquired a 21.2% interest in the
top lease in the Ward Estes North Field and adjacent areas in
Ward County, Texas for $1.7 million in 1995. The top lease
covers 30,450 contiguous acres and becomes effective in August
2000 when the existing base lease expires. Rights to all
remaining production from the leasehold will transfer to St. Mary
and its partners in August 2000. Wells covered by the base lease
currently produce in excess of 4.0 MBBbls per day from relatively
shallow formations and are expected to have significant remaining
reserves when the base lease expires. Recent engineering studies
indicate that the expanded application of a carbon dioxide
flood is economic at current oil prices. Although the
deeper Siluro-Devonian and Ellenburger horizons have yielded
significant production from several large fields in the immediate
area, these deeper formations remain essentially untested on the
Ward Estes lease. The Company believes that the top lease
provides it with the unusual combination of a low-risk
acquisition of long-lived oil reserves and a long term,
large-target exploration project. See "--Large Target
Exploration Projects."
Siete Properties. In 1996 the Company completed the
acquisition of a 90% interest in the oil and gas properties of
Siete Oil and Gas Company for $10.0 million. The acquisition
included approximately 150 wells in southeast New Mexico and west
Texas producing from the Yates/Queen and Delaware sands at depths
of between 3,500 and 5,000 feet and which are operated by the
Company's 10% partner. The acquired reserves were
approximately 80% oil and have a reserve life of approximately 15
years. During the balance of 1996 the Company completed a series
of follow-on acquisitions of smaller interests in the Siete
properties which totaled $1.2 million.
Large-Target Exploration Projects
The Company invests approximately 10% to 15% of its annual
capital budget in longer-term, high-risk, high-potential
exploration projects. During the past several years the Company
has assembled an inventory of large potential projects in various
stages of development which each have the potential to materially
increase the Company's reserves. The Company s strategy is to
maintain a pipeline of five to seven of these high-risk prospects
and to test one or more targets each year, while furthering the
development of early-stage projects and continuing the evaluation
of potential new exploration prospects.
The Company generally seeks to develop large-target
prospects by using its comprehensive base of geological,
geophysical, engineering and production experience in each of its
focus areas. The large-target projects typically require
relatively long lead times before a well is commenced in order to
develop proprietary geologic concepts, assemble leasehold
positions and acquire and fully evaluate 3-D seismic or other
data. The Company seeks wherever possible to apply the latest
technology, including 3-D seismic imaging, in its prospect
development and evaluation so as to mitigate a portion of the
inherently higher risk of these exploration projects. In
addition, the Company seeks to invest in a diversified mix of
exploration projects and generally limits its capital exposure by
participating with other experienced industry partners. See
"Risk Factors -- Substantial Capital Requirements." The
following table summarizes the Company's active large-target
exploration projects. See also "--Properties-Principal Areas of
Operations."
St. Mary St. Mary Expected
Project Working Royalty Drilling
Name Objective Location Interest(1)Interest(2) Date(3)
South
Horseshoe
Bayou Operc, St. Mary 25.0% 22.0% early 1997
19,000' Parish, LA
Mustang
Sale Marge A, St. Mary - 12.5% mid 1997
15,000' Parish, LA
Roanoke Frio, Jefferson 33.3% - early 1997
(4) Hackeberry Davis
Parish, LA
Red Oil Creek/ Grayson & 37.5% - 1997-1998
Branch Penn Cooke Coun-
(4) ties, TX
Patterson Marge A St. Mary 25.0% - 1998
(4) Parish, LA
Carrier Cotton Leon County, 24.0% - 1998-1999
(4) Valley TX
Reef
Ward Siluro Ward & Winkler 21.0% - 2000
Estes Devonian Counties, TX
and
Ellenburger
(1) Working interests differ from net revenue interests due to
royalty interest burdens.
(2) Royalty interests are approximate and are subject to
adjustment. St. Mary has no capital at risk with respect to
its royalty interests.
(3) Expected Drilling Date means the period during which the
Company anticipates the commencement of drilling and/or
testing of an exploratory well.
(4) The Company may seek the participation of additional
industry partners during the development of a project and
accordingly may incur dilution of its working and net
revenue interests.
Acquisitions
The Company's strategy is to make selective niche
acquisitions of oil and gas properties within its core operating
areas in the United States. The Company seeks to acquire
properties which complement its existing operations, offer
economies of scale and provide further development and
exploration opportunities based on proprietary geologic concepts
or advanced well completion techniques. Management believes that
the Company's success in acquiring attractively-priced and
under-exploited properties has resulted from its focus on
smaller, negotiated transactions where the Company has
specialized geologic knowledge or operating experience.
Although the Company periodically evaluates large
acquisition packages offered in competitive bid or auction
formats, the Company has continued to emphasize acquisitions
having values of less than $10 million which generally attract
less competition and where the Company's technical expertise,
financial flexibility and structuring experience affords a
competitive advantage. The Company seeks acquisitions that offer
additional development and exploration opportunities such as its
series of acquisitions in the Box Church Field of east Texas
during 1995 and 1996. During each of the three years ending
December 31, 1996, the Company engaged in a number of acquisition
transactions. During 1994, the Company completed four
acquisitions totaling $12.4 million. During 1995 and 1996, the
Company purchased six parcels for $8.1 million and eleven parcels
for $20.9 million, respectively. The Company has budgeted $15
million in 1997 for property acquisitions. See "Risk Factors -
Acquisition Risks."
Estimated Net Proved Reserves
At December 31, 1996, Ryder Scott, independent petroleum
engineers, evaluated properties representing approximately 81.5%
of PV-10 Value and the Company evaluated the remainder. The text
of the Ryder Scott report is attached as Exhibit A to this
Prospectus. The PV-10 Values shown in the following table are
not intended to represent the current market value of the
estimated net proved oil and gas reserves owned by the Company.
Neither prices nor costs have been escalated, but prices include
the effects of hedging contracts.
The following table sets forth summary information with
respect to the estimates of the Company's net proved oil and gas
reserves for each of the years in the three-year period ended
December 31, 1996, as prepared by Ryder Scott and by the Company.
As of December 31,
1994 1995 1996
Reserve Data: (1)
Oil (MBbls). . . . . . . . . . . 6,677 7,509 10,691
Gas (MMcf) . . . . . . . . . . . 62,515 75,705 127,057
MBOE . . . . . . . . . . . . . . 17,096 20,127 31,867
PV-10 Value (in thousands) . . . $84,688 $120,192 $296,461
Proved developed reserves (%). . 93% 89% 84%
Production replacement (%) . . . 207% 203% 424%
Reserve Life (years) . . . . . . 6.1 6.5 7.2
(1 For limitations on the accuracy and reliability of estimated
net proved reserves and future net revenue estimates, see
"Risk Factors - Uncertainty of Estimates of Reserves and
Future Net Revenues." Reserve data attributable to the
Company's Russian Partnership Interest have been excluded
from this table. The Company has agreed to sell its
Russian Partnership Interest and the closing is expected to
occur in the first quarter of 1997. See "--Other
Activities."
Production, Price and Cost History
The following table summarizes the average net daily volumes
of oil and gas produced from all domestic properties in which the
Company held an interest during the periods indicated.
Nine Months Ended
Year Ended December 31, September 30,
1993 1994 1995 1995 1996
Operating
Data:(1)
Net
production:
Oil (MBbls) 846 937 1,044 764 865
Gas (MMcf) 11,147 12,577 12,434 8,961 11,249
MBOE 2,704 3,033 3,116 2,258 2,739
Average net
daily
production:
Oil (Bbls) 2,319 2,567 2,852 2,798 3,156
Gas (Mcf) 30,539 34,458 33,973 32,824 41,053
BOE 7,408 8,310 8,514 8,270 9,998
Average realized
sales price:(2)
Oil
(per Bbl) $16.17 $14.95 $16.35 $16.33 $18.27
Gas
(per Mcf) $ 2.20 $ 1.93 $ 1.56 $ 1.49 $ 2.12
Additional
per BOE data:
Lease
operating
expense $ 2.42 $ 2.54 $ 2.49 $ 2.51 $ 2.28
Production
taxes $ 1.04 $ 0.92 $ 0.93 $ 0.89 $ 1.10
(1) Excludes operating data attributable to the Company's
Russian Partnership Interest.
(2) Includes the effects of the Company's hedging activities.
See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview."
The Company uses financial hedging instruments, primarily
fixed-for- floating price swap agreements with financial
counterparties, to manage its exposure to fluctuations in
commodity prices. The Company also employs limited use of
exchange-listed financial futures and options as part of its
hedging program for crude oil.
Productive Wells
The following table sets forth information regarding the
number of productive wells in which the Company held a working
interest at December 31, 1996. Productive wells are either
producing wells or wells capable of commercial production
although currently shut in. One or more completions in the same
bore hole are counted as one well. A well is categorized under
state reporting regulations as an oil well or a gas well based
upon the ratio of gas to oil produced when it first commenced
production, and such designation may not be indicative of current
production.
Gross Net
Oil. . . . . 529 136
Gas. . . . . 884 105
Total. . . . 1,413 241
Drilling Activity
The following table sets forth the wells drilled by the
Company during each of the three years indicated.
Year Ended December 31,
1994 1995 1996
Gross Net Gross Net Gross Net
Development:
Oil 4 1.07 6 1.52 17 3.91
Gas 30 4.91 38 7.75 74 13.29
Non-
productive 3 0.33 6 2.00 11 2.70
Total 37 6.31 50 11.27 102 19.90
Exploratory:
Oil 1 0.25 5 1.56 - -
Gas 14 2.26 8 0.74 5 1.25
Non-
productive 19 3.82 16 4.19 10 3.10
Total 34 6.33 29 6.49 15 4.35
Farmout
or Non-
consent 7 - 4 - 9 -
Grand Total(1) 78 12.64 83 17.76 126 24.25
(1) Does not include 6, 4 and 3 gross wells completed on the
Company's fee lands during 1994, 1995 and 1996,
respectively.
All of the Company's drilling activities are conducted on a
contract basis with independent drilling contractors. The
Company owns no drilling equipment.
Leasehold and Other Interests
The following table sets forth the gross and net acres of
developed and undeveloped domestic oil and gas leases, fee
properties mineral servitudes and lease options held by the
Company as of December 31, 1996. Undeveloped acreage includes
leasehold interests which may already have been classified as
containing proved undeveloped reserves.
Developed Undeveloped
Acreage (1) Acreage (2) Total
Gross Net Gross Net Gross Net
Domestic:
Arkansas 4,274 585 167 40 4,441 625
Louisiana 28,098 7,612 9,210 1,530 37,308 9,142
Montana 11,299 7,341 26,009 20,571 37,308 27,912
New Mexico 3,960 1,038 4,160 1,340 8,120 2,378
North Dakota 27,627 11,129 57,561 20,349 85,188 31,478
Oklahoma 109,476 19,773 53,179 13,402 162,655 33,175
Texas 49,745 9,672 56,050 10,003 105,795 19,675
Other 16,814 5,483 147,414 59,063 164,228 64,546
Subtotal(3) 251,293 62,633 353,750 126,298 605,043 188,931
Louisiana
Fee
Properties 12,735 12,735 12,179 12,179 24,914 24,914
Louisiana
Mineral
Servitudes 10,584 5,822 5,511 5,191 16,095 11,013
Louisiana
Lease
Options - - 5,852 1,951 5,852 1,951
Subtotal 23,319 18,557 23,542 19,321 46,861 37,878
Grand Total 274,612 81,190 377,292 145,619 651,904 226,809
(1) Developed acreage is acreage assigned to producing wells for
the spacing unit of the producing formation. Developed
acreage in certain of the Company's properties that include
multiple formations with different well spacing requirements
may be considered undeveloped for certain formations, but
have only been included as developed acreage in the
presentation above.
(2) Undeveloped acreage is lease acreage on which wells have not
been drilled or completed to a point that would permit the
production of commercial quantities of oil and gas
regardless of whether such acreage contains estimated net
proved reserves.
(3) Excludes minor interests in Canada and Trinidad and Tobago.
Other Activities
Summo Minerals. Since 1994, St. Mary Minerals Inc.("St.
Mary Minerals"), a wholly-owned subsidiary of the Company, has
invested a total of approximately $5.9 million and has acquired a
total of 9,924,093 common shares of Summo Minerals representing
49.9% of the issued and outstanding common shares and 5,831,090
warrants to purchase common shares, exercisable at prices between
$1.10 and $1.38 Cdn and which expire between February 2, 1997 and
October 31, 1998. Summo Minerals is a development-stage,
publicly- traded Canadian based mining company engaged in the
development of medium- sized copper deposits in the United States
and its common shares are listed on the Toronto and the Vancouver
stock exchanges under the symbol "SMA".
Summo Minerals' recent activities have focused on the
development of its Lisbon Valley property comprised of
approximately 5,940 acres of unpatented mining claims and mineral
leases located approximately 45 miles southeast of Moab, Utah in
San Juan County. Summo Minerals is in the development stage and
plans to raise funds to commence operations through debt and
equity financings in 1997. The Company does not plan to
participate in such financing. If Summo Minerals is not
successful in arranging such financing, the Company currently
expects to invest no more than approximately $1.0 to $2.0 million
in 1997 in Summo Minerals. It is possible that the Company may
elect to exercise some or all of its warrants in order to
ultimately realize the amount of any appreciation in the value
of the warrants. The Company currently intends to exercise such
warrants if the common share price is substantially in excess of
the warrant price. The total cash payment in connection with
such exercise would be approximately $3.1 million. There can be
no assurance that the Company will realize a return on its
investment in Summo Minerals.
Russian Partnership Interest. Chelsea Corporation
("Chelsea"), a wholly-owned, second tier subsidiary of the
Company, owns a 36% interest (the "Russian Partnership Interest")
in the Anderman/Smith International - Chernogorskoye Partnership
which in turn owns a 50% interest in a venture which is
developing the Chernogorskoye oil field in western Siberia. On
December 16, 1996, the Company executed an acquisition agreement
to sell its Russian Partnership Interest to Ural Petroleum
Corporation ("UPC"). Closing of the transaction, which is
subject to certain conditions, including the completion of
financing, is expected to occur in early 1997. In accordance
with the terms of the acquisition agreement, Chelsea will receive
cash consideration of approximately $5.2 million, approximately
$1.7 million of UPC common stock and a receivable in the form of
retained production payment of approximately $10.3 million plus
interest at 10% per annum from the limited liability company
formed to hold the Russian Partnership Interest. Chelsea's
retained production payment will be collateralized by the Russian
Partnership Interest. Chelsea has the right, subject to certain
conditions, to require UPC to purchase Chelsea's retained
production payment from the net proceeds of an initial public
offering of UPC common stock or alternatively, Chelsea may
elect to convert all or a portion of its retained production
payment into UPC common stock immediately prior to an initial
public offering of UPC common stock.
Competition
Competition in the oil and gas business is intense,
particularly with respect to the acquisition of
producing properties, proved undeveloped acreage and leases.
Major and independent oil and gas companies actively bid for
desirable oil and gas properties and for the equipment and labor
required for their operation and development. The Company
believes that the locations of its leasehold acreage, its
exploration, drilling and production capabilities and the
experience of its management and that of its industry partners
generally enable the Company to compete effectively. Many of the
Company's competitors, however, have financial resources and
exploration and development budgets that are substantially
greater than those of the Company, and these may adversely affect
the Company's ability to compete, particularly in regions outside
of the Company's principal producing areas. Because of this
competition, there can be no assurance that the Company will be
successful in finding and acquiring producing properties and
development and exploration prospects at its planned capital
funding levels.
Employees and Office Space
As of December 31, 1996, the Company had 96 full-time
employees. None of the Company's employees is subject to a
collective bargaining agreement. The Company considers its
relations with its employees to be good. The Company leases
approximately 34,500 square feet of office space in Denver,
Colorado, for its executive offices, of which 7,200 square feet
is subleased, approximately 12,200 square feet of office space in
Tulsa, Oklahoma, approximately 7,300 square feet of office space
in Shreveport, Louisiana and approximately 500 square feet in
Lafayette, Louisiana. The Company believes that its current
facilities are adequate.
Legal Proceedings
While the Company has been named as a defendant in certain
lawsuits arising in the ordinary course of business, to the
knowledge of management, no claims are pending or threatened
against the Company or any of its subsidiaries which individually
or collectively could have a material adverse effect upon the
Company's financial condition or results of operations.
MANAGEMENT
Directors and Executive Officers
The following table sets forth the names, ages and positions of
the executive officers and the members of the Board of Directors
of the Company. All directors are elected for a term of one year
and serve until their successors are elected and qualified.
Name Age Position
Thomas E. Congdon (1) 70 Chairman of the Board
of Directors and Director
Mark A. Hellerstein 44 President, Chief Executive
Officer and Director
Ronald D. Boone 49 Executive Vice President,
Chief Operating Officer and
Director
Ralph H. Smith 54 Senior Vice President
David L. Henry 40 Vice President and Chief
Financial Officer
Larry W. Bickle (3) 51 Director
David C. Dudley (1) 46 Director
Richard C. Kraus (2) 50 Director
R. James Nicholson(2)(3) 59 Director
Arend J. Sandbulte (1)(2) 63 Director
John M. Seidl (3) 58 Director
(1) Member of Executive Committee
(2) Member of Compensation Committee
(3) Member of Audit Committee
The Audit Committee's functions include recommending to the
Board of Directors the engagement of the Company's independent
public accountants, reviewing with such accountants the plans for
and the results and scope of their auditing engagement and
certain other matters relating to their services provided to the
Company, including the independence of such accountants. The
Compensation Committee reviews on behalf of, and makes
recommendations to, the Board of Directors with respect to
compensation of directors, executive officers and key employees.
Thomas E. Congdon. Mr. Congdon has served the Company as an
officer and director since 1966, including service as its
President and Chief Executive Officer for more than 25 years.
Mr. Congdon is also a director, officer or general partner of a
number of family corporations and partnerships which produce
scientific and statistical software, iron ore and agricultural
products, manage marketable securities and own and operate
developed real estate. From 1980 to 1991, he was Chairman of the
Board of Directors of CoCa Mines Inc., which was an affiliate of
the Company during that time. From 1974 to 1994, he was a
director of Colorado National Bankshares Inc., a bank holding
company.
Mark A. Hellerstein. Mr. Hellerstein joined the Company in
September 1991 and served as Executive Vice President and Chief
Financial Officer until May 1992, at which time he was elected
President and a director of the Company. Mr. Hellerstein was
elected Chief Executive Officer of the Company in May 1995. He
also has served as Chairman of the Board of Summo Minerals since
1995. From 1987 through August 1991 (excluding October 1989 to
May 1990), he served as Vice President-Finance, Chief Financial
Officer and Secretary for CoCa Mines Inc.
Ronald D. Boone. Mr. Boone has served the Company as
Executive Vice President since 1990, as Chief Operating Officer
since 1992 and as a director of the Company since 1996. From
1981 to 1990, he was employed in various capacities by
Anderman/Smith Operating Company, an affiliate of the Company
during that period, most recently as Vice President-Production
and Engineering.
Ralph H. Smith. Mr. Smith has served the Company as Senior
Vice President - Mid Continent since 1995. From 1982 to 1994, he
was Executive Vice President of Anderman/Smith Operating Company,
an affiliate of the Company during that period. In addition, he
has been a director and President of R.H. Smith International
Corporation since 1989.
David L. Henry. Mr. Henry joined the Company in 1996 as
Vice President and Chief Financial Officer. From 1983 to 1996,
he was employed in corporate finance investment banking positions
with Boettcher & Company, Inc., CharterWest Capital Co. and most
recently as Director-Corporate Finance for Hanifen, Imhoff Inc.
Larry W. Bickle. Mr. Bickle has served as a director of the
Company since 1995. He currently is Chairman and Chief Executive
Officer of TPC Corporation, a public gas storage and
transportation company he co-founded in 1984.
David C. Dudley. Mr. Dudley has served as a director of the
Company since 1986. Since 1983, he has served as Managing
Partner of Dudley & Associates, LLC, Denver, Colorado, a
closely-held oil and gas exploration and production firm. Since
1985, he has served as general partner of the New York investment
advisory firm Dudley & Company. In addition, since 1980 Mr.
Dudley has served as a general partner of Greenhouse Associates,
a closely-held investment partnership.
Richard C. Kraus. Mr. Kraus has served as a director of the
Company since 1994. Since 1981, he has been employed by Echo Bay
Mines Ltd., a public company engaged primarily in mining
operations, and currently serves as its President and Chief
Executive Officer. In addition, he has been an Echo Bay director
since 1992.
R. James Nicholson. Mr. Nicholson has served as a director
of the Company since 1987. Since 1978, he has served as
President of Nicholson Enterprises, Inc., a land development
company. Mr. Nicholson has also served as President of
Renaissance Homes, a residential home building company, since
1988. Since 1974, he has served as a director of Lerch, Bates &
Associates, Inc., a consulting engineering firm. He was elected
Chairman of the Republican National Committee in January 1997.
Arend J. Sandbulte. Mr. Sandbulte has served as a director of
the Company since 1989. From 1964 to 1996, he was employed by
Minnesota Power & Light Company, a publicly-held energy utility,
most recently as its Chairman of the Board, President and Chief
Executive Officer. Mr. Sandbulte has served as a director of
Utech Venture Capital Corp., a joint research venture of ten
utilities, since 1989.
John M. Seidl. Mr. Seidl has served as a director of the
Company since 1994. He currently serves as President and Chief
Executive Officer of CellNet Data Systems. From 1989 to 1993, he
served as an officer and director of MAXXAM Inc. and Kaiser
Aluminum Corporation and The Pacific Lumber Company, subsidiaries
of MAXXAM Inc., a public company.
There are no family relationships (first cousin or closer)
among the directors. There are no arrangements or understandings
between any director and any other person pursuant to which that
director was elected.
DESCRIPTION OF COMMON STOCK
The Company's authorized capital consists of 15,000,000
shares of Common Stock, par value $.01 per share. Upon completion
of this offering, the Company will have 10,759,214 shares of
Common Stock outstanding. Holders of Common Stock are entitled
to one vote for each share held in the election of directors and
on all other matters submitted to a vote of stockholders and do
not have cumulative voting rights. Holders of a majority of the
shares of Common Stock entitled to vote in any election of
directors may elect all of the directors standing for election.
Holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors
out of funds legally available therefor. See "Dividend Policy."
Upon the liquidation, dissolution or winding up of the Company,
the holders of Common Stock are entitled to receive ratably the
net assets of the Company available after payment of all debts
and other liabilities. Holders of Common Stock have no
preemptive, subscription, redemption or conversion rights. The
outstanding shares of Common Stock are, and the shares offered by
the Company in this offering will be, when issued and paid for,
fully paid and non-assessable.
Certain Limited Liability and Indemnification Provisions
As permitted by the provisions of the Delaware General
Corporation Law, the Certificate of Incorporation eliminates in
certain circumstances the monetary liability of directors of the
Company for a breach of their fiduciary duty as directors. These
provisions do not eliminate the liability of a director (i) for a
breach of the director's duty of loyalty to the Company or its
stockholders; (ii) for acts or omissions by a director not in
good faith or which involve intentional misconduct or a knowing
violation of law; (iii) for liability arising under Section 174
of the Delaware General Corporation Law (relating to the
declaration of dividends and purchase or redemption of shares in
violation of the Delaware General Corporation Law); or (iv) for
any transaction from which the director derived an improper
personal benefit. In addition, these provisions do not eliminate
the liability of a director for violations of federal securities
laws, nor do they limit the rights of the Company or its
stockholders, in appropriate circumstances, to seek equitable
remedies such as injunctive or other forms of non-monetary
relief. Such remedies may not be effective in all cases.
The Company's Certificate of Incorporation and Bylaws provide
that the Company shall indemnify all directors and officers of
the Company to the full extent permitted by the Delaware General
Corporation Law. Under such provisions, any director or officer,
who in his capacity as such is made or threatened to be made, a
party to any suit or proceeding, may be indemnified if the Board
determines such director or officer acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best
interest of the Company. The Certificate, Bylaws and the
Delaware General Corporation Law further provide that such
indemnification is not exclusive of any other rights to which
such individuals may be entitled under the Certificate, the
Bylaws, any agreement, vote of stockholders or disinterested
directors or otherwise.
Transfer Agent and Registrar
The transfer agent and registrar for the Company's Common
Stock is American Securities Transfer and Trust, Incorporated,
Denver, Colorado.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement
among the Company and the Underwriters named below (the
"Underwriting Agreement"), the Company has agreed to sell to each
of such Underwriters named below, and each of such Underwriters,
for whom Morgan, Keegan & Company, Inc., A.G. Edwards & Sons,
Inc. and Hanifen, Imhoff Inc. are acting as representatives, has
severally agreed to purchase from the Company, the respective
number of shares of Common Stock set forth opposite its name
below.
Underwriter Number of Shares
Morgan Keegan & Company, Inc. . . . . . . .
A.G. Edwards & Sons, Inc. . . . . . . . . .
Hanifen, Imhoff Inc. . . . . . . . . . . . .
Total . . . . . . . . . . 2,000,000
Under the terms and conditions of the Underwriting
Agreement, the underwriters are committed to take and pay for all
of the shares of Common Stock offered hereby, if any are taken.
The Underwriters propose to offer the shares of Common Stock
in part directly to the public at the initial public offering
price set forth on the cover page of this Prospectus, and in part
to certain securities dealers at such price less a concession of
$_____ per share. The Underwriters may allow, and such dealers
may allow, a concession not in excess of $_____ per share to
certain brokers and dealers. After the shares of Common Stock
are released for sale to the public, the offering price and other
selling terms may from time to time be varied by the
representatives.
The Company has granted the Underwriters an option
exercisable for 30 days after the date of this Prospectus to
purchase up to an aggregate of 300,000 additional shares of
Common Stock solely to cover over-allotments, if any. If the
Underwriters exercise their over-allotment option, the
Underwriters have severally agreed, subject to certain
conditions, to purchase approximately the same percentage thereof
that the number of shares of Common Stock to be purchased by each
of them, as shown in the table above, bears to the 2,000,000
shares of Common Stock.
The Company has agreed in the Underwriting Agreement not to
offer, sell, contract to sell, grant any option to purchase or
otherwise dispose of any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock,
subject to certain limited exceptions, for a period of 120 days
after the date of this Prospectus without the prior written
consent of the representatives. In addition, the Company's
directors and executive officers have agreed not to sell,
contract to sell, grant any option to purchase or otherwise
dispose of any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock,
other than as gifts, pledges and certain other transfers to
persons who agree to the same restrictions for a period of 120
days after the date of this Prospectus without the prior written
consent of the representatives.
In connection with this offering, certain Underwriters may
engage in passive market making transactions in the Common Stock
on the Nasdaq National Market immediately prior to the
commencement of sales in this offering, in accordance with Rule
10b-6A under the Exchange Act. Passive market making consists
of, among other things, displaying bids on the Nasdaq National
Market limited by the bid prices of independent market makers and
purchases limited by such prices and effected in response to
order flow. Net purchases by a passive market maker on each day
are limited to a specified percentage of the passive market
maker's average daily trading volume in the Common Stock during a
specified prior period, and all passive market making activity
must be discontinued when such limit is reached. Passive market
making may stabilize the market price of the Common Stock at a
level above that which might otherwise prevail and, if commenced,
may be discontinued at any time.
The Company has agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the
Securities Act or to contribute to payments the Underwriters may
be required to make in respect of such liabilities.
LEGAL MATTERS
Certain legal matters with respect to the Common Stock
offered hereby have been passed upon for the Company by Cohen
Brame & Smith Professional Corporation, Denver, Colorado.
Certain legal matters will be passed upon for the Underwriters by
Butler & Binion, L.L.P., Houston, Texas.
EXPERTS
The consolidated balance sheets as of December 31, 1995 and
1994 and the consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period
ended December 31, 1995 included and incorporated by reference in
this Prospectus have been included herein in reliance on the
report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and
auditing.
The Statement of Revenues and Direct Operating Expenses of
Certain Oil & Gas Properties Acquired from Siete Oil & Gas
Corporation for the year ended December 31, 1995 incorporated
by reference in this Prospectus have been included herein in
reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in
accounting and auditing.
Certain estimates of oil and gas reserves appearing herein
were based upon engineering reports prepared by the independent
petroleum engineering firm of Ryder Scott Company. Such
estimates are included herein in reliance upon the authority of
such firm as experts in such matters.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of
the Exchange Act and in accordance therewith files reports, proxy
statements and other information with the Commission. Such
reports, proxy statements and other information concerning the
Company may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and at Seven World Trade Center, Thirteenth Floor,
New York, New York 10048. Copies of such material can also be
obtained upon written request addressed to the Commission, Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition, such material can be
inspected at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, Washington, DC 20006.
Further, the Commission maintains a Website (http:\\www.sec.gov)
that contains reports, proxy and information statements and other
information filed by registrants electronically with the
Commission through the Electronic Data Gathering, Analysis, and
Retrieval system.
The Company has filed with the Commission a registration
statement on Form S-3 (herein, together with all amendments and
exhibits, referred to as the "Registration Statement") under the
Securities Act with respect to the Common Stock offered hereby.
This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For
further information, reference is hereby made to the Registration
Statement which may be inspected and copied in the manner and at
the sources described above. With respect to each such
agreement, instrument, or other document filed as an exhibit to
the Registration Statement, reference is made to the exhibit for
a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such
reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the
Commission pursuant to the Exchange Act (file number 0-20872) are
incorporated herein by reference, except as superseded or
modified herein:
(i) The Company's Annual Report on Form 10-K for the year ended
December 31, 1995;
(ii) The Company's Quarterly Reports on Form 10-Q for the
quarterly periods ended March 31, 1996, June 30, 1996 and
September 30, 1996,as amended by a Form 10-Q/A dated
November 15, 1996;
(iii)The Company's Current Report on Form 8-K dated June 28,
1996, as amended by a Form 8-K/A dated June 28, 1996,
regarding the acquisition of an interest in certain of the
assets of Siete Oil and Gas Company;
(iv) The Company's Current Report on Form 8-K dated December 16,
1996 regarding the sale of the Company's Russian Partnership
Interest;
(v) The Company's Current Report on Form 8-K dated January 28,
1997 regarding certain exhibits; and
(vi) The Company's Registration Statement on Form 8-A filed
November 18,1992.
All reports and other documents subsequently filed by the
Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this Prospectus and prior to the
termination of this offering shall be deemed to be incorporated
by reference herein and to be a part hereof from the date of
filing of such reports and documents. Any statement contained
herein or in a document incorporated or deemed to be incorporated
herein by reference shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement
contained in this prospectus or in any subsequently filed
document (which is deemed to be incorporated by reference herein)
modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
To the extent the information relating to the Company
contained in this Prospectus summarizes, is based upon or refers
to, information and financial statements contained in one or more
of the documents incorporated by reference herein, the
information contained herein is qualified in its entirety by
reference to such document, and it should be read in conjunction
therewith.
The Company will provide, without charge, to each person to
whom a copy of this Prospectus is delivered, on the written or
oral request of such person, a copy of any or all of the
documents incorporated herein by reference (other than exhibits
thereto, unless such exhibits are specifically incorporated by
reference into the information that this Prospectus
incorporates). Written or telephone requests for such copies
should be directed to the Company's principal office: St. Mary
Land & Exploration Company, 1776 Lincoln Street, Suite 1100,
Denver, Colorado 80203, (303) 861- 8140.
GLOSSARY
The terms defined in this section are used throughout this
Prospectus.
2-D seismic or 2-D data. Seismic data that are acquired and
processed to yield a two-dimensional cross section of the
subsurface.
3-D seismic or 3-D data. Seismic data that are acquired and
processed to yield a three-dimensional picture of the subsurface.
Bbl. One stock tank barrel, or 42 U.S. gallons liquid
volume, used herein in reference to oil or other liquid
hydrocarbons.
Bcf. Billion cubic feet, used herein in reference to
natural gas.
Behind pipe reserves. Estimated net proved reserves in a
formation in which production casing has already been set in the
wellbore but has not been perforated and production tested.
BOE. Barrels of oil equivalent. Oil equivalents are
determined using the ratio of six Mcf of gas (including gas
liquids) to one Bbl of oil.
Development well. A well drilled within the proved area of
an oil or gas reservoir to the depth of a stratigraphic horizon
known to be productive in an attempt to recover proved
undeveloped reserves.
Dry hole. A well found to be incapable of producing either
oil or gas in sufficient quantities to justify completion as an
oil or gas well.
Estimated net proved reserves. The estimated quantities of
oil, gas and gas liquids which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future
years from known reservoirs under existing economic and operating
conditions.
Exploratory well. A well drilled to find and produce oil or
gas in an unproved area, to find a new reservoir in a field
previously found to be productive of oil or gas in another
reservoir, or to extend a known reservoir.
Fee Land. The most extensive interest which can be owned in
land, including surface and mineral (including oil and gas)
rights.
Finding Costs. Expressed in dollars per BOE, Finding Costs
are calculated by dividing the amount of total capital
expenditures for oil and gas activities by the amount of
estimated net proved reserves added during the same period
(including the effect on proved reserves of reserve revisions).
Gross acres. An acre in which a working interest is owned.
Gross well. A well in which a working interest is owned.
MBbl. One thousand barrels of oil or other liquid
hydrocarbons.
MBOE. One thousand barrels of oil equivalent.
Mcf. One thousand cubic feet.
MMBtu. One million British Thermal Units. A British
Thermal Unit is the heat required to raise the temperature of a
one-pound mass of water from 59.5 to 60.5 degrees Fahrenheit
under specified conditions.
MMcf. One million cubic feet.
Net acres or net wells. The sum of the fractional working
interests owned in gross acres or gross wells.
PV-10 Value. The present value of estimated future gross
revenue to be generated from the production of estimated net
proved reserves, net of estimated production and future
development costs, using prices and costs in effect as of the
date indicated (unless such prices or costs are subject to change
pursuant to contractual provisions), without giving effect to
non- property related expenses such as general and administrative
expenses, debt service and future income tax expenses or to
depreciation, depletion and amortization, discounted using an
annual discount rate of 10%.
Productive well. A well that is producing oil or gas or
that is capable of production.
Proved developed reserves. Reserves that can be expected to
be recovered through existing wells with existing equipment and
operating methods.
Proved undeveloped reserves. Reserves that are expected to
be recovered from new wells on undrilled acreage, or from
existing wells where a relatively major expenditure is required
for recompletion.
Recompletion. The completion for production of an existing
wellbore in another formation from that in which the well has
previously been completed.
Reserve Life. Reserve Life, expressed in years, represents
the estimated net proved reserves at a specified date divided by
estimated production for the following 12-month period.
Royalty. That interest paid to the owner of mineral rights
expressed as a percentage of gross income from oil and gas
produced and sold unencumbered by expenses.
Royalty interest. An interest in an oil and gas property
entitling the owner to a share of oil and gas production free of
costs of exploration, development and production.
Undeveloped acreage. Lease acreage on which wells have not
been drilled or completed to a point that would permit the
production of commercial quantities of oil and gas regardless of
whether such acreage contains estimated net proved reserves.
Working interest. The operating interest which gives the
owner the right to drill, produce and conduct operating
activities on the property and a share of production.
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Consolidated Interim Financial Statements
(Unaudited)
Consolidated Balance Sheets as of
September 30, 1996 (Unaudited) and
December 31, 1995 . . . . . . . . . . F-2
Consolidated Statements of Income
for the nine month periods ended
September 30, 1996 and 1995
(Unaudited) . . . . . . . . . . . . . F-3
Consolidated Statements of Cash Flows
for the nine month periods ended
September 30, 1996 and 1995
(Unaudited) . . . . . . . . . . . . . F-4
Notes to Consolidated Financial
Statements (Unaudited). . . . . . . . F-6
Consolidated Annual Financial Statements
Report of Independent Accountants . . F-8
Consolidated Balance Sheets as of
December 31, 1995 and 1994. . . . . . F-9
Consolidated Statements of Income
for each of the three years in the
period ended December 31, 1995. . . . F-10
Consolidated Statements of Shareholders'
Equity for each of the three years
in the period ended December 31, 1995 F-11
Consolidated Statements of Cash Flows
for each of the three years in the
period ended December 31, 1995. . . . F-12
Notes to Consolidated Financial
Statements. . . . . . . . . . . . . . F-14
<PAGE>
ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
September 30, December 31,
1996 1995
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 4,405 $ 1,723
Accounts receivable 20,707 8,068
Prepaid expenses 2,146 850
Refundable income taxes 35 176
Total current assets 27,293 10,817
Property and equipment (successful
efforts method), at cost:
Proved oil and gas properties 191,670 165,750
Unproved oil and gas properties,
net 15,306 11,752
Other 3,414 2,535
210,390 180,037
Less accumulated depletion,
depreciation, amortization
and impairment (117,586) (108,392)
92,804 71,645
Other assets:
Investment in Russian joint
venture 4,788 4,140
Investment in Summo Minerals
Corporation 4,483 4,842
Other assets 3,312 4,682
12,583 13,664
$132,680 $ 96,126
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 19,691 $ 7,715
Long-term liabilities:
Long-term debt 36,324 19,602
Deferred income taxes 3,427 1,228
Stock appreciation rights 1,782 1,178
Other noncurrent liabilities 316 121
41,849 22,129
Commitments and contingencies (Note 3)
Stockholders' equity:
Common stock, $.01 par value;
authorized - 15,000,000 shares;
issued and outstanding -
8,759,214 shares in 1996 and
8,761,855 shares in 1995 85 88
Additional paid-in capital 15,803 15,835
Retained earnings 55,248 50,378
Unrealized gain on marketable
equity securities - available
for sale 4 15
Treasury stock - 2,572 shares,
at cost - (34)
Total stockholders' equity 71,140 66,282
$132,680 $ 96,126
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share amounts)
(Unaudited)
Nine months ended
September 30,
1996 1995
Operating revenues:
Oil and gas production $39,689 $25,860
Gain (loss) on sale of
proved properties - 1,052
Gas contract settlements
and other revenues 490 528
Total operating revenues 40,179 27,440
Operating expenses:
Oil and gas production 9,262 7,676
Depletion, depreciation
and amortization 9,144 7,184
Impairment of proved properties - 1,673
Exploration 5,688 3,683
Abandonment and impairment of
unproved properties 1,240 759
General and administrative 5,066 4,129
Gas contract disputes and other 111 184
(Income) loss in equity investees (47) 286
Total operating expenses 30,464 25,574
Income from operations 9,715 1,866
Nonoperating income and (expense):
Interest income 227 230
Interest expense (1,407) (744)
Income from continuing operations
before income taxes 8,535 1,352
Income tax expense (benefit) 2,773 (72)
Income from continuing operations 5,762 1,424
Gain on sale of discontinued
operations, net of taxes 159 231
Net income $ 5,921 $ 1,655
Net income per common share:
Income from continuing operations $ .66 $ .16
Gain on sale of discontinued
operations .02 .03
Net income per share $ .68 $ .19
Weighted average common shares
outstanding 8,759 8,760
The accompanying notes are an integral part of these consolidated
financial statements.<PAGE>
ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
(Unaudited)
Nine months ended
September 30,
1996 1995
Cash flows from operating activities:
Cash received from oil and gas
operations $32,034 $24,206
Cash paid for oil and gas
operations, including general and
administrative expenses (9,868) (9,323)
Exploration expenses (4,035) (2,764)
Interest and other receipts 381 393
Interest paid (1,300) (479)
Income taxes paid (102) (278)
Net cash provided by operating
activities 17,110 11,755
Cash flows from investing activities:
Proceeds from sale of oil and gas
properties 146 2,227
Capital expenditures, including
dry hole costs (20,017) (14,609)
Acquisition of oil and gas
properties (13,557) (9,005)
Investment in St. Mary
Operating Company 3,059 -
Investment in Summo Minerals Corporation - (2,042)
Other 271 167
Net cash used by investing activities (30,098) (23,262)
Cash flows from financing activities:
Proceeds from long-term debt 23,650 5,380
Repayment of long-term debt (6,928) (1,745)
Dividends paid (1,051) (1,051)
Purchase of treasury and common stock (1) (44)
Net cash provided by
financing activities 15,670 2,540
Net increase (decrease) in cash and
cash equivalents 2,682 (8,967)
Cash and cash equivalents at
beginning of period 1,723 9,976
Cash and cash equivalents at
end of period $ 4,405 $ 1,009
The accompanying notes are an integral part of these consolidated
financial statements.
ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
(Unaudited)
Nine months ended
September 30,
1996 1995
Reconciliation of net income to net
cash provided by operating
activities:
Net income $ 5,921 $ 1,655
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depletion, depreciation and
amortization 9,144 7,184
Impairment of proved properties - 1,673
Income in equity investees (47) -
Gain on sale of oil and gas
properties - (1,052)
Dry hole costs 1,956 940
Abandonment and impairment of
unproved properties 1,240 759
Deferred income taxes 2,271 42
Other 455 (56)
20,940 11,145
Changes in assets and liabilities:
Accounts receivable (8,619) 466
Refundable income taxes 141 (437)
Accounts payable and accrued expenses 4,720 581
Deferred income taxes (72) -
Net cash provided by operating
activities $17,110 $11,755
Supplemental schedule of noncash
investing and financing activities:
In March 1996, the Company acquired an additional 35%
shareholder interest in St. Mary Operating Company for $234,000
and assumed net liabilities of $339,000.
The accompanying notes are an integral part of these consolidated
financial statements.
ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information.
They do not include all information and notes required by
generally accepted accounting principles for complete financial
statements. However, except as disclosed herein, there has been
no material change in the information disclosed in the Notes to
Consolidated Financial Statements of St. Mary Land & Exploration
Company and Subsidiaries (the Company) for the year ended
December 31, 1995 included elsewhere herein. In the opinion of
Management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the periods presented are not
necessarily indicative of the results that may be expected for
the full year.
The accounting policies followed by the Company are set
forth in Note 1 of the Notes to Consolidated Financial Statements
of the Company for the year ended December 31, 1995. It is
suggested that these financial statements be read in conjunction
with the Consolidated Financial Statements and accompanying Notes
to Consolidated Financial Statements.
Note 2 - Investments
In March 1996, the Company completed its purchase of the
Anderman Group stock of St. Mary Operating Company ( SMOC ) at
book value. The purchase increased the Company s ownership in
SMOC from 65% to 100%. Through March 31, 1996 the Company
accounted for its investment in SMOC using the equity method of
accounting.
The Company accounts for its investment in the Russian joint
venture using the equity method of accounting. For the nine
months ended September 30, 1996, the Company has recorded a gain
of $405,000 as its equity in income from the Russian joint
venture.
The Company accounts for its investment in Summo Minerals
Corporation ( Summo ) using the equity method of accounting. For
the nine months ended September 30, 1996, the Company has
recorded a loss of $358,000 as its equity in the losses of Summo.
In June 1996, the Company completed the purchase of a 90%
interest in certain of the assets of Siete Oil & Gas Corporation
for approximately $10.0 million. The assets purchased consist
primarily of oil and gas producing properties in the Permian
Basin of west Texas and southeast New Mexico.
The following is pro forma revenue, income from continuing
operations and per share data assuming this transaction was
effective as of January 1 for the periods indicated.
Pro Forma for the Nine Months Ended
September 30,
(in thousands, except per share amounts)
(unaudited)
1996 1995
Total operating revenues $41,817 $30,036
Income from continuing
operations $ 6,156 $ 2,005
Income per common share from
continuing operations $ .70 $ .23
Note 3 - Contingencies
On August 23, 1995, a class action law suit was filed
against the Company in the Grady County, Oklahoma District Court.
This suit was one of several class actions filed against Oklahoma
gas producers seeking payment of royalties on amounts received in
prior gas contract litigation settlements. This suit was
dismissed without prejudice on September 12, 1996 upon motion
filed by counsel for the plaintiff class.
Note 4 - Income Taxes
Federal income tax expense for 1996 and 1995 differs from
the amount that would be provided by applying the statutory U.S.
Federal income tax rate to income before income taxes primarily
due to Section 29 tax credits and percentage depletion. In 1995
the Company also utilized capital loss carryovers.
Note 5 - Subsequent Events
In November 1996, the Company adopted a stock option plan
which covers a maximum of 700,000 shares. Options granted under
the Plan are to be exercisable at the market price of Company
stock on the date of grant and have a term of ten years but may
not be exercised during the initial five years. Options vest
twenty-five percent on the date of grant and an additional
twenty-five percent upon the completion of each of the following
three years of employment with the Company. Options however will
be fully vested in the event of an employment termination due to
death, disability or normal retirement and options will terminate
upon any termination of employment for cause. In the event of
any acquisition of the Company, the options will also fully vest
and upon completion of such acquisition, unexercised options will
terminate. The options are transferrable to members of the
optionee's family. The Company will adopt SFAS No. 123,
"Accounting for Stock-Based Compensation," in its annual report
on Form 10-K for the year ended December 31, 1996 through
compliance with the disclosure requirements set forth in SFAS No.
123. Effective November 21, 1996, the Company authorized the
issuance of 262,372 options, exercisable at $20.50 per share, the
fair market value on the date of issuance, in conjunction with
the termination of future awards under the Company's SAR plan.
The new stock option plan is subject to shareholder approval.
In order to focus on development and exploration efforts in
its five core operating areas, the Company decided in 1996 to
monetize its interests in properties in Russia ("Russian
Partnership Interest"). Upon the closing, which the Company
expects to occur in the first quarter of 1997, the Company will
receive cash consideration of approximately $5.2 million,
approximately $1.7 million of common stock in Ural Petroleum
Corporation and a receivable in the form of a retained production
payment of approximately $10.3 million plus interest at 10% per
annum.<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
St. Mary Land & Exploration Company and Subsidiaries:
We have audited the accompanying consolidated balance sheets of
St. Mary Land & Exploration Company and Subsidiaries as of
December 31, 1995 and 1994, and the related consolidated
statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of St. Mary Land & Exploration Company and
Subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
As discussed in Notes 1, 3 and 4 to the consolidated financial
statements, the Company changed its method of accounting for
income taxes in 1993, its method of accounting for certain
investments in debt and equity securities in 1994, and its method
of accounting for impairment of long-lived assets in 1995.
/S/ COOPERS & LYBRAND L.L.P.
Denver, Colorado
March 8, 1996<PAGE>
ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
December 31,
1995 1994
ASSETS
Current assets:
Cash and cash equivalents $ 1,723 $ 9,976
Accounts receivable 8,068 8,388
Prepaid expenses 850 165
Refundable income taxes 176 376
Total current assets 10,817 18,905
Property and equipment (successful
efforts method), at cost:
Proved oil and gas properties 165,750 150,350
Unproved oil and gas properties,
net of impairment allowance
of $2,245 in 1995 and $1,581
in 1994 11,752 8,358
Other 2,535 2,242
180,037 160,950
Less accumulated depletion,
depreciation, amortization and
impairment (108,392) (101,295)
71,645 59,655
Other assets:
Investment in Russian joint venture 4,140 4,158
Investment in Summo Minerals Corporation 4,842 2,514
Other assets 4,682 4,160
13,664 10,832
$ 96,126 $ 89,392
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,715 $ 9,461
Long-term liabilities:
Long-term debt 19,602 11,130
Deferred income taxes 1,228 1,758
Stock appreciation rights 1,178 958
Other noncurrent liabilities 121 51
22,129 13,897
Commitments and contingencies
(Notes 1, 7, 8, 9, 10 and 11)
Stockholders' equity:
Common stock, $.01 par value;
authorized - 15,000,000 shares;
issued and outstanding -
8,761,855 shares in 1995
and 8,762,604 shares
in 1994 88 88
Additional paid-in capital 15,835 15,845
Retained earnings 50,378 50,037
Unrealized gain on marketable
equity securities - available for
sale 15 64
Treasury stock - 2,572 shares, at cost (34) -
Total stockholders' equity 66,282 66,034
$ 96,126 $ 89,392
The accompanying notes are an integral part of these consolidated
financial statements.<PAGE>
ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share amounts)
For the Years Ending December 31,
1995 1994 1993
Operating revenues:
Oil and gas production $36,569 $38,239 $38,208
Gain on sale of
proved properties 1,292 418 -
Gas contract settlements
and other revenues 789 6,128 424
Total operating revenues 38,650 44,785 38,632
Operating expenses:
Oil and gas production 10,646 10,496 9,341
Depletion, depreciation and
amortization 10,227 10,134 8,775
Impairment of proved
properties 2,676 4,219 3,498
Exploration 5,073 8,104 5,457
Abandonment and impairment
of unproved properties 2,359 1,023 1,020
General and administrative 5,328 5,261 4,712
Gas contract disputes and
other 152 493 638
Loss in equity investees 579 348 659
Total operating expenses 37,040 40,078 34,100
Income from operations 1,610 4,707 4,532
Nonoperating income and (expense):
Interest income 287 426 668
Interest expense (1,183) (951) (730)
Income from continuing operations
before income taxes 714 4,182 4,470
Income tax benefit (expense) 723 (445) (1,065)
Income from continuing
operations 1,437 3,737 3,405
Gain on sale of discontinued
operations, net of income
taxes 306 - -
Income before cumulative effect
of change in accounting
principle 1,743 3,737 3,405
Cumulative effect of change
in accounting principle - - 300
Net income $ 1,743 $ 3,737 $ 3,705
Net income per common share:
Income from continuing
operations $ .17 $ .43 $ .39
Gain on sale of discontinued
operations .03 - -
Cumulative effect of change
in accounting principle - - .03
Net income per share $ .20 $ .43 $ .42
Weighted average common shares
outstanding 8,760 8,763 8,763
The accompanying notes are an integral part of these consolidated
financial statements.
ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
Unrealized
Gain(Loss)
Marketable
Equity
Additional Securities
Common Stock Paid-In Retained Available
Shares Amount Capital Earnings For Sale
Balance,
December 31,
1992 8,765,048 $88 $15,875 $45,399 $ -
Net income - - - 3,705 -
Cash dividends,
$.16 per share - - - (1,402) -
Purchase and
retirement of
common stock (2,444) - (30) - -
Balance,
December 31,
1993 8,762,604 88 15,845 47,702 -
Adoption of
SFAS No. 115 - - - - 589
Unrealized
loss - - - - (525)
Net income - - - 3,737 -
Cash dividends,
$.16 per share - - - (1,402) -
Balance,
December 31,
1994 8,762,604 88 15,845 50,037 64
Net income - - - 1,743 -
Cash dividends,
$.16 per share - - - (1,402) -
Unrealized gain - - - - (49)
Purchase and
retirement of
common stock
and other (749) - (10) - -
Balance,
December 31,
1995 8,761,855 $ 88 $ 15,835 $50,378 $ 15
The accompanying notes are an integral part of these consolidated
financial statements.
ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Years Ending December 31,
1995 1994 1993
Cash flows from operating
activities:
Cash received from oil and
gas operations $33,663 $41,346 $35,800
Cash paid for oil and gas
operations, including
general and administrative
expenses (13,051) (13,175) (11,246)
Exploration expenses (3,672) (6,860) (4,406)
Interest and other receipts 1,356 686 1,341
Interest paid (795) (767) (598)
Income taxes refunded (paid) 212 (959) (1,216)
Net cash provided by operating
activities 17,713 20,271 19,675
Cash flows from investing
activities:
Proceeds from sale of oil
and gas properties 2,337 221 642
Capital expenditures,
including dry hole costs (22,657) (16,950) (13,492)
Acquisition of oil and
gas properties (8,111) (5,066) (4,848)
Investment in Russian
joint venture (297) (631) (2,546)
Investment in Summo Minerals
Corporation (4,528) (219) (305)
Other 264 (499) 10
Net cash used by investing
activities (32,992) (23,144) (20,539)
Cash flows from financing activities:
Proceeds from long-term debt 19,513 - 5,720
Repayment of long-term debt (11,041) (578) (2,462)
Proceeds from issuance of
common stock - - 3,222
Costs and fees related to
public offering - - (151)
Dividends paid (1,402) (1,402) (1,402)
Other (44) - (30)
Net cash provided (used)
by financing activities 7,026 (1,980) 4,897
Net increase (decrease) in cash
and cash equivalents (8,253) (4,853) 4,033
Cash and cash equivalents at
beginning of period 9,976 14,829 10,796
Cash and cash equivalents at
end of period $ 1,723 $ 9,976 $14,829
The accompanying notes are an integral part of these consolidated
financial statements.
ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
For the Years Ending December 31,
1995 1994 1993
Reconciliation of net income
to net cash provided
by operating activities:
Net income $ 1,743 $ 3,737 $ 3,705
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depletion, depreciation
and amortization 10,227 10,134 8,775
Impairment of proved
properties 2,676 4,219 3,498
Loss in equity investees 579 348 659
Gain on sale of oil and
gas properties (1,535) (390) (43)
Dry hole costs 1,529 2,407 1,201
Abandonment and impairment
of unproved properties 2,359 1,023 1,020
Deferred income taxes (1,038) (835) 1
Cumulative effect of
change in accounting
principle - - (300)
Other (407) 105 406
16,133 20,748 18,922
Changes in assets and
liabilities:
Accounts receivable 166 (450) 282
Refundable income taxes 200 448 1,095
Accounts payable and accrued
expenses 706 (402) 605
Deferred income taxes 508 (73) (1,229)
Net cash provided by
operating activities $17,713 $20,271 $19,675
Supplemental schedule of noncash investing and financing
activities:
In July 1993, the Company sold one of its real estate assets
for the assumption of the existing $492,000 mortgage.
In January 1994, the Company acquired an additional 10.28%
general partnership interest in Panterra Petroleum for
approximately $1.3 million in cash and assumption of $1.9
million in bank debt.
In December 1994, the Company acquired an additional 14.9%
general partnership interest in Panterra Petroleum by
participating in the buy out of Wesco Resources, another general
partner. This interest was acquired for $3.3 million and the
assumption of $2.2 million in bank debt.
In May 1995, the Company sold a portion of its remaining
real estate assets for $975,000 and carried back a note from the
buyer for $731,000.
The accompanying notes are an integral part of these consolidated
financial statements.
ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Description of Operations:
St. Mary Land & Exploration Company (the "Company") is a
Delaware corporation engaged in oil and gas exploration,
development and production in the United States and various
foreign countries, including Russia, Canada and Trinidad and
Tobago.
Through September 1994, the majority of the Company s
domestic operations and its international operations were managed
by various individuals (the Anderman Group ) through
Anderman/Smith Operating Company, now known as St. Mary Operating
Company ( SMOC ). In October 1994, the Company assumed
management of the domestic oil and gas administrative activities
of SMOC and 79 employees of SMOC became employees of the Company.
During 1995, the Company and the Anderman Group terminated their
domestic joint participation and management program and agreed to
the sale of all of the Anderman Group stock of SMOC to the
Company at book value in 1996.
In addition, the Company withdrew from all international
partnerships managed by the Anderman Group with the exception of
the partnerships with interests in Russia, Canada and Trinidad
and Tobago. While these remaining international activities
continue to be managed by the Anderman Group, the Company does
not intend to participate in any new international ventures
managed by the Anderman Group.
Reclassifications:
Certain amounts in the 1994 and 1993 consolidated financial
statements have been reclassified to correspond to the 1995
presentation.
Basis of Presentation:
The consolidated financial statements include the accounts
of the Company and its subsidiaries, all of which are wholly
owned. All significant intercompany accounts and transactions
have been eliminated.
The Company accounts for its investment in the Russian joint
venture and Summo Minerals Corporation under the equity method of
accounting. The Company's interests in other oil and gas ventures
and partnerships are proportionately consolidated, including its
investment in Panterra Petroleum ( Panterra ).
Cash and Cash Equivalents:
The Company considers all highly liquid investments
purchased with an initial maturity of three months or less to be
cash equivalents. The carrying value of cash and cash equivalents
approximates fair value because the instruments have maturity
dates of three months or less and do not present unanticipated
credit concerns.
Concentration of Credit Risk:
Substantially all of the Company's receivables are within
the oil and gas industry, primarily from purchasers of oil and
gas and joint venture participants. Although diversified within
many companies, collectibility is dependent upon the general
economic conditions of the industry. The receivables are not
collateralized and to date, the Company has had minimal bad
debts.
The Company has accounts with separate banks in Denver,
Colorado, Dallas, Texas and Shreveport, Louisiana. At December
31, 1995 and 1994, the Company had $386,000 and $8,511,000
respectively, invested in money market funds consisting of U.S.
Treasury obligations.
Oil and Gas Producing Activities:
The Company follows the successful efforts method of
accounting for its oil and gas properties. Under this method of
accounting, all property acquisition costs and costs of
exploratory and development wells are capitalized when incurred,
pending determination of whether the well has found proved
reserves. If an exploratory well has not found proved reserves,
the costs of drilling the well are charged to expense. The costs
of development wells are capitalized whether productive or
nonproductive.
Geological and geophysical costs on exploratory prospects
and the costs of carrying and retaining unproved properties are
expensed as incurred. An impairment allowance is provided to the
extent that capitalized costs of unproved properties, on a
property-by-property basis, are considered to be not realizable.
Depletion, depreciation and amortization ("DD&A") of capitalized
costs of proved oil and gas properties is provided on a
property-by-property basis using the units of production method
based upon proved reserves. The computation of DD&A takes into
consideration restoration, dismantlement and abandonment costs
and the anticipated proceeds from equipment salvage. The
estimated restoration, dismantlement and abandonment costs are
expected to be offset by the estimated residual value of lease
and well equipment.
In March 1995, the Financial Accounting Standards Board (
FASB ) issued Statement of Financial Accounting Standards ( SFAS
) No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of, which addresses the
impairment of proved oil and gas properties. The Company adopted
SFAS No. 121 as of October 1, 1995 and recorded an additional
impairment charge for proved properties of $1,003,000 in the
fourth quarter of 1995. The SFAS No. 121 impairment test
compares the expected undiscounted future net revenues from each
producing field with the related net capitalized costs at the end
of each period. When the net capitalized costs exceed the
undiscounted future net revenues, the cost of the property is
written down to fair value, which is determined using
discounted future net revenues from the producing field.
Prior to the adoption of SFAS No. 121, the net capitalized
costs of proved oil and gas properties were limited to the
aggregate undiscounted, after-tax, future net revenues determined
on a property-by-property basis (the ceiling test ). If the net
capitalized costs exceeded the ceiling, the excess was recorded
as a charge to operations. The Company recorded impairment
charges for proved properties under this ceiling test method of
$1,673,000, $4,219,000 and $3,498,000 in 1995, 1994 and 1993,
respectively, due to price declines and downward reserve
revisions.
Gains and losses are recognized on sales of entire interests
in proved and unproved properties. Sales of partial interests
are generally treated as a recovery of costs.
Other Property and Equipment:
Other property and equipment is recorded at cost. Costs of
renewal and improvement which substantially extend the useful
lives of the assets are capitalized. Maintenance and repairs are
expensed when incurred. Depreciation and amortization is
provided using the straight-line method over the estimated useful
lives of the assets from 3 to 15 years. Gains and losses on
dispositions are included in operations.
Gas Balancing:
The Company uses the sales method to account for gas
imbalances. Under this method, revenue is recorded on the basis
of gas actually sold by the Company. The Company records revenue
(using the lower of (i) prices in effect at the time of
production, (ii) current market price or (iii) contract price,
and taking into consideration the financial stability of the
other owners) for its share of gas sold by other owners which
cannot be balanced in the future due to insufficient remaining
reserves. The related receivable totaling $868,000 and $896,000
at December 31, 1995 and 1994, respectively, is included in other
assets in the accompanying balance sheets. The Company's
remaining underproduced gas balancing position is included in the
Company's proved oil and gas reserves (see Note 13).
Financial Instruments:
The Company periodically uses commodity contracts to hedge
or otherwise reduce the impact of oil and gas price fluctuations.
Gains and losses on commodity hedge contracts are deferred until
recognized as an adjustment to revenues when the related oil and
gas is sold. Cash flows from such transactions are included in
oil and gas operations. The Company realized net losses of
$10,000 and $16,000 on these contracts for the years ended
December 31, 1995 and 1994, respectively.
The Company also uses interest rate cap and swap agreements
as a hedge against future interest rate increases on its
long-term debt. Gains or losses on these arrangements are
treated as adjustments to interest expense. Premiums paid on
these agreements are amortized into expense over the lives of the
agreements.
In connection with these hedging transactions, the Company
may be exposed to nonperformance by other parties to such
agreements, thereby subjecting the Company to current oil and gas
prices or interest rates. However, the Company only enters into
hedging contracts with large financial institutions and does not
anticipate nonperformance.
As of December 31, 1995, the Company adopted SFAS No. 107,
Disclosures about Fair Value of Financial Instruments, requiring
disclosure of fair value information of financial instruments,
whether or not recognized in the balance sheet, for which it is
practicable to estimate fair value. In cases where quoted market
prices are not available, fair values are based on estimates
using present value or other valuation techniques. Disclosures
about fair value are not required for certain financial
instruments and all nonfinancial instruments.
Income Taxes:
Deferred income taxes are provided on the difference between
the tax basis of an asset or liability and its reported amount in
the financial statements. This difference will result in taxable
income or deductions in future years when the reported amount of
the asset or liability is recovered or settled, respectively.
Net Income Per Share:
Net income per share of common stock is calculated by
dividing net income by the weighted average of common shares and
common equivalent shares, if dilutive, outstanding during each
year. Common equivalent shares were not dilutive for any periods
presented.
Use of Estimates in the Preparation of Financial Statements:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
2. Accounts Receivable:
Accounts receivable are composed of the following (in
thousands):
December 31,
1995 1994
Accrued oil and gas sales:
Due from third parties $4,827 $4,066
Due from St. Mary Operating
Company 1,958 2,277
Due from joint interest owners 1,283 2,045
$8,068 $8,388
3. Marketable Equity Securities:
As of December 31, 1995 and 1994, the Company owned
9,028,003 (51% of total shares outstanding) and 5,598,003 (42% of
total shares outstanding) shares of Summo Minerals Corporation (
Summo ), an international mining company, with a total cost of
$5,108,000 and $2,524,000, and warrants to acquire an additional
5,495,000 and 2,295,000 shares, respectively. Exercise prices
for the warrants range from $.77 to $1.01, using the exchange
rate in effect on December 31, 1995 ($.73). Summo completed its
initial public offering effective October 31, 1994 at $.44 per
share. The market value of this investment was $7,945,000 at
December 31, 1995 and $5,945,000 at December 31, 1994. The
Company s investment in Summo is accounted for using the equity
method of accounting because the Company s ownership is expected
to drop below 50% due to a secondary offering during 1996. For
the years ending December 31, 1995 and 1994, the Company reported
equity in losses from Summo of $257,000 and $20,000,
respectively.
As of December 31, 1995 and 1994, the Company owned 67,017
and 88,017 shares of Arauco Resources Corporation ( Arauco ), an
international mining company with a total cost of $28,000 and
$37,000, and a market value net of tax of $18,000 and $53,000,
respectively.
Effective October 4, 1994, the Company exchanged 1,034,179
shares of Arauco for 324,042 shares and warrants to purchase an
additional 324,040 shares of Santa Elina Gold Corporation ( Santa
Elina ), an international mining company. No gain or loss was
recognized on the exchange. In January 1995, Santa Elina
completed its initial public offering at $1.50 per share. As of
December 31, 1995 and 1994, the Company owned 296,042 and 324,042
shares of Santa Elina with a total cost of $400,000 and $437,000,
and a market value net of tax of $425,000 and $485,000,
respectively.
The Company adopted SFAS No. 115 in 1994 and classifies the
investments in Arauco and Santa Elina as marketable equity
securities available for sale. Accordingly, unrealized gains and
losses for these investments are recorded in stockholders
equity. The combined net unrealized gain for these investments
was $15,000 at December 31, 1995 and $64,000 at December 31,
1994. During 1995, the Company realized proceeds from the sale
of Arauco and Santa Elina shares of $25,000 and $44,000,
respectively. The Company used the average cost method and
realized a gain of $16,000 on the sale of 21,000 shares of Arauco
and $6,000 on the sale of 28,000 shares of Santa Elina.
4. Income Taxes:
The provision for income taxes consists of the following:
For the Years Ended
December 31,
1995 1994 1993
(In thousands)
Current taxes:
Federal $ 77 $ 835 $ 477
State 396 445 587
Deferred taxes (1,038) (835) 1
Total income tax
expense (benefit) $ (565) $ 445 $1,065
Continuing operations $ (723) $ 445 $1,065
Discontinued operations 158 - -
Total income tax
expense (benefit) $ (565) $ 445 $1,065
The above taxes are net of alternative fuel credits (Section
29) of $624,000 in 1995, $1,333,000 in 1994 and $735,000 in 1993.
Effective January 1, 1993, the Company adopted the liability
method of accounting for income taxes under SFAS No. 109,
Accounting for Income Taxes. Prior to 1993, income taxes were
calculated in accordance with Accounting Principles Board Opinion
No. 11. The adoption of SFAS No. 109 resulted in a one time
benefit of $300,000 which is reflected as a cumulative effect
of a change in accounting principle. Other than the cumulative
effect adjustment, the adoption of SFAS No. 109 did not have a
material effect on 1993 results of operations.
The components of the net deferred tax liability as of
December 31, 1995 and 1994 under SFAS No. 109 were as follows (in
thousands):
December 31
1995 1994
Deferred tax assets
Non-current
Other assets $(1,458) $(1,756)
State tax net operating
loss carryforward (1,402) (1,594)
Alternative minimum tax
credit carryforward (565) (545)
Federal capital loss
carryforward - (292)
Total deferred tax assets (3,425) (4,187)
Valuation allowance 1,402 1,814
Net deferred tax assets (2,023) (2,373)
Deferred tax liabilities
Non-current
Oil and gas properties 2,886 3,824
Net other assets 365 307
Net deferred tax
liability $1,228 $1,758
At December 31, 1995, the Company had state net operating
loss carryforwards of approximately $23.5 million which expire
between 1996 and 2007 and alternative minimum tax credit
carryforwards of $565,000 which may be carried forward
indefinitely. The Company's 1995 valuation allowance relates to
its state net operating loss carryforwards since the Company has
historically recognized net operating losses in the states with
carryforwards and anticipates carryforwards from prior years will
expire before they can be utilized. The net change in valuation
allowance in 1995 is primarily a result of the recognition of a
capital loss carryover.
Federal income tax expense (benefit) differs from the amount
that would be provided by applying the statutory U.S. Federal
income tax rate to income before income taxes and the cumulative
effect of change in accounting principle for the following
reasons:
<PAGE>
For the Years Ended
December 31,
1995 1994 1993
(In thousands)
Federal statutory taxes $ 242 $1,422 $1,520
Increase (reduction) in
taxes resulting from:
State taxes (net of
Federal benefit) 261 294 387
Statutory depletion (173) (174) (187)
Alternative fuel
credits (Section 29) (624) (1,333) (735)
Change in valuation
allowance (412) 225 -
Other (17) 11 80
Income tax expense
(benefit) $ (723) $ 445 $1,065
5. Long-term Debt and Notes Payable:
In April 1995, the Company amended its long-term revolving
credit facility dated March 1, 1993 and extended its maturity to
February 28, 1998. Borrowings under this new agreement are
limited to the lesser of $30,000,000 or the current borrowing
base, as determined by the bank semi-annually. The borrowing
base at December 31, 1995 and 1994 was $30,000,000 and
$25,000,000, respectively. The agreement has a three year term,
at the end of which borrowings can be converted to a five year
amortizing loan. The Company can elect to allocate up to 50% of
available borrowings to a short term tranche due in 364 days.
Borrowings under this agreement will be collateralized by
approximately 75% of the value of the Company's producing oil and
gas properties. In addition, the Company must comply with
certain other covenants, including maintenance of stockholders'
equity of not less than $27 million, limitations on additional
indebtedness and payment of dividends. In 1995, at the Company's
request the loan commitment was reduced to $10,000,000. However,
the Company has the option of increasing the commitment to the
maximum allowed. As of December 31, 1995, $8,300,000 was
outstanding under this credit facility.
Through March 31, 1995, interest on borrowings was computed
at the bank s prime rate or LIBOR plus 1.5% (8.5% or 8.0% and
6.0% or 4.9% respectively, at December 31, 1994 and 1993).
Effective April 1, 1995, interest on borrowings, based on debt to
capitalization ratios, and commitment fees on the unused portion
of borrowings are calculated as follows:
Debt to
Capitalization Ratio Revolving Loan Term Loan
Interest Rates:
Less than 30% Prime rate or Prime rate or
LIBOR + .5% LIBOR + .75%
Greater than 30%, Prime rate or Prime rate or
less than 40% LIBOR + .75% LIBOR + 1.0%
Greater than 40%, Prime rate or Prime rate or
less than 50% LIBOR + 1.0% LIBOR + 1.25%
Greater than 50%, Prime rate + Prime rate +
.125% or .125% or
LIBOR + 1.25% LIBOR + 1.5%
Commitment Fees
on Unused Portion Short Term Tranche Long Term Tranche
Less than 50% of
available borrowings .125% .25%
Greater than 50% of
available borrowings .375% .50%
At December 31, 1995, the Company's debt to capitalization
ratio as defined was 24% and interest on borrowings is computed
at the bank s prime rate or LIBOR plus .5% (8.5% or 6.16% at
December 31, 1995).
In November 1991, the Company entered into a three year
interest rate cap agreement which limited the maximum LIBOR
interest rate on a principal amount of $3,000,000 to 9%. The
interest rate cap agreement expired in 1994.
In connection with the acquisition of its 50% general
partnership interest in Panterra, the Company assumed 50% of a
bank note payable which was restated in April 1993. The note,
which was due April 30, 1998, was payable in monthly installments
of $350,000, excluding interest. Prior to its restatement, the
agreement provided for borrowings at the bank's prime rate plus
2% or LIBOR plus 3%. The restated agreement provided for
borrowings at the lower of the bank's prime rate plus 1% or LIBOR
plus 2.25% (9.5% or 8.75% and 7.0% or 5.63% respectively, at
December 31, 1994 and 1993). The note was collateralized by
substantially all of Panterra's oil and gas properties and cash
accounts.
On February 6, 1995, Panterra entered into a credit agreement
with a bank whereby funds were advanced to pay in full the
restated note due April 30, 1998. The new credit agreement
includes a two year revolving period converting to a five year
amortizing loan on February 6, 1997. During the revolving
period, interest is payable at the bank's prime rate or LIBOR
plus 1.5% (8.5% or 7.16%, at December 31, 1995). During the
amortization period, interest is payable at the bank's prime rate
plus .25% or LIBOR plus 1.75%. Principal payments during the
revolving period are not required if the loan amount is less than
the commitment amount which will not exceed $20,000,000. During
the amortization period, monthly principal payments are payable
at rates decreasing from 2.0% to 1.4% of the outstanding balance
through February 2002, at which time the remaining principal
balance is due.
The new Panterra credit agreement is collateralized by all of
Panterra's oil and gas properties and contains restrictive
covenants relating to acquisition of assets, new debt agreements
and the maintenance of certain minimum financial statement ratios
by Panterra. The Company s proportionate share of the liability
under Panterra's bank note payable is 74%.
Panterra had entered into an interest rate swap agreement
which expired in July 1994. Under this agreement Panterra paid
interest on the $5,000,000 of notional principal at a fixed rate
of 7.98% and received interest on the notional principal at a
floating rate equal to LIBOR. Panterra also entered into an
interest rate cap agreement which limited the interest rate to 9%
on a principal amount of $5,000,000 from July 1992 through July
1993. There were no outstanding swap agreements at December 31,
1994 or 1995.
The carrying value of long-term debt approximates fair value
because the debt is variable rate and reprices in the short term.
The Company's liability for estimated annual principal
payments for the next five years under both notes payable are as
follows:
Year Ending
December 31, (In thousands)
1996 $ -
1997 2,252
1998 2,991
1999 2,954
2000 2,662
Thereafter 8,743
$19,602
6. Gas Contract Settlements:
During 1994 and 1993, the Company settled several gas
contract disputes with pipeline companies, recognizing income of
$5,741,000 and $235,000 respectively. The Company settled the
final two gas contract disputes during 1994.
7. Commitments and Contingencies:
The Company leases office space under operating leases which
expire in 1997. The annual minimum lease payments approximate
$398,000. The Company has noncancelable annual leases with
affiliates of approximately $239,000. Rent expense, net of
sublease income, was $131,000, $166,000 and $195,000 in 1995,
1994 and 1993, respectively.
Pursuant to a purchase and sale agreement between Panterra
and Chevron U.S.A., Inc. ("Chevron"), Panterra was obligated to
pay Chevron an annual production payment each March 1 through
December 31, 1995 if crude oil prices reached certain specified
minimum levels, which escalated from $22.00 to $26.64 from 1991
to 1995. No payments were made under this agreement in 1993,
1994 or 1995.
The Company has the following commodity contracts to hedge
or otherwise reduce the impact of oil and gas price fluctuations
in place as of December 31, 1995:
Product Volumes/Month Fixed Price Duration
Natural Gas 22,500 MMBtu $1.90 1/96 - 6/98
Natural Gas 15,000 MMBtu $1.94 3/96 - 2/98
Natural Gas 24,000 MMBtu $1.83 1/96 - 12/97
Natural Gas 15,000 MMBtu $2.065 1/96 - 5/97
Natural Gas 133,500 MMBtu $1.73 1/96 - 3/96
Natural Gas 96,000 MMBtu $1.96 1/96 - 3/96
Natural Gas 23,000 MMBtu $1.63 1/96 - 2/96
Oil 1,125 Bbls $16.98 1/96 - 9/97
Oil 1,000 Bbls $16.95 1/96 - 4/97
Oil 3,200 Bbls $17.95 1/96 - 1/97
Oil 1,200 Bbls $18.44 2/96 - 1/97
Oil 22,100 Bbls $18.36 - 18.40 1/96 - 12/96
Oil 1,667 Bbls $18.61 1/96 - 6/96
Oil 2,500 Bbls $17.80 1/96
Oil 37,500 Bbls $18.50 - 19.10 1/96 - 3/96
The fair value of the Company's commodity hedging contracts
based on year end futures pricing would require the Company to
pay approximately $415,000, if these contracts were terminated on
December 31, 1995.
During 1993, St. Mary Operating Company, which operates a
number of wells in which the Company has a working interest, was
named with others as a defendant in four Mississippi state court
lawsuits in which property owners were seeking damages for
alleged contamination of four well sites. The plaintiffs sought
$10 million in compensatory damages and $20 million in punitive
damages, an amount which exceeded the net worth of SMOC. During
1994, one suit was settled for an amount which was not material,
a large portion of which was covered by insurance, and SMOC was
dismissed as a defendant in a second suit. In early 1996, one of
the remaining suits was settled for an amount which is not
material, and minor details regarding the settlement of the other
remaining suit are currently being negotiated. Whether insurance
will cover the latter settlements is uncertain at present.
During 1995, the Company and other unrelated parties were
named as defendants in a class action suit filed in Oklahoma
seeking payment of royalties on amounts received in prior gas
contract settlements. While the Company'sleases state that
royalties are paid only on oil and gas produced and sold, the end
result of any litigation seeking royalty payments on amounts
received in oil and gas settlements cannot be known in advance,
and it is possible that a judgment adverse to the Company could
result even though gas was not produced and sold. Management
believes its position is legally correct and plans a vigorous
defense of this suit. In the event of adverse judgment, however,
management believes the maximum exposure of the Company in this
litigation, exclusive of interest, if any, would be approximately
$4.5 million. The Company has no material exposure to claims for
such payments outside of Oklahoma.
The Company is also aware that, in two appellate proceedings
in which the Company is not involved, the Oklahoma Supreme Court
has been asked to address issues regarding the entitlement of
lessors to royalty payments on amounts received by oil and gas
working interest owners as a result of gas contract claims.
While the Company believes that royalties are not owed until oil
and gas is produced and sold, the decision of the Oklahoma
Supreme Court cannot be known in advance and it is possible that
the ruling will establish a right of royalty owners to payment.
Such a ruling could adversely affect the Company's position in
the royalty litigation described above.
8. Compensation Plans:
In January 1992, the Company adopted two compensation plans
for key employees. A cash bonus plan not to exceed 50% of the
participants' aggregate base salaries was adopted and any awards
will be based on performance adjusted salaries. A net profits
interest bonus plan allows participants to receive an aggregate
10% net profits interest after the Company has recovered 100% of
its investment in various pools of oil and gas wells completed or
acquired during the year. This interest is increased to 20%
after the Company recovers 200%. The Company will record
compensation expense once it recovers its investment and net
profits attributable to the properties are payable to the
employees.
In March 1992, the Company adopted a stock appreciation
rights ("SAR") plan for officers and directors and awarded 90,962
shares with a value of $4.26 per share effective January 1, 1992.
This SAR vests over a four-year period, with payment occurring
five years after the date of grant. The SAR plan replaced the
restricted stock bonus plan. In 1995 the Company awarded 34,917
shares with a value of $13.25 per share effective January 1,
1995. In 1994 the Company awarded 38,938 shares with a value of
$11.63 per share effective January 1, 1994 and in 1993 the
Company awarded 35,684 shares with a value of $11.50 per share
effective January 1, 1993. Compensation expense recognized under
the SAR plan was $220,247, $268,286 and $222,191 in 1995, 1994
and 1993, respectively.
Through September 1992, the Company had a restricted stock
bonus plan ("Plan") covering officers and key employees. The
Plan provided for the granting of stock and cash not to exceed
100% of the participant's then annual salary. The Plan provided
that any portion or all of the stock could be purchased by the
Company in the case of termination of employment for any reason.
A participant has the option at any time to sell shares acquired
under the Plan to the Company at a price related to its fair
market value as defined in the Plan. The exact sale price
depends upon the period of time the stock has been held by the
participant. At December 31, 1995, there were 33,559 shares
issued and outstanding under the Plan. The Company's stock price
was $14.00 at December 31, 1995.
In 1990 and 1991, the Company granted certain officers
options to acquire 54,612 shares of common stock at an exercise
price of $3.30 per share. The options are now fully vested and
expire ten years from the date of grant.
The Company has a defined contribution pension plan ("401(k)
Plan") qualified under the Employee Retirement Income Security
Act of 1974. This 401(k) Plan allows eligible employees to
contribute up to 9% of their income. The Company matches each
employee's contributions up to 6% of the employee's income and
also may make additional contributions at its discretion.
Contributions to the 401(k) Plan amounted to $183,000, $93,000
and $64,000 for the years ended December 31, 1995, 1994 and 1993,
respectively.
In October 1995, the FASB issued SFAS No. 123, Accounting
for Stock-Based Compensation. This standard establishes a fair
value method of accounting for stock-based compensation plans
either through recognition or disclosure. The Company will adopt
this standard in 1996 through compliance with the disclosure
requirements set forth in SFAS No. 123. It is not believed the
adoption of this standard will have a material impact on the
financial position or results of operations of the Company.
9. Pension Plans:
The Company's employees participate in a noncontributory
pension plan covering substantially all employees who meet age
and service requirements (the "Primary Plan"). Benefits provided
under this pension plan are based primarily on each employee's
career earnings. As of December 31, 1995, plan assets were
invested primarily in diversified stock and bond funds.
In addition, the Company has a supplemental noncontributory
pension plan covering certain management employees (the
"Supplemental Plan"). Benefits are based mainly on each
participant's years of service, final average compensation and
estimated benefits received from certain other plans.
The components of net pension expense are as follows:
For the Years Ended
December 31,
1995 1994 1993
(In thousands)
Service cost - benefits
earned during the year $ 79 $129 $105
Interest cost on
projected benefit obligations 51 45 28
Actual (return) loss
on plan assets (133) 27 (63)
Net amortization (deferral) 61 (94) 36
Net pension expense $ 58 $107 $106
A reconciliation of the funded status of the plans to accrued
pension liability is as follows:
Primary Plan Supplemental Plan
December 31, December 31,
1995 1994 1995 1994
(In thousands)
Actuarial present
value of benefits
based on service
to date and
present pay levels:
Vested $263 $396 $140 $ -
Nonvested 63 67 - 1
Accumulated benefit
obligation 326 463 140 1
Additional amounts
related to pay
increases 219 261 127 10
Projected benefit
obligation 545 724 267 11
Plan assets at fair
value 810 712 - -
Projected benefit
obligation (in excess
of) or less than
plan assets 265 (12) (267) (11)
Unrecognized (gain) loss (261) 15 192 6
Unrecognized net asset (17) (28) - -
Accrued pension
liability included in
the consolidated
balance sheets $(13) $ (25) $(75) $(5)
Actuarial assumptions for December 31, 1995 and 1994 are as
follows:
1995 1996
Discount Rate 7.50% 8.50%
Average salary growth rate 5.00% 6.00%
Return on plan assets 8.00% 8.00%
10. Related Party Transactions:
A majority of the Company'soil and gas operations, other
than Louisiana royalties, including acquisition of unproved
properties, are administered by SMOC. Operations were conducted
under a domestic agreement with SMOC and the Anderman Group which
was effective January 1, 1992, amended July 1, 1993 and
terminated on December 31, 1995. Through the termination date
the Company paid 70% of all costs for lease acquisitions,
geophysical surveys, drilling and production and owned 68% of all
resulting properties, production and reserves. Through December
31, 1995, the Company also paid 65% of all overhead costs of SMOC
incurred for exploration and production activities and through
September 1995, quarterly fees of $125,000 to the Anderman Group.
Effective April 1, 1995, the Company gave notice that
itwould not participate in any new international ventures managed
by the Anderman Group and on November 30, 1995, withdrew from all
international partnerships with the exception of those with
interests in Russia, Canada and Trinidad and Tobago. The Company
s agreement with the Anderman Group involves its payment of 75%
of acquisition costs and of costs directly associated with the
acquisition, including geological costs which may be required by
the foreign license agreement. The Company's resulting ownership
interest in the foreign projects prior to the involvement of
unrelated third parties is 45% and the interest of the Anderman
Group is 55%. Administrative and operational services were
provided for these projects by SMOC of which the Company pays
65%. In certain circumstances, the Company agreed to fund,
through non-recourse loans to individuals in the Anderman Group,
up to 5% of the total project development costs of the Company
and the Anderman Group. At December 31, 1995 and 1994, the
amounts of these loans was approximately $622,000 and $555,000,
respectively. In addition, certain employees of SMOC and outside
consultants received net profits interests of up to 1.5% of the
Company's interests in certain international projects. During
1995, the Company recorded a charge to operations of $252,000
resulting from its withdrawal from the international
partnerships.
Billings from SMOC, which represent charges for lease
operating, exploration, development and general and
administrative expenses, amounted to $11,451,000, $14,008,000 and
$10,071,000 for the years ended December 31, 1995, 1994 and 1993,
respectively. As of December 31, 1995 and 1994, accounts payable
included $746,000 and $525,000, respectively, owed to SMOC.
SMOC is also responsible for collecting revenues from
purchasers for a number of the Company'swells. During 1995, 1994
and 1993 approximately 33%, 32% and 29%, respectively, of the
Company'soil and gas sales were collected by SMOC.
11. Investment in Russian Joint Venture:
In September 1991, the Company, through an affiliate of the
Anderman Group, acquired a 22% interest in The Limited Liability
Company Chernogorskoye (the Russian joint venture ). The
Company's interest in the Russian joint venture was reduced to
18% in 1993. The Russian joint venture is developing the
Chernogorskoye field in western Siberia.
Financing commitments have been obtained for the joint
venture which are non-recourse to the Company. The joint venture
has received $32.5 million from loan advances through December
31, 1995. The joint venture received additional funding of $10
million in February 1996, and anticipates the committed balance
of $10 million to be funded later in 1996. The Company expects
all of the capital requirements for 1996 to be funded from cash
flow and non-recourse bank financing. Through December 31, 1995
the Company had expended $7.5 million on the Russian project of
which $4.1 million has been capitalized. The Company's
impairment policy with respect to this investment is consistent
with its policy for proved oil and gas properties using future
net revenues after debt service. At December 31, 1995, the
undiscounted future net revenues attributable to the Company's
share of the Russian joint venture's proved reserves was $36.6
million (after debt repayment). The present value of estimated
future net cash flows before income taxes discounted at 10% was
$20.4 million in accordance with Securities and Exchange
Commission guidelines and may not be indicative of market value.
Summarized combined financial information of the Russian joint
venture is shown below:
For the Years Ended December 31,
1995 1994 1993
(Unaudited, in thousands)
Income Statement:
Oil and gas revenues $29,479 $15,035 $ 1,643
Operating expenses 22,547 12,707 6,236
Interest and other
expenses 8,966 5,831 1,642
Net income (loss) $(2,034) $(3,503) $(6,235)
Balance Sheet:
Current assets $10,105 $12,974 $ 3,982
Non-current assets 49,300 35,034 26,851
Current liabilities 10,569 11,700 4,904
Non-current
liabilities 50,614 48,007 32,170
Shareholders'
deficit (1,778) (11,699) (6,241)
12. Disposal of Real Estate Segment:
Effective June 30, 1992, the Company made the decision to
sell its remaining real estate projects. Accordingly, the
Company's real estate activities have been presented as
discontinued operations in the statements of income.
For 1992, the discontinued real estate segment had revenues
of $1,298,000, costs and expenses of $647,000 and a provision for
income taxes of $221,000 resulting in income from discontinued
operations of $430,000.
The Company recorded a gain on the sale of discontinued
operations of $306,000, net of income taxes of $158,000 in 1995.
The Company had no income or loss from discontinued operations in
1994 and 1993.
The Company's remaining real estate assets consist of land
held for sale with a carrying cost of $1,311,000 and $1,806,000
as of December 31, 1995 and 1994, respectively, which is less
than the estimated net realizable values.
13. Disclosures About Oil and Gas Producing Activities:
Major Customers:
There were no sales to individual customers constituting 10%
or more of total revenues during 1995, 1994 and 1993.
Costs Incurred in Oil and Gas Producing Activities:
Costs incurred in oil and gas property acquisition,
exploration and development activities, whether capitalized or
expensed, are summarized as follows:
For the Years Ended
December 31,
1995 1994 1993
(In thousands)
Unproved property
acquisitions $2,937 $ 3,228 $ 1,847
Proved property
acquisitions 8,111 12,279 4,848
Exploration costs:
Domestic 8,746 9,481 9,013
International (112) 877 647
Development costs 12,625 5,946 7,079
Total $32,307 $31,811 $23,434
Russian joint venture,
equity method $ 3,213 $ 1,551 $ 1,872
Oil and Gas Reserve Quantities (Unaudited):
The reserve information as of December 31, 1995, 1994, 1993
and 1992 was prepared by the Company and Ryder Scott Company.
The Company emphasizes that reserve estimates are inherently
imprecise and that estimates of new discoveries are more
imprecise than those of proved producing oil and gas properties.
Accordingly, these estimates are expected to change as future
information becomes available.
Proved oil and gas reserves are the estimated quantities of
crude oil, natural gas, and natural gas liquids which geological
and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing
economic and operating conditions. Proved developed oil and gas
reserves are those expected to be recovered through existing
wells with existing equipment and operating methods.
Presented below is a summary of the changes in estimated
domestic reserves of the Company, and its share of the Russian
joint venture reserves:
For the Years Ended December 31,
1995 1994 1993
Oil Oil Oil
or or or
Condensate Gas Condensate Gas Condensate Gas
(MBbl) (MMcf) (MBbl) (MMcf) (MBbl) (MMcf)
Total proved U.S. reserves:
Developed and undeveloped:
Beginning
of
year 6,677 62,515 4,590 56,535 4,594 51,663
Revisions
of
previous
estimates 39 515 446 5,064 (428) 5,927
Discoveries
and
extensions 894 16,069 658 10,274 566 9,262
Purchase of
minerals
in
place 1,095 9,274 2,062 3,262 756 1,200
Sale
of
reserves (152) (234) (142) (43) (52) (370)
Produc-
tion (1,044) (12,434) (937) (12,577) (846) (11,147)
End
of
year(a) 7,509 75,705 6,677 62,515 4,590 56,535
Proved developed U.S. reserves:
Beginning
of
year 6,050 58,661 4,160 54,420 4,296 48,466
End
of
year 6,829 66,230 6,050 58,661 4,160 54,420
Russian
joint
venture
reserves,
end
of
year 7,247 2,536 9,915 - 10,921 -
(a) At December 31, 1995, 1994 and 1993, includes approximately
1,895, 2,500 and 2,800 MMcf, respectively representing the
Company's underproduced gas balancing position.
Standardized Measure of Discounted Future Net Cash Flows
(Unaudited):
SFAS No. 69 prescribes guidelines for computing a
standardized measure of future net cash flows and changes therein
relating to estimated proved reserves. The Company has followed
these guidelines which are briefly discussed below.
Future cash inflows and future production and development
costs are determined by applying year-end prices and costs to the
estimated quantities of oil and gas to be produced. Estimated
future income taxes are computed using current statutory income
tax rates, including consideration for estimated future statutory
depletion and alternative fuels tax credits. The resulting
future net cash flows are reduced to present value amounts by
applying a 10% annual discount factor.
The assumptions used to compute the standardized measure are
those prescribed by the Financial Accounting Standards Board and,
as such, do not necessarily reflect the Company's expectations of
actual revenues to be derived from those reserves nor their
present worth. The limitations inherent in the reserve quantity
estimation process, as discussed previously, are equally
applicable to the standardized measure computations since these
estimates are the basis for the valuation process.
The following summary sets forth the Company's future net
cash flows relating to proved oil and gas reserves based on the
standardized measure prescribed in SFAS No. 69:
As of December 31,
1995 1994 1993
(In thousands)
Future cash inflows $292,149 $202,454 $190,257
Future production
and development costs (105,520) (73,204) (54,956)
Future income taxes (49,383) (28,977) (38,499)
Future net cash flows 137,246 100,273 96,802
10% annual discount (49,547) (39,407) (32,311)
Standardized measure
of discounted future
net cash flows $ 87,699 $ 60,866 $ 64,491
Russian joint
venture standardized
measure of
discounted future net
cash flows $ 15,077 $ 25,242 $ 5,431
The principal sources of change in the standardized measure
of discounted future net cash flows are as follows:
For the Years Ended
December 31,
1995 1994 1993
(In thousands)
Standardized measure,
beginning of year $60,866 $64,491 $62,202
Sales of oil and
gas produced, net
of production costs (25,923) (27,743) (28,867)
Net changes in prices
and production costs 23,432 (16,196) (1,993)
Extensions, discoveries
and other, net of
production costs 23,863 12,507 15,066
Purchase of minerals
in place 10,287 11,114 6,133
Development costs
incurred during
the year 2,189 1,655 1,041
Changes in estimated
future development
costs (1,801) (1,227) (493)
Revisions of
previous quantity
estimates 856 6,941 3,901
Accretion of discount 8,469 9,052 8,962
Sales of reserves
in place (1,365) - -
Net change in
income taxes (12,817) 6,771 1,237
Other (357) (6,499) (2,698)
Standardized
measure, end
of year $87,699 $60,866 $64,491
EXHIBIT A
January 13, 1997
St. Mary Land & Exploration Company
1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
Attention: Douglas W. York
At your request we have prepared an estimate of the reserves
and future production and income attributable to certain
leasehold and royalty interests of St. Mary Land & Exploration
Company as of December 31, 1996. Ryder Scott Company Petroleum
Engineers (Ryder Scott) has evaluated approximately 496
properties which account for approximately 81.5 percent of the
future net income discounted at ten percent as of December 31,
1996. We have been assured that the income data have been
estimated using the Securities and Exchange Commission (SEC)
guidelines for future cost and price parameters. The results of
this study are summarized below:
The estimated reserve quantities and future income
quantities presented in this report are related to hydrocarbon
prices. December 31, 1996 hydrocarbon prices were used in the
preparation of this report as required by SEC guidelines;
however, actual future prices may vary significantly due to
seasonal price variations. Therefore, quantities of reserves
actually recovered and quantities of income actually received may
differ significantly from the estimated quantities presented in
this report.
SEC PARAMETERS
Estimated Net Reserve and Income Data
Certain Leasehold and Royalty Interests of
St. Mary Land & Exploration Company
As Of December 31, 1996
Total Proved
Net Oil Net Gas Future Net Income
M Barrels MMCF Discounted at 10%
Evaluated by Ryder
Scott at 12-31-96 8,085.3 93,441 $ 241,646,047
Evaluated by St. Mary 2,605.4 33,616 $ 54,815,193
Total Proved Reserves 10,690.7 127,057 $ 296,461,240
Liquid hydrocarbons are expressed in standard 42 gallon
barrels. All gas volumes have been represented to Ryder Scott
Company as sales gas expressed in millions of cubic feet (MMCF)
at the official temperature and pressure bases of the areas where
the gas reserves are located.
The deductions are comprised of the production taxes, normal
direct costs of operating the wells, ad valorem taxes,
recompletion costs, development costs and St. Mary Land &
Exploration Company's estimate of revenue from their current gas
balancing position. The future net income is before the
deduction of state and federal income taxes and general corporate
overhead, and has not been adjusted for outstanding loans which
may exist nor does it include any adjustments for cash on hand or
undistributed income.
The discounted future net income shown above is based on a
discount rate of 10 percent per annum compounded annually.
Reserves Included in This Report
The proved reserves, as evaluated by Ryder Scott Company,
included herein conform to the definition as set forth in the
Securities and Exchange Commission's Regulation S-X Part 210.4-
10(a) as clarified by subsequent Commission Staff Accounting
Bulletins. Our definitions of proved reserves are attached.
Reserve Estimates
In general, the reserves included herein were estimated by
performance methods or the volumetric method; however, other
methods were used in certain cases where characteristics of the
data indicated such other methods were more appropriate in our
opinion.
The reserve estimates by the performance method utilized
extrapolations of various historical data in those cases where
such data were definitive in our opinion. Reserves were
estimated by the volumetric method in those cases where there was
inadequate historical performance data to establish a definitive
trend or where the use of production performance data as a basis
for the reserve estimates was considered to be inappropriate and
the volumetric data were adequate for a reasonable estimate.
The reserves included in this report are estimates only and
should not be construed as being exact quantities. They may or
may not be actually recovered, and if recovered, the revenues
therefrom and the actual costs related thereto could be more or
less than the estimated amounts. Moreover, estimates of reserves
may increase or decrease as a result of future operations.
Future Production Rates
Initial production rates are based on the current producing
rates for those reservoirs now on production. Test data and
other related information were used to estimate the anticipated
initial production rates for those wells or locations which are
not currently producing. If no production decline trend has been
established, future production rates were held constant,, or
adjusted for the effects of curtailment where appropriate, until
a decline in ability to produce was anticipated. The future
anticipated decline was then applied to depletion of the
reserves. If a decline trend has been established, this trend
was used as the basis for estimating future production rates.
For reserves not yet on production, sales were projected to
commence at an anticipated date of delivery which was furnished
by St. Mary Land & Exploration Company.
In general, we estimate that gas production rates will
continue to be the same as the average rate for the latest
available 12 month of actual production until such time that the
well or wells are incapable of producing at this rate. Our
general policy on estimates of future gas production rates is
adjusted when necessary to reflect actual gas market conditions
in specific cases.
The future production rates from reservoirs now on
production may be more or less than estimated because of changes
in market demand or allowables set by regulatory bodies. Wells
or locations which are not currently producing may start
producing earlier or later than anticipated in our estimates of
their future production rates.
Hydrocarbon Prices
St. Mary Land & Exploration Company furnished us with
hydrocarbon prices in effect at December 31, 1996, a West Texas
Intermediate crude oil price of $25.08 per barrel and Gulf Coast
spot gas price of $3.736 per MMBTU. Product prices which are
actually used for each property reflect adjustment from the above
stated prices for gravity, quality, local conditions and/or
distance from market. These prices were held constant to
depletion of the properties. In accordance with Securities and
Exchange Commission guidelines, changes in hydrocarbon prices
subsequent to December 31, 1996 were not considered in this
report.
Costs
Operating costs for the leases and wells in this report were
furnished by St. Mary Land & Exploration Company. When
applicable, the operating costs include a portion of general and
administrative costs allocated directly to the leases and wells
under the terms of operating agreements. Development costs were
furnished to us by St. Mary Land & Exploration Company and are
based on authorizations for expenditure for the proposed work or
actual costs for similar projects. The current operating and
development costs were held constant throughout the life of the
properties. Ryder Scott has accepted the operating and
development cost data supplied by St. Mary Land & Exploration
Company's request, this study does not consider the salvage value
of the lease equipment or the abandonment cost since both have
been assumed to be relatively insignificant and tend to offset
each other. No deduction was made for indirect costs such as
general administration and overhead expenses, loan repayments,
interest expenses and exploration and development prepayments
which are not charged directly to the leases or wells.
General
Ryder Scott Company performed the reserve analyses and
projections of future production for these interests. However,
at the request of St. Mary Land & Exploration Company, the
economic analyses were performed by St. Mary Land & Exploration
Company on Munro Garrett International's economic program
"Advanced Reserves and Information Evaluation System (ARIES)."
Ryder Scott has confirmed that the values used for scheduling the
individual wells' production were correct. We performed such
tests and procedures as we considered necessary under the
circumstances to render the conclusions set forth herein. It is
our opinion that the data presented for the properties we have
evaluated fairly reflect the estimated net reserves and future
income based on the prices and costs provided by St. Mary Land &
Exploration Company.
While it may reasonably be anticipated that the prices
received by St. Mary Land & Exploration Company for the sale of
its production may be higher or lower than the prices used in
this evaluation as described above, and the operating costs
relating to such production may also increase or decrease from
existing levels, such possible changes in prices and costs were,
in accordance with rules adopted by the SEC, omitted from
consideration in making this evaluation.
The reserve estimates presented herein are based upon a
detailed study of the properties in which St. Mary Land &
Exploration Company owns an interest; however, we have not made
any field examination of the properties. St. Mary Land &
Exploration Company has provided Ryder Scott with an ARIES
database with production data and well test data where available.
Ryder Scott has accepted this data as accurate and not verified
or updated the data provided and have based our reserve estimates
on this data as provided. It should be noted that additional
historical data, both production and well test data, is available
on certain properties through public sources of information. No
consideration was given in this report to potential environmental
liabilities which may exist nor were any costs included for
potential liability to restore and clean up damages, if any,
caused by past operating practices. St. Mary Land & Exploration
Company has informed us that they have furnished us all of the
production information, accounts, records, geological and
engineering data and reports and other data required for this
investigation. The ownership interests, prices, product
classifications relating to prices, gas balancing information and
other factual data furnished to Ryder Scott by St. Mary Land &
Exploration Company in connection with this investigation were
accepted without independent verification. The estimates
presented in this report are based on data available through
December 31, 1996.
Neither Ryder Scott Company nor any of its employees has any
interest in the subject properties and neither the employment to
make this study nor the compensation is contingent on our
estimates of reserves and future income for the subject
properties.
This report was prepared for the exclusive use of St. Mary
Land & Exploration Company. The data, work papers and maps used
in the preparation of this report are available for examination
by authorized parties in our offices. Please contact us if we
can be of further service.
Very truly yours,
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Gary Krieger, P.E.
Vice President
GK:ph
(SEAL)
COLORADO REGISTERED PROFESSIONAL ENGINEER
Gary Grant Krieger, No. 28782
No dealer, salesperson or any other person has been authorized to
give any information or to make any representations in connection
with this offering other than those contained in this Prospectus.
Any information or representation not herein contained, if given
or made, must not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer to sell or
a solicitation of an offer to buy any security other than the
securities offered by this Prospectus, nor does it constitute an
offer to sell or a solicitation of an offer to buy the securities
by any person in any jurisdiction where such offer or
solicitation is not authorized, or in which the person making
such offer is not qualified to do so, or to any person to whom it
is unlawful to make such offer or solicitation. The delivery of
this Prospectus shall not, under any circumstances, create any
implication that there has been no change in the affairs of the
Company since the date hereof.
TABLE OF CONTENTS
Page
Prospectus Summary ................
Risk Factors.......................
Use of Proceeds....................
Capitalization.....................
Price Range of Common Stock........
Dividend Policy....................
Selected Consolidated
Financial Data.....................
Management's Discussion and
Analysis of Financial Condition
and Results of
Operations.......................
Business and Properties............
Management.........................
Description of Common Stock........
Underwriting.......................
Legal Matters......................
Experts............................
Available Information..............
Incorporation of Certain
Documents by Reference............
Glossary...........................
Index to Consolidated
Financial Statements..............
Summary Reserve Report of Ryder
Scott Company.................... Exhibit A
2,000,000 Shares
[ST. MARY LOGO]
Common Stock
_____________________
PROSPECTUS
_____________________
Morgan Keegan & Company, Inc.
A.G. Edwards & Sons, Inc.
Hanifen, Imhoff Inc.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The estimated expenses of the offering, all of which are to
be borne by the Company, are as follows:
Registration Fee Under
Securities Act of 1933 and
NASD Registration Fee........................... $26,978
Printing and Engraving............................. 50,000*
Accounting Fees and Expenses....................... 45,000*
Legal Fees and Expenses............................ 40,000*
Blue Sky Fees and Expenses
(including related legal fees).................. 10,000*
Transfer Agent Fees................................ 1,000*
Miscellaneous...................................... 27,022*
Total......................................... $200,000*
________________
*Estimated
Item 15. Indemnification of Directors and Officers.
As permitted by the provisions of the Delaware General
Corporation Law, the Certificate of Incorporation eliminates in
certain circumstances the monetary liability of directors of the
Company for a breach of their fiduciary duty as directors. These
provisions do not eliminate the liability of a director (i) for a
breach of the director's duty of loyalty to the Company or its
stockholders; (ii) for acts or omissions by a director not in
good faith or which involve intentional misconduct or a knowing
violation of law; (iii) for liability arising under Section 174
of the Delaware General Corporation Law (relating to the
declaration of dividends and purchase or redemption of shares in
violation of the Delaware General Corporation Law); or (iv) for
any transaction from which the director derived an improper
personal benefit. In addition, these provisions to not eliminate
the liability of a director for violations of federal securities
laws, nor do they limit the rights of the Company or its
stockholders, in appropriate circumstances, to seek equitable
remedies such as injunctive or other forms of non-monetary
relief. Such remedies may not be effective in all cases.
The Company's Certificate of Incorporation and Bylaws
provide that the Company shall indemnify all directors and
officers of the Company to the full extent permitted by the
Delaware General Corporation Law. Under such provisions, any
director or officer, who in his capacity as such is made or
threatened to be made, a party to any suit or proceeding, may be
indemnified if the Board determines such director or officer
acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interest of the Company. The
Certificate, Bylaws and the Delaware General Corporation Law
further provide that such indemnification is not exclusive of any
other rights to which such individuals may be entitled under the
Certificate, the Bylaws, any agreement, vote of stockholders or
disinterested directors or otherwise. Insofar as indemnification
for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has
been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is therefore
unenforceable.
Item 16. Exhibits.
The following Exhibits are filed with or incorporated into
this Form S-3 Registration Statement pursuant to Item 601 of
Regulation S-K:
1.1 Form of Underwriting Agreement
5.1 Opinion of Cohen Brame & Smith Professional
Corporation
13.1 The Company's Annual Report on Form 10-K for the
year ended December 31, 1995**
13.2 The Company's Quarterly Reports on Form 10-Q for
the quarterly periods ended March 31, 1996,
June 30, 1996 and September 30, 1996, as amended
by a Form 10-Q/A dated November 15, 1996**
13.3 The Company's Current Report on Form 8-K dated
June 28, 1996, as amended by a Form 8-K/A
dated June 28, 1996, regarding the acquisition of
an interest in certain of the assets of Siete Oil
and Gas Company**
13.4 The Company's Current Report on Form 8-K dated
December 16, 1996 regarding the sale of the
Company's Russian Partnership Interest**
13.5 The Company's Current Report on Form 8-K dated
January 28, 1997 regarding certain exhibits**
13.6 The Company's Registration Statement on Form 8-A
filed November 18, 1992**
23.1 Consent of Cohen Brame & Smith Professional
Corporation (included in Exhibit 5.1 above)
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Ryder Scott Company
24.1 Power of Attorney (included on signature page)
_________________
* To be filed by amendment.
** Incorporated by reference to the Company's Report or
Registration Statement filed on the Form and on the date or for
the period or periods indicated (Exchange Act File No. 0-20872).
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the Company of expenses incurred or paid by a director,
officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned Company hereby undertakes that:
(1) For the purposes of determining any liability under the
Securities Act of 1933, each filing of the Company's annual
report pursuant to section 13(a) or section 15(d) of the
Securities Exchanges Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(2) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the
form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the
time it was declared effective.
(3) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering
thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Company certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-3, and has
duly caused this Form S-3 Registration Statement to be signed on
its behalf by the undersigned thereunto duly authorized, in the
City of Denver, State of Colorado, on the 28th day of January,
1997.
ST. MARY LAND & EXPLORATION COMPANY
By: /s/ Thomas E. Congdon
Thomas E. Congdon, Chairman of the Board
GENERAL POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Thomas E.
Congdon and Mark A. Hellerstein, and each of them, his true and
lawful attorney-in-fact and agent with full power of substitution
and resubstitution, for him and in his name, place and stead, and
any and all capacities, to sign any amendments, including post
effective amendments and any amendment pursuant to Rule 462 of
the Securities Act of 1933, to this Registration Statement on
Form S-3, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes,
may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
Signatures Title Date
/s/ Thomas E. Congdon Chairman of the
Thomas E. Congdon Board of Directors January 28, 1997
/s/ Mark A. Hellerstein President, Chief January 28, 1997
Mark A. Hellerstein Executive Officer
(Principal Executive
Officer)
/s/ Ronald D. Boone Executive Vice January 28, 1997
Ronald D. Boone President, Chief
Operating Officer
and Director
(Principal Executive
Officer)
/s/ David L. Henry Vice President-Finance January 28, 1997
David L. Henry and Chief Financial
Officer (Principal
Financial and
Accounting Officer)
/s/ Richard C. Norris Vice President - January 28, 1997
Richard C. Norris Accounting and
Administration and
Treasurer
/s/ Larry W. Bickle Director January 28, 1997
Larry W. Bickle
/s/ David C. Dudley Director January 28, 1997
David C. Dudley
/s/ Richard C. Kraus Director January 28, 1997
Richard C. Kraus
/s/ R. James Nicholson Director January 28, 1997
R. James Nicholson
/s/ Arend J. Sandbulte Director January 28, 1997
Arend J. Sandbulte
/s/ John M. Seidl Director January 28, 1997
John M. Seidl
St. Mary Land & Exploration Company
Exhibit Index
Registration Statement on Form S-3
File No. 333- ___________
Exhibit Sequentially
Number Description of Exhibit Numbered Pages
1.1 Form of Underwriting Agreement ____
5.1 Opinion of Cohen Brame & Smith ____
Professional Corporation
13.1 The Company's Annual Report on **
Form 10-K for the year ended
December 31, 1995
13.2 The Company's Quarterly Reports on **
Form 10-Q for the quarterly periods
ended March 31, 1996, June 30, 1996
and September 30, 1996, as amended
by a Form 10-Q/A dated
November 15, 1996
13.3 The Company's Current Report on Form **
8-K dated June 28, 1996, as amended
by a Form 8-K/A dated June 28,
1996, regarding the acquisition of
an interest in certain of the assets
of Siete Oil and Gas Company
13.4 The Company's Current Report on **
Form 8-K dated December 16, 1996
regarding the sale of the Company's
Russian Partnership Interest
13.5 The Company's Current Report on **
Form 8-K dated January 27, 1997
regarding certain exhibits
13.6 The Company's Registration Statement **
on Form 8-A filed November 18, 1992
23.1 Consent of Cohen Brame & Smith
Professional Corporation
(included in Exhibit 5.1 above)
St. Mary Land & Exploration Company
Exhibit Index
Registration Statement on Form S-3
File No. 333- ___________
Exhibit Sequentially
Number Description of Exhibit Numbered Pages
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Ryder Scott Company
** Incorporated by reference to the Company's Report or
Registration Statement filed on the Form and on the date or for
the period or periods indicated (Exchange Act File No. 0-20872).
<PAGE>
ST. MARY LAND & EXPLORATION COMPANY
Common Stock (par value $.01 per share)
UNDERWRITING AGREEMENT
, 1997
Morgan Keegan & Company, Inc.
A.G. Edwards & Sons, Inc.
Hanifen, Imhoff Inc.
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Morgan Keegan & Company, Inc.
50 North Front Street
Memphis, Tennessee 38103
Ladies and Gentlemen:
St. Mary Land & Exploration Company, a Delaware
corporation (the Company ), proposes, subject to the terms and
conditions stated herein, to issue and sell to the Underwriters
named in Schedule I hereto (the Underwriters ) an aggregate of
2,000,000 shares of common stock, par value $.01 per share (
Stock ) of the Company and, at the option of the Underwriters, up
to 300,000 additional shares of Stock. The aggregate of the
2,000,000 shares to be sold by the Company is herein called the
Firm Shares and the aggregate of 300,000 additional shares to be
sold by the Company is herein called the Optional Shares. The
Firm Shares and the Optional Shares that the Underwriters elect
to purchase pursuant to Section 2 hereof are herein collectively
called the Shares.
1. The Company represents and warrants to, and agrees
with, each of the Underwriters that:
(a) The Company meets the requirements for use of Form
S-3 and a registration statement on Form S-3 (File No. 333- ____)
in respect of the Shares, including a preliminary prospectus and
such amendments to such registration statement as may have been
required to the date of this Agreement, has been prepared by the
Company under the provisions of the Securities Act of 1933, as
amended (the Act), and the rules and regulations thereunder (the
Rules and Regulations), and has been filed with the Securities
and Exchange Commission (the Commission ); the registration
statement, in the form heretofore delivered to you, and,
excluding exhibits thereto, to you for each of the other
Underwriters, has been declared effective by the Commission in
such form; no other document with respect to the registration
statement has heretofore been filed with the Commission; and no
stop order suspending the effectiveness of the registration
statement, any post-effective amendment thereto or the Rule
462(b) registration statement, if any, has been issued and no
proceeding for that purpose has been initiated or threatened by
the Commission (any preliminary prospectus included in the
registration statement or filed with the Commission pursuant to
Rule 424(a) of the Rules and Regulations is hereinafter called a
Preliminary Prospectus; the registration statement as amended at
the time it became effective (the Effective Date), including all
financial statements, schedules and exhibits thereto and
including the information contained in the form of final
prospectus filed with the Commission pursuant to Rule 424(b)
under the Act in accordance with Section 5(a) hereof and deemed
by virtue of Rule 430A under the Act to be part of the
registration statement at the time it was declared effective, is
hereinafter collectively called the Registration Statement; and
such final prospectus, in the form first filed pursuant to Rule
424(b) under the Act, is hereinafter called the Prospectus );
any reference herein to the Preliminary Prospectus, Registration
Statement and Prospectus shall be deemed to refer to and include
the documents incorporated by reference therein and shall be
deemed to refer to and include any documents filed after the date
of such Preliminary Prospectus, Registration Statement and
Prospectus under the Securities Exchange Act of 1934, as amended
(the Exchange Act ); if the Company has filed an abbreviated
registration statement to register additional Shares pursuant to
Rule 462(b) under the Act, then any reference herein to the
Registration Statement shall also be deemed to include such Rule
462(b) registration statement; any reference herein to the terms
amend, amendment or supplement with respect to the Registration
Statement, the Preliminary Prospectus or the Prospectus shall be
deemed to refer to and include the filing of any document under
the Exchange Act after the Effective Date, or the date of the
Preliminary Prospectus or the Prospectus, as the case may be, and
deemed to be incorporated therein by reference;
(b) On the Effective Date, the date the Prospectus is
first filed with the Commission pursuant to Rule 424(b), at all
times subsequent to and including the Time of Delivery (as
defined) and, if later, when any post-effective amendment to the
Registration Statement becomes effective or any amendment or
supplement to the Prospectus is filed with the Commission, the
Registration Statement and the Prospectus (as amended or as
supplemented if the Company shall have filed with the Commission
any amendment or supplement thereto), including financial
statements included or incorporated by reference in the
Prospectus, did or will comply with all applicable provisions of
the Act, the Rules and Regulations, the Exchange Act and the
rules and regulations thereunder (the Exchange Act Rules and
Regulations); on the Effective Date and when any post-effective
amendment to the Registration Statement becomes effective, no
part of the Registration Statement, the Prospectus or any such
amendment or supplement did or will contain any untrue statement
of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements
therein not misleading; at the Effective Date, the date the
Prospectus or any amendment or supplement to the Prospectus is
filed with the Commission and each Time of Delivery (as defined
in Section 4), the Prospectus did not or will not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
(c) The documents which are incorporated by reference
in the Preliminary Prospectus and the Prospectus or from which
information is so incorporated by reference, when they became
effective or were filed with the Commission, as the case may be,
complied in all material respects with the requirements of the
Act, the Rules and Regulations, the Exchange Act and the rules
and regulations thereunder (the Exchange Act Rules and
Regulations), as applicable; and any documents so filed and
incorporated by reference subsequent to the Effective Date shall,
when they are filed with the Commission, conform in all material
respects with the requirements of the Act, the Rules and
Regulations, the Exchange Act and the Exchange Act Rules and
Regulations, as applicable; no such documents when they were
filed (or, if amendments with respect to such documents were
filed, when such amendments were filed), contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they were
made, not misleading;
(d) The financial statements, together with related
schedules and notes, included or incorporated by reference in the
Registration Statement or the Prospectus comply as to form in all
material respects with the requirements of the Act and the
Exchange Act, and present fairly the consolidated financial
condition of the Company and its subsidiaries as of the
respective dates thereof and the consolidated results of
operations and cash flows of the Company and its subsidiaries for
the respective periods covered thereby, all in conformity with
generally accepted accounting principles applied on a consistent
basis throughout the entire period involved, except as otherwise
disclosed in the Prospectus. No other financial statements or
schedules of the Company are required by the Act or the Rules and
Regulations, the Exchange Act and the Exchange Act Rules and
Regulations to be included in the Prospectus; all selected
financial, operating and statistical data set forth in the
Prospectus under the captions Prospectus Summary, [ Selected
Consolidated Financial Statements,] Managements Discussion and
Analysis of Financial Condition and Results of Operations,
Business and Properties and elsewhere in the Prospectus fairly
presents, when read in conjunction with the Company s financial
statements and the related notes and schedules, the information
set forth therein;
(e) The Company maintains a system of internal
accounting control sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions
are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii)
access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken
with respect to any differences;
(f) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus and prior to each Time of Delivery, except as set
forth in or contemplated by the Registration Statement and the
Prospectus (i) neither the Company nor any of its subsidiaries
has sustained any material loss or interference with its business
from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or
governmental action, order or decree, and (ii) there has not been
any change in the capital stock or long-term debt of the Company
or any of its subsidiaries or any material adverse change, or any
development involving a prospective material adverse change, in
or affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and
its subsidiaries;
(g) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws
of the State of Delaware, with power and authority (corporate and
other) to own, lease and operate its assets and conduct its
business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each
jurisdiction in which it owns or leases properties or conducts
any business so as to require such qualification, or is subject
to no material liability or disability by reason of the failure
to be so qualified in any such jurisdiction; and each direct or
indirect subsidiary of the Company (which, for all purposes
hereof, shall include Panterra Petroleum (Panterra)) has been
duly incorporated and is validly existing as a corporation in
good standing under the laws of its jurisdiction of incorporation
or has been formed and is validly existing as a general or
limited partnership, as the case may be, has power and authority
to own, lease and operate its assets and conduct its business as
described in the Prospectus, and has been duly qualified for the
transaction of business and is in good standing under the laws of
each jurisdiction in which it owns or leases properties or
conducts any business so as to require such qualification, or is
subject to no material liability or disability by reason of the
failure to be so qualified in any such jurisdiction;
(h) The Company has an authorized capitalization as
set forth in the Prospectus, and all of the issued shares of
capital stock of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable, free
and clear of all liens, encumbrances, equities or claims, and
conform to the description of the Stock contained in the
Prospectus; and all of the issued shares of capital stock of, or
partnership or other equity ownership interest in, each
subsidiary of the Company have been duly and validly authorized
and issued, are fully paid and non-assessable and (except as
described in the Prospectus are owned directly or indirectly by
the Company), free and clear of all liens, encumbrances, equities
or claims;
(i) The Shares to be issued and sold by the Company to
the Underwriters hereunder have been duly and validly authorized
and, when issued and delivered against payment therefor as
provided herein, will be duly and validly issued and fully paid
and non-assessable, will not be subject to any preemptive of
similar right and will conform to the description of the Stock
contained in the Prospectus; Except as set forth in the
Prospectus, the Company does not have outstanding, and at the
Time of Delivery will not have outstanding, any options to
purchase, or any rights or warrants to subscribe for, or any
securities or obligations convertible into, or any contracts or
commitments to issue or sell, or any restrictions upon the voting
or transfer of, any shares of Stock, any shares of capital stock
of any subsidiary or any such warrants, convertible securities or
obligations; the Shares are eligible for trading on the Nasdaq
National Market;
(j) The issue and sale of the Shares to be sold by the
Company and the compliance by the Company with all of the
provisions of this Agreement and the consummation of the
transactions herein contemplated will not conflict with or result
in a breach or violation of any of the terms or provisions of, or
constitute a default under, or result in the creation of any
lien, charge or encumbrance on any property or assets of the
Company or any of its subsidiaries pursuant to, any indenture,
mortgage, deed of trust, loan agreement, note, lease or other
agreement or instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets
of the Company or any of its subsidiaries is subject, nor will
such action result in any violation of the provisions of the
Restated Certificate of Incorporation, as amended (Certificate of
Incorporation), or Restated By-laws (By-laws) of the Company or
any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company
or any of its subsidiaries or any of their properties; and no
consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or
body is required for the issue and sale of the Shares or the
consummation by the Company of the transactions contemplated by
this Agreement, except the registration of the Shares under the
Act and as may be required under the securities or Blue Sky laws
of certain jurisdictions and the bylaws and rules of the National
Association of Securities Dealers, Inc. (NASD) in connection with
the purchase and distribution by the Underwriters of the Shares;
(k) As of the date hereof, and at each Time of
Delivery, neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws or other
organizational documents or in default in the performance or
observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust,
loan agreement, lease or other agreement or instrument to which
it is a party or by which it or any of its properties may be
bound; each of the Company and its subsidiaries is in possession
of and operating in compliance with all leases, concessions,
franchises, grants, authorizations, licenses, permits, easements,
consents, certificates and orders required for the conduct of its
business as described in the Prospectus, all of which are valid
and in full force and effect other than those which could not,
singly or in the aggregate, have a material adverse effect on the
condition, financial or otherwise, or on the earnings, business
affairs or business prospects of the Company and its subsidiaries
taken as a whole (a Material Adverse Effect), and neither the
Company nor any of its subsidiaries has received any notice of
proceedings relating to the revocation or modification of any
such lease, concession, franchise, grant, authorization, license,
permit, easement, consent, certificate or order which,
individually or in the aggregate, if subject to an unfavorable
decisions, would result in a Material Adverse Effect;
(l) The Company has full corporate power and authority
to enter into this Agreement, and this Agreement has been duly
authorized, executed and delivered by the Company;
(m) The statements set forth in the Prospectus under
the caption Description of Common Stock, insofar as they purport
to constitute a summary of the terms of the Stock are accurate
and complete;
(n) Except as described in the Prospectus, each of the
Company and its subsidiaries has (1) generally satisfactory or
good and indefeasible title to all its interest in its oil and
gas properties, title investigations having been carried out by
or on behalf of such person in accordance with good practice in
the oil and gas industry in the areas in which the Company and
its subsidiaries operate and (2) good and indefeasible title to
all other real property and good and marketable title to all
other material properties and assets described in the Prospectus
as owned by the Company or its subsidiaries and valid, subsisting
and enforceable leases for all of the properties and assets, real
or personal, described in the Prospectus as leased by them, in
each case free and clear of any security interests, mortgages,
pledges, liens, encumbrances or charges of any kind, other than
those described in the Prospectus;
(o) Except as described in the Prospectus, as of the
date hereof, (i) all royalties, rentals, deposits and other
amounts due on the oil and gas properties of the Company and its
subsidiaries have been properly and timely paid, and no proceeds
from the sale or production attributable to the oil and gas
properties of the Company and its subsidiaries are currently
being held in suspense by any purchaser thereof, and (ii) there
are no claims under take-or-pay contracts pursuant to which
natural gas purchasers have any make-up rights affecting the
interest of the Company and its subsidiaries in its oil and gas
properties;
(p) As of the date hereof, the aggregate undiscounted
monetary liability of the Company and its subsidiaries for oil or
natural gas taken or received under any operating or gas
balancing and storage agreement relating to its oil and gas
properties that permits any person to receive any portion of the
interest of the Company or any of its subsidiaries in oil or
natural gas or to receive cash or other payments to balance any
disproportionate allocation of oil or natural gas could not have
a Material Adverse Effect;
(q) Other than as set forth in the Prospectus, there
are no legal or governmental actions, suits or proceedings
pending or threatened against or affecting the Company or any of
its subsidiaries or any of their respective officers, directors
or partners in their capacity as such, before or by any Federal,
state or local court, commission, regulatory body, administrative
agency or other governmental body, domestic or foreign, which, if
determined adversely to the Company or any of its subsidiaries,
would individually or in the aggregate have a Material Adverse
Effect;
(r) The Company is not and, after giving effect to the
offering and sale of the Shares, will not be an investment
company or an entity controlled by an investment company, as such
terms are defined in the Investment Company Act of 1940, as
amended (the Investment Company Act );
(s) Neither the Company nor any of its affiliates does
business with the government of Cuba or with any person or
affiliate located in Cuba within the meaning of Section 517.075,
Florida Statutes;
(t) Coopers & Lybrand L.L.P., who have certified
certain financial statements of the Company and its subsidiaries,
are independent public accountants as required by the Act and the
Rules and Regulations;
(u) The information underlying the estimates of the
reserves of the Company and its subsidiaries, which was supplied
by the Company to Ryder Scott & Company (Ryder Scott),
independent petroleum engineers, for purposes of preparing the
reserve information referenced in the Prospectus (the Reserve
Information ), including, without limitation, production,
volumes, sales prices for production, contractual pricing
provisions under oil or gas sales or marketing contracts under
hedging arrangements, costs of operations and development, and
working interest and net revenue information relating to the
Company's ownership interests in properties, was true and correct
in all material respects on the date of such Reserve Information;
the estimates of future capital expenditures and other future
exploration and development costs supplied to Ryder Scott were
prepared in good faith and with a reasonable basis; the
information provided by Ryder Scott for purposes of preparing the
Reserve Information was prepared in accordance with customary
industry practices; to the best of the Company's knowledge, Ryder
Scott were, as of the date of the Reserve Information prepared by
it, and are, as of the date hereof, independent petroleum
engineers with respect to the Company; other than normal
production of the reserves and intervening spot market product
price fluctuations described in the Prospectus, the Company is
not aware of any facts or circumstances that would result in a
materially adverse change in the reserves in the aggregate, or
the aggregate present value of future net cash flows therefrom,
as described in the Prospectus and reflected in the Reserve
Information; estimates of such reserves and the present value of
the future net cash flows therefrom as described in the
Prospectus and reflected in the Reserve Information comply in all
material respects to the applicable requirements of Regulation
S-X and Industry Guide 2 under the Act;
(v) The Company and its subsidiaries (A) are in
compliance with any and all applicable federal, state and local
laws and regulations relating to the protection of human health
and safety, the environment or hazardous or toxic substances or
waste, pollutants or contaminants (Environmental Laws), (B) have
received all permits, licenses or other approvals required under
applicable Environmental Laws to conduct their respective
businesses and (C) are in compliance with all terms and
conditions of any such permit, license or approval, except for
such noncompliance with Environmental Laws, failure to receive
required permits, licenses or other approvals or failure to
comply with the terms and conditions of such permits, licenses or
approvals that would not, singularly or in the aggregate, have a
Material Adverse Effect. There has been no storage, disposal,
generation, transportation, handling or treatment of hazardous
substances or solid wastes by the Company or its subsidiaries (or
to the knowledge of the Company and its subsidiaries, any of
their respective predecessors in interest) at, upon or from any
of the property now or previously owned or leased by the Company
or any subsidiary in violation of any applicable law, ordinance,
rule, regulation, order, judgment, decree or permit or which
would require remedial action by the Company or any subsidiary
under any applicable law, ordinance, rule, regulation, order,
judgment, decree or permit, except for any violation or remedial
action which would not result in, or which would not be
reasonably likely to result in, singularly or in the aggregate
with all such violations and remedial actions, a Material Adverse
Effect; there has been no spill, discharge, leak, emission,
injection, escape, dumping or release of any kind onto such
property or into the environment surrounding such property of any
solid wastes or hazardous substances due to or caused by
the Company or any subsidiary, except for any such spill,
discharge, leak, emission, injection, escape, dumping or
release which would not result in or would not be reasonably
likely to result in, singularly or in the aggregate with all
such spills, discharges, leaks, emissions, injections, escape,
dumping or releases, a Material Adverse Effect; and the terms
hazardous substances and solid wastes shall have the
meanings specified in any applicable local, state and federal
laws or regulations with respect to environmental protection;
(w) There are no persons with registration or similar
rights to require registration of any securities of the Company
under the Act because of the filing of the Registration Statement
or the sale of the shares by the Company to the Underwriters,
other than such rights as are described in the Prospectus and
have been duly and effectively waived;
(x) The Company and its subsidiaries and their
respective directors, officers or controlling persons have not
taken, directly or indirectly, any action intended, or which
might reasonably be expected, to cause or result, under the
Act or otherwise, in, or which has constituted, stabilization
or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares; and
(y) Neither the Company nor any of its subsidiaries nor,
to the Company s knowledge, any employee or agent of the Company
or any subsidiary has made any payment of funds of the Company or
any subsidiary or received or retained any funds in violation of
any law, rule or regulation or of a character required to be
disclosed in the Prospectus.
2. Subject to the terms and conditions herein set
forth, (a) the Company agrees to sell to each of the
Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase from the Company, at a purchase price
per share of $ ________, the aggregate number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereto
and (b) in the event and to the extent that the Underwriters
shall exercise the election to purchase Optional Shares as
provided below, the Company agrees to sell to each of the
Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase from the Company,at the purchase price
per share set forth in clause (a) of this Section 2, that portion
of the number of Optional Shares as to which such election shall
have been exercised (to be adjusted by you so as to eliminate
fractional shares) determined by multiplying such number of
Optional Shares by a fraction the numerator of which is the
maximum number of Optional Shares which such Underwriter is
entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is
the maximum number of Optional Shares that all of the
Underwriters are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right
to purchase at their election up to 300,000 Optional Shares, at
the purchase price per share set forth in the paragraph above,
for the sole purpose of covering overallotments in the sale of
the Firm Shares. Any such election to purchase Optional Shares
may be exercised only by written notice from you to the Company,
given within a period of 30 calendar days after the date of this
Agreement and setting forth the aggregate number of Optional
Shares to be purchased and the date on which such Optional Shares
are to be delivered, as determined by you but in no event earlier
than the First Time of Delivery (as defined in Section 4 hereof)
or, unless you and the Company otherwise agree in writing,
earlier than two or later than ten business days after the date
of such notice.
3. Upon the authorization by you of the release of the
Firm Shares, the several Underwriters propose to offer the Firm
Shares for sale upon the terms and conditions set forth in the
Prospectus.
4. (a) The Shares to be purchased by each Underwriter
hereunder, in definitive form, and in such authorized
denominations and registered in such names as Morgan Keegan &
Company, Inc., ( Morgan Keegan ) may request upon at least
forty-eight hours' prior notice to the Company shall be delivered
at the Time of Delivery (as defined below) by or on behalf of the
Company to Morgan Keegan for the account of such Underwriter,
against payment therefor by certified or official bank checks
payable in New York Clearing House (next-day) funds to the order
of the Company. The Company will cause the certificates
representing the Shares to be made available for checking and
packaging at least twenty-four hours prior to the Time of
Delivery with respect thereto at the office of [Morgan Keegan, 50
N. Front Street, Memphis, Tennessee 38103] (the "Designated
Office"). The time and date of such delivery and payment shall
be, with respect to the Firm Shares, 8:30 a.m., Central daylight
time on , 1997 or such other time and date as Morgan Keegan
and the Company may agree in writing, and with respect to the
Option Shares, 8:30 a.m., Central daylight time, on the date
specified by Morgan Keegan in the written notice given by Morgan
Keegan of the Underwriters' election to purchase such Optional
Shares, or such other time and date as Morgan Keegan and the
Company may agree upon in writing. Such time and date for
delivery of the Firm Shares is herein called the First Time of
Delivery , such time and date for delivery of the Optional
Shares, if not the First Time of Delivery, is herein called the
Second Time of Delivery , and each such time and date for
delivery is herein called a Time of Delivery .
(b) The documents to be delivered at each Time of
Delivery by or on behalf of the parties hereto pursuant to
Section 7 hereof, including the cross receipt for the Shares and
any additional documents requested by the Underwriters pursuant
to Section 7(i) hereof will be delivered at the offices of
(the "Closing Location"), and the Shares will be
delivered at the Designated Office, all at Time of Delivery. A
meeting will be held at the Closing Location at 2:00 p.m.,
Central daylight time, on the business day next preceding Time of
Delivery, at which meeting the final drafts of the documents to
be delivered pursuant to the preceding sentence will be available
for review by the parties hereto. For the purposes of this
Section 4, business day shall mean each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day on which
banking institutions in New York are generally authorized or
obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters as
follows:
(a) To prepare the Prospectus in a form approved by
you and to file such Prospectus pursuant to Rule 424(b) under the
Act not later than the Commission's close of business on the
second business day following the execution and delivery of this
Agreement, or, if applicable, such earlier time as may be
required by Rule 430A(a)(3) under the Act; to prepare and file
with the Commission, promptly upon your request, any amendments
of or supplements to the Registration Statement or Prospectus
which, in your opinion, may be necessary or advisable in
connection with the distribution of the Shares; to make no
further amendment or any supplement to the Registration Statement
or Prospectus or file any document under the Exchange Act before
the termination of the offering of the Shares by the Underwriters
if such document would be deemed to be incorporated by reference
into the Prospectus which shall be disapproved by you promptly
after reasonable notice thereof; to advise you, promptly after it
receives notice thereof, of the time when any amendment to the
Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been
filed and to furnish you with copies thereof; to advise you,
promptly after it receives notice thereof, of the issuance by the
Commission of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or Prospectus,
of the suspension of the qualification of the Shares for offering
or sale in any jurisdiction, of the initiation or threatening of
any proceeding for any such purpose, or of any request by the
Commission for the amending or supplementing of the Registration
Statement or Prospectus or for additional information; and, in
the event of the issuance of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or
Prospectus or suspending any such qualification, promptly to use
its best efforts to obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as
you may reasonably request to qualify the Shares for offering and
sale under the securities laws of such jurisdictions as you may
request and to comply with such laws so as to permit the
continuance of sales and dealings therein in such jurisdictions
for as long as may be necessary to complete the distribution of
the Shares, provided that in connection therewith the Company
shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction;
(c) Prior to 9:00 a.m., Central daylight time, on the
business day next succeeding the date of this Agreement and from
time to time, to furnish the Underwriters with copies of the
Prospectus in such quantities as you may from time to time
reasonably request, and, if the delivery of a Prospectus is
required at any time prior to the expiration of nine months after
the time of issue of the Prospectus in connection with the
offering or sale of the Shares and if at such time any events
shall have occurred as a result of which the Prospectus as then
amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made when such Prospectus is
delivered, not misleading, or, if for any other reason it shall
be necessary during such period to amend or supplement the
Prospectus in order to comply with the Act or to file under the
Exchange Act any document which would be deemed to be
incorporated by reference in the Prospectus in order to comply
with the Act or the Exchange Act, to notify you and amend the
Registration Statement, supplement the Prospectus or file such
document and upon your request to prepare and furnish without
charge to each Underwriter and to any dealer in securities as
many copies as you may from time to time reasonably request of an
amended Prospectus or a supplement to the Prospectus which will
correct such statement or omission or effect such compliance, and
in case any Underwriter is required to deliver a prospectus in
connection with sales of any of the Shares at any time nine
months or more after the time of issue of the Prospectus, upon
your request but at the expense of such Underwriter, to prepare
and deliver to such Underwriter as many copies as you may request
of an amended or supplemented Prospectus complying with Section
10(a)(3) of the Act;
(d) If the Company elects to rely upon Rule 462(b), the
Company shall both file a Rule 462(b) Registration Statement with
the Commission in compliance with Rule 462(b) and pay the
applicable fees in accordance with Rule 111 of the Act by the
earlier of (i) 10:00 p.m., Washington, D.C. time, on the date of
this Agreement, or (ii) the time that confirmation are given or
sent, as specified by Rule 462(b)(2);
(e) To make generally available to its security holders
as soon as practicable, but in any event not later than eighteen
months after the Effective Date (as defined in Rule 158(c) under
the Act), an earnings statement of the Company and its
subsidiaries (which need not be audited) complying with Section
11(a) of the Act and the rules and regulations of the Commission
thereunder (including, at the option of the Company, Rule 158);
(f) During the period beginning from the date hereof
and continuing to and including the date 120 days after the date
of the Prospectus, not to offer, sell, contract to sell or
otherwise dispose of, except as provided hereunder, any
securities of the Company that are substantially similar to the
Shares, including but not limited to any securities that are
convertible into or exchangeable for, or that represent the right
to receive, Stock or any such substantially similar securities
(other than pursuant to employee stock option plans existing on
the date of this Agreement), without the prior written consent of
Morgan Keegan;
(g) To furnish to its stockholders as soon as
practicable after the end of each fiscal year an annual report
(including a balance sheet and statements of income,
stockholders' equity and cash flows of the Company and its
consolidated subsidiaries certified by independent public
accountants) and, as soon as practicable after the end of each of
the first three quarters of each fiscal year (beginning with the
fiscal quarter ending after the Effective Date of the
Registration Statement), consolidated summary financial
information of the Company and its subsidiaries for such quarter
in reasonable detail;
(h) During a period of five years from the Effective
Date of the Registration Statement, to furnish to you copies of
all reports or other communications (financial or other)
furnished to stockholders, and to deliver to you (i) as soon as
they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any
national securities exchange on which any class of securities of
the Company is listed; and (ii) such additional information
concerning the business and financial condition of the Company as
you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the
accounts of the Company and its subsidiaries are consolidated in
reports furnished to its stockholders generally or to the
Commission);
(i) To use the net proceeds received by it from the
sale of the Shares pursuant to this Agreement in the manner
specified in the Prospectus under the caption "Use of Proceeds";
and
(j) To use its best efforts to list for quotation the
Shares on the National Association of Securities Dealers
Automated Quotations National Market ( NASDAQ ).
6. The Company covenants and agrees with the several
Underwriters that the Company will pay or cause to be paid, the
following:
(a) The fees, disbursements and expenses of the
Company's counsel and accountants in connection with the
registration of the Shares under the Act and all other expenses
in connection with the preparation, printing and filing of the
Registration Statement, Preliminary Prospectus and Prospectus and
amendments and supplements thereto and the mailing and delivering
of copies thereof to the Underwriters and dealers;
(b) The cost of printing or producing any Agreement
among Underwriters, this Agreement, closing documents (including
any compilations thereof) and any other documents in connection
with the offering, purchase, sale and delivery of the Shares;
(c) All fees and expenses in connection with listing
the Shares on the Nasdaq National Market;
(d) The filing fees incident to, and the fees and
disbursements of counsel for the Underwriters in connection with,
securing any required review by the NASD of the terms of the sale
of the Shares;
(e) The cost of preparing stock certificates;
(f) The cost and charges of any transfer agent or
registrar; and
(g) All other costs and expenses incident to the
performance of its obligations hereunder which are not otherwise
specifically provided for in this Section.
It is understood, that except as provided in this
Section, and Sections 8 and 11 hereof, the Underwriters will pay
all of their own costs and expenses, including the fees of their
counsel, stock transfer taxes on resale of any of the Shares by
them, and any advertising expenses connected with any offers they
may make.
7. The obligations of the Underwriters hereunder as to
the Shares to be delivered at each Time of Delivery, shall be
subject, in their discretion, to the condition that all
representations and warranties and other statements of the
Company herein are, at and as of such Time of Delivery, true and
correct, the condition that the Company shall have performed all
of its obligations hereunder theretofore to be performed, and the
following additional conditions:
(a) The Prospectus shall have been filed with the
Commission pursuant to Rule 424(b) within the applicable time
period prescribed for such filing by the rules and regulations
under the Act and in accordance with Section 5(a) hereof; if the
Company has elected to rely upon Rule 462(b), the Rule 462(b)
Registration Statement shall have become effective not later than
the earlier of (x) 10:00 p.m., Washington, D.C. time, on the date
of this Agreement; or (y) at such later date and time as may be
approved by a majority in interest of the Underwriters; no stop
order suspending the effectiveness of the Registration Statement
or any part thereof shall have been issued and no proceeding for
that purpose shall have been initiated or threatened by the
Commission; and all requests for additional information on the
part of the Commission shall have been complied with to your
reasonable satisfaction;
(b) Butler & Binion, L.L.P., counsel for the
Underwriters, shall have furnished to you such opinion or
opinions, dated such Time of Delivery, with respect to such
matters as you may reasonably request, and such counsel shall
have received such papers and information as they may reasonably
request to enable them to pass upon such matters;
(c) Cohen Brame & Smith Professional Corporation,
counsel for the Company, shall have furnished to you their
written opinion, dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of Delaware, with power and authority
(corporate and other) to own, lease and operate its assets and
conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization
as set forth in the Prospectus, and all of the issued shares of
capital stock of the Company (including the Shares being
delivered at such Time of Delivery) have been duly and validly
authorized and issued and are fully paid and non-assessable,
free and clear of all liens, encumbrances, equities or claims;
and the Shares conform to the description of the Stock contained
in the Prospectus;
(iii) The Company has been duly qualified as a
foreign corporation for the transaction of business in, and is
in good standing under the laws of, each jurisdiction in which
it owns or leases properties or conducts any business so as to
require such qualification, or is subject to no material
liability or disability by reason of failure to be so qualified
in any such jurisdiction (such counsel being entitled to rely in
respect of the opinion in this clause upon opinions of local
counsel and in respect of matters of fact upon certificates of
officers of the Company, provided that such counsel shall state
that they believe that both you and they are justified in relying
upon such opinions and certificates);
(iv) Each direct or indirect subsidiary of the
Company (including Panterra) has been duly incorporated and is
validly existing as a corporation in good standing under the laws
of its jurisdiction of incorporation or is duly formed and
validly existing as a general or limited partnership under the
laws of its state of formation, as the case may be, has power
and authority to own, lease and operate its assets and conduct
its business as described in the Prospectus, and is duly
qualified to transact business and is in good standing in each
jurisdiction in which the nature of its activities requires
such qualification; all of the issued shares of capital stock
of, or partnership or other equity ownership interest in, each
such subsidiary have been duly and validly authorized and
issued, arefully paid and non-assessable, and (except for as
described in the Prospectus as owned directly or indirectly by
the Company), free and clear of all liens, encumbrances,
equities or claims (such counsel being entitled to rely in
respect of the opinion in this clause upon opinions of local
counsel and in respect of matters of fact upon certificates of
officers of the Company or its subsidiaries, provided that
such counsel shall state that they believe that both you and
they are justified in relying upon such opinions and
certificates);
(v) To the best of such counsel's knowledge and
other than as set forth in the Prospectus, there are no legal or
governmental actions, suits or proceedings pending or threatened
against or affecting the Company or any of its subsidiaries, or
any of their respective officers, directors or partners in their
capacity as such, before or by any Federal or state court,
commission, regulatory body, administrative agency or other
governmental body, domestic or foreign, which, if determined
adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a Material Adverse Effect
on the current or future consolidated financial position
stockholders' equity or results of operations of the Company and
its subsidiaries;
(vi) The Company has full corporate power and
authority to enter into this Agreement, and this Agreement has
been duly authorized, executed and delivered by the Company;
(vii) The issue and sale of the Shares being
delivered at such Time of Delivery to be sold by the Company
and the compliance by the Company with all of the provisions of
this Agreement and the consummation of the transactions herein
contemplated will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a
default under, or result in the creation of any lien, charge or
encumbrance on any property or assets of the Company or any of
its subsidiaries pursuant to, any indenture, mortgage, deed of
trust, loan agreement, note, lease or other agreement or
instrument known to such counsel to which the Company or any of
its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets
of the Company or any of its subsidiaries is subject, nor will
such action result in any violation of the provisions of the
Certificate of Incorporation or By-laws of the Company or any
statute or any order, rule or regulation known to such counsel of
any court or governmental agency or body having jurisdiction over
the Company or any of its subsidiaries or any of their
properties;
(viii) No consent, approval, authorization,
order, registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale
of the Shares or the consummation by the Company of the
transactions contemplated by this Agreement, except the
registration under the Act of the Shares and such consent as may
be required under the bylaws and rules of the NASD in connection
with the purchase and distribution of the Shares by the
Underwriters;
(ix) To the extent summarized therein, all
contracts and agreements summarized in the Registration Statement
and the Prospectus are fairly summarized therein, conform in all
material respects to the descriptions thereof contained therein,
and, to the extent such contracts or agreements or any other
material agreements are required under the Act or the Rules and
Regulations thereunder to be filed as exhibits to the
Registration Statement, they are so filed; and such counsel does
not know of any contracts or other documents required to be
summarized or disclosed in the Prospectus (or required to be
filed under the Exchange Act if upon such filing they would be
incorporated, in whole or in part, by reference therein) or to be
so filed as an exhibit to the Registration Statement, which have
not been so summarized, disclosed or filed;
(x) The statements set forth in the Prospectus
under the caption Description of Common Stock , insofar as they
purport to constitute a summary of the terms of the Stock, are
accurate, complete and fair;
(xi) The Company is not an investment company or
an entity controlled by an investment company, as such terms
are defined in the Investment Company Act;
(xii) To the best of such counsel's knowledge,
except as have been waived at the Time of Delivery, there are no
persons with registration or similar rights to have any
securities of the Company registered pursuant to the
Registration Statement;
(xiii) The Registration Statement is effective
under the Act and, to the knowledge of such counsel, no stop
order suspending the effectiveness of the Registration Statement
has been issued under the Act or proceedings therefor initiated
or threatened by the Commission; and
(xiv) Such counsel (A) is of the opinion that
the Registration Statement and the Prospectus and any amendment
or supplement thereto (including any document incorporated by
reference into the Prospectus), as of their respective effective
dates and as of each Time of Delivery, complied in all material
respects with the requirements of the Securities Act, the Rules
and Regulations, the Exchange Act and the Exchange Act Rules and
Regulations (it being understood that such counsel need express
no opinion as to the financial statements and schedules or other
financial data contained in the Registration Statement, the
Prospectus or the documents incorporated by reference therein),
and the conditions for use of Form S-3, set forth in the General
Instructions thereto, have been satisfied; and (B) has no reason
to believe that the Registration Statement or any amendment or
supplement thereto, at the time such Registration Statement or
amendment or supplement became effective, or the Prospectus or
any amendment or supplement thereto (including any document filed
under the Exchange Act and deemed to be incorporated by
reference into the Prospectus or any amendment or supplement
thereto), as of its date and as of each Time of Delivery,
contained or contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(d) On the date of the Prospectus, on the effective date of
any post-effective amendment to the Registration Statement filed
subsequent to the date of this Agreement and also at each Time of
Delivery, Coopers & Lybrand L.L.P. shall have furnished to you a
letter or letters, dated the respective dates of delivery
thereof, in form and substance satisfactory to you, to the effect
set forth in Annex I hereto;
(e) Ryder Scott, such firm constituting independent
petroleum engineering consultants, shall have delivered to you on
the date of this Agreement a letter (the "Reserve Letter") and
also at each Time of Delivery a letter dated the date of such
Time of Delivery, in each case in form and substance reasonably
satisfactory to you, stating, as of the date of such letter (or,
with respect to matters involving changes or developments since
the respective dates as of which specified information with
respect to the oil and gas reserves is given or incorporated in
the Prospectus as of the date not more than five days prior to
the date of such letter), the conclusions and findings of such
firm with respects to the oil and gas reserves of the Company.
(f)(i) Neither the Company nor any of its subsidiaries
shall have sustained since the date of the latest audited
financial statements included or incorporated by reference in the
Prospectus any loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or
contemplated in the Prospectus, and (ii) since the respective
dates as of which information is given or incorporated by
reference in the Prospectus there shall not have been any change
in the capital stock or long- term debt of the Company or any of
its subsidiaries or any change, or any development involving a
prospective change, in or affecting the general affairs,
management, financial position, stockholders' equity or results
of operations of the Company and its subsidiaries, otherwise than
as set forth or contemplated in the Prospectus, the effect of
which, in any such case described in Clause (i) or (ii), is in
the judgment of the representatives of the Underwriters so
material and adverse as to make it impracticable or inadvisable
to proceed with the public offering or the delivery of the Shares
being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(g) On or after the date hereof there shall not have
occurred any of the following: (i) a suspension or material
limitation in trading in securities generally on the New York
Stock Exchange or on the Nasdaq National Market; (ii) a
suspension or material limitation in trading in the Company's
securities on the Nasdaq National Market; (iii) a general
moratorium on commercial banking activities declared by either
Federal or New York or Tennessee state authorities; or (iv) the
outbreak or escalation of hostilities involving the United States
or the declaration by the United States of a national emergency
or war, if the effect of any such event specified in this Clause
(iv) in the judgment of the representatives of the Underwriters
makes it impracticable or inadvisable to proceed with the public
offering or the delivery of the Shares being delivered at such
Time of Delivery on the terms and in the manner contemplated in
the Prospectus;
(h) The Shares at such Time of Delivery shall have been
duly listed for quotation on the Nasdaq National Market; and
(i) The Company shall have furnished or caused to be
furnished to you at such Time of Delivery certificates of
officers of the Company, satisfactory to you as to the accuracy
of the representations and warranties of the Company herein at
and as of such Time of Delivery, as to the performance by the
Company of all of its obligations hereunder to be performed at or
prior to such Time of Delivery, and as to such other matters as
you may reasonably request, and the Company shall have furnished
or caused to be furnished certificates as to the matters set
forth in subsections (a) and (f) of this Section.
8. (a) The Company will indemnify and hold harmless
each Underwriter against any losses, claims, damages or
liabilities to which such Underwriter may become subject, under
the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are
based upon (i) any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or (ii) any untrue statement or alleged
untrue statement made by the Company in Section 1(a) of this
Agreement and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in
connection with investigating or defending any such action or
claim as such expenses are incurred; provided, however, that the
Company shall not be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in any Preliminary Prospectus,
the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by any Underwriter
through Morgan Keegan expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless
the Company against any losses, claims, damages or liabilities to
which the Company may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or
omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any
such amendment or supplement in reliance upon and in conformity
with written information furnished to the Company by such
Underwriter through Morgan Keegan, expressly for use therein; and
will reimburse the Company for any legal or other expenses
reasonably incurred by the Company in connection with
investigating or defending any such action or claim as such
expenses are incurred.
(c) Promptly after receipt by an indemnified party
under subsection (a) or (b) above of notice of the commencement
of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party
under such subsection, notify the indemnifying party in writing
of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which
it may have to any indemnified party otherwise than under such
subsection. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of
the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party (who shall not, except
with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice from the indemnifying
party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable to
such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case
subsequently incurred by such indemnified party, in connection
with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the written
consent of the indemnified party, effect the settlement or
compromise of, or consent to the entry of any judgment with
respect to, any pending or threatened action or claim in respect
of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential
party to such action or claim) unless such settlement, compromise
or judgment (i) includes an unconditional release of the
indemnified party from all liability arising out of such action
or claim and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act, by or on
behalf of any indemnified party.
(d) If the indemnification provided for in this Section
8 is unavailable to or insufficient to hold harmless an
indemnified party under subsection (a) or (b) above in respect of
any losses, claims, damages or liabilities (or actions in respect
thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other from
the offering of the Shares. If, however, the allocation provided
by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the
notice required under subsection (c) above, then each
indemnifying party shall contribute to such amount paid or
payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also
the relative fault of the Company on the one hand and the
Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or
liabilities (or actions in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Underwriters on the other
shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received
by the Company bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company on
the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Company and
the Underwriters agree that it would not be just and equitable if
contributions pursuant to this subsection (d) were determined by
pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations
referred to above in this subsection (d). The amount paid or
payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this
subsection (d), no Underwriter shall be required to contributeany
amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters' obligations
in this subsection (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
(e) The obligations of the Company under this Section 8
shall be in addition to any liability which the Company may
otherwise have and shall extend, upon the same terms and
conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any
liability which the respective Underwriters may otherwise have
and shall extend, upon the same terms and conditions, to each
officer and director of the Company (including any person who,
with his or her consent, is named in the Registration Statement
as about to become a director of the Company) and to each person,
if any, who controls the Company within the meaning of the Act.
9.(a) If any Underwriter shall default in its
obligation to purchase the Shares which it has agreed to purchase
hereunder at a Time of Delivery you may in your discretion
arrange for you or another party or other parties to purchase
such Shares on the terms contained herein. If within thirty-six
hours after such default by any Underwriter you do not arrange
for the purchase of such Shares, then the Company shall be
entitled to a further period of thirty-six hours within which to
procure another party or other parties satisfactory to you to
purchase such Shares on such terms. In the event that, within the
respective prescribed periods, you notify the Company that you
have so arranged for the purchase of such Shares, or the Company
notifies you that it has so arranged for the purchase of such
Shares, you or the Company shall have the right to postpone Time
of Delivery for a period of not more than seven days, in order to
effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file
promptly any amendments to the Registration Statement or the
Prospectus which in your opinion may thereby be made necessary.
The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with like effect as if
such person had originally been a party to this Agreement with
respect to such Shares.
(b) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or
Underwriters by you and the Company as provided in subsection (a)
above, the aggregate number of such Shares which remains
unpurchased does not exceed one-eleventh of the aggregate number
of all the Shares to be purchased at such Time of Delivery, then
the Company shall have the right to require each non-defaulting
Underwriter to purchase the number of Shares which
suchUnderwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non-defaulting
Underwriter to purchase its pro rata share (based on the number
of Shares which such Underwriter agreed to purchase hereunder) of
the Shares of such defaulting Underwriter or Underwriters for
which such arrangements have not been made; but nothing herein
shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or
Underwriters by you and the Company as provided in subsection (a)
above, the aggregate number of such Shares which remains
unpurchased exceeds one-eleventh of the aggregate number of all
of the Shares to be purchased at such Time of Delivery, or if the
Company shall not exercise the right described in subsection (b)
above to require non-defaulting Underwriters to purchase Shares
of a defaulting Underwriter or Underwriters, then this Agreement
(or, with respect to the Second Time of Delivery, the obligations
of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on
the part of any non- defaulting Underwriter or the Company,
except for the expenses to be borne by the Company and the
Underwriters as provided in Section 6 hereof and the indemnity
and contribution agreements in Section 8 hereof; but nothing
herein shall relieve a defaulting Underwriter from liability for
its default.
10. The respective indemnities, agreements,
representations, warranties and other statements of the Company
and the several Underwriters, as set forth in this Agreement or
made by or on behalf of them, respectively, pursuant to this
Agreement, shall remain in full force and effect, regardless of
any investigation (or any statement as to the results thereof)
made by or on behalf of any Underwriter or any controlling person
of any Underwriter, or the Company, or any officer or director or
controlling person of the Company, and shall survive delivery of
and payment for the Shares.
11. If this Agreement shall be terminated pursuant to
Section 9 hereof, the Company shall not then be under any
liability to any Underwriter except as provided in Sections 6 and
8 hereof; but, if for any other reason any Shares are not
delivered by or on behalf of the Company as provided herein, the
Company will reimburse the Underwriters through you for all
out-of-pocket expenses approved in writing by you, including fees
and disbursements of counsel, reasonably incurred by the
Underwriters in making preparations for the purchase, sale and
delivery of the Shares not so delivered, but the Company shall
then be under no further liability to any Underwriter in respect
of the Shares not so delivered except as provided in Sections 6
and 8 hereof.
12. In all dealings hereunder, you shall act on behalf
of each of the Underwriters, and the parties hereto shall be
entitled to act and rely upon any statement, request, notice or
agreement on behalf of any Underwriter made or given by you
jointly or by Morgan Keegan on behalf of you as the
representatives.
All statements, requests, notices and agreements
hereunder shall be in writing, and if to the Underwriters shall
be delivered or sent by mail, telex or facsimile transmission to
you as the representatives in care of Morgan Keegan & Company,
Inc., 50 North Front Street, Memphis, Tennessee 38103, Attention:
Rick Hunter; and if to the Company shall be delivered or sent by
mail, telex or facsimile transmission to the address of the
Company set forth in the Registration Statement, Attention:
Secretary; provided, however, that any notice to an Underwriter
pursuant to Section 8(c) hereof shall be delivered or sent by
mail, telex or facsimile transmission to such Underwriter at its
address set forth in its Underwriters' Questionnaire or telex
constituting such Questionnaire, which address will be supplied
to the Company by you on request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure
solely to the benefit of, the Underwriters and the Company and,
to the extent provided in Sections 8 and 10 hereof, the officers
and directors of the Company and each person who controls the
Company or any Underwriter, and their respective heirs,
executors, administrators, successors and assigns, and no other
person shall acquire or have any right under or by virtue of this
Agreement. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign by reason merely of such
purchase.
14. Time shall be of the essence of this Agreement.
Except as provided in Section 4 hereof, as used herein, the term
business day shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TENNESSEE.
16. This Agreement may be executed by any one or more
of the parties hereto in any number of counterparts, each of
which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same
instrument.
If the foregoing is in accordance with your
understanding, please sign and return to us one for the Company
and each of the representatives of the Underwriters plus one for
each counsel, in any counterparts hereof, and upon the acceptance
hereof by you, on behalf of each of the Underwriters, this letter
and such acceptance hereof shall constitute a binding agreement
among each of the Underwriters and the Company. It is understood
that your acceptance of this letter on behalf of each of the
Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters, the form of which shall be
submitted to the Company for examination, upon request, but
without warranty on your part as to the authority of the signers
thereof.
Very truly yours,
St. Mary Land & Exploration Company
By:
Name:
Title:
Accepted as of the date hereof
Morgan Keegan & Company, Inc.
A.G. Edwards & Sons, Inc.
Hanifen, Imhoff Inc.
By:
Morgan Keegan & Company, Inc.
On behalf of each of the Underwriters<PAGE>
SCHEDULE I
FIRM NUMBER OF OPTIONAL
UNDERWRITER SHARES TO BE PURCHASED IF MAXIMUM OPTION
EXERCISED
Morgan Keegan
& Company, Inc.
A.G. Edwards
& Sons, Inc.
Hanifen, Imhoff
Inc.
<PAGE>
ANNEX I
FORM OF COMFORT LETTER
Pursuant to Section 7(d) of the Underwriting Agreement,
the accountants shall furnish letters to the Underwriters to the
effect that:
(i) They are independent certified public accountants
with respect to the Company and its subsidiaries within the
meaning of the Act and the applicable published rules and
regulations thereunder;
(ii) In their opinion, the consolidated financial
statements and any supplementary financial information and
schedules (and, if applicable, financial forecasts and/or pro
forma financial information) examined by them and included or
incorporated by reference in the Prospectus or the Registration
Statement comply as to form in all material respects with the
applicable accounting requirements of the Act, the Rules and
Regulations thereunder, the Exchange Act and the Exchange Act
Rules and Regulations; and, if applicable, they have made a
review in accordance with standards established by the American
Institute of Certified Public Accountants of the unaudited
consolidated interim financial statements, selected financial
data, pro forma financial information, financial forecasts and/or
condensed financial statements derived from audited financial
statements of the Company for the periods specified in such
letter, as indicated in their reports thereon, copies of which
have been separately furnished to the representatives of the
Underwriters (the Representatives );
(iii) They have made a review in accordance with
standards established by the American Institute of Certified
Public Accountants of the unaudited condensed consolidated
statements of income, consolidated balance sheets and
consolidated statements of cash flows included in the Prospectus
as indicated in their reports thereon copies of which have been
separately furnished to the Representatives and on the basis of
specified procedures including inquiries of officials of the
Company who have responsibility for financial and accounting
matters regarding whether the unaudited condensed consolidated
financial statements referred to in paragraph (vi)(A)(i) below
comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published
rules and regulations, nothing came to their attention that
caused them to believe that the unaudited condensed consolidated
financial statements do not comply as to form in all material
respects with the applicable accounting requirements of the Act
and the related published rules and regulations;
(iv) The unaudited selected financial information with
respect to the consolidated results of operations and financial
position of the Company for the five most recent fiscal years
included in the Prospectus agrees with the corresponding amounts
(after restatements where applicable) in the audited consolidated
financial statements for such five fiscal years;
(v) They have compared the information in
theProspectus under selected captions with the disclosure
requirements of Regulation S-K and on the basis of limited
procedures specified in such letter nothing came to their
attention as a result of the foregoing procedures that caused
them to believe that this information does not conform in all
material respects with the disclosure requirements of Items 301,
302, 402 and 503(d), respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not
constituting an examination in accordance with generally accepted
auditing standards, consisting of a reading of the unaudited
financial statements and other information referred to below, a
reading of the latest available interim financial statements of
the Company and its subsidiaries, inspection of the minute books
of the Company and its subsidiaries since the date of the latest
audited financial statements included or incorporated by
reference in the Prospectus, inquiries of officials of the
Company and its subsidiaries responsible for financial and
accounting matters and such other inquiries and procedures as may
be specified in such letter, nothing came to their attention that
caused them to believe that:
(A) (i) the unaudited consolidated statements of
income,consolidated balance sheets and consolidated statements of
cash flows included in the Prospectus do not comply as to form in
all material respects with the applicable accounting requirements
of the Act and the related published rules and regulations, or
(ii) any material modifications should be made to the unaudited
condensed consolidated statements of income, consolidated balance
sheets and consolidated statements of cash flows included or
incorporated by reference in the Prospectus for them to be in
conformity with generally accepted accounting principles;
(B) any other unaudited income statement data and
balance sheet items included or incorporated by reference in
the Prospectus do not agree with the corresponding items in the
unaudited consolidated financial statements from which such data
and items were derived, and any such unaudited data and items
were not determined on a basis substantially consistent with the
basis for the corresponding amounts in the audited consolidated
financial statements included or incorporated by reference in the
Prospectus;
(C) the unaudited financial statements which were
not included in the Prospectus but from which were derived any
unaudited condensed financial statements referred to in Clause
(A) and any unaudited income statement data and balance sheet
items included or incorporated by reference in the Prospectus and
referred to in Clause (B) were not determined on a basis
substantially consistent with the basis for the audited
consolidated financial statements included or incorporated by
reference in the Prospectus;
(D) any unaudited pro forma consolidated condensed
financial statements included or incorporated by reference in the
Prospectus do not comply as to form in all material respects with
the applicable accounting requirements of the Act, the Rules and
Regulations, the Exchange Act and the Exchange Act Rules and
Regulations or the pro forma adjustments have not been properly
applied to the historical amounts in the compilation of those
statements;
(E) as of a specified date not more than five days
prior to the date of such letter, there have been any changes in
the consolidated capital stock (other than issuances of capital
stock upon exercise of options and stock appreciation rights,
upon earn-outs of performance shares and upon conversions of
convertible securities, in each case which were outstanding on
the date of the latest financial statements included or
incorporated by reference in the Prospectus) or any increase in
the consolidated long-term debt of the Company and its
subsidiaries, or any decreases in consolidated net current
assets or stockholders' equity or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with amounts
shown in the latest balance sheet included or incorporated by
reference in the Prospectus, except in each case for changes,
increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter; and
(F) for the period from the date of the latest
financial statements included or incorporated by reference in the
Prospectus to the specified date referred to in Clause (E) there
were any decreases in consolidated net revenues or operating
profit or the total or per share amounts of consolidated net
income or other items specified by the Representatives, or any
increases in any items specified by the Representatives, in each
case as compared with the comparable period of the preceding year
and with any other period of corresponding length specified by
the Representatives, except in each case for decreases or
increases which the Prospectus discloses have occurred or may
occur or which are described in such letter; and
(vii) In addition to the examination referred to in
their report(s) included or incorporated by reference in the
Prospectus and the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraphs
(iii) and (vi) above, they have carried out certain specified
procedures, not constituting an examination in accordance with
generally accepted auditing standards, with respect to certain
amounts, percentages and financial information specified by the
Representatives, which are derived from the general accounting
records of the Company and its subsidiaries, which appear or are
incorporated by reference in the Prospectus, or in Part II of, or
in exhibits and schedules to, the Registration Statement
specified by the Representatives, and have compared certain of
such amounts, percentages and financial information with the
accounting records of the Company and its subsidiaries and have
found them to be in agreement.
EXHIBIT NOS. 5.1 AND 23.1
January 28, 1997
St. Mary Land & Exploration Company
1776 Lincoln Street, Suite 1100
Denver, CO 80203
Re: Registration Statement on Form S-3
Gentlemen:
St. Mary Land & Exploration Company, a Delaware corporation
(the "Company"), is registering for sale up to 2,300,000 shares
of its $0.01 par value common stock (the "Shares"). It is
proposed that Shares be registered pursuant to a Registration
Statement on Form S-3, File No. 333___________ (the "Registration
Statement"), under the Securities Act of 1933, as amended (the
"Act"), filed with the Securities and Exchange Commission (the
"Commission") on January 28, 1997.
In rendering the following opinion, we have examined and
relied only upon the documents and the reports (verbal and
written) as we deemed necessary in rendering the opinion,
including the Certificate of Incorporation of the Company and
amendments thereto, the Bylaws of the Company as amended, and
authorizing Minutes of the Company.
We have not undertaken, nor do we intend to undertake, any
independent investigation beyond such documents and records, or
to verify the adequacy or accuracy of such documents and records.
Additionally, we have consulted with Officers and Directors of
the Company, and have obtained such statements and
representations with respect to matters of fact as we considered
necessary or appropriate in the circumstances to render the
opinions contained herein. We have not independently verified the
content of the factual statements made to us in connection
therewith, nor the veracity of such representations, nor do we
intend to do so.
Based upon and subject to the foregoing, it is our opinion
that:
(i) The Shares to be offered and/or sold, subject to
effectiveness of the Registration Statement and compliance with
any applicable blue sky laws, when issued and delivered against
payment therefor in accordance with the terms of the Registration
Statement, will constitute legally issued, fully paid and
nonassessable shares of Common Stock of the Company.
(ii) The Shares to be offered as part of the Registration
Statement have been duly authorized, and, when duly executed by
the Company the effectiveness of the Registration Statement, and
compliance with applicable blue sky laws, when issued and
delivered in accordance with the Underwriting Agreement and as
set forth in the Registration Statement, will have been legally
issued and will constitute valid and binding obligations of the
Company in accordance with their terms, subject to:
(a) applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws of general application
(including, without limitation, general principles of
equity, whether considered in a proceeding in equity or
at law), now or hereafter in effect relating to
creditors' rights and claims generally, and/or general
laws generally affecting or relating to the enforcement
of creditors' rights, including, but not limited to
Section 547 of the Federal Bankruptcy Reform Act of
1978; and
(b) the remedy of specific performance and injunctive
and other forms of equitable relief which are subject
to equitable defenses, and to the discretion of the
court before which any proceeding therefore may be
brought.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement; to the filing of this
opinion in connection with such filings of applications as may be
necessary to register, qualify or establish eligibility for an
exemption from registration or qualification of the securities
under the blue sky laws of any state or other jurisdiction; and
to the reference to this firm in the Prospectus under the heading
"Legal Matters." In giving this consent, we do not admit that we
are in the category of persons whose consent is required under
Section 7 of the Act or the rules and regulations of the
Commission promulgated thereunder.
The opinions set forth herein are based upon the federal
laws of the United States of America, and the laws of the State
of Colorado, and corporate laws of Delaware, all as now in
effect. We express no opinion as to whether the laws of any
particular jurisdiction apply, and no opinion to the extent that
the laws of any jurisdiction other than those identified above
are applicable to the subject matter hereof.
The information set forth herein is as of the date of this
letter. We disclaim any undertaking to advise you of changes
which may be brought to our attention after the effective date of
the Registration Statement.
Very sincerely,
/s/ Cohen Brame & Smith Professional Corporation
Cohen Brame & Smith Professional Corporation
ST. MARY LAND & EXPLORATION COMPANY
REGISTRATION STATEMENT ON FORM S-3
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion and incorporation by reference in
this registration statement on Form S-3 of our report dated March
8, 1996, on our audits of the financial statements of St. Mary Land
& Exploration Company and we consent to the incorporation by
reference in this registration statement of our report dated
September 11, 1996, on our audit of The Statement of Revenues and
Direct Operating Expenses of Certain Oil & Gas Properties Acquired
from Siete Oil & Gas Corporation. We also consent to the reference
to our Firm under the caption "Experts".
/s/ Coopers & Lybrand
Coopers & Lybrand, L.L.P.
Denver, Colorado
January 24, 1997
ST. MARY LAND & EXPLORATION COMPANY
REGISTRATION STATEMENT ON FORM S-3
EXHIBIT 23.3
We consent to any reference to us as "Experts" in the
Registration Statement on Form S-3 of St. Mary Land & Exploration
Company, and any amendments thereto pursuant to Rule 462 of the
Securities Act of 1933.
Very truly yours,
/s/ Ryder Scott Company
Ryder Scott Company
Petroleum Engineers
Denver, Colorado
January 27, 1997
