ST MARY LAND & EXPLORATION CO, S-4, 1999-08-19

ST MARY LAND & EXPLORATION CO
S-4, 1999-08-19
CRUDE PETROLEUM & NATURAL GAS

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<PAGE>

As filed with the Securities and Exchange Commission on August 19, 1999
Registration No. 333-
===============================================================================

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM S-4

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

ST. MARY LAND & EXPLORATION COMPANY
(Exact name of registrant as specified in its charter)

Delaware 1311 41-0518430
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)

1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(303) 861-8140
(Address, including Zip Code, and telephone number, including area code,
of registrant's principal executive offices)

Mark A. Hellerstein
President and Chief Executive Officer
St. Mary Land & Exploration Company
1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(303) 861-8140
(Name, address, including Zip Code, and telephone
number, including area code, of agent for
service)

copies to:

Roger C. Cohen Gregory C. Hill
Ballard Spahr Andrews & Ingersoll, LLP Locke Liddell & Sapp LLP
1225 17th Street, Suite 2300 3400 Chase Tower
Denver, Colorado 80202-5596 600 Travis
(303) 299-7304 Houston, Texas 77002-3095
(713) 226-1187

<PAGE>

Approximate date of commencement of proposed sale of securities to the
public: As soon as practicable after this registration statement becomes
effective and the effective time of the merger of a wholly owned subsidiary of
the registrant with and into King Ranch Energy, Inc. as described in the
Agreement and Plan of Merger dated July 27, 1999.

If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 this Form is a post-effective amendment filed pursuant to Rule
462(d) 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. [ ] _____

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
Proposed Proposed
Title of each maximum maximum
class of offering aggregate Amount of
securities to Amount to be price per offering registration
be registered registered unit price(2) fee (3)
- ------------- --------------- -------------- -------------- ------
<S> <C> <C> <C> <C>
Common stock,
$.01 par value 2,666,252 shares(1) N/A $46,782,000 $13,006
</TABLE>

(1) The maximum number of shares of St. Mary Land & Exploration Company
common stock issuable in connection with the merger in exchange for shares of
King Ranch Energy, Inc. common stock.

(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(2) under the Securities Act, based on the book value
as of June 30, 1999 of the shares of King Ranch Energy, Inc. common stock to
be received by St. Mary Land & Exploration Company in the merger.

(3) Calculated pursuant to Section 6(b) of the Securities Act as .000278 of
$46,782,000.

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 this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

<PAGE>

ST. MARY LAND & EXPLORATION COMPANY/KING RANCH, INC.
JOINT PROXY/CONSENT STATEMENT

---------------------------------------------------

ST. MARY LAND & EXPLORATION COMPANY PROSPECTUS

The boards of directors of St. Mary Land & Exploration Company and
King Ranch, Inc. have approved a merger agreement whereby St. Mary will
acquire King Ranch Energy, Inc., which is King Ranch's oil and gas business
subsidiary. Before the merger all shares of King Ranch Energy common stock
will be distributed on a pro rata basis to the King Ranch stockholders
provided that all other conditions to the merger have been satisfied. In the
merger, King Ranch stockholders will receive 6.4988 shares of St. Mary common
stock for each share of King Ranch Energy common stock owned, plus cash in
lieu of fractional shares.

We cannot complete the merger unless St. Mary's stockholders vote to
approve the issuance of common stock in the merger and King Ranch Energy's
stockholders consent to the merger agreement. The meeting for the vote and the
forum for consent will be held as follows:

<TABLE>
<S> <C>
For St. Mary stockholders: For King Ranch Energy stockholders:

Thursday, September 30, 1999 ___________, September ____, 1999
10:00 a.m., local time _______ p.m., local time
Norwest Bank Forum Room _____________________________
1740 Broadway Houston, Texas
Denver, Colorado
</TABLE>

To vote at the St. Mary meeting please either attend the meeting or
complete and sign the enclosed proxy card and return it promptly in the
accompanying envelope. The St. Mary board of directors recommends voting "FOR"
approval of the St. Mary common stock issuance. To consent at the King Ranch
forum please sign and deliver the enclosed consent form at the forum. The King
Ranch board of directors recommends consenting to the merger agreement.

- ----------------- -----------------
Thomas E. Congdon Abraham Zaleznik
Chairman of the Board Chairman of the Board
St. Mary Land & Exploration Company King Ranch, Inc.

See "Risk Factors" beginning on page 9.

Neither the SEC nor any state securities regulators have approved the
merger or the St. Mary common stock to be issued as discussed in this document
or determined if this document is accurate or adequate. Any representation to
the contrary is a criminal offense.

This document is dated August _____, 1999 and is first being mailed
with accompanying forms of proxy and consent to stockholders on August _____,
1999.

<PAGE>

[For St. Mary booklet only]
[St. Mary logo]

ST. MARY LAND & EXPLORATION COMPANY
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

DATE:

Thursday, September 30, 1999

TIME:

10:00 a.m., local time

PLACE:

Norwest Bank Forum Room
1740 Broadway
Denver, Colorado

PURPOSE:

To vote on a proposal to issue a total of 2,666,252 shares of St. Mary
common stock under the merger agreement whereby St. Mary is to acquire King
Ranch Energy, Inc.

Only stockholders of record on August 13, 1999 may vote at the meeting.

Your vote is important. Please either attend the meeting or promptly
complete, sign, date and return your proxy card in the enclosed envelope. Any
stockholder who returns their proxy can revoke it at any time before the vote is
taken at the meeting.

By Order of the Board of Directors

------------------------------------
Richard C. Norris
Secretary

Denver, Colorado
August _____, 1999

<PAGE>

[For King Ranch booklet only]

[King Ranch, Inc. Letterhead]

NOTICE OF DISTRIBUTION
AND STOCKHOLDER FORUM

As you know, on July 27, 1999, King Ranch entered into a merger
agreement with St. Mary Land & Exploration Company, pursuant to which St. Mary
has agreed to acquire King Ranch Energy. As contemplated by this merger
agreement, shares of King Ranch Energy common stock will be distributed on a pro
rata basis to King Ranch stockholders of record as of [______________], 1999.
The distribution will take place on [____________], 1999, provided that all
other conditions to the merger have been satisfied. Prior to the distribution,
shares of King Ranch Energy common stock will be divided into two classes, which
will have corresponding rights and preferences with the two existing classes of
King Ranch common stock. In the distribution, holders of voting common stock of
King Ranch will receive shares of voting common stock of King Ranch Energy, and
holders of non-voting common stock of King Ranch will receive shares of
non-voting common stock of King Ranch Energy. Physical stock certificates will
not be delivered to King Ranch stockholders, but will be held in escrow by King
Ranch pending the closing of the merger.

On [____________], 1999, immediately following the distribution, we
will hold a stockholders forum at [_________________________], Houston, Texas,
at [______] a.m., which shall be held for the following purposes:

- Answer any questions that you or your advisors may have about
the distribution of King Ranch Energy common stock and the
acquisition of King Ranch Energy by St. Mary.

- Obtain the written consent of the holders of a majority of the
King Ranch Energy voting common stock to the merger of King
Ranch Energy and St. Mary.

For purposes of convenience, you may submit your written consent to
King Ranch prior to the stockholder forum by completing, signing and
returning the written consent in the enclosed envelope. Voting instructions
are included on the written consent. If you submit a written consent prior to
the King Ranch Energy stockholder forum, the written consent will not be
effective until immediately after such stockholder forum. Any such consent
may be withdrawn at any time prior to its effectiveness by providing written
notice of withdrawal.

By order of the Board of Directors,

Jack Hunt
Chief Executive Officer
[_____________], 1999

<PAGE>

TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Summary............................................................... 1

Risk Factors.......................................................... 9

The St. Mary Stockholders Meeting .................................... 11
Date, Time and Place ........................................ 11
Purpose...................................................... 11
Record Date and Shares Entitled to Vote ..................... 11
Vote Necessary to Approve the St. Mary Stock Issuance ....... 12
Proxies ..................................................... 12
Proxy Solicitation........................................... 12
Appraisal Rights............................................. 13
Stock Ownership of Principal Stockholders and Management .... 13

The Distribution and the King Ranch Energy Stockholders Forum......... 13
Date, Time and Place of Stockholders Forum .................. 13
Purposes of Stockholders Forum .............................. 14
Record Date and Shares Entitled to Consent .................. 14
Consent Necessary for the Merger Agreement .................. 14
Written Consents ............................................ 14
Consent Solicitation ........................................ 14
Appraisal Rights ............................................ 15
Interests of Certain Persons in the Merger .................. 17
Stock Ownership of Principal Stockholders and Management .... 18

The Merger Transaction ............................................... 19
Background of the Merger .................................... 19
Our Reasons for the Merger .................................. 26
Factors Considered by, and Recommendation of,
the St. Mary Board of Directors .................... 27
Factors Considered by, and Recommendation of,
the King Ranch Board of Directors .................. 29
Opinions of Financial Advisors .............................. 32
Comparison of King Ranch and St. Mary
Stockholder Rights ................................. 50
Accounting Treatment ........................................ 57
Material Federal Income Tax Consequences of the Merger ...... 57
Regulatory Matters .......................................... 61
Termination of King Ranch Energy Employees .................. 62

i
<PAGE>

The Merger Agreement ........................................................ 62
Structure of the Merger ............................................ 62
Timing of Closing .................................................. 62
Merger Consideration ............................................... 62
Restrictions on the Transfer of St. Mary Common Stock
to be Issued in the Merger ................................ 63
St. Mary Board of Directors after the Merger ....................... 64
Representations and Warranties ..................................... 65
Covenants .......................................................... 66
Other Agreements ................................................... 67
Indemnification .................................................... 69
Conditions to Closing .............................................. 69
Termination of the Merger Agreement ................................ 71
Other Expenses ..................................................... 72
Amendments and Waivers ............................................. 72

The Companies ............................................................... 73
Business of St. Mary ............................................... 73
Selected Historical Consolidated Financial Data of St. Mary ........ 73
King Ranch ......................................................... 75
Business of King Ranch Energy ...................................... 76
Selected Historical Consolidated Financial Data of King
Ranch Energy .............................................. 82
King Ranch Energy Management's Discussion and Analysis
of Financial Condition and Results of Operations .......... 83
King Ranch Energy Changes in and Disagreements With
Accountants on Accounting and Financial Disclosure ........ 90

Legal Matters ............................................................... 90
Experts ..................................................................... 91
Where You Can Find More Information ......................................... 91
Future St. Mary Stockholder Proposals ....................................... 93
Cautionary Information About Forward-Looking Statements ..................... 93
SEC Position on Indemnification for Securities Act Liabilities .............. 95

Unaudited Pro Forma Condensed Combined Financial Statements ................. 95

Index to King Ranch Energy Consolidated Financial Statements................. F-1

Annexes
Annex A - Agreement and Plan of Merger.............................. A-1
Annex B - Opinion of Deutsche Bank Securities Inc................... B-1
Annex C - Opinion of Nesbitt Burns Securities Inc................... C-1
Annex D - Section 262 of the Delaware General Corporation Law....... D-1

</TABLE>
ii

<PAGE>

SUMMARY

This summary highlights selected information from this document and may
not contain all of the information that is important to you. To understand the
merger fully and for a more complete description of the legal terms of the
merger, you should carefully read this document and the documents we refer you
to. See "Where You Can Find More Information" on page 91.

THE COMPANIES

St. Mary Land & Exploration Company
1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(303) 861-8140

St. Mary is a publicly-held independent energy company engaged in the
exploration, development, acquisition and production of natural gas and crude
oil. St. Mary's operations are focused in the following five core U.S. operating
areas:

- the Mid-Continent region in western Oklahoma and northern Texas,

- the ArkLaTex region that spans northern Louisiana and portions
of eastern Texas, Arkansas and Mississippi,

- southern Louisiana,

- the Williston Basin in eastern Montana and western North Dakota,
and

- the Permian Basin in eastern New Mexico and western Texas.

King Ranch Energy, Inc.
1415 Louisiana, Suite 2300
Houston, Texas 77002
(713) 752-0101

King Ranch Energy is the oil and gas exploration and production
business subsidiary of King Ranch, with operations located primarily in the
following areas:

- onshore in:

- Texas,

- Oklahoma,

<PAGE>

- Louisiana,

- North Dakota, and

- Utah, and

- in the Gulf of Mexico, offshore Texas and Louisiana.

King Ranch is a privately-held company engaged primarily in ranching,
agricultural and energy development businesses. It owns the historic 825,000
acre "King Ranch" in South Texas.

THE MERGER TRANSACTION (SEE PAGE 20)

Before the merger all shares of King Ranch Energy common stock will be
distributed on a pro rata basis to King Ranch stockholders provided that all
other conditions to the merger have been satisfied. In the distribution, each
King Ranch stockholder will receive the same number of shares of voting and/or
non-voting King Ranch Energy common stock as such stockholder currently holds in
King Ranch. In the merger, St. Mary will acquire King Ranch Energy and St. Mary
will issue shares of St. Mary common stock in exchange for King Ranch Energy
common stock. The merger agreement is attached to this document as Annex A. We
encourage you to read the merger agreement since it is the legal document that
governs the merger.

WHAT KING RANCH STOCKHOLDERS WILL RECEIVE IN THE MERGER

As a result of the merger, King Ranch stockholders will receive
6.4988 shares of St. Mary common stock for each share of King Ranch Energy
common stock that they own, plus cash in lieu of any fractional shares. The
total of 2,666,252 shares of St. Mary common stock to be issued will
represent approximately 19.4% of the outstanding shares of St. Mary common
stock after the merger.

ST. MARY STOCKHOLDERS MEETING (SEE PAGE 11)

The St. Mary stockholders meeting to vote on the issuance of St. Mary
common stock in the merger will take place on September 30, 1999 in Denver,
Colorado. The time and address of the meeting is on page 10.

VOTING RECOMMENDATION TO ST. MARY STOCKHOLDERS

The St. Mary board of directors believes that the merger is advisable
and in the best interests of St. Mary and its stockholders and recommends that
St. Mary stockholders vote "For" approval of the issuance of St. Mary common
stock in the merger.

<PAGE>

ST. MARY STOCKHOLDER VOTE REQUIRED TO APPROVE THE STOCK ISSUANCE

Approval of the issuance of St. Mary common stock in the merger
requires the affirmative vote of the holders of a majority of the shares of St.
Mary common stock represented in person or by proxy at the St. Mary stockholders
meeting. St. Mary directors, executive officers and their affiliates have the
power to vote a total of approximately 2.1% of the shares of St. Mary common
stock entitled to vote at the meeting. Thomas E. Congdon, St. Mary's Chairman of
the Board, and members of his immediate family own approximately 12% of the
shares entitled to vote at the meeting. While no formal arrangements exist,
these extended family members may be inclined to act in concert with Mr. Congdon
on approving the merger.

KING RANCH STOCKHOLDERS FORUM (SEE PAGE 13)

The King Ranch stockholders forum to discuss the merger and obtain
consents to the merger will take place on September ______, 1999 in Houston,
Texas. The time and address of the forum is on page ________.

CONSENT RECOMMENDATION TO KING RANCH ENERGY STOCKHOLDERS

The King Ranch board of directors believes that the merger agreement is
advisable and in the best interests of King Ranch and King Ranch Energy and
recommends that King Ranch Energy stockholders consent to the merger agreement.

KING RANCH ENERGY STOCKHOLDER CONSENT REQUIRED FOR THE MERGER AGREEMENT

Following the distribution, and once all other conditions to the
merger have been satisfied, the holders of King Ranch Energy voting common
stock will be asked to consent to the merger. The holders of a majority of
the shares of King Ranch Energy voting common stock must consent to the
merger. King Ranch directors, executive officers and their affiliates will
have the power to vote a total of approximately 13.8% of the shares of King
Ranch Energy voting common stock. King Ranch has obtained from Stephen J.
Kleberg, John D. Alexander, Jr., and James H. Clement, Jr., members of the
King Ranch board of directors, who will have the right to vote a total of
13.8% of the shares of King Ranch Energy voting common stock, commitments to:

- consent to the merger agreement, and

- recommend, subject to their fiduciary obligations, to
the members of their immediate families who will hold
King Ranch Energy voting common stock that they
consent to the merger agreement.

<PAGE>

OPINIONS OF FINANCIAL ADVISORS (SEE PAGE 32)

In deciding to approve the merger, each board of directors
considered the opinion of its financial advisor. St. Mary received an opinion
from Deutsche Bank Securities Inc. that the share exchange ratio whereby the
shares of King Ranch Energy common stock will be converted into the right to
receive 2,666,252 shares of St. Mary common stock is fair to St. Mary from a
financial point of view. King Ranch received an opinion from Nesbitt Burns
Securities Inc. that the consideration to be received in the merger by the
King Ranch stockholders is fair to the King Ranch stockholders from a
financial point of view. These opinions are attached to this document as
Annex B and Annex C. We encourage you to read these opinions.

ST. MARY STOCK TRANSFER RESTRICTIONS UNDER THE MERGER AGREEMENT (SEE PAGE 63)

The merger agreement provides that King Ranch stockholders will
generally not be able to sell any of the shares of St. Mary common stock issued
to them in the merger for two years after the completion of the merger, except
in connection with an acquisition of St. Mary. However, if during those two
years Thomas E. Congdon or his affiliates sell any shares of St. Mary common
stock, the King Ranch stockholders will then be able to sell a percentage of
their St. Mary shares which corresponds to the percentage sold by the Congdon
group.

ST. MARY MARKET PRICE INFORMATION

St. Mary common stock is publicly traded and quoted on the Nasdaq
National Market System under the symbol "MARY." On July 27, 1999, the last full
trading day before the public announcement of the merger agreement, the closing
price per share of St. Mary common stock as reported on the Nasdaq National
Market system was $22.625. On August ______, 1999, the most recent practicable
trading day before the printing of this document, the closing price per share of
St. Mary common stock as reported on the Nasdaq National Market system was
$_________. We encourage you to check publicly available sources for the current
market price of St. Mary common stock. Shares of King Ranch Energy common stock
are not publicly traded and there are not public sources of the market value of
King Ranch Energy common stock.

SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA

The following selected unaudited pro forma combined financial data has
been derived from and should be read with the Unaudited Pro Forma Condensed
Combined Financial Statements and related notes beginning on page 95. This
information is based on the historical financial statements of St. Mary and King
Ranch Energy. It gives effect to the merger using the purchase method of
accounting for business combinations as if the merger had been completed at the
beginning of the periods presented and as of June 30, 1999.

This information is for illustrative purposes only. The companies may
have performed differently had they merged as of the assumed dates. Therefore,
you should not rely on this information as being indicative of the historical
results that would have been achieved had the

<PAGE>

companies merged as of the assumed dates or the future results that the
combined company will experience after the merger.

<TABLE>
<CAPTION>
Six Months Year
Ended Ended
June 30, December 31,
1999 1998
----------- ------------
(thousands of dollars,
except per share amounts)
<S> <C> <C>
Total operating revenues .......................... $ 50,894 $ 118,151
Total operating expenses .......................... $ 42,818 $ 125,525
Net income (loss) from continuing operations ...... $ 5,053 $ (5,105)
Basic net income (loss) per share from continuing
operations ............................... $ 0.37 $ (0.37)
Diluted net income (loss) per share from continuing
operations ............................... $ 0.37 $ (0.37)
Cash dividends per share .......................... $ 0.10 $ 0.20
</TABLE>

<TABLE>
<CAPTION>
June 30,
1999
----------------------
(thousands of dollars)
<S> <C>
Total assets ............................... $ 234,329
Long-term debt ............................. $ 20,087
Total stockholders' equity.................. $ 178,905
</TABLE>

<PAGE>

COMPARATIVE PER SHARE DATA

The following table presents comparative per common share data for St.
Mary and King Ranch Energy on an historical basis, and on a pro forma combined
basis to reflect the merger under the purchase method of accounting as if the
merger had been completed at the beginning of the periods presented and as of
June 30, 1999.

Six Months Year
Ended Ended
June 30, December 31,
1999 1998
----------- --------------
<S> <C> <C>
Net income (loss) per common share

St. Mary historical
Basic .............................. $ 0.19 $ (0.81)
Diluted ............................ $ 0.19 $ (0.81)
King Ranch Energy historical ............ $ (1,568) $ (7,119)

St. Mary/King Ranch Energy pro forma combined
Basic .............................. $ 0.37 $ (0.37)
Diluted ............................ $ 0.37 $ (0.37)
King Ranch Energy pro forma equivalent(1)
Basic .............................. $ 987 $ (987)
Diluted ............................ $ 987 $ (987)
</TABLE>

<TABLE>
<CAPTION>
Six Months Year
Ended Ended
June 30, December 31,
1999 1998
------------ -------------
<S> <C> <C>
Cash dividends per common share
St. Mary historical ......................... $ 0.10 $ 0.20
King Ranch Energy historical ................ $ -- $ 4,655
St. Mary/King Ranch Energy pro forma combined $ 0.10 $ 0.20
King Ranch Energy pro forma equivalent(1) ... $ 266.63 $ 533.25
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
June 30,
1999
----------
<S> <C>
Book value per common share
St. Mary historical ......................... $ 12.31
King Ranch Energy historical ................ $ 46,782
St. Mary/King Ranch Energy pro forma combined $ 12.84
King Ranch Energy pro forma equivalent(1) ... $ 34,235
</TABLE>

- ----------
(1) The King Ranch Energy pro forma equivalent represents the St. Mary/King
Ranch pro forma combined book value, cash dividend or net income (loss)
per common share multiplied by an Exchange Ratio of 2,666.252.

REGULATORY REQUIREMENTS (SEE PAGE 61)

The merger is exempt from the pre-merger reporting and waiting period
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

APPRAISAL RIGHTS (SEE PAGE 15)

Under Delaware law St. Mary stockholders do not have dissenters'
appraisal rights in connection with the merger. Under Delaware law King Ranch
Energy stockholders who do not consent to the merger have a right to obtain in
cash the appraised fair value of their pro rata interest in King Ranch Energy in
lieu of the shares of St. Mary common stock to be issued to them under the
merger agreement.

Under the merger agreement, if dissenters' appraisal rights are
exercised with respect to more than 5% of the shares of King Ranch Energy common
stock, St. Mary will not have to complete the merger. However, if appraisal
rights are exercised with respect to more than 5% but less than 10% of the
shares, King Ranch has the option of satisfying this condition by paying the
appraised fair value in excess of $19.76 per corresponding share of St. Mary
common stock.

MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGE 57)

The merger has been structured as a "tax-free reorganization" for
Federal income tax purposes. Therefore, after receipt of King Ranch Energy
common stock, King Ranch stockholders generally should not recognize any gain or
loss for Federal income tax purposes on the receipt of St. Mary common stock in
exchange for their pro rata interests in King Ranch Energy under to the merger
agreement. In addition, King Ranch Energy and St. Mary, as well as the St. Mary
stockholders, will not recognize gain or loss as a result of the merger.

In order for St. Mary to proceed with the merger, all shares of King
Ranch Energy common stock will be distributed to the King Ranch stockholders
before the exchange of King Ranch Energy common stock for St. Mary common stock
at the merger closing. This

<PAGE>

distribution will result in a taxable gain to a subsidiary of King Ranch,
which is not expected to be material to King Ranch on a consolidated basis.

Opinions from King Ranch's outside counsel and the independent
accounting firm of Ernst & Young LLP concerning the Federal income tax
consequences of the merger have been filed with the SEC as exhibits to the
registration statement relating to this document.

8
<PAGE>

RISK FACTORS

In addition to the other information contained in this document, the
following matters should be considered carefully.

ST. MARY MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE KING RANCH ENERGY'S BUSINESS
OPERATIONS

The integration and consolidation of the assets and operations of St.
Mary and King Ranch Energy after the merger will present significant management
challenges for St. Mary. St. Mary cannot assure you that it will be able to
successfully integrate the St. Mary and King Ranch Energy business operations or
that the combined company will realize any of the anticipated benefits of the
merger.

THE ST. MARY STOCK TO BE ISSUED UNDER THE MERGER AGREEMENT GENERALLY CANNOT BE
TRANSFERRED FOR TWO YEARS

The merger agreement provides that the King Ranch stockholders will
generally not be able to sell any of the shares of the St. Mary common stock
issued to them in the merger for two years after the completion of the merger,
except in connection with any acquisition of St. Mary or dispositions by Thomas
E. Congdon, St. Mary's Chairman of the Board, and his affiliates. We cannot
assure the King Ranch stockholders that the public trading market price of St.
Mary common stock after the two-year restriction period has elapsed will be the
same or greater than the current market price.

ST. MARY MAY INADVERTENTLY ACQUIRE PROPERTIES WITH ENVIRONMENTAL CONTAMINATION
OR OTHER PROBLEMS

St. Mary intends to continue making acquisitions of oil and gas
properties such as those which are owned by King Ranch Energy. Although St. Mary
performs a review of acquired properties that it believes is consistent with
industry practices, existing or potential environmental problems with properties
may not be discovered until after an acquisition has been completed. The merger
agreement for St. Mary's acquisition of King Ranch Energy provides that King
Ranch must indemnify St. Mary if its representations and warranties about the
environmental status of King Ranch Energy's properties are inaccurate.

ST. MARY MAY NOT BE ABLE TO ADEQUATELY REPLACE ITS OIL AND GAS RESERVES

Except to the extent that St. Mary conducts successful exploration or
development activities or acquires properties containing proved oil and gas
reserves, the estimated net proved reserves of St. Mary will generally decline
as reserves are produced. We cannot assure you that St. Mary's planned
development and exploration projects and acquisition activities will result in
significant additional reserves or that St. Mary will have continuing success
drilling productive wells.

9
<PAGE>

Many of St. Mary's oil and gas properties are operated by third parties
and as a result St. Mary has limited control over the nature and timing of
exploration and development of those properties or the manner in which
operations are conducted. A significant portion of St. Mary's cash flow is
attributable to royalty interests on its southern Louisiana fee properties. A
fee property means that St. Mary holds the most extensive interest that can be
owned in land, including surface and mineral (including oil and gas) rights.
Without continued exploration and development of the fee properties, which St.
Mary has only a limited ability to control, production and cash flow from these
properties will decline.

ST. MARY'S TECHNOLOGY SYSTEMS MAY NOT BE READY FOR THE YEAR 2000

St. Mary has not completed a comprehensive analysis of the operational
problems and costs that would be reasonably likely to result from any failure of
the technology systems of St. Mary or of other parties with which St. Mary has
significant relationships to be Year 2000 compliant by January 1, 2000. St. Mary
has completed significant upgrades and testing of its systems and believes that
they are Year 2000 compliant. Responses from our major business partners also
indicate that they will be Year 2000 compliant. However, we cannot assure you
that the Year 2000 issue will not have a material adverse effect on St. Mary's
financial condition, results of operations or cash flows.

ST. MARY'S SHAREHOLDER RIGHTS PLAN MAY MAKE IT MORE DIFFICULT FOR A THIRD PARTY
TO ACQUIRE ST. MARY

In July 1999 the St. Mary board of directors adopted a shareholder
rights plan. The plan makes it more difficult for a third party to acquire
control of St. Mary without approval of the board of directors, even if the
acquisition would be at a premium to the current market price of St. Mary common
stock. Under the plan the St. Mary board of directors may decide in accordance
with its fiduciary obligations that the terms of a potential acquisition do not
reflect the long-term value of St. Mary and pursuant to the plan may thereafter,
if the terms are not improved, make the acquisition impracticable for the
potential acquirer.

10
<PAGE>

THE ST. MARY STOCKHOLDERS MEETING

The St. Mary board of directors is using this document as a proxy
statement to solicit proxies from the holders of St. Mary common stock for use
at the St. Mary stockholders meeting for the purpose of voting on the issuance
of St. Mary common stock in the merger. The St. Mary board of directors
recommends that St. Mary stockholders vote "For" approval of the stock issuance
in the merger.

We are first mailing this document and accompanying forms of proxy to
the St. Mary stockholders on or about August ____, 1999.

DATE, TIME AND PLACE

Thursday, September 30, 1999
10:00 a.m., local time
Norwest Bank Forum Room
1740 Broadway
Denver, Colorado

PURPOSE

The purpose of the St. Mary stockholders meeting is to vote on a
proposal to issue a total of 2,666,252 shares of St. Mary common stock under the
merger agreement.

St. Mary common stock trades on the Nasdaq National Market. Stockholder
approval of the St. Mary stock issuance is required by Nasdaq rules because the
number of shares of St. Mary common stock that are to be issued in the merger is
more than 20% of the number of shares of St. Mary common stock that will be
outstanding immediately before the completion of the merger.

RECORD DATE AND SHARES ENTITLED TO VOTE

The record date for shares entitled to vote is August 13, 1999.
Stockholders entitled to vote are St. Mary stockholders at the close of business
on the record date. As of the record date there were 11,097,968 shares of St.
Mary common stock entitled to vote.

A quorum of stockholders is necessary to hold a valid meeting. The
presence in person or by proxy at the meeting of the holders of one-third of the
shares of St. Mary common stock entitled to vote at the meeting is a quorum.
Abstentions and broker "non-votes" count as present for establishing a quorum. A
broker non-vote occurs on a matter when a broker is not permitted to vote on
that matter without instruction from the beneficial owner of the shares and no
instruction is given. Shares held by St. Mary in its treasury are not entitled
to vote and do not count toward a quorum.

11
<PAGE>

A total of approximately 2.1% of the shares of St. Mary common stock
entitled to consent to the merger will be beneficially owned by St. Mary
directors, executive officers and their affiliates. These individuals have
indicated that they will vote in favor of the issuance of St. Mary common stock
in the merger as recommended by the St. Mary board of directors.

VOTE NECESSARY TO APPROVE THE ST. MARY STOCK ISSUANCE

Approval of the St. Mary stock issuance in the merger requires the
affirmative vote by the holders of a majority of shares of stock represented in
person or proxy at the meeting. Abstentions and broker non-votes will have the
same effect as a vote against the stock issuance.

PROXIES

You may vote in person at the meeting or by proxy. We recommend that
you vote by proxy even if you plan to attend the meeting. You can always change
your vote at the meeting.

Voting instructions are included on your proxy card. If you properly
give your proxy and submit it to us in time to vote, one of the individuals
named as your proxy will vote your shares as you have directed. You may also
abstain from voting.

To vote by proxy, complete, sign, date and return your proxy card in
the enclosed envelope. If you submit your proxy but do not make a specific
choice, your proxy will follow the recommendations of the St. Mary board of
directors and vote your shares "For" approval of the issuance of St. Mary common
stock in the merger, and in its discretion as to any other business that may
properly come before the meeting.

You may revoke your proxy before it is voted by:

- submitting a new proxy with a later date,

- notifying St. Mary's Secretary in writing before the meeting
that you have revoked your proxy, or

- voting in person at the meeting.

If you plan to attend a meeting and wish to vote in person, we will
give you a ballot at the meeting.

PROXY SOLICITATION

St. Mary will pay its own costs of soliciting proxies. In addition to
this mailing, St. Mary employees may solicit the proxies personally,
electronically or by telephone.

12
<PAGE>

APPRAISAL RIGHTS

St. Mary is a Delaware corporation. Under Delaware law, St. Mary
stockholders do not have dissenters' appraisal rights in connection with the
merger since the merger involves a wholly owned subsidiary of St. Mary.

STOCK OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT

For information about St. Mary stock ownership of principal
stockholders and management, you should read St. Mary's 1998 Annual Report on
Form 10-K incorporated by reference into this document. See "Where You Can Find
More Information" on page 91.

THE DISTRIBUTION AND
THE KING RANCH ENERGY STOCKHOLDERS FORUM

As contemplated by the merger agreement, shares of King Ranch Energy
common stock will be distributed on a pro rata basis to King Ranch
stockholders prior to the merger. Prior to the distribution, shares of King
Ranch Energy common stock will be divided into two classes, which will have
corresponding rights and preferences with the two existing classes of King
Ranch common stock. In the distribution, each King Ranch stockholder will
receive the same number of shares of voting and/or non-voting King Ranch
Energy common stock as such stockholder currently holds in King Ranch.
Following the distribution, but immediately prior to the merger, each King
Ranch stockholder will hold the same number of shares of stock of King Ranch
and King Ranch Energy. Physical stock certificates will not be delivered to
King Ranch stockholders, but will be held in escrow by King Ranch pending the
closing of the merger.

The King Ranch board or directors is using this document as a consent
solicitation statement to solicit consents from persons who will hold shares of
King Ranch Energy voting common stock after the distribution. The King Ranch
board of directors recommends that such King Ranch Energy stockholders consent
to the merger agreement.

This document is also a prospectus for the St. Mary common stock to be
issued to the King Ranch Energy stockholders under the merger agreement. We are
first mailing this document and accompanying form of consent to the King Ranch
stockholders on or about August ____, 1999.

DATE, TIME AND PLACE OF STOCKHOLDERS FORUM

________________, September _____, 1999

____ p.m., local time

____________________________
Houston, Texas

13
<PAGE>

PURPOSES OF STOCKHOLDERS FORUM

The purposes of the King Ranch Energy stockholders forum are to:

- Answer any questions that King Ranch stockholders or their
advisors may have about the distribution of King Ranch
Energy common stock and the acquisition of King Ranch Energy
by St. Mary, and

- Obtain the written consent of the holders of a majority of
the King Ranch Energy voting common stock to the merger of
King Ranch Energy and St. Mary.

RECORD DATE AND SHARES ENTITLED TO CONSENT

The record date for the distribution of shares of King Ranch Energy to
King Ranch stockholders is August __, 1999. Following the distribution, 42,938
shares of voting common stock and 367,328 shares of non-voting common stock of
King Ranch Energy will be outstanding. Record holders of King Ranch Energy
voting common stock on the date of the stockholders forum will be entitled to
consent to the merger agreement.

A total of approximately 13.8% of the shares of King Ranch Energy
voting common stock will be beneficially owned by King Ranch directors,
executive officers and their affiliates. King Ranch has obtained from Stephen
J. Kleberg, John D. Alexander, Jr., and James H. Clement, Jr., members of the
King Ranch board of directors who will have the right to vote a total of
13.8% of the shares of King Ranch Energy voting common stock, commitments to:

- consent to the merger agreement, and

- recommend, subject to their fiduciary obligations, to the
members of their immediate families who will hold King Ranch
Energy voting common stock that they consent to the merger
agreement.

CONSENT NECESSARY FOR THE MERGER AGREEMENT

Approval of the merger agreement requires the written consent of the
holders of a majority of the shares of King Ranch Energy voting common stock.

WRITTEN CONSENTS

You will be asked to submit a written consent at the King Ranch
Energy stockholders forum. For purposes of convenience, you may submit your
written consent to King Ranch prior to the stockholders forum by completing,
signing and returning the written consent in the enclosed envelope.
Instructions are included on the written consent.

14
<PAGE>

If you submit a written consent prior to the King Ranch Energy
stockholder forum, the written consent will not be effective until immediately
after the forum. Any such consent may be withdrawn at any time prior to its
effectiveness by providing written notice of withdrawal to Stephen Pettit at
1415 Louisiana, Suite 2300, Houston, Texas 77002.

CONSENT SOLICITATION

King Ranch will pay the costs of soliciting consents. In addition to
this mailing, King Ranch employees may solicit the consents personally,
electronically or by telephone.

APPRAISAL RIGHTS

King Ranch Energy is a Delaware corporation. Under Delaware law, King
Ranch Energy stockholders who do not consent to the merger will be entitled to
dissenters' appraisal rights which unless waived give them the right to obtain
in cash the appraised fair value of their shares of King Ranch Energy common
stock in lieu of the shares of St. Mary common stock to be issued under the
merger agreement.

The following is a brief summary of the statutory procedures under
Section 262 of the Delaware General Corporation Law which must be strictly
followed by a stockholder who wishes to perfect appraisal rights in connection
with the merger. This summary is qualified in its entirety by reference to
Section 262 of the Delaware General Corporation Law which is attached to this
document as Annex D. If a stockholder fails to comply with the procedural
requirements of the Delaware General Corporation Law, appraisal rights will be
forfeited.

If a King Ranch Energy stockholder were to assert appraisal rights,
then within 120 days after the completion of the merger, St. Mary or the King
Ranch Energy stockholder would be entitled to file a petition in the Delaware
Chancery Court demanding a determination of the fair value of the King Ranch
Energy shares as to which a timely demand for appraisal had been made. St. Mary
is under no obligation to, and there is no present intention that St. Mary will,
file a petition with respect to the appraisal of the fair value of any shares.
Accordingly, it would be the obligation of a dissenting King Ranch Energy
stockholder to initiate all necessary action to perfect any appraisal rights
within the time prescribed in Section 262. King Ranch Energy stockholders who
elect to exercise appraisal rights should mail or deliver their written demands
to:

15
<PAGE>

Richard C. Norris, Secretary
St. Mary Land & Exploration Company
1776 Lincoln Street, Suite 1100
Denver, Colorado 80203

Within 10 days after the completion of the merger, St. Mary shall
notify each King Ranch Energy stockholder entitled to appraisal rights that the
merger has been completed, which notice shall set forth the effective date of
the merger and shall include a copy of the applicable provisions of the Delaware
General Corporation Law. Within 20 days after the date of mailing of such
notice, King Ranch Energy stockholders who are eligible to exercise their
appraisal rights and desire to do so must deliver a written demand for appraisal
to St. Mary at the address set forth in the immediately preceding paragraph.
Although appraisal rights will only be available to King Ranch Energy
stockholders who do not consent to the merger, the failure to consent to the
merger will not constitute such demand.

The written demand for appraisal should specify the holder's name and
mailing address, the number of shares covered by the demand, and that the holder
is thereby demanding appraisal of such shares.

If a petition for an appraisal were timely filed, after a hearing on
such petition, the Delaware Chancery Court would appraise the "fair value" of
the appraisal shares, exclusive of any element of value arising from the
accomplishment or expectation of the merger, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value.
The fair value of the appraisal shares as determined under Section 262 could be
more than, the same as, or less than the value of the shares of St. Mary common
stock such holders would receive pursuant to the merger agreement if they did
not seek appraisal of the appraisal shares. The Delaware Supreme Court has
stated that "proof of value by any techniques or methods which are generally
considered acceptable in the financial community and otherwise admissible in
court" should be considered in the appraisal proceedings. The Delaware Chancery
Court would determine the amount of interest, if any, to be paid upon the
amounts to be received in respect of the appraisal shares. The costs of the
action may be determined by the Delaware Chancery Court and charged to the
parties as the Delaware Chancery Court deems equitable.

Any King Ranch Energy stockholders who seek appraisal would not, after
the consummation of the merger, be entitled to vote the appraisal shares for any
purpose or be entitled to the payment of dividends or other distributions on the
appraisal shares.

If the King Ranch Energy stockholders who seek appraisal properly
demanded appraisal of their appraisal shares but failed to perfect, or
effectively withdrew or lost, their right to appraisal, as provided in the
Delaware General Corporation Law, the appraisal shares would be converted into
the right to receive the shares of St. Mary common stock in accordance with the
merger agreement. A stockholder will fail to perfect, or effectively lose or
withdraw, his or her right to appraisal if among other things no petition for
appraisal is filed within 120 days after the completion of the merger, or if the
stockholder withdraws his or her demand for appraisal. No

16
<PAGE>

appraisal proceeding pending in the Delaware Court of Chancery will be
dismissed without the approval of the court, and any such approval would be
conditioned upon such terms as the court deems just.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

In considering the recommendation of the King Ranch board of directors
for the consent to the merger agreement, King Ranch stockholders should be aware
that certain members of King Ranch and King Ranch Energy management and the King
Ranch board of directors have interests in the merger that may be different
from, or in addition to, the interests of the stockholders of King Ranch and
King Ranch Energy generally.

REPRESENTATION ON THE ST. MARY BOARD OF DIRECTORS

St. Mary has agreed that upon the completion of the merger it will
cause Jack Hunt and William Gardiner to become members of the St. Mary board
of directors for a period of two years. Mr. Hunt is President and Chief
Executive Officer and a director of King Ranch. Mr. Gardiner is Chief
Financial Officer of King Ranch. Should Mr. Hunt or Mr. Gardiner become
unavailable to act as a St. Mary director, John Alexander and James Clement
will take their place.

TERMINATION OF KING RANCH ENERGY EMPLOYEES; SEVERANCE ARRANGEMENTS

St. Mary does not intend to employ almost all of the King Ranch Energy
employees following the merger but rather intends to utilize St. Mary employees
or new employees to manage the business and properties of King Ranch Energy.
King Ranch Energy has existing severance agreements with six senior management
employees, including Thomas F. Fiorito, President, and William Silk, Jr., Senior
Vice President of Exploration and Production, which provide for lump sum
payments of varying amounts upon the termination of their employment which will
occur upon completion of the merger.

Following the execution of the merger agreement, the employment of a
substantial number of King Ranch Energy employees was terminated, including
four of its senior management employees, and all such employees received a
severance package. See "The Merger Transaction--Termination of King Ranch
Energy Employees" and "The Merger Agreement--Other Agreements--King Ranch
Energy Employee Severance Payments."

17
<PAGE>

INDEMNIFICATION OF OFFICERS AND DIRECTORS

Under the merger agreement, the provisions in the King Ranch Energy
certificate of incorporation and bylaws for the indemnification of King Ranch
Energy officers and directors, including Jack Hunt and Abraham Zaleznik, who are
also directors of King Ranch, will survive the merger for a period of two years.

STOCK OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT

The following table contains information about the ownership of King
Ranch voting common stock as of the record date by:

- each person who is the beneficial owner of more than 5% of
the outstanding shares of King Ranch common stock,

- each King Ranch director,

- each King Ranch executive officer, and

- all King Ranch directors and executive officers as a group.

18
<PAGE>

<TABLE>
<CAPTION>
Shares Percentage
Stockholder Beneficially Owned of Total
- ----------- ------------------ ----------
<S> <C> <C>
John D. Alexander, Jr. 4,501(1) 10.5%

James H. Clement, Jr. 498(2) 1.2%

Stephen J. Kleberg 927 2.2%

Ogden M. Phipps 1,501(3) 3.5%

Yarborough KRI L.P 3,049 7.1%
200 North Loraine, Suite 1400
Midland, Texas 79701

Richard Greer Sugden 2,809 6.5%
P.O. Box 70
Wilson, Wyoming 83014

The Helen K. Groves Revocable Trust 2,164 5.0%
700 N. St. Mary's, Suite 1200
San Antonio, Texas 78205

Directors and Executive Officers as a Group 5,926 13.8%
</TABLE>

- ----------------------

(1) Includes 2,357 shares of King Ranch voting common stock held by
private trusts or custodianships for minors which Mr. Alexander serves
as a trustee or custodian, and beneficial ownership of such shares is
not acknowledged.

(2) Includes 249 shares of King Ranch voting common stock held by a
family limited partnership of which Mr. Clement serves as a manager.

(3) All 1,501 shares of King Ranch voting common stock are held by
private trusts or custodianships for minors which Mr. Phipps serves as
a trustee or custodian, and beneficial ownership of such shares is not
acknowledged. Mr. Alexander also serves as a trustee or custodian of
these private trusts or custodianships for minors, and the 1,501 shares
of King Ranch voting common stock are included in the 2,357 shares
referenced in footnote 1 above.

19
<PAGE>

THE MERGER TRANSACTION

BACKGROUND OF THE MERGER

The managements of each of St. Mary and King Ranch Energy
continually review their company's positions in light of the changing
competitive environment of the oil and gas industry with the objective of
determining what alternatives are available to further enhance shareholder
value. In recent years the managements of both St. Mary and King Ranch Energy
have had conversations with a number of other companies regarding a range of
options to improve their competitive positions, including acquisitions or
dispositions of assets, possible partnerships, alliances or other significant
transactions.

On January 9, 1998, Mark A. Hellerstein, St. Mary's President and
Chief Executive Officer, met with representatives of Deutsche Bank Securities
Inc. At the meeting, Deutsche Bank Securities indicated that they were aware
of a sizeable Houston-based oil and gas exploration and production company
that was interested in a possible stock-for-stock business combination
transaction. At that time King Ranch Energy was privately considering
identifying a comparable company with which to enter into a strategic
alliance on a tax-free basis.

On January 28, 1998, St. Mary entered into an oral agreement to
retain Deutsche Bank Securities as financial advisor to St. Mary in a
possible business combination transaction with the company previously
referred to by Deutsche Bank Securities. Deutsche Bank Securities indicated
that the company was King Ranch Energy, and arranged a dinner meeting between
St. Mary and King Ranch Energy senior executives on February 4, 1998.

On February 4, 1998, Mr. Hellerstein, Ronald D. Boone, St. Mary's
Executive Vice President and Chief Operating Officer, David L. Henry, then
St. Mary's Chief Financial Officer, and Douglas W. York, St. Mary's Vice
President of Acquisitions and Reservoir Engineering, had a dinner meeting at
the South Texas location of the King Ranch with Jack Hunt, King Ranch's Chief
Executive Officer, and William Gardiner, King Ranch's President and Chief
Financial Officer. This meeting served primarily as an initial orientation in
which the representatives of both St. Mary and King Ranch Energy presented an
overview of their companies and what each company could contribute to a
combination. Mr. Hunt and Mr. Gardiner discussed various structural and other
issues that would be important to King Ranch Energy in a business combination
transaction.

On March 12, 1998, St. Mary formalized its retention of Deutsche
Bank Securities as financial advisor for a possible transaction with King
Ranch Energy. At that time Deutsche Bank Securities provided St. Mary with
preliminary information regarding King Ranch Energy based on their meetings
with King Ranch Energy management personnel and Mr. Gardiner.

On March 25, 1998, St. Mary senior executives met with
representatives of King Ranch Energy in Houston. Representing King Ranch
Energy were Thomas F. Fiorito, President, William Silk, Jr., Senior Vice
President of Exploration and Production, Brian P. Romere, Vice

20
<PAGE>

President of Finance and Controller, Larry L. Worden, then Vice President and
General Counsel of King Ranch, and Mr. Gardiner. Representing St. Mary were
Mark A. Hellerstein, Ronald D. Boone, David L. Henry and Douglas W. York. At
the meeting the King Ranch Energy executives presented a detailed overview of
King Ranch Energy, including its history, pending oil and gas acquisitions,
core areas, prospects, current drilling activity and its current business
plan. After the King Ranch Energy presentation, St. Mary representatives
indicated that for discussions to progress, they would need to conduct a
detailed review of King Ranch Energy's oil and gas properties. The King Ranch
Energy executives responded that before involving other King Ranch Energy
employees in the negotiation process, a mutually acceptable range for the
possible company valuations and for the relative ownerships by the King Ranch
Energy and St. Mary shareholders of a combined company would need to be
established.

On April 14, 1998, Mr. Hellerstein and Mr. Boone met with Mr. Hunt
and Mr. Gardiner in Houston. At that meeting Mr. Hellerstein and Mr. Boone
presented a written proposal outlining a framework for a merger transaction
between St. Mary and King Ranch Energy. The St. Mary proposal outlined among
other things a stock-for-stock merger based on the net asset value of King
Ranch Energy as determined by outside petroleum engineers, and the additional
issuance of warrants to acquire St. Mary common stock.

On April 17, 1998, Deutsche Bank Securities made a presentation on
the St. Mary merger proposal to Mr. Gardiner prior to a King Ranch Energy
board of directors meeting.

On May 28, 1998, Deutsche Bank Securities contacted Mr. Hunt. Mr.
Hunt indicated that he was not comfortable with the warrant component of St.
Mary's April 14 proposal and that he was also concerned that King Ranch
Energy would have to establish retention bonuses for employees if St. Mary
were allowed a full technical review of King Ranch Energy's oil and gas
properties. Mr. Hunt concluded that in view of the lack of an acceptable
valuation range for a merger with St. Mary, further pursuit of a possible
merger was a relatively low priority for King Ranch Energy.

On July 16, 1998, at a regular meeting of the St. Mary board of
directors Mr. Hellerstein reported that St. Mary management had decided that
the warrant value component of its proposed acquisition of King Ranch Energy
should not be replaced with stock value and that therefore they would
discontinue an active pursuit of a merger transaction with King Ranch Energy.

In September 1998, King Ranch retained Nesbitt Burns Securities Inc.
to explore possible strategic alternatives with respect to King Ranch Energy.

On October 23, 1998, Deutsche Bank Securities informed Mr.
Hellerstein that King Ranch Energy had retained Nesbitt Burns to identify
suitable merger candidates and also had retained Ryder Scott Company, L.P. to
analyze King Ranch Energy's oil and gas reserves.

21
<PAGE>

On November 11, 1998, Mr. Hellerstein met with representatives of
Nesbitt Burns. Nesbitt Burns indicated that they were planning to hold
discussions with a group of companies on a possible transaction with King
Ranch Energy, but were waiting on King Ranch Energy's oil and gas reserve
engineering analysis before formally beginning that process. In addition,
Nesbitt Burns explained that King Ranch Energy was interested in a
stock-for-stock transaction and that King Ranch Energy expected the relative
ownership by King Ranch Energy shareholders of the combined entity to be
based on the net relative asset values of King Ranch Energy and the acquiring
company.

On November 18, 1998, at a regular meeting of the St. Mary board of
directors, Mr. Hellerstein reported that it was St. Mary management's
impression that the likelihood of completing an acquisition of King Ranch
Energy on terms acceptable to St. Mary was diminished in view of King Ranch
Energy's retention of Nesbitt Burns to contact a number of companies.

On January 11, 1999, Deutsche Bank Securities informed Mr.
Hellerstein that Nesbitt Burns did not include St. Mary on the list of
companies identified by Nesbitt Burns as possible suitable candidates for a
transaction with King Ranch Energy.

On February 23, 1999, Deutsche Bank Securities informed Mr.
Hellerstein that Nesbitt Burns had contacted Deutsche Bank Securities and
indicated that King Ranch Energy was not satisfied with the other companies
with which preliminary discussions had been held and that St. Mary's prior
interest compared favorably to the interests of those other companies.

On March 3, 1999, Mr. Hellerstein, Milam Randolph Pharo, St. Mary's
Vice President - Land and Legal, and Richard C. Norris, St. Mary's Vice
President - Finance, met with Nesbitt Burns. Nesbitt Burns indicated that
King Ranch Energy was holding discussions with a small number of companies
concerning an acquisition and that if St. Mary remained interested in
acquiring King Ranch Energy, time was of the essence. Nesbitt Burns also
explained that King Ranch Energy remained interested in a relative net asset
value transaction and that the King Ranch Energy needed an estimated
valuation from St. Mary before proceeding further. Mr. Hellerstein responded
that St. Mary remained willing to enter into a relative net asset value
stock-for-stock transaction, but that a specific quantitative analysis could
not be given until St. Mary had additional technical information concerning
King Ranch Energy's oil and gas reserves. Nesbitt Burns then indicated that
St. Mary representatives would be allowed to visit King Ranch Energy's data
room in Houston for two days.

On March 8-10, 1999, St. Mary exchanged data with Nesbitt Burns
concerning oil and gas reserves and net asset book values. As a result, St.
Mary became concerned about the valuation of the reserves of the significant
Flour Bluff field acquired by King Ranch Energy in February 1999.

On March 16 and 17, 1999, Mr. Boone and St. Mary technical personnel
visited King Ranch Energy's offices in Houston to review King Ranch Energy
geologic prospects. In

22
<PAGE>

addition, Mr. York further reviewed the reserve engineering. St. Mary's
preliminary analysis raised some concerns about King Ranch Energy's geologic
prospects, but in general St. Mary was of the initial impression that the
properties involved opportunities for St. Mary to enhance production and
reserves.

On March 25, 1999, at a regular St. Mary board of directors meeting
Mr. Hellerstein updated the directors as to the status of discussions between
St. Mary and King Ranch Energy and discussed the anticipated strategic
benefits from the potential acquisition. Mr. Hunt and Mr. Gardiner then met
with the St. Mary directors at a luncheon meeting. Mr. Hellerstein advised
Mr. Hunt that St. Mary planned in approximately two weeks to deliver a
written proposal outlining the terms of a merger.

On April 12, 1999, Mr. Hellerstein met with Nesbitt Burns to discuss
a King Ranch Energy transaction and St. Mary's net asset value calculations.
For expediency in preparing the proposal letter outlining the terms of a
merger, St. Mary had decided to use the Flour Bluff reserve amounts it had
estimated in February 1999 in connection with a possible acquisition of King
Ranch Energy but it agreed with Nesbitt Burns that the Flour Bluff reserves
would be re-estimated by Ryder Scott prior to the determination of final net
asset values for purposes of a final merger agreement.

On April 14, 1999, Mr. Hellerstein sent the proposal letter to Mr.
Hunt which outlined terms for a merger transaction. The letter contemplated
that the merger would be a stock-for-stock transaction based on the relative
net asset valuations of St. Mary and King Ranch Energy which in turn would be
based on the valuation of their proved and probable oil and gas reserves as
of December 31, 1998.

On April 21, 1999, Mr. Hunt called Mr. Hellerstein and indicated
that King Ranch Energy was generally comfortable with the basic merger
framework set forth in the April 14 proposal letter, but that some changes
would be necessary which Nesbitt Burns would discuss with St. Mary. Mr. Hunt
asked for two additional weeks to consider a formal letter of intent and to
arrange for a meeting of the King Ranch, Inc. board of directors. Reciprocal
confidentiality agreements with respect to the exchange of information
between the parties were entered into in February 1999 and April 1999.

On April 30, 1999, Mr. Hunt sent a letter to Mr. Hellerstein which
included a draft letter of intent setting forth general terms of the proposed
merger which generally followed St. Mary's proposal letter of April 14. In
the following week, St. Mary and King Ranch Energy and their counsel
negotiated the provisions of the letter of intent.

On May 3, 1999, Mr. Congdon, Mr. Hellerstein and Mr. Boone attended
a meeting of the King Ranch, Inc. board of directors. At that meeting the St.
Mary senior executives presented an overview of St. Mary and answered
questions. Mr. Congdon and Mr. Hellerstein met that afternoon with Mr. Hunt
and Mr. Gardiner to further negotiate the provisions of the letter of intent.

23
<PAGE>

On May 7, 1999, St. Mary and King Ranch finalized and executed the
letter of intent, which was non-binding and subject to the negotiation and
execution of a final merger agreement. The letter of intent contemplated that
the shares of King Ranch Energy would be distributed to King Ranch
stockholders immediately prior to the merger, in part to address St. Mary's
significant concerns over having a single holder of the shares to be issued
as consideration for King Ranch Energy.

On May 10, 1999 officers of St. Mary and King Ranch, and their
financial and legal advisors, met by telephone to establish procedures for
each company to carry out a due diligence investigation of the other. During
the succeeding thirty days senior management of St. Mary spent extensive time
at the offices and on the properties of King Ranch Energy reviewing the
geologic, engineering, environmental, land, financial and legal aspects of
King Ranch Energy's business and assets. During this period St. Mary also met
with King Ranch Energy's independent petroleum engineers to review reserve
valuations. Management of King Ranch during this period also visited the
offices of St. Mary and met with its independent engineers for due diligence
purposes.

On May 21, 1999, at a regular meeting of the St. Mary board of
directors, Mr. Hellerstein informed the directors that the non-binding letter
of intent had been executed and discussed the terms of the merger
contemplated by the letter of intent.

On June 3, 1999, Ballard Spahr Andrews & Ingersoll, LLP, counsel to
St. Mary, delivered a draft of the merger agreement to Locke Liddell & Sapp
LLP, counsel to King Ranch. On June 11, 1999, Locke Liddell & Sapp provided
written comments on this draft to Ballard Spahr and in the following weeks
St. Mary and King Ranch Energy and their counsel continued to resolve the
legal provisions of the merger agreement.

On June 17, 1999 Mr. Hellerstein, Mr. Boone and a representative of
Deutsche Bank Securities met in Houston with Mr. Hunt, Mr. Gardiner and a
representative of Nesbitt Burns to discuss St. Mary's due diligence findings
on King Ranch Energy. At that meeting St. Mary proposed a material reduction
in the number of St. Mary shares to be issued for King Ranch Energy based
principally on St. Mary's evaluation of King Ranch Energy's oil and gas
reserves and 1999 capital expenditures. No agreement was reached on any
adjustment. It was agreed that King Ranch would consider St. Mary's proposal,
and the extensive materials it had presented in support of that proposal, and
respond subsequently.

On June 23, 1999 Nesbitt Burns delivered to Deutsche Bank Securities
a response to the June 17 St. Mary purchase price adjustment proposal along
with extensive materials in support of that response. The response involved a
substantial increase in the purchase price for King Ranch Energy from that
proposed by St. Mary on June 17.

On July 2, 1999 St. Mary senior engineering personnel and a
representative of Deutsche Bank Securities met with senior King Ranch Energy
personnel to discuss technical differences in

24
<PAGE>

the evaluations by the parties of King Ranch Energy's oil and gas reserves.
This meeting resulted in agreement on a number of matters relating to the
reserves.

On July 12, 1999 Mr. Hunt and Mr. Gardiner met in Denver with Mr.
Hellerstein, Mr. Boone and a representative of Deutsche Bank Securities to
discuss the remaining purchase price and related issues. Agreement was
reached that day on those issues, subject to the approval of the boards of
directors of both companies, and that agreement is reflected in the merger
agreement.

On July 14, 1999 St. Mary's legal counsel met with King Ranch's
legal counsel to work on completing the merger agreement to reflect the
agreements reached by the parties on July 12 and also to complete the
agreements previously reached on other matters. Revision of the merger
agreement to reflect these matters identified various other less substantive
issues.

On July 23, 1999, Mr. Hellerstein sent a letter to Mr. Hunt, which
reaffirmed St. Mary's concerns over having a single holder of the shares to
be issued as consideration for King Ranch Energy, which concerns were
relevant in evaluating whether St. Mary would proceed with the transaction,
and in which Mr. Hellerstein expressed appreciation that King Ranch had
agreed to distribute the shares of King Ranch Energy common stock to its
stockholders to facilitate the transaction. This letter confirmed to the King
Ranch board of directors that the distribution of King Ranch Energy common
stock to the King Ranch stockholders was a material consideration for St.
Mary to proceed with the merger.

On July 23, 1999 there was a telephone conference among Mr.
Hellerstein, Mr. Boone, Mr. Hunt and Mr. Gardiner, along with the legal and
financial advisors of both companies, during which final agreement was
reached on all remaining open matters. A merger agreement reflecting that
final agreement was circulated by the parties on July 25, 1999.

At a special meeting of the St. Mary board of directors on July 23,
1999, Mr. Hellerstein and Mr. Boone reviewed the strategic benefits of a
merger with King Ranch Energy and the status of the transaction, Deutsche
Bank Securities reviewed its fairness opinion with the St. Mary board, and
Ballard Spahr made a presentation on the terms and conditions of the merger
agreement. After due consideration, the St. Mary board of directors
unanimously approved the merger agreement and the related merger matters
described in this document, subject to receipt of the final Deutsche Bank
Securities fairness opinion. On July 27, 1999 Deutsche Bank Securities
delivered its final fairness opinion to the St. Mary board of directors and
the board adopted a resolution giving final approval to the merger.

At a special meeting of the King Ranch board of directors on July
27, 1999, Mr. Hunt and Mr. Gardiner reviewed the strategic benefits of a
merger of King Ranch Energy with St. Mary and the status of the transaction,
Nesbitt Burns delivered its fairness opinion to the King Ranch board, and
Locke Liddell & Sapp made a presentation on the terms and conditions of the
merger agreement. After due consideration, the King Ranch board of directors
approved the merger agreement, subject to stockholder approval, and
determined to recommend that the King Ranch stockholders vote to approve the
merger agreement.

Following the approval of their boards of directors, St. Mary and
King Ranch executed the merger agreement and St. Mary issued a press release
after the close of markets on July 27, 1999.

25
<PAGE>

OUR REASONS FOR THE MERGER

We believe that by combining the two companies we can create
substantially more stockholder value than could be achieved by the companies
on their own. This is the fundamental reason for the merger.

Simply having a bigger company is not a reason for us to merge. To
create stockholder value, the combined company must be better. As we explain
below, we believe that by combining the assets and businesses of St. Mary and
King Ranch Energy we can increase profits and returns.

The expected benefits of the merger fall broadly into three
categories:

- exploration and production enhancements,

- savings through the reduction of personnel and other operating
synergies, and

- capital productivity improvements.

We believe these benefits depend on the merger and are not available to the
companies on their own.

EXPLORATION AND PRODUCTION ENHANCEMENTS

St. Mary continually seeks acquisitions of oil and gas properties or
companies that would afford opportunities to expand St. Mary's existing core
areas where it has proprietary geologic knowledge or to gain a significant
acreage and production foothold in a new U.S. basin which is suitable for
enhanced exploration and production using St. Mary's technical expertise.

For St. Mary, the acquisition of King Ranch Energy represents an
opportunity to obtain complementary properties to its existing core areas,
expansion of its Gulf Coast properties and a foothold in the offshore Gulf of
Mexico. Specifically, St. Mary management believes that with King Ranch
Energy's inventory of leaseholds and seismic surveys there are significant
opportunities for St. Mary to increase production and reserves from King
Ranch Energy using St. Mary exploration and reservoir expertise.

OPERATING SYNERGIES

We believe we can run the combined company efficiently. By operating
synergies we mean increases in production and revenues, decreases in unit
costs and overall overhead expense, and other benefits made possible by
combining operations.

These benefits should come from streamlining the combined
organization, which we can run with less management, administrative and
overhead cost than two separate organizations.

26
<PAGE>

Specifically, although King Ranch Energy's offshore and Gulf Coast properties
may require additional technical personnel to operate, most of King Ranch
Energy's other onshore properties can be managed by St. Mary through its
existing offices and existing personnel. Thus, it is practicable for St. Mary
to plan not to continue over the long term the employment of most of King
Ranch Energy's management and administrative employees. Although St. Mary
plans to add approximately 15 people on a permanent basis, it expects to
reduce the overhead associated with the King Ranch properties by half.
Additional synergy benefits should come from exploring for oil and gas more
efficiently in regions where the companies operate separately today.

CAPITAL PRODUCTIVITY IMPROVEMENTS

We also believe the combined company can use its capital more
profitably than either company on its own. St. Mary expects that by combining
the assets of King Ranch Energy with those of St. Mary it will have a
stronger presence in those U.S. basins with optimal potential for future oil
and gas discoveries and production. As a result, we believe the combined
company will be able to maintain or improve earnings while spending less on
capital projects overall.

FACTORS CONSIDERED BY, AND RECOMMENDATION OF, THE ST. MARY BOARD OF DIRECTORS

At a meeting of the St. Mary board of directors held on July 23,
1999, after due consideration, the St. Mary board unanimously:

- determined that the merger agreement and the issuance of St.
Mary common stock in the merger are advisable and in the best
interests of St. Mary and its stockholders,

- approved the merger agreement and the related transactions, and

- determined to recommend that the St. Mary stockholders approve
the issuance of St. Mary common stock in the merger.

Therefore, the St. Mary board recommends that the St. Mary
stockholders vote "For" the approval of the issuance of St. Mary common stock
in the merger.

In approving the transaction and making this recommendation, the St.
Mary board consulted with St. Mary's management as well as St. Mary's outside
legal counsel and financial advisor, and considered the following material
factors:

- All the reasons described above under "Our Reasons for the
Merger," including the exploration and production enhancements,
relative net asset valuations and cash flow, operating synergies
and capital productivity improvements expected to be available
to the combined company,

27
<PAGE>

- Alternatives to the merger by presently pursuing a comparable
acquisition of or a business combination or joint venture with
an entity other than King Ranch Energy and the St. Mary board's
conclusion that a transaction with King Ranch Energy is more
feasible, and is expected to yield greater benefits, than the
likely presently available alternatives. The St. Mary board
reached this conclusion for reasons including King Ranch
Energy's interest in pursuing a transaction with St. Mary, St.
Mary's view that the transaction could be acceptably completed
from a timing standpoint, and St. Mary management's assessment
of the alternatives and the expected benefits of the merger and
compatibility of the companies as described under "Our Reasons
for the Merger" above,

- The fact that those persons who are St. Mary stockholders before
the merger would hold 80.6% of the outstanding stock of the
combined company after the merger,

- Comparisons of historical and projected financial measures for
St. Mary and King Ranch Energy, including earnings, return on
capital employed and cash flow, and comparisons of historical
operational measures for St. Mary and King Ranch Energy,
including oil and gas reserve replacement, and oil and gas
production,

- Current industry, economic and market conditions, including
current prices for crude oil. The St. Mary board considered that
oil and gas prices generally fluctuate and that when prices
fall, companies must improve the performance of their internal
operations to maintain profitability. The St. Mary board
considered it likely that a recurrence of low prices would lead
to further consolidation in the oil and gas industry because, as
explained under "Our Reasons for the Merger," combining
operations can help companies save money, strengthen the
combined balance sheet and operate more efficiently,

- The ability to complete the merger as a tax-free reorganization
for U.S. federal income tax purposes,

- The terms and conditions of the merger agreement, including the
conditions to closing and the termination fees payable under
certain circumstances (see "The Merger Agreement--Conditions to
Closing" and "The Merger Agreement--Termination of the Merger
Agreement"),

- The analyses and presentations of Deutsche Bank Securities, and
Deutsche Bank Securities's written opinion to the effect that,
as of July 23, 1999, and based upon and subject to the various
matters set forth in its opinion, the share exchange ratio
whereby the shares of King Ranch Energy common stock will be
converted into the right to receive 2,666,252 shares of St. Mary
common stock is fair to St. Mary from a financial point of view,

28
<PAGE>

- The composition of the combined company's board of directors,
and

- The challenges of combining the businesses of two major
corporations of this size and the attendant risk of not
achieving the expected cost savings and other benefits, as
discussed under "Cautionary Information About Forward-Looking
Statements", and of diverting management focus and resources
from other strategic opportunities and operational matters for
an extended period of time.

In view of the wide variety of factors considered in connection with
its evaluation of the merger and the complexity of these matters, the St.
Mary board of directors did not find it useful to and did not attempt to
quantify, rank or otherwise assign relative weights to these factors. The St.
Mary board relied on the experience and expertise of Deutsche Bank
Securities, its financial advisor, for quantitative analysis of the financial
terms of the merger. See "Opinion of Financial Advisor--Opinion of St. Mary
Financial Advisor." In addition, the St. Mary board did not undertake to make
any specific determination as to whether any particular factor, or any aspect
of any particular factor, was favorable or unfavorable to the St. Mary
board's ultimate determination, but rather the St. Mary board conducted an
overall analysis of the factors described above, including thorough
discussions with and questioning of St. Mary's management and legal,
financial and accounting advisors. In considering the factors described
above, individual members of the St. Mary board may have given different
weight to different factors.

The St. Mary board considered all these factors as a whole, and
overall considered the factors to be favorable to and to support its
determination. However, the general view of the St. Mary board was that the
last factor constituted an uncertainty or risk relating to the transaction,
and that the other reasons and factors described above were generally
favorable.

FACTORS CONSIDERED BY, AND RECOMMENDATION OF, THE KING RANCH BOARD OF
DIRECTORS

At a meeting of the King Ranch board of directors held on July 27,
1999, after due consideration, the King Ranch board:

- determined that the merger agreement and the consideration of
St. Mary common stock to be received in the merger are advisable
and in the best interests of King Ranch and the King Ranch
stockholders,

- approved the merger agreement and the related transactions, and

- determined to recommend that the King Ranch stockholders, who
will hold shares of King Ranch Energy voting common stock
following the distribution, consent to the merger agreement.

Therefore, the King Ranch board recommends that the holders of King
Ranch Energy voting common stock consent to the merger agreement.

29
<PAGE>

In approving the transaction and making this recommendation, the
King Ranch board consulted with King Ranch Energy's management as well as
King Ranch's outside legal counsel and financial advisor, and considered the
following material factors:

- All the reasons described above under "Our Reasons for the
Merger," including the exploration and production enhancements,
relative net asset valuation and cash flow, operating synergies
and capital productivity improvements expected to be available
to the combined company,

- Alternatives to the merger by presently pursuing a comparable
acquisition of or a business combination or joint venture with
an entity other than St. Mary and the King Ranch board's
conclusion that a transaction with St. Mary is more feasible,
and is expected to yield greater benefits, than the likely
presently available alternatives. The King Ranch board reached
this conclusion for reasons including St. Mary's interest in
pursuing a transaction with King Ranch Energy, King Ranch's view
that the transaction could be acceptably completed from a timing
standpoint, and King Ranch Energy management's assessment of the
alternatives and the expected benefits of the merger and
compatibility of the companies as described under "Our Reasons
for the Merger" above,

- The fact that 19.4% of the outstanding stock of the combined
company would be the consideration for King Ranch Energy,

- Current industry, economic and market conditions, including
current prices for crude oil. The King Ranch board considered
that oil and gas prices generally fluctuate and that when prices
fall, companies must improve the performance of their internal
operations to maintain profitability. The King Ranch board
considered it likely that a recurrence of low prices would lead
to further consolidation in the oil and gas industry because, as
explained under "Our Reasons for the Merger," combining
operations can help companies save money, strengthen the
combined balance sheet and operate more efficiently,

- The ability to complete the merger as a tax-free reorganization
for U.S. federal income tax purposes,

- The fact that the distribution of King Ranch Energy common stock
to the King Ranch stockholders will result in a taxable gain to
a subsidiary of King Ranch which should not be material to King
Ranch on a consolidated basis,

30
<PAGE>

- The terms and conditions of the merger agreement, including the
conditions to closing and the termination fees payable under
certain circumstances (see "The Merger Agreement--Conditions to
the Completion of the Merger" and "The Merger Agreement--
Termination of the Merger Agreement"),

- The analyses and presentations of Nesbitt Burns, and Nesbitt
Burn's written opinion to the effect that, as of July 27, 1999,
and based upon and subject to the various matters set forth in
its opinion, the number of shares of St. Mary common stock to be
received in the merger by the King Ranch stockholders is fair to
the King Ranch stockholders from a financial point of view,

- The composition of the combined company's board of directors,

- The risks of the July 27, 1999 termination of a number of King
Ranch Energy employees prior to stockholder approval of the
merger agreement, and

In view of the wide variety of factors considered in connection with
its evaluation of the merger and the complexity of these matters, the King
Ranch board of directors did not find it useful to and did not attempt to
quantify, rank or otherwise assign relative weights to these factors. The
King Ranch board relied on the experience and expertise of Nesbitt Burns, its
financial advisor, for quantitative analysis of the financial terms of the
merger. See "Opinion of Financial Advisor--Opinion of King Ranch Financial
Advisor." In addition, the King Ranch board did not undertake to make any
specific determination as to whether any particular factor, or any aspect of
any particular factor, was favorable or unfavorable to the King Ranch board's
ultimate determination, but rather the King Ranch board conducted an overall
analysis of the factors described above, including thorough discussions with
and questioning of King Ranch Energy's management and legal, financial and
accounting advisors. In considering the factors described above, individual
members of the King Ranch board may have given different weight to different
factors.

The King Ranch board considered all these factors as a whole, and
overall considered the factors to be favorable to and to support its
determination. However, the general view of the King Ranch board was that the
last two factors constituted uncertainties or risks relating to the
transaction, and that the other reasons and factors described above were
generally favorable.

31
<PAGE>

OPINIONS OF FINANCIAL ADVISORS

OPINION OF ST. MARY'S FINANCIAL ADVISOR

Deutsche Bank Securities Inc. has acted as financial advisor to St.
Mary in connection with the merger. At the July 23, 1999 meeting of the St.
Mary board of directors, Deutsche Bank delivered its oral opinion,
subsequently confirmed in writing as of the July 27, 1999, to the St. Mary
board of directors to the effect that, as of the date of such opinion, based
upon and subject to the assumptions made, matters considered and limits of
the review undertaken by Deutsche Bank, the share exchange ratio between St.
Mary and the King Ranch Energy stockholders was fair, from a financial point
of view, to St. Mary stockholders.

THE FULL TEXT OF DEUTSCHE BANK'S WRITTEN OPINION, DATED JULY 27,
1999, WHICH SETS FORTH, AMONG OTHER THINGS, THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN BY DEUTSCHE bANK IN CONNECTION
WITH THE OPINION, IS ATTACHED AS APPENDIX B TO THIS DOCUMENT AND IS
INCORPORATED HEREIN BY REFERENCE. ST. MARY STOCKHOLDERS ARE URGED TO READ
DEUTSCHE BANK'S OPINION IN ITS ENTIRETY. THE SUMMARY OF DEUTSCHE BANK'S
OPINION SET FORTH IN THIS DOCUMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF DEUTSCHE BANK'S OPINION.

In connection with Deutsche Bank's role as financial advisor to St.
Mary, and in arriving at its opinion, Deutsche Bank has, among other things:

- reviewed certain publicly available financial information and
other information concerning King Ranch Energy and St. Mary,

- reviewed certain internal analyses and other information
furnished to it by King Ranch Energy and St. Mary,

- held discussions with the members of the senior managements of
St. Mary and King Ranch Energy regarding the businesses and
prospects of their respective companies and the joint prospects
of a combined company,

- reviewed the reported prices and trading activity for the common
stock of St. Mary,

- compared certain financial data for King Ranch Energy and
St. Mary, and certain stock market information for St. Mary,
with similar information for selected companies whose
securities are publicly traded,

- reviewed the financial terms of selected recent business
combinations which it deemed comparable in whole or in part,

- reviewed the terms of the merger agreement and certain related
documents, and

32
<PAGE>

- performed such other studies and analyses and considered such
other factors as it deemed appropriate.

In preparing its opinion, Deutsche Bank did not independently verify
any information, whether publicly available or furnished to it, concerning
King Ranch Energy or St. Mary, including, without limitation, any financial
information, forecasts or projections considered in connection with the
rendering of its opinion. Accordingly, for purposes of its opinion, Deutsche
Bank relied upon the accuracy and completeness of all such information.
Deutsche Bank did not conduct a physical inspection of any of the properties
or assets, and did not prepare or obtain any independent evaluation or
appraisal of any of the assets or liabilities, of King Ranch Energy or St.
Mary. With respect to the financial forecasts and projections, including
analyses and forecasts of certain cost savings, operating efficiencies,
revenue effects and financial synergies expected by St. Mary to be achieved
as a result of the merger, made available to Deutsche Bank and used in its
analyses, Deutsche Bank has assumed that they have been reasonably prepared
on bases reflecting the best currently available estimates and judgments of
the management of St. Mary. In rendering its opinion, Deutsche Bank expressed
no view as to the reasonableness of such forecasts and projections, including
such synergies, or the assumptions on which they are based. Deutsche Bank's
opinion was necessarily based upon economic, market and other conditions as
in effect on, and the information made available to Deutsche Bank as of, the
date of its opinion.

For purposes of rendering its opinion, Deutsche Bank has assumed
that in all respects material to its analysis:

- the representations and warranties of each party in the merger
agreement are true and correct,

- each party to the merger agreement will perform all of the
covenants and agreements to be performed by it under the merger
agreement,

- all conditions to the obligations of each party to the merger
agreement to consummate the merger will be satisfied without any
waiver thereof, and

- all approvals and consents required in connection with the
consummation of the transactions contemplated by the merger
agreement will be obtained.

In addition, Deutsche Bank has been advised by St. Mary, and
accordingly has assumed for purposes of its opinion, that the merger will be
tax-free to each St. Mary and King Ranch.

Set forth below is a brief summary of certain financial analyses
performed by Deutsche Bank in connection with its opinion and reviewed with
the St. Mary board of directors at its

33
<PAGE>

meeting on July 23, 1999.

ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES. Deutsche Bank
compared certain financial information and commonly used valuation
measurements for King Ranch Energy to corresponding information and
measurements for a group of four publicly traded exploration and production
companies (consisting of Bellwether Exploration Company, Callon Petroleum
Company, PANACO, Inc. and Remington Oil & Gas Corporation (collectively, the
"Selected KRE Comparable Companies")). Deutsche Bank also compared certain
financial information and commonly used valuation measurements for St. Mary
to corresponding information and measurements for a group of six publicly
traded exploration and production companies (consisting of Key Production
Company, Inc., Belco Oil & Gas Corp., HS Resources, Inc., Patina Oil & Gas
Corporation, Tom Brown, Inc. and Titan Exploration, Inc. (collectively, the
"Selected St. Mary Comparable Companies")).

Such financial information and valuation measurements included:

- common equity market valuation,

- capitalization ratios,

- operating performance,

- ratios of common equity market value as adjusted for debt and
cash ("Total Enterprise Value") to earnings before interest
expense, income taxes, depreciation, amortization and
exploration ("EBITDAX") and to SEC pre-tax PV-10, which is the
value of future net cash flows from proved reserves before taxes
discounted at 10% at December 31, 1998, and year end proved
reserves, and

- ratios of common equity market prices per share ("Equity
Value") to operating cash flow per share.

To calculate the trading multiples for King Ranch Energy and the
Selected KRE Comparable Companies and for St. Mary and the Selected St. Mary
Comparable Companies, Deutsche Bank used publicly available information
concerning historical and projected financial performance, including
published historical financial information and operating cash flow estimates
reported by the Institutional Brokers Estimate System ("IBES"). IBES is a
data service that monitors and publishes compilations of earnings and cash
flow estimates by selected research analysts regarding companies of interest
to institutional investors.

Deutsche Bank compared the King Ranch Energy multiples of Total
Enterprise Value implied by the share exchange ratio with the following
calculated multiples for Selected KRE Comparable Companies:

34
<PAGE>

Selected KRE Comparable Companies
King Ranch Low Median High
Energy Implied --- ------ ----
--------------
<S> <C> <C> <C> <C>
12/31/98-Latest Twelve Month 2.01x 5.09x 6.99x 8.96x
EBITDAX
1998 Year End SEC Pre-Tax PV-10 1.06x 1.50x 1.73x 2.00x
1998 Year End Proved Reserves $0.94 $1.10 $1.30 $1.54
</TABLE>

Deutsche Bank further calculated that the multiple of Equity Value
to 1999 estimated operating cash flow per share was 2.35x for King Ranch
Energy compared to a range of 1.02x to 6.43x, with a median of 3.91x, for the
Selected KRE Comparable Companies.

Deutsche Bank compared St. Mary actual multiples of Total Enterprise
Value with the following calculated multiples for Selected St. Mary
Comparable Companies:

Selected St. Mary Comparable Companies
St. Mary Actual Low Median High
--------------- --- ------ ----
<S> <C> <C> <C> <C>
12/31/98-Latest Twelve Month 5.22x 5.65x 7.04x 11.02x
EBITDAX
1998 Year End SEC Pre-Tax PV-10 2.13x 0.87x 1.40x 2.09x
1998 Year End Proved Reserves $1.44 $0.60 $0.97 $1.45
</TABLE>

Deutsche Bank further calculated that the multiple of Equity Value
to 1999 estimated operating cash flow per share was 2.35x for St. Mary
compared to a range of 1.00x to 10.39x, with a median of 5.78x, for the
Selected St. Mary Comparable Companies.

None of the companies utilized as a comparison is identical to King
Ranch Energy or St. Mary. Accordingly, the analysis of the publicly traded
comparable companies is not simply mathematical. Rather, it involves complex
considerations and qualitative judgments concerning differences in financial
and operating characteristics of the comparable companies and other factors
that could effect the public trading value of the comparable companies.

ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS. Deutsche Bank reviewed
the financial terms, to the extent publicly available, of 9 proposed, pending
or completed mergers and acquisition transactions of greater than $10 million
since January 1, 1996 involving exploration and production companies with a
similar asset mix to King Ranch Energy (the "Selected KRE Corporate
Transactions"). Deutsche Bank utilized estimated reserve value and proved
reserves to determine reserve value to proved reserves in order to estimate a
total enterprise value

35
<PAGE>

for King Ranch Energy and compared them to corresponding reserve value to
proved reserves for the merger, based on the share exchange ratio. Deutsche
Bank calculated that total enterprise value divided by estimated proved
reserves was $.84 for the merger compared to a range of $0.80 to $1.66,
with a median of $1.02, for the Selected KRE Corporate Transactions.

Deutsche Bank reviewed the financial terms, to the extent publicly
available, of 55 proposed pending or completed asset sale transactions of
greater than $10 million since January 1, 1996 involving producing properties
within the three operating regions of King Ranch Energy (the "Selected KRE
Asset Transactions"). Deutsche Bank utilized estimated reserve value and
proved reserves to determine a multiple of reserve value to proved reserves
in order to estimate a total enterprise value for King Ranch Energy and
compared them to corresponding reserve value to proved reserves for the
merger, based on the share exchange ratio. Deutsche Bank calculated that the
total enterprise value to estimated proved reserves was $.84 for the merger
compared to the following multiples for the Selected KRE Asset Transactions:

Operating Region 25th Percentile Median 75th Percentile
---------------- --------------- ------ ---------------
<S> <C> <C> <C>
Gulf of Mexico - Offshore $0.86 $0.99 $1.24
Texas - Onshore $0.58 $0.75 $0.80
Oklahoma / Rocky Mountains - $0.51 $0.71 $0.83
Utah/North Dakota
</TABLE>

Deutsche Bank reviewed the financial terms, to the extent publicly
available, of 8 proposed, pending or completed mergers and acquisition
transactions of greater than $10 million since January 1, 1996 involving
exploration and production companies with a similar asset mix to St. Mary
(the "Selected St. Mary Corporate Transactions"). Deutsche Bank utilized
estimated reserve value and proved reserves to determine a total enterprise
value multiple of proved reserves and compared them to the corresponding
multiple for St. Mary. Deutsche Bank calculated that the multiple of total
enterprise value to year end proved reserves was 1.44 for St. Mary compared
to a range of 0.61 to 1.36, with a median of 1.00, for Selected St. Mary
Corporate Transactions.

Deutsche Bank reviewed the financial terms, to the extent publicly
available, of 40 proposed pending or completed asset sale transactions of
greater than $10 million since January 1, 1996 involving producing properties
within the five operating regions of St. Mary (the "Selected St. Mary Asset
Transactions"). Deutsche Bank utilized estimated reserve value and proved
reserves and compared them to corresponding multiples for St. Mary. Deutsche
Bank calculated that the multiple of total enterprise value to year end
proved reserves was 1.44 for St. Mary compared to the following multiples
for the Selected St. Mary asset Transactions:

36
<PAGE>

<TABLE>
<CAPTION>
Operating Region 25th Percentile Median 75th Percentile
---------------- --------------- ------ ---------------
<S> <C> <C> <C>
Rockies - Williston Basin $0.42 $0.67 $0.78
Mid-Continent $0.69 $0.92 $1.03
Permian Basin $0.65 $0.75 $0.80
ArkLaTex Region $0.69 $0.72 $0.77
South Louisiana $0.85 $1.07 $1.28
</TABLE>

All multiples for each of the Selected KRE Corporate Transactions,
Selected KRE Asset Transactions, the Selected St. Mary Corporate Transactions
and the Selected St. Mary Asset Transactions were based on John S. Herold
Inc. data and public information available at the time of announcement of
such transactions, without taking into account differing market and other
conditions during the three and one half-year period during which such
transactions occurred.

Because the reasons for and circumstances surrounding each of the
precedent transactions analyzed were so diverse, and due to the inherent
differences between the operations and financial conditions of King Ranch
Energy and St. Mary and the companies involved in each of the Selected KRE
Corporate Transactions, Selected KRE Asset Transactions, the Selected St.
Mary Corporate Transactions and the Selected St. Mary Asset Transactions,
Deutsche Bank believes that a comparable transaction analysis is not simply
mathematical. Rather, it involves complex considerations and qualitative
judgments, reflected in Deutsche Bank's opinion, concerning differences
between the characteristics of these transactions and the merger that could
affect the value of the subject companies and businesses and King Ranch
Energy and St. Mary.

CONTRIBUTION ANALYSIS. Deutsche Bank analyzed the relative
contributions of St. Mary and King Ranch Energy, as compared to St. Mary and
King Ranch Energy's relative ownership after the merger of approximately
80.64% and 19.36% respectively of the outstanding capital of the combined
company, to the pro forma income statement of the combined company, based on
managements' projections for their respective companies. The analysis showed
that on a pro forma combined basis (excluding (1) the effect of any synergies
that may be realized as a result of the merger, and (2) non-recurring
expenses relating to the merger), based on 1999 and 2000 estimates for St.
Mary and King Ranch Energy, St. Mary and King Ranch Energy would account for
approximately the following percentages of the combined company for the
following:

<TABLE>
<CAPTION>
St. Mary King Ranch
---------- ----------
<S> <C> <C>
1999E EBITDAX 62.00% 38.00%
2000E EBITDAX 70.30% 29.70%
2001E EBITDAX 75.50% 24.50%
1999E Operating Cash Flow
Per Share 58.90% 41.10%
2000E Operating Cash Flow
Per Share 65.00% 35.00%

</TABLE>

37
<PAGE>

<TABLE>
<CAPTION>
St. Mary King Ranch
---------- ----------
<S> <C> <C>
2001E Operating Cash Flow
Per Share 74.10% 25.90%

1999E Production 63.10% 36.90%
2000E Production 71.40% 28.60%
2001E Production 74.70% 25.30%
</TABLE>

DISCOUNTED CASH FLOW ANALYSIS. Deutsche Bank performed a discounted
cash flow analysis for both King Ranch Energy and St. Mary. Deutsche Bank
calculated the discounted cash flow values for each of King Ranch Energy and
St. Mary as the sum of the net present values of (1) the estimated future
cash flow that King Ranch Energy or St. Mary will generate for the period
described below, plus (2) the value of King Ranch Energy or St. Mary at the
end of such period. The estimated future cash flows were based on the
financial projections for King Ranch Energy for the years 1999 through 2005
prepared by King Ranch Energy's management and for St. Mary for the years
1999 through 2004 prepared by St. Mary's management. The terminal value of
King Ranch Energy was calculated based on projected EBITDAX for 2005 and a
range of multiples of 3.0x, 4.0x and 5.0x. The terminal value of St. Mary was
calculated based on projected EBITDAX for 2004 and a range of multiples of
4.0x, 5.0x and 6.0x. Deutsche Bank used discount rates ranging from 10.0% to
14.0%. Deutsche Bank used such discount rates based on its judgment of the
estimated weighted average cost of capital of Selected KRE Comparable
Companies and Selected St. Mary Comparable Companies, and used such multiples
based on its review of the trading characteristics of the common stock of
Selected KRE Comparable Companies and Selected St. Mary Comparable Companies.
This analysis indicated a range of values of $63.0 million to $77.6 million
for the King Ranch Energy depletion case and a range of values of $183.6
million to $371.9 million for St. Mary.

The foregoing summary describes all analyses and factors that
Deutsche Bank deemed material in its presentation to St. Mary board of
directors, but is not a comprehensive description of all analyses performed
and factors considered by Deutsche Bank in connection with preparing its
opinion. The preparation of a fairness opinion is a complex process involving
the application of subjective business judgment in determining the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, is not readily
susceptible to summary description. Deutsche Bank's analyses must be
considered as a whole and considering any portion of such analyses and of the
factors considered without considering all analyses and factors could create
a misleading view of the process underlying the opinion. In arriving at its
fairness determination, Deutsche Bank did not assign specific weights to any
particular analyses.

In conducting its analyses and arriving at its opinions, Deutsche
Bank utilized a variety of generally accepted valuation methods. The analyses
were prepared solely for the purpose of enabling Deutsche Bank to provide its
opinion to the St. Mary board of directors as to the fairness to St. Mary of
the share exchange ratio and does not purport to be appraisals or necessarily
reflect the prices at which businesses or securities actually may be sold,
which are inherently

38
<PAGE>

subject to uncertainty. In connection with its analyses, Deutsche Bank made,
and was provided by St. Mary management with, numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond St. Mary's or King Ranch Energy's
control. Analyses based on estimates or forecasts of future results are not
necessarily indicative of actual past or future values or results, which may
be significantly more or less favorable than suggested by such analyses.
Because such analyses are inherently subject to uncertainty, being based upon
numerous factors or events beyond the control of St. Mary, King Ranch Energy
or their respective advisors, neither St. Mary nor Deutsche Bank nor any
other person assumes responsibility if future results or actual values are
materially different from these forecasts or assumptions.

The terms of the merger were determined through negotiations between
St. Mary and King Ranch and were approved by the St. Mary board of directors.
Although Deutsche Bank provided advice to St. Mary during the course of these
negotiations, the decision to enter into the merger was solely that of the
St. Mary board of directors. As described above, the opinion and presentation
of Deutsche Bank to the St. Mary board of directors were only one of a number
of factors taken into consideration by the St. Mary board of directors in
making its determination to approve the merger. Deutsche Bank's opinion was
provided to the St. Mary board of directors to assist it in connection with
its consideration of the merger and does not constitute a recommendation to
any holder of St. Mary Common Stock as to how to vote with respect to the
merger.

St. Mary selected Deutsche Bank as financial advisor in connection
with the merger based on Deutsche Bank's qualifications, expertise,
reputation and experience in mergers and acquisitions. St. Mary has retained
BT Alex. Brown Incorporated pursuant to an engagement letter agreement dated
March 11, 1999. Deutsche Bank is the successor to the investment banking and
client advisory businesses of BT Alex. Brown and has assumed BT Alex. Brown's
rights and responsibilities under the engagement letter. As compensation for
Deutsche Bank's services in connection with the merger, St. Mary has paid
Deutsche Bank a cash fee of $175,000 and has agreed to pay an additional cash
fee of $675,000 if the merger is consummated. Regardless of whether the
merger is consummated, St. Mary has agreed to reimburse Deutsche Bank for
reasonable fees and disbursements of Deutsche Bank's counsel and all of
Deutsche Bank's reasonable travel and other out-of-pocket expenses incurred
in connection with the merger or otherwise arising out of the retention of
Deutsche Bank under the engagement letter. St. Mary has also agreed to
indemnify Deutsche Bank and certain related persons to the full extent lawful
against certain liabilities, including certain liabilities under the federal
securities laws arising out of its engagement of the merger.

Deutsche Bank is an internationally recognized investment banking
firm experienced in providing advice in connection with mergers and
acquisitions and related transactions. Deutsche Bank has previously advised
and executed natural gas hedging transactions for St. Mary. Deutsche Bank and
its affiliates may actively trade securities of St. Mary for their own
account or the account of their customers and, accordingly, may from time to
time hold a long or short position in such securities.

39
<PAGE>

OPINION OF KING RANCH'S FINANCIAL ADVISOR

King Ranch retained Nesbitt Burns to act as its financial advisor
with respect to considering strategic alternatives for King Ranch Energy. On
July 27, 1999, the King Ranch board held a meeting to evaluate the proposed
merger. At this meeting Nesbitt Burns rendered its opinion that, as of that
date and based upon and subject to the limitations and assumptions set forth
in its opinion, the consideration to be received by the shareholders of King
Ranch in connection with the merger was fair from a financial point of view
to the shareholders of King Ranch.

THE FULL TEXT OF THE OPINION, WHICH DESCRIBES, AMONG OTHER THINGS,
THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND QUALIFICATIONS AND LIMITATIONS
ON THE REVIEW UNDERTAKEN BY NESBITT BURNS IS ATTACHED AS APPENDIX C TO THIS
DOCUMENT AND IS INCORPORATED IN THIS DOCUMENT BY REFERENCE. THE SUMMARY OF
THE FAIRNESS OPINION SET FORTH IN THIS DOCUMENT IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF THE OPINION. THE KING RANCH SHAREHOLDERS ARE
URGED TO READ NESBITT BURNS' OPINION CAREFULLY AND IN ITS ENTIRETY. THE
FAIRNESS OPINION WAS PROVIDED TO THE KING RANCH BOARD AND ADDRESSES ONLY THE
FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE CONSIDERATION TO BE RECEIVED
BY THE KING RANCH SHAREHOLDERS AND DOES NOT ADDRESS ANY OTHER ASPECT OF THE
MERGER OR ANY RELATED TRANSACTION AND DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY SHAREHOLDER AS TO HOW TO WHETHER TO CONSENT TO THE MERGER.

In arriving at its opinion, Nesbitt Burns, among other things:

- reviewed certain publicly available business and financial
information relating to King Ranch, King Ranch Energy and
St. Mary,

- reviewed certain internal financial and operating information,
including financial forecasts of the respective results of
operations of King Ranch Energy and St. Mary as well as
certain estimates of the expected operational and financial
benefits expected to result from the merger, prepared and
provided by the managements of King Ranch, King Ranch Energy
and St. Mary,

- held discussions with certain senior officers, directors and
other representatives and advisors of King Ranch, King Ranch
Energy and St. Mary concerning their respective strategic
objectives, businesses, operations, assets, financial
condition and prospects before and after giving effect to the
merger and the expected synergies described in the bullet
point set forth above,

- reviewed the reported prices and trading activity for St. Mary
common stock,

- considered, to the extent publicly available, the financial
terms of certain other similar transactions recently effected
which Nesbitt Burns considered relevant in evaluating the
transaction contemplated by the merger agreement,

- analyzed certain financial, stock market and other publicly
available information

<PAGE>

relating to the businesses of other companies whose operations
Nesbitt Burns considered relevant in evaluating those of King
Ranch Energy and St. Mary,

- participated in discussions and negotiations among
representatives of King Ranch, King Ranch Energy and St. Mary
and their respective legal and financial advisors,

- reviewed the draft merger agreement and certain related
agreements, and

- conducted such other analyses, inquiries and examinations and
considered such other financial, engineering, economic and
market criteria as Nesbitt Burns deemed appropriate in
arriving at its opinion.

In rendering its opinion, Nesbitt Burns assumed and relied upon,
without independent verification, the accuracy, fair representation and
completeness of all financial and other information, data, advice, opinions
and representations publicly available or furnished to or otherwise reviewed
by or discussed with Nesbitt Burns and its opinion is conditioned upon such
accuracy, fairness and completeness. With respect to financial forecasts, the
expected synergies and other information provided to or otherwise reviewed by
or discussed with Nesbitt Burns by management of King Ranch, King Ranch
Energy or St. Mary, Nesbitt Burns assumed that they have been reasonably
prepared and reflect the best currently available estimates and judgment of
King Ranch's, King Ranch Energy's or St. Mary's management as to the expected
future financial performance of King Ranch Energy or St. Mary, as the case
may be. Subject to the exercise of professional judgment and except as
expressly described in the fairness opinion, Nesbitt Burns has not assumed
any responsibility or attempted to verify independently the accuracy or
completeness of any such information, data, advice, opinions and
representations. Nesbitt Burns has further assumed that the merger will be
accounted for as a purchase under generally accepted accounting principles
and that it will qualify as a tax-free reorganization for U.S. Federal income
tax purposes.

Nesbitt Burns has not made or been provided with an independent
evaluation of the assets or liabilities (contingent or otherwise) of King
Ranch, King Ranch Energy, or St. Mary nor did it make any physical inspection
of the properties or assets of King Ranch, King Ranch Energy or St. Mary. The
Nesbitt Burns opinion is based upon the condition and prospects, financial
and otherwise, of King Ranch Energy and St. Mary as they were reflected in
the information and documents reviewed by Nesbitt Burns and as they were
represented to Nesbitt Burns in discussions with management of King Ranch,
King Ranch Energy and St. Mary.

For the purpose of rendering the opinion, Nesbitt Burns assumed that
the final form of the transaction documents, including the merger agreement,
is substantially similar to the form in which they were reviewed by Nesbitt
Burns and that in the course of obtaining the necessary regulatory or other
consents or approvals (contractual or otherwise) for the merger, no
restriction, including any divestiture requirements or amendments or
modifications, will be imposed that will have a material adverse effect on
the contemplated benefits of the merger.

The fairness opinion was necessarily rendered on the basis of
information available, including financial and securities markets, economic
and general business and financial

<PAGE>

conditions and other conditions and circumstances existing and disclosed to
Nesbitt Burns, as of the date of the opinion.

The fairness opinion does not address the merits of the underlying
decision by King Ranch to engage in the merger and is not intended to be and
does not constitute a recommendation to any stockholder of King Ranch Energy
as to whether such stockholder should consent to the proposed merger or any
matter related thereto. Nesbitt Burns is not expressing any opinion as to the
prices at which the St. Mary common stock will trade following the
announcement or consummation of the Merger.

ANALYSES OF NESBITT BURNS

In performing its analyses, Nesbitt Burns made numerous assumptions
with respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control
of any party involved. Any estimates contained in the analyses performed by
Nesbitt Burns are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
these analyses. Additionally, estimates of the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
such businesses or securities might actually be sold. Accordingly, these
analyses and estimates are inherently subject to substantial uncertainty. In
addition, the Nesbitt Burns opinion was among several factors taken into
consideration by the King Ranch board in making its determination to approve
the merger agreement and the merger. Consequently, the analyses described
below should not be viewed as determinative of the decision of the King Ranch
board or management of King Ranch with respect to the fairness of the
consideration.

The following is a summary of the material financial analyses
presented by Nesbitt Burns to the King Ranch board on July 27, 1999 in
connection with the rendering of its opinion on that date. The summary below
is not a complete description of the analyses underlying the Nesbitt Burns
opinion or the presentation made by Nesbitt Burns to the King Ranch board,
but summarizes the material analyses performed and presented in connection
with such opinion. The preparation of a fairness opinion is a complex
analytic process involving various determinations as to the most appropriate
and relevant methods of financial analysis and the application of those
methods to the particular circumstances. Therefore, a fairness opinion is not
readily susceptible to partial analysis or summary description. In arriving
at its opinion, Nesbitt Burns did not attribute any particular weight to any
analysis or factor that it considered, but rather made qualitative judgments
as to the significance and relevance of each analysis and factor.
Accordingly, Nesbitt Burns believes that its analyses and the summary of its
analyses must be considered as a whole and that selecting portions of its
analyses and factors focusing on the information presented below in tabular
format, without considering all analyses and factors or the full narrative
description of the financial analyses, including the methodologies and
assumptions underlying the analyses, could create a misleading or incomplete
view of the process underlying its analyses and opinion. The tables alone do
not constitute a complete description of the financial analyses.

<PAGE>

ANALYSIS OF SELECTED ASSET ACQUISITION TRANSACTIONS. In order to
approximate the value of King Ranch Energy, Nesbitt Burns reviewed publicly
available information for eighteen asset acquisitions that had been announced
between April 1998 and July 1999. Each transaction involved primarily Gulf
Coast oil and gas properties and the value of each transaction was below
$250 million. The following transactions were reviewed (in each case the
first-named company is the acquiror and the second-named company is the
seller of the assets): Mitchell Energy & Development Corp./Occidental
Petroleum Corp.; Union Pacific Resources Group Inc./Occidental Petroleum
Corp.; Swift Energy Company/Sonat Inc.; Enron Oil & Gas Co./Union Pacific
Resources Group Inc.; Collins & Ware Inc./Union Pacific Resources Group Inc.;
Chancellor Group, Inc./Union Pacific Resources Group Inc.; Clayton Williams
Energy, Inc./Sonat Inc.; Samson Investment Co./Nuevo Energy Company; The
Houston Exploration Company/Chevron Corp.; EnerVest Management Co. L.C./Coho
Energy, Inc.; Canadian Occidental Petroleum Ltd./Royal Dutch and Shell Group;
Castle Energy Corp./United Energy plc; Coastal Corp./Titan Exploration, Inc.;
Coastal Corp./undisclosed seller; Louis Dreyfus Natural Gas Corp./undisclosed
seller; Phillips Petroleum Co./Kelley Oil & Gas Corp.; Prize Energy
Corp./Pioneer Natural Resources Co.; and undisclosed seller/MCN Energy
Group Inc. Nesbitt Burns considered the assets transferred in these
transactions to be similar, but not identical, to the assets of King Ranch
Energy.

For each of these transactions Nesbitt Burns derived the implied
value per thousand cubic feet equivalent ("MCFE") of proved reserves, using a
6.0 MCF of natural gas to 1.0 barrel of oil conversion ratio as of the
completion date of each transaction. The weighted average of the implied
reserve values per MCFE for the eighteen transactions was determined by
dividing the sum of proved reserves sold in each of these transactions by the
sum of the values attributed to the reserves in each transaction. Nesbitt
Burns applied the multiples of equivalent reserves to King Ranch Energy's
proved reserves of 65 billion cubic feet equivalent ("ABCFE") as determined as
of December 31, 1998 by third party engineers for purposes of the merger
analysis. Nesbitt Burns determined an asset reference value range implied by
these multiples. After deducting current obligations of King Ranch Energy and
due diligence value adjustments to King Ranch Energy of $11.8 million and
$4.0 million, respectively, and adding current assets of King Ranch Energy of
$10.9 million, the indicated equity reference value range of King Ranch
Energy was $23.8 million to $84.6 million. The following table sets forth the
low, high and weighted average implied reserve values per MCFE of these
transactions and the implied equity value of King Ranch Energy derived
therefrom:

- --------------------------------------------------------------------------------
Implied Value of Proved Implied King Ranch Energy
Reserves per MCFE Equity Value (in $ millions)
- --------------------------------------------------------------------------------
<S> <C> <C>
Low $0.44 23.8
- --------------------------------------------------------------------------------
Weighted Average $0.73 42.7
- --------------------------------------------------------------------------------
High $1.37 84.6
- --------------------------------------------------------------------------------

</TABLE>

ANALYSIS OF SELECTED CORPORATE TRANSACTIONS. In order to approximate
the stand-alone value of King Ranch Energy, Nesbitt Burns also reviewed
publicly available information for nine

<PAGE>

change of control transactions that had been announced between April 1996 and
July 1999. Each transaction involved oil and gas companies with substantial
interests in the Gulf Coast and the value of each transaction was below
$200 million. The following transactions were reviewed (in each case the
first-named company is the acquiror and the second-named company is the
acquired company or parent of the acquired corporate entity): Burlington
Resources Inc./Gulfstream Resources; Forcenergy Inc./ Great Western
Resources; Domain Energy Corp./ El Paso Natural Gas Co.; Alliance
Resources plc/LaTex Resources Inc.; Forcenergy Inc./ Convest Energy Corp. and
Edisto Resources Corp.; PANACO, Inc./ Goldking Companies, Inc.; Seagull
Energy Corp./BRG Petroleum Inc.; Texoil, Inc./Cliffwood Oil & Gas Corp.; and
Energen Corporation and Westport Oil and Gas/ TOTAL S.A. Nesbitt Burns
considered these transactions to be similar to the merger but none of these
transactions are identical to the merger.

For each of these transactions Nesbitt Burns derived the implied
reserve values per MCFE as of the completion date of each transaction. The
weighted average of the implied reserve values per MCFE for the nine
transactions was determined by dividing the sum of proved reserves of the
target by the sum of value attributed to the reserves in each transaction.
Nesbitt Burns applied the multiples of equivalent reserves to King Ranch
Energy's proved reserves of 65.4 BCFE as determined as of December 31, 1998
by third party engineers for purposes of the merger analysis. Nesbitt Burns
determined an asset reference value range implied by these multiples. After
deducting current obligations of King Ranch Energy and due diligence value
adjustments to King Ranch Energy of $11.8 million and $4.0 million,
respectively, and adding current assets of King Ranch Energy of $10.9 million,
the indicated equity reference value range of King Ranch Energy was
$21.8 million to $83.3 million. The following table sets forth the low, high
and weighted average implied value per unit of proved reserves of these
transactions and the implied equity value of King Ranch Energy derived
therefrom:

- --------------------------------------------------------------------------------
Implied Value per MCFE of Implied King Ranch Energy
Proved Reserves Equity Value (in $ millions)
- --------------------------------------------------------------------------------
<S> <C> <C>
Low $0.41 21.8
- --------------------------------------------------------------------------------
Weighted Average $0.87 51.9
- --------------------------------------------------------------------------------
High $1.35 83.3
- --------------------------------------------------------------------------------

</TABLE>

COMPARABLE COMPANY ANALYSIS - KING RANCH ENERGY. Nesbitt Burns
compared selected operating results of King Ranch Energy to the publicly
available corresponding data for the following companies that Nesbitt Burns
determined were comparable to King Ranch Energy based on their size, location
and nature of operations:

- - Bellwether Exploration Co. - Newfield Exploration Co.

- - Callon Petroleum Corp. - PANACO Inc.

- - Chieftan International - Stone Energy Corp.

<PAGE>

- - Meridian Resource Corp. - Swift Energy Co.

- - Edge Petroleum Corp.

Nesbitt Burns calculated and analyzed ratios based on certain
relevant historical publicly available data and upon projected financial
criteria as published by various third-party equity research analysts. The
following ratios were determined:

- Enterprise value/LTM EBITDAX,

- Enterprise value/1999 estimated EBITDAX,

- Enterprise value/MCFE (proved SEC reserves as of 12/31/98),

- Enterprise value/SEC-10 (based on proved reserves as of
12/31/98),

- Price/1999 estimated cash flow, and

- Price/2000 estimated cash flow.

For purposes of this section, "LTM EBITDAX" means the latest twelve
months of earnings before deducting interest income and expense, income
taxes, depreciation, depletion, amortization, and exploration expenses; and
"SEC-10" means future after-tax cash flows of proved reserves determined by
year-end commodity prices, operating expenses and development costs
discounted at 10%. Certain multiples were adjusted based on Nesbitt Burns'
market research to account for King Ranch Energy's industry-low reserve life
index.

Nesbitt Burns applied appropriate benchmark multiples to King Ranch
Energy's LTM and 1999 estimated EBITDAX, year-end SEC proved reserves, SEC-10
value and 1999 and 2000 estimated cash flow. Nesbitt Burns determined an
asset reference value range for King Ranch Energy implied by these multiples.
After deducting current obligations of King Ranch Energy and due diligence
value adjustments to King Ranch Energy of $11.8 million and $4.0 million,
respectively, and adding current assets of King Ranch Energy of $10.9 million,
the indicated equity reference value range of King Ranch Energy was
$10.0 million to $203.1 million. The following table sets forth the low, mean
and high implied equity value of King Ranch Energy for each of the above
ratios based on the nine comparable companies:

Implied King Ranch Energy Equity Value (in $ millions)

- --------------------------------------------------------------------------------------------
EV/LTM EV/1999E EV/SEC- P/CF P/CF
BITDAX EBITDAX EV/MCFE 10 1999E 2000E
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Low 55.2 54.9 50.3 62.0 27.0 10.0
- --------------------------------------------------------------------------------------------
Mean 83.2 68.8 88.0 91.2 123.5 59.1
- --------------------------------------------------------------------------------------------
High 111.3 82.8 137.6 135.5 203.1 91.3
- --------------------------------------------------------------------------------------------

</TABLE>

<PAGE>

COMPARABLE COMPANY ANALYSIS - ST. MARY. Nesbitt Burns compared
selected operating results of St. Mary to the publicly available corresponding
data for the following companies that Nesbitt Burns determined were comparable
to St. Mary based on their size, location and nature of operations:

- - Bellwether Exploration Co. - Titan Exploration Inc.

- - Callon Petroleum Corp. - Tom Brown Inc.

- - Basin Exploration Inc. - Stone Energy Corp.

- - Comstock Resources Inc. - Swift Energy Co.

- - Key Production Company

Nesbitt Burns calculated and analyzed the same ratios for St. Mary
and these nine companies based on certain relevant historical publicly
available data and upon projected financial criteria as published by
independent third-party equity research analysts.

Nesbitt Burns applied these benchmark multiples to St. Mary's LTM
and 1999 estimated EBITDAX, year-end SEC proved reserves, SEC-10 value and
1999 and 2000 estimated cash flow. Nesbitt Burns determined an asset
reference value range implied by these multiples. After deducting current and
long-term obligations $41.7 million and adding current and other assets of
St. Mary and due diligence adjustments to St. Mary of $42.4 million and
$12.4 million, respectively, the indicated equity reference value range of
St. Mary was $8.28 to $44.00 per share. The following table sets forth the
low, mean and high implied equity value of St. Mary for each of the ratios
based on the nine comparable companies on an aggregate and per share basis:

Implied St. Mary Equity Value (in $ millions)

- --------------------------------------------------------------------------------------------
EV/LTM EV/1999E EV/SEC- P/CF P/CF
EBITDAX EBITDAX EV/MCFE 10 1999E 2000E
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Low 197.5 196.4 92.0 103.0 107.0 116.4
- --------------------------------------------------------------------------------------------
Mean 343.2 301.7 235.9 177.7 234.8 266.1
- --------------------------------------------------------------------------------------------
High 488.6 413.6 432.9 313.3 400.4 481.1
- --------------------------------------------------------------------------------------------

</TABLE>

<PAGE>

Implied St. Mary Equity Value per Share

- ---------------------------------------------------------------------------------------------
EV/LTM EV/1999E EV/SEC- P/CF P/CF
EBITDAX EBITDAX EV/MCFE 10 1999E 2000E
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Low $17.78 $17.69 $8.28 $9.28 $9.64 $10.48
- ---------------------------------------------------------------------------------------------
Mean $30.91 $27.17 $21.25 $16.00 $21.15 $23.97
- ---------------------------------------------------------------------------------------------
High $44.00 $37.25 $38.99 $28.22 $36.06 $43.33
- ---------------------------------------------------------------------------------------------

</TABLE>

COMPARABLE COMPANY ANALYSIS - KING RANCH ENERGY PRO FORMA. The
above equity values for each company indicated the following range of implied
King Ranch Energy pro forma ownership in St. Mary:

Pro Forma Ownership

- --------------------------------------------------------------------------------------------
EV/LTM EV/1999E EV/SEC- P/CF P/CF
EBITDAX EBITDAX EV/MCFE 10 1999E 2000E
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Low 18.6% 16.7% 24.1% 30.2% 20.1% 7.9%
- --------------------------------------------------------------------------------------------
Mean 19.5% 18.6% 27.2% 33.9% 34.5% 18.2%
- --------------------------------------------------------------------------------------------
High 21.8% 21.8% 35.3% 37.6% 33.6% 15.9%
- --------------------------------------------------------------------------------------------

</TABLE>

DISCOUNTED CASH FLOW ANALYSIS - KING RANCH ENERGY. Nesbitt Burns
conducted a discounted cash flow analysis for the purpose of determining the
equity reference value range of King Ranch Energy. Nesbitt Burns calculated
the net present value of estimates of future after-tax cash flows through
2014 for King Ranch Energy's oil and gas reserve assets based on reserve
estimates by independent engineers.

Nesbitt Burns evaluated two scenarios in which the principal
variables were oil and gas prices. The two pricing scenarios were based on
benchmarks for spot sales of West Texas Intermediate crude oil and for spot
price sales of Henry Hub gas ("Pricing Case I" and "Pricing Case II").
Nesbitt Burns applied appropriate quality and transportation adjustments to
these benchmarks. Benchmark oil prices for Pricing Cases I and II were
projected to be $17.00 and $19.00 per barrel, respectively, for 1999 and were
escalated annually thereafter at the rate of 3.0%. Benchmark gas prices for
Pricing Cases I and II were projected to be $2.20 and $2.40 per MCFE,
respectively, for 1999 and were escalated annually thereafter at the rate of
3.0%. Operating and capital costs were escalated at 3.0% per year after 1999.
The discount rates ranged from 8 to 12 percent.

Assuming a carry-over of King Ranch Energy's existing tax positions,
and applying reserve and capital spending risk factors ranging from 100% to
35%, depending on reserve

<PAGE>

category, the discounted cash flow analysis indicated a range of asset
reference values. After deducting current obligations of King Ranch Energy
and due diligence value adjustments to King Ranch Energy of $11.8 million and
$4.0 million, respectively, and adding current assets of King Ranch Energy of
$10.9 million, the indicated equity reference value ranges of King Ranch Energy
were $48.5 million to $54.6 million for Pricing Case I and $55.6 million to
$62.9 million for Pricing Case II.

Implied King Ranch Energy Equity Value (in $ millions)

- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Discount
Rate 8% 9% 10% 11% 12%
- ------------------------------------------------------------------------
Pricing Case
I 54.6 52.9 51.3 49.8 48.5
- ------------------------------------------------------------------------
Pricing Case
II 62.9 60.9 59.0 57.2 55.6
- ------------------------------------------------------------------------

</TABLE>

DISCOUNTED CASH FLOW ANALYSIS - ST. MARY. Nesbitt Burns conducted a
discounted cash flow analysis for the purpose of determining the equity
reference value range of St. Mary. Nesbitt Burns calculated the net present
value of estimates of future after-tax cash flows for St. Mary's oil and gas
reserve assets based on reserve estimates by independent engineers as well as
the estimated after-tax cash flows derived from reserves added by St. Mary's
projected capital spending program.

Nesbitt Burns evaluated two scenarios using the same variables and
benchmarks as under the King Ranch Energy analysis. Assuming a carry-over of
St. Mary's existing tax positions, applying reserve and capital spending risk
factors ranging from 100% to 35%, depending on reserve category, and applying
a terminal value of 5 times 2004 discretionary cash flow, the discounted cash
flow analysis indicated a range of asset reference values. After deducting
current and long-term obligations $41.7 million and adding current and other
assets of St. Mary and due diligence adjustments to St. Mary of $42.4 million
and $12.4 million, respectively, the indicated equity reference value ranges
of St. Mary were $245.8 million to $300.2 million for pricing Case I,
$314.6 million to $379.8 million for Pricing Case II, $22.14 to $27.03 per
share for Pricing Case I and $28.33 to $34.20 per share for Pricing Case II.

<PAGE>

Implied Equity Value of St. Mary (in $ millions)

- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Discount
Rate 8% 9% 10% 11% 12%
- -------------------------------------------------------------------------
Pricing Case
I 300.2 285.4 271.5 258.3 245.8
- -------------------------------------------------------------------------
Pricing Case
II 379.8 362.1 345.4 329.5 314.6
- -------------------------------------------------------------------------

</TABLE>

Implied Equity Value of St. Mary per Share

- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Discount
Rate 8% 9% 10% 11% 12%
- -------------------------------------------------------------------------
Pricing Case
I 27.03 25.70 24.45 23.26 22.14
- -------------------------------------------------------------------------
Pricing Case
II 34.20 32.61 31.10 29.68 28.33
- -------------------------------------------------------------------------

</TABLE>

DISCOUNTED CASH FLOW ANALYSIS - KING RANCH ENERGY PRO FORMA. The
above equity values for each company indicated the following range of implied
King Ranch Energy pro forma ownership in St. Mary:

Pro Forma Ownership

- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Discount
Rate 8% 9% 10% 11% 12%
- -------------------------------------------------------------------------
Pricing Case
I 15.4% 15.6% 15.9% 16.2% 16.5%
- -------------------------------------------------------------------------
Pricing Case
II 14.2% 14.4% 14.6% 14.8% 15.0%
- -------------------------------------------------------------------------

</TABLE>

PRO FORMA ACCRETION/DILUTION ANALYSIS. Nesbitt Burns analyzed
certain pro forma effects which could result from the mergers based on
discussions with the management of King Ranch and St. Mary. This analysis
indicated that the merger is expected to be dilutive to the forecasted cash
flow and earnings per share to King Ranch Energy in 1999 and, to a lesser
extent, 2000 but accretive to the forecasted cash flow and earnings per share
of St. Mary in the same period.

<PAGE>

* * * * *

King Ranch retained Nesbitt Burns based upon its experience and
expertise. Nesbitt Burns is an internationally recognized investment banking and
advisory firm. As part of its investment banking business, Nesbitt Burns is
regularly engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes.

In the ordinary course of its business, Nesbitt Burns and certain of
its affiliates may actively trade the securities of St. Mary for their account
or for the account of its customers and, accordingly, may at any time hold a
long or short position in such securities. Nesbitt Burns has in the past
provided certain financial advisory and investment banking services to King
Ranch and may continue to do so and have received, and may receive, compensation
for the rendering of such services.

Nesbitt Burns has been engaged to act as financial advisor to King
Ranch in connection with the merger and will receive a fee from King Ranch for
their services, a significant portion of which is contingent on the consummation
of the merger. King Ranch also agreed to indemnify Nesbitt Burns for certain
liabilities in connection with its engagement.

COMPARISON OF KING RANCH AND ST. MARY STOCKHOLDER RIGHTS

King Ranch is a Texas corporation and St. Mary and King Ranch Energy
are Delaware corporations. Because King Ranch Energy is a subsidiary of King
Ranch, at the present time the rights of King Ranch stockholders to their
proportionate interests in King Ranch Energy result from their rights as King
Ranch stockholders. The rights of King Ranch stockholders under the King Ranch
articles of incorporation and bylaws with respect to their proportionate
interests in King Ranch Energy prior to the merger and prior to the distribution
to them of the King Ranch Energy Shares are substantially similar to the rights
that they will have under the St. Mary certificate of incorporation and bylaws
and the Nasdaq Stock Market corporate governance rules with respect to the
shares of St. Mary common stock to be issued to them in the merger.

Material differences between King Ranch and St. Mary stockholder rights
are summarized in the following chart. Copies of the King Ranch articles of
incorporation and bylaws, King Ranch Energy certificate of incorporation and
bylaws, and the St. Mary certificate of incorporation and bylaws are filed with
the SEC as exhibits to the registration statement related to this document and
will be sent to King Ranch stockholders upon request. See "Where You Can Find
More Information" on page 91. The summary in the following chart is not intended
to be complete and is qualified by reference to Texas law, Delaware law, the
Nasdaq Stock Market corporate governance rules, the King Ranch articles of
incorporation and bylaws, the King Ranch Energy certificate of incorporation and
bylaws, and the St. Mary certificate of incorporation and bylaws.

<PAGE>

<TABLE>

<S> <C>
KING RANCH STOCKHOLDER RIGHTS ST. MARY STOCKHOLDER RIGHTS

GENERAL CORPORATE GOVERNANCE

The rights of King Ranch stockholders The rights of St. Mary stockholders are currently
are governed by Texas law and the King governed by Delaware law, the St. Mary certificate
Ranch articles of incorporation and of incorporation and bylaws and the Nasdaq Stock Market
bylaws. corporate governance rules.

Upon completion of the merger, the
rights of King Ranch stockholders with
respect to the shares of St. Mary common
stock issued to them in the merger after
the distribution to them of the King
Ranch Energy shares will be governed by
Delaware law, the St. Mary certificate of
incorporation and bylaws and the Nasdaq
Stock Market corporate governance rules.

AUTHORIZED CAPITAL STOCK

The King Ranch articles of incorporation The St. Mary certificate of incorporation authorizes
authorize King Ranch to issue up to St. Mary to issue up to 50,000,000 shares of common
228,075 shares of 5% Cumulative Preferred stock.
Stock, 42,938 shares of Class A Common
Stock, and 544,320 shares of Class B
Common Stock.

NUMBER OF DIRECTORS

The King Ranch bylaws provide that the The St. Mary bylaws provide that the number
number of directors may be designated by of directors may be determined by the St. Mary
the King Ranch board of directors. King board of directors, but there must be at least
Ranch currently has nine directors. 3 directors.

The St. Mary board of directors currently
consists of nine directors. If the merger is
completed, Jack Hunt and William Gardiner will
be appointed to the St.Mary board of directors
for a total of eleven directors.

The Nasdaq Stock Market requires that St. Mary
have at least two independent directors. St. Mary
currently has six independent directors. If the
merger is completed and Mr. Hunt and Mr. Gardiner
are appointed to the St. Mary board of directors,
St. Mary will have eight independent directors.

<PAGE>

KING RANCH STOCKHOLDER RIGHTS ST. MARY STOCKHOLDER RIGHTS

QUORUM TO HOLD A STOCKHOLDER MEETING

The King Ranch bylaws provide that The St. Mary bylaws provide that the presence at
the presence at a meeting in person or a meeting in person or by proxy of the holders
by proxy of the holders of a majority of one-third of the shares of St. Mary
of the shares of the King Ranch common common stock entitled to vote at the
stock entitled to vote at the meeting meeting is a quorum.
is a quorum.

STOCKHOLDER APPROVAL WITHOUT A MEETING

Under Texas law, stockholder approval of Under Delaware law, stockholder approval
a matter may be obtained without a of a matter may be obtained without a meeting by
meeting only by the unanimous written the written consent of the holders of outstanding
consent of all stockholders, unless the stock representing the number of shares
articles of incorporation provide necessary to approve such matter if a meeting
otherwise. The King Ranch articles of were held at which all shares entitled to vote
incorporation do not provide otherwise. were present and voted.

SPECIAL MEETINGS OF STOCKHOLDERS

Under Texas law and King Ranch's The St. Mary bylaws provide that special meetings of
articles of incorporation, special stockholders can be called on the request of:
meetings of stockholders can be called
on the request of:

- the president of the - two directors, or
corporation,

- the board of directors, - the holders of a majority
of common stock.
- such other person(s) as are
authorized in the King Ranch
articles of incorporation or
bylaws, or

- the holders of at least 20% of
the shares entitled to vote at
the proposed meeting.

<PAGE>

KING RANCH STOCKHOLDER RIGHTS ST. MARY STOCKHOLDER RIGHTS

AMENDMENTS TO ARTICLES OR CERTIFICATE OF INCORPORATION

Under the King Ranch articles of Under Delaware law, an amendment to
incorporation, an amendment to the the certificate of incorporation
articles of incorporation requires requires the approval of the holders
the approval of the holders of at of at least a majority of the
least two-thirds of the outstanding outstanding shares entitled to vote.
Class A Common Stock.

LIMITATION OF DIRECTOR LIABILITY

The King Ranch articles of The St. Mary certificate of
incorporation provide that a director incorporation provides that no
of King Ranch will not be personally director of St. Mary will be liable
liable to King Ranch or its to St. Mary or its stockholders for
stockholders for monetary damages for breach of fiduciary duty as a
any act or omission in his capacity director except for:
as a director, except to the extent
otherwise expressly provided by Texas - a breach of the duty
statute. of loyalty to St. Mary
or its stockholders,

- acts in bad faith or
which involve
intentional
misconduct or a
knowing violation of
law,

- authorizing unlawful
dividend payments, or

- any transaction where
the director derived an
improper personal
benefit.

53
<PAGE>

KING RANCH STOCKHOLDER RIGHTS ST. MARY STOCKHOLDER RIGHTS

REMOVAL OF DIRECTORS

Under the King Ranch articles of Under Delaware law, any St. Mary
incorporation, any director(s) or the director or the entire board of
entire board of directors may be directors may be removed, with or
removed, with or without cause, at without cause, by the holders of a
any shareholder meeting called majority of the shares entitled to
expressly for that purpose. vote at an election of directors.

STOCKHOLDER APPROVAL OF MERGERS AND SIMILAR TRANSACTIONS

Under Texas law, the merger of a Under Delaware law, the merger of a
corporation or a similar transaction corporation or similar transaction
must generally be approved by the must generally be approved by the
holders of at least two-thirds of the holders of at least a majority of all
outstanding shares (or class or outstanding shares entitled to vote.
series of shares) entitled to vote,
unless the corporation's articles of
incorporation provide otherwise.

APPRAISAL RIGHTS

Under Texas law, stockholders which Under Delaware law, appraisal rights
dissent to a merger of their in connection with a merger are not
corporation have the right to obtain available for holders of qualifying
in cash the appraised fair value of national market system securities,
their shares in lieu of the subject to exceptions. Since St. Mary
consideration be received in the common stock is quoted on the Nasdaq
merger, subject to exceptions. National Market System, appraisal
rights are generally not available to
St. Mary stockholders.

54
<PAGE>

KING RANCH STOCKHOLDER RIGHTS ST. MARY STOCKHOLDER RIGHTS

NASDAQ STOCKHOLDER APPROVAL RULES

King Ranch is not subject to the The Nasdaq Stock Market requires St.
Nasdaq stockholder approval rules Mary to obtain stockholder approval
applicable to St. Mary as discussed for the following items:
in the right column.
- a stock option or
purchase plan under
which stock may be
acquired by officers
or directors,

- the issuance of
stock which will
result in a change
in control of St.
Mary,

- the issuance of
stock for the
acquisition of stock
or assets of another
company where either:

- a director, officer
or substantial
stockholder has a 5%
or more interest in
the company or
assets to be
acquired and the
issuance of stock
could increase the
outstanding common
shares or voting
power of St. Mary by
5% or more, or

- the issuance of
stock could increase
the outstanding
common shares or
voting power of St.
Mary by 20% or more.

55
<PAGE>

KING RANCH STOCKHOLDER RIGHTS ST. MARY STOCKHOLDER RIGHTS

ANTI-TAKEOVER STATUTES

Texas has not enacted any specific Under the Delaware anti-takeover
anti-takeover statutes, which statute, a person becomes an
typically apply to publicly traded "interested stockholder" subject to a
companies. three-year takeover moratorium once
that person acquires 15% or more of a
Since King Ranch Energy is a Delaware corporation. A qualifying
privately held company it does not publicly held corporation cannot
qualify for the three-year moratorium enter into a merger or similar
on takeover transactions under the transaction with an interested
Delaware anti-takeover statute stockholder for a period of three
applicable to St. Mary as discussed years after that person became an
in the right column. interested stockholder unless:

- the board of
directors approved
the acquisition of
stock or the merger
transaction prior to
the time that the
person became an
interested
stockholder,

- the person owned at
least 85% of the
stock of the
corporation at the
time the person
became an interested
stockholder, or

- the merger
transaction is
approved by the
board of directors
and the holders of
two-thirds of the
stock which is not
owned by the
interested
stockholder.

These provisions have the effect
of discouraging hostile takeovers
of publicly held Delaware
corporations such as St. Mary,
even if the acquisition would be
at a premium to the current market
price.

56
<PAGE>

KING RANCH STOCKHOLDER RIGHTS ST. MARY STOCKHOLDER RIGHTS

SHAREHOLDER RIGHTS PLAN

King Ranch Energy does not have a St. Mary adopted a shareholder rights
shareholder rights plan. plan in July 1999, under which St.
Mary has issued to its stockholders
rights to purchase from St. Mary
shares of common stock if there is a
potential takeover transaction not
approved by the St. Mary board of
directors. The merger and the related
agreements and transactions with King
Ranch Energy do not trigger the St.
Mary shareholder rights plan since
the St. Mary board of directors has
approved the merger.

The shareholder rights plan makes it
more difficult for a third party to
acquire St. Mary without approval of
the board of directors, even if the
acquisition would be at a premium to
the current market price.

</TABLE>

ACCOUNTING TREATMENT

St. Mary and King Ranch Energy expect that the merger will be
accounted for using the purchase method of accounting for business
combinations. Under the purchase accounting method, the merger will be
treated as an acquisition of King Ranch Energy by St. Mary and St. Mary will
allocate the total acquisition cost among the acquired assets and liabilities
based on their fair values as of the date the merger is completed. St. Mary's
total acquisition cost will reflect a discount to the publicly traded market
price of the St. Mary common stock to be issued in the merger, as determined
at the time of the announcement of the merger. The discount is attributable
to the number of shares to be issued in comparison to the historical trading
volumes of St. Mary stock and the fact that resale of such stock will
generally not be permitted for a period of two years after completion of the
merger. The reported income of St. Mary will include the operations of King
Ranch Energy after the merger, based on the cost of the acquisition to St.
Mary. See "Unaudited Pro Forma Condensed Combined Financial Statements".

MATERIAL FEDERAL INCOME TAX CONSEQUENCES

The following is a summary of the material U.S. Federal income tax
consequences of the distribution of the stock of King Ranch Energy and the
merger of St. Mary Acquisition Corporation into King Ranch Energy to the King
Ranch stockholders, who hold the shares of King Ranch Energy common stock as
a capital asset. This summary is based on the Internal Revenue Code of 1986,
as amended, the corresponding Treasury Regulations, administrative rulings,
and court decisions, all as in effect as of the date hereof and all of which
are subject to

57
<PAGE>

change at any time, possibly with retroactive effect. This summary is not a
complete description of all the tax consequences of the distribution of the
stock of King Ranch Energy to the King Ranch stockholders and the subsequent
merger and, in particular, does not address U.S. Federal income tax
considerations applicable to stockholders subject to special treatment under
U.S. Federal income tax law, which would include, for example, non-U.S.
persons, financial institutions, dealers in securities, insurance companies,
tax-exempt entities, and stockholders who are subject to the alternative
minimum tax provisions of the Internal Revenue Code of 1986, as amended. In
addition, no information is provided with respect to the tax consequences of
the distribution of the stock of King Ranch Energy or the subsequent merger
under applicable foreign, state or local laws.

HOLDERS OF KING RANCH STOCK ARE URGED TO CONSULT WITH THEIR OWN TAX
ADVISORS REGARDING THE FEDERAL INCOME AND OTHER TAX CONSEQUENCES OF THE
DISTRIBUTION OF THE KING RANCH ENERGY STOCK TO THE KING RANCH STOCKHOLDERS
AND THE SUBSEQUENT MERGER TO THEM, INCLUDING THE EFFECTS OF STATE, LOCAL AND
FOREIGN TAX LAWS.

OPINION OF COUNSEL

The obligation of King Ranch, King Ranch Energy, St. Mary and St.
Mary Acquisition Corporation to effect the merger is conditioned upon, among
other things, the receipt of an opinion of Locke Liddell & Sapp LLP in the
case of King Ranch and King Ranch Energy, dated as of the date of the
distribution of the stock of King Ranch Energy and the subsequent merger,
respectively, and based on the facts, representations and assumptions set
forth in the opinion that the merger of St. Mary Acquisition Corporation with
and into King Ranch Energy, when consummated, should qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended.

An opinion of counsel is not binding on the Internal Revenue Service
or the courts, and no assurance can be given that the Internal Revenue
Service will not challenge the tax treatment of the distribution of the stock
of King Ranch Energy to the stockholders of King Ranch or the subsequent
merger. Further, the opinion of Locke Liddell & Sapp LLP is dependent upon
future events, such as St. Mary and St. Mary Acquisition Corporation
continuing to own and conduct the historic business of King Ranch Energy
after the merger, the result of which will not be reviewed by counsel. King
Ranch, King Ranch Energy, St. Mary and St. Mary Acquisition Corporation have
represented to Locke Liddell & Sapp LLP that they are not currently aware of
any facts or circumstances that will cause the representations that they have
made to counsel to be untrue or incorrect in any material respect.

THE FEDERAL TAX CONSEQUENCES OF THE KING RANCH ENERGY STOCK DISTRIBUTION

Neither King Ranch nor King Ranch Energy has received a ruling from
the Internal Revenue Service that the distribution of the stock of King Ranch
Energy to the King Ranch stockholders will qualify as a tax-free distribution
to the shareholders of King Ranch under Section 355(a) of the Code nor will
such a ruling be requested. However, King Ranch has received the opinions of
Locke Liddell & Sapp LLP and Ernst & Young LLP that the distribution of the
stock of King Ranch Energy should not be taxable to the shareholders of King
Ranch. The

58
<PAGE>

opinions of Locke Liddell & Sapp LLP and Ernst & Young LLP were based upon
various assumptions and conditioned upon certain representations made by King
Ranch, King Ranch Energy, St. Mary and St. Mary Acquisition Corporation as to
factual matters. These opinions were also based upon, among other things,
representation letters provided by King Ranch, King Ranch Energy, St. Mary
and St. Mary Acquisition Corporation containing customary statements relating
to certain technical requirements under the Internal Revenue Code of 1986, as
amended, including statements by St. Mary and St. Mary Acquisition
Corporation concerning the continuation of the historical business of King
Ranch Energy and the use of certain assets of King Ranch Energy after the
merger, the result of which will not be reviewed by counsel.

Based upon the opinions of Locke Liddell & Sapp LLP and Ernst &
Young LLP, King Ranch believes that the distribution of the stock of King
Ranch Energy to the King Ranch stockholders will have the following effects:

- The King Ranch stockholders should recognize no gain or loss
(and no amount should be included in their income) as a result
of the receipt of the King Ranch Energy stock;

- The aggregate adjusted tax basis of the King Ranch Energy
stock and King Ranch stock in the hands of each King Ranch
stockholder will be the same as the adjusted tax basis of the
King Ranch stock held by such King Ranch stockholder
immediately prior to the distribution of the King Ranch Energy
stock and will be allocated in proportion to the respective
fair market values of the King Ranch Energy stock and King
Ranch stock owned by such King Ranch stockholder (if the King
Ranch stockholder holds blocks of King Ranch stock that were
purchased at different times or for different prices, such
allocation must be separately calculated for each of such
blocks of King Ranch stock), and

- The holding period of the King Ranch Energy stock received
from King Ranch by a King Ranch stockholder will include the
holding period of the King Ranch stock held by such King Ranch
stockholder immediately before the King Ranch Energy stock,
provided that such King Ranch stockholder held the King Ranch
stock as a capital asset on the date of the distribution of
the King Ranch Energy stock.

As a result of the distribution of the stock of King Ranch Energy to
the King Ranch stockholders and the subsequent merger, King Ranch will be
required under Section 355(e) of the Internal Revenue Code of 1986, as
amended, to recognize taxable gain in an amount equal to the excess, if any,
of the fair market value of the King Ranch Energy stock distributed to the
King Ranch stockholders over King Ranch's adjusted tax basis in such King
Ranch Energy stock immediately prior to the stock distribution. There can be
no assurance that the Internal Revenue Service will agree with King Ranch's
determination of the fair market value of the King Ranch Energy stock
distributed to King Ranch's stockholders or King Ranch's resulting tax
liability from such stock distribution.

ALLOCATION OF TAX BASIS TO KING RANCH ENERGY STOCK. As stated above,
the aggregate adjusted tax basis of the King Ranch Energy stock and the King
Ranch stock in the hands of each

59
<PAGE>

King Ranch stockholder will be the same as the adjusted tax basis of the King
Ranch stock held by such King Ranch stockholder immediately prior to the
distribution of the King Ranch Energy stock and will be allocated in
proportion to the respective fair market values of the King Ranch Energy
stock and the King Ranch stock owned by such King Ranch stockholder (if the
King Ranch stockholder holds blocks of King Ranch stock that were purchased
at different times or for different prices, such allocation must be
separately calculated for each of such blocks of King Ranch stock).

FEDERAL INCOME TAX RISKS OF KING RANCH ENERGY STOCK DISTRIBUTION. As
stated above, an opinion of counsel is not binding upon the Internal Revenue
Service or the courts and there can be no assurance that the Internal Revenue
Service or the courts will agree with King Ranch's determination that the
distribution of the King Ranch Energy stock will be tax-free to the
stockholders of King Ranch. If the stock distribution does not qualify as a
tax-free distribution to the King Ranch stockholders under Section 355(a) of
the Internal Revenue Code of 1986, as amended, each King Ranch stockholder
would be treated as having received a taxable dividend in an amount equal to
the fair market value of the King Ranch Energy stock received to the extent
of such stockholder's pro rata share of King Ranch's current and accumulated
earnings and profits (including any earnings and profits attributable to any
gain that King Ranch recognizes for Federal income tax purposes in connection
with the stock distribution). In addition, the adjusted tax basis of the King
Ranch stock held by such King Ranch stockholder would be reduced to the
extent that the amount received by such King Ranch stockholder exceeded his
or her pro rata share of King Ranch current and accumulated earnings and
profits. In the event the adjusted tax basis of the King Ranch stockholder
was reduced to zero, such King Ranch stockholder would be required to
recognize taxable gain to the extent that the amount received by such King
Ranch's stockholder exceeded the adjusted tax basis of the King Ranch stock
held by such King Ranch stockholder.

THE MERGER

Locke Liddell & Sapp LLP, counsel for King Ranch Energy, has
delivered an opinion of the description of the Federal income tax
consequences of the merger to King Ranch Energy and the King Ranch Energy
stockholders which sets forth the material Federal income tax consequences of
the merger to King Ranch Energy and the King Ranch Energy stockholders. This
opinion is based upon, among other things, representation letters provided by
King Ranch, King Ranch Energy, St. Mary and St. Mary Acquisition Corporation
containing customary statements relating to certain technical requirements
under the Internal Revenue Code of 1986, as amended, including statements by
St. Mary and St. Mary Acquisition Corporation concerning the continuation of
the historical business of King Ranch Energy and the use of certain assets of
King Ranch Energy after the merger.

Based upon the representation letters provided to Locke Liddell &
Sapp LLP, which will be confirmed by King Ranch, King Ranch Energy, St. Mary
and St. Mary Acquisition Corporation prior to the closing of the merger, it
is the opinion of Locke Liddell & Sapp LLP that the merger should qualify as
a reorganization under Section 368(a) of the Code. Accordingly, no gain or
loss should be recognized by King Ranch Energy or the King Ranch

60
<PAGE>

Energy stockholders.

FEDERAL INCOME TAX RISKS OF MERGER. If the merger does not qualify
as a reorganization within the meaning of Section 368(a) of the Code, the
merger would be treated as a taxable exchange for Federal income tax
purposes. In such an event, each King Ranch Energy stockholder would be
required to recognize gain or loss equal to the difference between (1) the
sum of the fair market value of the St. Mary stock received by such King
Ranch Energy stockholder plus any cash received by such King Ranch Energy
stockholder in lieu of fractional shares of St. Mary stock, if any, and (2)
the adjusted tax basis of the King Ranch Energy stock held by such King Ranch
Energy stockholder immediately before the Merger.

The highest marginal individual Federal income tax rate (which
applies to ordinary income and gain from the sale or exchange of capital
assets held for one year or less) is 39.6%. The maximum regular Federal
income tax rate on capital gains derived by individual taxpayers generally is
20% for sales and exchanges of capital assets held for more than one year.
All net capital gain of a corporate taxpayer is subject to tax at ordinary
corporate income tax rates of up to 35%.

REGULATORY MATTERS

Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, some
acquisition transactions may not be completed until notifications have been
given, required information has been furnished to the Antitrust Division of
the Justice Department and the FTC, and specified waiting period requirements
have been satisfied. However, the merger is exempt from the pre-merger
reporting and waiting period requirements of the Hart-Scott-Rodino Act since:

- the merger involves the acquisition of King Ranch Energy which
holds primarily oil and gas properties that have a value of
less than $500 million and the value of the other assets of
King Ranch Energy is less than $15 million, and

- the St. Mary common stock to be held after the merger by any
individual shareholder of King Ranch will have a value of less
than $15 million and be less than 15% of the outstanding
shares of St. Mary common stock.

At any time before or after the completion of the merger, the
Antitrust Division, the FTC or another third party could seek to enjoin or
rescind the merger on antitrust grounds. In addition, at any time before or
after the completion of the merger, any state could take action under state
antitrust laws that it deems necessary or desirable in the public interest.
We do not believe that the merger will violate any antitrust laws. However,
we cannot assure you that there will be no challenge to the merger on
antitrust grounds, or if such a challenge is made, what the result will be.
See "The Merger Agreement--Conditions to Closing " on page 69.

61
<PAGE>

TERMINATION OF KING RANCH ENERGY EMPLOYEES

Following the execution of the merger agreement, the employment of a
substantial number of King Ranch Energy employees was terminated, including
four senior management employees. All such employees received a severance
package. The remaining King Ranch Energy employees have been told either that
they will not be retained by St. Mary following the merger or a short
transition period, or that they will be required to relocate to another city.
Thus, if the merger is not completed for any reason, King Ranch Energy will
either be required to incur substantial costs in hiring and training new
employees or to liquidate its assets.

THE MERGER AGREEMENT

The following summary of the merger agreement is qualified by
reference to the complete text of the merger agreement, which is attached as
Annex A and incorporated in this document by reference.

STRUCTURE OF THE MERGER

Under the merger agreement, a St. Mary subsidiary will merge into
King Ranch Energy so that King Ranch Energy becomes a wholly owned subsidiary
of St. Mary.

TIMING OF CLOSING

The closing will occur on the first business day after the
conditions to closing of the merger agreement have been satisfied or waived,
unless the parties agree to a different date. We expect that the foregoing
will occur immediately after the meeting of the stockholders of St. Mary and
King Ranch Energy, if they approve the transaction, and that immediately
after the closing of the merger we will file a merger certificate with the
Delaware Secretary of State and the Colorado Secretary of State at which time
the merger will be effective.

MERGER CONSIDERATION

The merger agreement provides that the total number of shares of
King Ranch Energy common stock outstanding immediately prior to the
completion of the merger will be converted into a total of 2,666,252 shares
of St. Mary common stock. Certificates representing the shares of St. Mary
common stock to be issued in the merger will be delivered pro rata to the
King Ranch Energy stockholders, after all shares of King Ranch Energy common
stock have been distributed on a pro rata basis to the King Ranch
stockholders, at the closing of the merger in exchange for their surrender of
all King Ranch Energy common stock certificates.

<PAGE>

RESTRICTIONS ON THE TRANSFER OF ST. MARY COMMON STOCK TO BE ISSUED IN THE MERGER

The merger agreement provides that King Ranch stockholders will
generally not be able to sell or transfer any of the shares of St. Mary
common stock issued to them in the merger for two years after the completion
of the merger. However, if during those two years Thomas E. Congdon or
certain persons or entities related to him sell any shares of St. Mary common
stock, the King Ranch stockholders will then be able to sell a percentage of
their St. Mary shares which corresponds to the percentage sold by Mr. Congdon
or such persons or entities. Mr. Congdon has delivered a letter to St. Mary
indicating that members of the Congdon group have no current intention to
sell any of their shares of St. Mary.

The foregoing restriction on transfer does not prevent transfers
pursuant to the laws of decent and distribution or for customary estate
planning purposes. It also does not prevent transfer in connection with any
acquisition of St. Mary or in response to certain tender offers for St. Mary
stock.

Even if the two-year transfer restriction under the merger agreement
is modified due to sales by the Congdon group, persons who are deemed under
the Securities Act of 1933 to be "affiliates" of King Ranch or King Ranch
Energy prior to the merger may resell their St. Mary common stock only in
transactions allowed by Rule 145 under the Securities Act, or as otherwise
permitted under the Securities Act. Persons who may be deemed to be
affiliates of King Ranch or King Ranch Energy generally include individuals
that may control King Ranch or King Ranch Energy, and may include certain
officers and directors of King Ranch and King Ranch Energy.

In general, Rule 145 requires that for one year following the
completion of the merger any resales of St. Mary common stock by an affiliate
of King Ranch or King Ranch Energy must be through unsolicited "brokers'
transactions" or in transactions directly with a "market maker," as those
terms are defined under the Securities Act. In addition, the number of shares
to be resold by an affiliate within any three-month period may generally not
exceed the greater of 1% of the outstanding shares of St. Mary common stock
or the average weekly trading volume of such stock during the preceding four
calendar weeks. Further, St. Mary must continue to meet SEC informational
reporting requirements, which it expects to do.

After the end of one year from the completion of the merger, Rule
145 would allow resales of St. Mary common stock by an affiliate of King
Ranch or King Ranch Energy without the above manner-of-sale or volume
limitations, as long as St. Mary continues to meet SEC reporting requirements
and provided that such person is not then an affiliate of St. Mary. Two years
after the completion of the merger, an affiliate of King Ranch or King Ranch
Energy may resell St. Mary common stock without any restrictions so long as
such person has not been an affiliate of St. Mary in the prior three months.

This document does not cover any resales of the St. Mary common
stock to be issued to the stockholders of King Ranch Energy upon completion
of the merger, and no person is authorized to make any use of this document
in connection with any such resale.

<PAGE>

ST. MARY BOARD OF DIRECTORS AFTER THE MERGER

CHANGE IN THE ST. MARY BOARD OF DIRECTORS

Under the merger agreement, St. Mary will take the necessary
corporate actions so that, as of the closing:

- The St. Mary board size will be increased from nine to eleven, and

- Two individuals will be appointed as new directors of St. Mary.
The two new directors will be Jack Hunt, President of King Ranch,
and William Gardiner, Chief Financial Officer of King Ranch.

In addition, for two years after the closing date St. Mary must use
commercially reasonable efforts at each annual meeting of St. Mary
stockholders to cause Mr. Hunt and Mr. Gardiner or their replacements to be
elected to the St. Mary board of directors.

INFORMATION ABOUT DESIGNEES FOR ST. MARY BOARD OF DIRECTORS

JACK HUNT. Mr. Hunt, 54, is a director and the President and Chief Executive
Officer of King Ranch, having been elected a director in April 1995, and as
President and Chief Executive Officer in May 1995. He was employed for the
prior fourteen years by Tejon Ranch Co., a publicly-held land development and
agribusiness company, serving as its president for nine years prior to April
1995. Mr. Hunt currently serves as a trustee on the board of trustees of
Baylor College of Medicine and was appointed by the Governor of Texas as a
director of the Texas Water Development Board. Mr. Hunt also currently serves
as a director of the Texas Coastal Coordination Council.

WILLIAM GARDINER. Mr. Gardiner, 45, is the Vice President and Chief Financial
Officer of King Ranch. He has served in this position since his date of hire
on April 15, 1996. Prior to his employment with King Ranch, Mr. Gardiner
served as the Executive Vice President and Chief Financial Officer of CRSS,
Inc., a publicly traded independent power producer. Mr. Gardiner was employed
by CRSS for approximately twenty years.

Information about the nine current St. Mary directors is contained
in the 1998 annual report that St. Mary has filed with the SEC and
incorporated in this document by reference. See "Where You Can Find More
Information" on page 91.

<PAGE>

REPRESENTATIONS AND WARRANTIES

The merger agreement contains substantially reciprocal disclosure
representations and warranties made by St. Mary and King Ranch Energy to each
other. The most significant of these relate to:

- organization and good standing of the companies,

- corporate authorization to enter into the merger agreement,

- absence of any conflict of the merger agreement with
organizational documents, law or other material agreements of
the companies,

- capitalization,

- financial statements,

- absence of undisclosed material liabilities,

- litigation,

- compliance with laws,

- title to properties and assets,

- oil and gas leases and wells,

- absence of material adverse changes,

- tax matters,

- environmental compliance,

- employee benefits plans,

- Year 2000 matters,

- finders or advisors,

- King Ranch ownership of King Ranch Energy and the corporate
authorization of the distribution of King Ranch Energy common
stock to the King Ranch stockholders before the stockholders
meeting and the merger,

- St. Mary filings with the SEC, and

- general full disclosure of all material facts.

<PAGE>

The representations and warranties in the merger agreement will survive
the closing for a period of one year after the closing, except that:

- representations and warranties will survive the closing for a
period of two years after the closing to the extent that any
inaccuracy in any representation or warranty involves a claim
by a third party, and

- representations and warranties related to taxes or employee
benefit plans will survive the closing until 90 days after the
applicable statute of limitations period for such matters has
expired.

COVENANTS

The merger agreement contains various covenants by the parties. Some
of the significant covenants are summarized below.

INTERIM OPERATIONS OF ST. MARY AND KING RANCH ENERGY

Both St. Mary and King Ranch Energy have agreed to separate
covenants that place restrictions on the companies and their subsidiaries
until the closing. In general, St. Mary and its subsidiaries and King Ranch
Energy and its subsidiaries are required to conduct their business in the
ordinary course consistent with past practices and to use all reasonable
efforts to preserve intact their business organizations and relationships
with third parties, except that King Ranch Energy will substantially reduce
(and may possible eliminate) its drilling, exploration, development and
related activities provided it can do so without penalty or materially
breaching a written commitment, contract or agreement. King Ranch Energy must
give St. Mary written notice if King Ranch Energy elects not to pursue a
material drilling, exploration, development or related opportunity presented
by a third party prior to closing. St. Mary has the right to pursue such an
opportunity at its own expense. The companies have also agreed to some
specific restrictions which are subject to exceptions described in the merger
agreement. The following table summarizes the more significant of these
restrictions on each company:

RESTRICTION ST. MARY KING RANCH ENERGY
<S> <C> <C>
making capital or other expenditures in excess of - -
specified amounts

declaring dividends, except for the regular quarterly - -
cash dividends by St. Mary

splitting, combining or reclassifying its capital stock - -

redeeming or repurchasing its capital stock, except
under St. Mary's current share repurchase program,
which is not to be expanded or altered - -

- ---------------------------------------------------------------------------------------------------------------

<PAGE>

RESTRICTION ST. MARY KING RANCH ENERGY
<S> <C> <C>
issuing equity securities, options or other securities - -
convertible into or exercisable for equity securities

amending its organizational documents, except to - -
comply with obligations under the merger agreement or
law

acquiring another company No restriction -

disposing of assets, except in the ordinary course of No restriction -
business

making investments or loans or incurring any new debt No restriction -
or paying down debt, except in the ordinary course of
business

taking any action which would prevent the merger from - -
qualifying as a tax-free reorganization

increasing compensation or benefits of senior employees No restriction -

changing its accounting methods or making a material No restriction -
income tax election

</TABLE>

OTHER COVENANTS

The merger agreement contains other substantially reciprocal
covenants of the parties, including covenants to cooperate with each other
and use reasonable efforts to do all things necessary or advisable under the
merger agreement and applicable laws to complete the merger.

OTHER AGREEMENTS

KING RANCH TRADEMARK AND BRAND

St. Mary has agreed that as soon as possible following the closing
it will not use the names "King Ranch," "King Ranch Energy," "King Ranch Oil
& Gas," Running W," or any confusingly similar name in connection with its
business. Accordingly, after the merger the name of King Ranch Energy will be
changed to St. Mary Energy Company.

<PAGE>

KING RANCH ENERGY EMPLOYEE SEVERANCE PAYMENTS

Following the execution of the merger agreement, the employment of a
substantial number of King Ranch Energy employees was terminated. All such
employees received a severance package.

King Ranch has agreed to reimburse King Ranch Energy or St. Mary up to
a maximum of $850,000 for severance payments made to:

- King Ranch Energy employees not offered continued employment
by St. Mary and who remain employed by King Ranch Energy until
closing or an earlier date as agreed upon by King Ranch Energy
and St. Mary (including employees terminated following the
execution of the merger agreement), and

- King Ranch Energy employees whose employment is continued by
St. Mary after the closing for a transition period of six
months or less.

St. Mary shall be liable for all severance payments in excess of this
$850,000 threshold.

The severance packages described above were established by King
Ranch and St. Mary, and include a lump sum severance payment together with
the provision of out-placement services. Except for contractual severance
payments made to six senior management employees, the severance payments were
based on at least two weeks salary for each year of service to King Ranch
Energy, with a minimum of one month of salary.

RETAINED LITIGATION

King Ranch has agreed that it will retain all liability associated
with, and responsibility for the defense of, the Pi Energy Corporation
litigation described in Note 6 of the Notes to Consolidated Financial
Statements of King Ranch Energy contained in this document, as well as
liability for all other currently pending and threatened King Ranch Energy
litigation as described in the disclosure schedules to the merger agreement.

CONSENT COMMITMENTS BY PRINCIPAL KING RANCH ENERGY STOCKHOLDERS

King Ranch agreed to obtain from Stephen J. Kleberg, John D.
Alexander, Jr., and James H. Clement, Jr., members of the King Ranch board of
directors who will have the right to vote a total of 13.8 % of the
outstanding shares of King Ranch Energy voting common stock following the
distribution, commitments to:

- consent to the merger agreement, and

- recommend, subject to their fiduciary obligations, to the
members of their immediate families who will hold King Ranch
Energy voting common stock that they consent to the merger
agreement.

<PAGE>

NO SOLICITATION BY KING RANCH AND KING RANCH ENERGY OF OTHER ACQUISITION
PROPOSALS

King Ranch and King Ranch Energy have agreed that each company and
their representatives will not take action to solicit or encourage a proposal
for an acquisition of King Ranch Energy by any company other than St. Mary.

Restricted actions include engaging in discussions or negotiations
with any party regarding an alternative acquisition proposal and the
furnishing of nonpublic information about King Ranch Energy to another party.
However, King Ranch or King Ranch Energy may respond to an unsolicited
alternative acquisition inquiry by another party if and to the extent that
such response is required by the fiduciary duties of King Ranch and King
Ranch Energy directors under applicable law and is based on the advice of
outside legal counsel, and if St. Mary is promptly notified.

INDEMNIFICATION

St. Mary and King Ranch have agreed to generally reciprocal
indemnification provisions. Under these provisions, St. Mary or King Ranch
will indemnify the other party in the event of losses resulting from an
inaccuracy in a St. Mary or King Ranch representation or warranty under the
merger agreement. In addition, King Ranch has agreed to indemnify St. Mary
against any claim by a third party arising out of an act or omission of King
Ranch Energy occurring before the merger, and King Ranch has agreed to
indemnify St. Mary for any loss relating to retained litigation against King
Ranch Energy existing at the time of the merger. St. Mary has agreed to
indemnify King Ranch against any claim by a third party arising out of an act
or omission of St. Mary occurring after the merger.

Neither St. Mary nor King Ranch will be liable for indemnification
to the other on account of any loss which does not exceed $100,000. For any
loss which exceeds $100,000, the full amount of the loss will be reimbursed.
At such time as all losses under $100,000 total more than $600,000,
thereafter all losses must be reimbursed including the first $600,000 of such
losses. In no event however will the liability of King Ranch or of St. Mary
for indemnification exceed $25 million. King Ranch's liability to St. Mary
for any retained litigation of King Ranch Energy will not be affected by the
foregoing limitations.

CONDITIONS TO CLOSING

MUTUAL CLOSING CONDITIONS

The obligations of each party to complete the merger are subject to
the satisfaction or waiver of the following conditions:

- approval by the St. Mary stockholders of the issuance of
St. Mary common stock under the merger agreement and
approval by the King Ranch stockholders of the merger
agreement,

- absence of any legal prohibition on completion of the
merger,

69
<PAGE>

- St. Mary's registration statement on Form S-4 relating to
this document being declared effective by the SEC,

- approval for quotation on the Nasdaq National Market of the
shares of St. Mary common stock to be issued under the
merger agreement,

- the distribution by King Ranch before the merger of all
shares of King Ranch Energy common stock to the King Ranch
stockholders,

- accuracy as of the closing of the representations and
warranties made by the other party to the extent specified
in the merger agreement, and

- performance in all material respects by the other party of
the obligations required to be performed by it at or prior
to closing.

ADDITIONAL CLOSING CONDITIONS FOR ST. MARY'S BENEFIT

St. Mary's obligation to complete the merger is also subject to the
following significant conditions for St. Mary's benefit:

- the reimbursement of King Ranch Energy by King Ranch for
the net amount of any funds transferred by King Ranch
Energy to King Ranch from May 31, 1999 to the closing date,

- the cancellation by King Ranch of any obligation of King
Ranch Energy to reimburse King Ranch for the funds advanced
by King Ranch to King Ranch Energy for King Ranch Energy to
acquire the Flour Bluff properties in February 1999, and
any debt obligation of King Ranch Energy to King Ranch at
May 31, 1999, and

- no exercise of dissenters' appraisal rights in connection
with the merger by the holders of more than five percent of
the outstanding shares of King Ranch Energy common stock.
To the extent that the holders of more than five percent
but less than ten percent of the outstanding shares of King
Ranch Energy common stock exercise appraisal rights and
such exercise results in an obligation to pay an amount
which is equivalent to more than $19.76 per St. Mary share,
King Ranch may elect to satisfy such condition by paying
such excess.

ADDITIONAL CLOSING CONDITIONS FOR KING RANCH'S BENEFIT

King Ranch's obligation to complete the merger is also subject to the
following significant conditions for King Ranch's benefit:

- the reimbursement of King Ranch by King Ranch Energy for
the net amount of any funds transferred by King Ranch to
King Ranch from May 31, 1999 to the closing date, excluding
the funds advanced by King Ranch to King Ranch Energy for
King Ranch Energy to acquire the Flour Bluff properties in
February 1999,

70
<PAGE>

and

- receipt of opinions from its legal counsel and independent
accountants that the merger will be tax-free and that the
distribution of the King Ranch Energy stock to the King
Ranch stockholders will be tax free to them. These opinions
were delivered to King Ranch on July 27, 1999 and have been
filed with the SEC as exhibits to the registration
statement relating to this document. These opinions must
also be true and correct at closing, or King Ranch will not
have to complete the merger.

TERMINATION OF THE MERGER AGREEMENT

RIGHT TO TERMINATE

The merger agreement may be terminated at any time prior to the closing
in any of the following ways:

- by mutual written consent of St. Mary, King Ranch and King
Ranch Energy.

- by St. Mary or King Ranch Energy if the merger has not been
completed by November 30, 1999,

- by St. Mary or King Ranch Energy if there is a permanent
legal prohibition to closing the merger,

- by St. Mary or King Ranch Energy if the St. Mary
stockholders do not approve the issuance of St. Mary common
stock under the merger agreement or the King Ranch Energy
stockholders do not approve the merger agreement.

- by St. Mary if there has been a material uncured breach of
a representation, warranty, covenant or agreement of King
Ranch or King Ranch Energy in the merger agreement, or

- by King Ranch if there has been a material uncured breach
of a representation, warranty, covenant or agreement of St.
Mary in the merger agreement.

Neither St. Mary nor King Ranch Energy can terminate the merger
agreement for the reasons described in the second and third bullet points
above if it has failed in any material respect to fulfill its obligations
under the merger agreement and such failure has resulted in the circumstances
referred to in those bullet points.

EFFECT OF TERMINATION

If the merger agreement is validly terminated, the agreement will
become void without any liability on the part of any party. However, the
provisions of the merger agreement relating to expenses and termination fees,
damages and losses, as well as the confidentiality agreements entered into
between St. Mary and King Ranch, will continue in effect notwithstanding

71
<PAGE>

termination of the merger agreement.

TERMINATION FEES

King Ranch has agreed to pay St. Mary a cash termination fee of $1
million if St. Mary terminates the merger agreement because there has been a
material uncured breach of a representation, warranty, covenant or agreement
of King Ranch or King Ranch Energy in the merger agreement. If after a
termination fee is due to St. Mary there is a third party acquisition
proposal for King Ranch Energy by December 31, 1999 which is subsequently
consummated, King Ranch will be obligated to pay St. Mary an additional fee
of $2 million upon the completion of such transaction.

St. Mary has agreed to pay King Ranch a cash termination fee of $1
million if King Ranch terminates the merger agreement because of a material
uncured breach of a representation, warranty, covenant or agreement of St.
Mary in the merger agreement.

As an alternative to the above termination fees, St. Mary or King
Ranch can elect to pursue a claim for damages against the other party for its
breach.

If the merger agreement is terminated because the St. Mary
stockholders do not approve the issuance of St. Mary common stock under the
merger agreement or the King Ranch Energy stockholders do not consent to the
merger agreement, there will be no termination fee. However, if the King
Ranch Energy stockholders do not consent to the merger agreement and there is
a third party acquisition proposal for King Ranch Energy by December 31, 1999
which is subsequently consummated, King Ranch will be obligated to pay St.
Mary a termination fee of $3 million upon the completion of such transaction.

In the event either King Ranch or St. Mary is entitled to terminate
the merger agreement and receive a termination fee, but elects not to do so,
then either King Ranch or St. Mary will have the right to seek specific
performance of the merger agreement.

OTHER EXPENSES

Except as described above, all costs and expenses incurred in
connection with the merger agreement and related transactions will be paid by
the party incurring such costs or expenses. We estimate that merger-related
fees and expenses, consisting primarily of SEC filing fees, fees and expenses
of investment bankers, attorneys and accountants, and financial printing and
other related charges, will total approximately $2.2 million assuming the
merger is completed.

AMENDMENTS; WAIVERS

Any provision of the merger agreement may be amended or waived prior
to the closing if the amendment or waiver is in writing and signed by each of
the parties. No amendment can be made after the St. Mary stockholders approve
the issuance of St. Mary common stock under the merger agreement or the King
Ranch Energy stockholders consent to the merger agreement unless:

72
<PAGE>

- under the Nasdaq rules or other applicable law such amendment
does not require further stockholder approval or consent, or

- the stockholders approve or consent to such amendment.

THE COMPANIES

BUSINESS OF ST. MARY

St. Mary is engaged in the exploration, development, acquisition and
production of natural gas and crude oil with operations focused in five core
operating areas in the United States:

- the Mid-Continent region in western Oklahoma and northern
Texas,

- the ArkLaTex region that spans northern Louisiana and portions
of eastern Texas, Arkansas and Mississippi,

- south Louisiana,

- the Williston Basin in eastern Montana and western North
Dakota, and

- the Permian Basin in eastern New Mexico and west Texas.

St. Mary's objective is to build value per share by focusing its
resources within selected basins in the United States where management
believes established acreage positions, long-standing industry relationships
and specialized geotechnical and engineering expertise provide a significant
competitive advantage. For further information about St. Mary's business, you
should read St. Mary's 1998 Annual Report on Form 10-K incorporated by
reference into this document. See "Where You Can Find Information" on page 91.

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF ST. MARY

The following selected historical consolidated financial data for
St. Mary for each of the years 1994 through 1998 has been derived from St.
Mary's audited consolidated financial statements. The selected historical
consolidated financial data for the six months ended June 30, 1999 has been
derived from St. Mary's unaudited consolidated financial statements for the
six months ended June 30, 1999. This information is only a summary and you
should read it together with St. Mary's historical financial statements and
related notes contained in the annual and quarterly reports and other
information that we have filed with the SEC and incorporated in this document
by reference. See "Where You Can Find More Information" on page 91.

73
<PAGE>

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
----------------- ----------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues:
Oil production $28,060 $34,872 $16,545 $22,415 $22,100 $17,090 $14,006
Gas production 1,518 4,386 54,103 53,349 34,674 19,479 24,233
Gain on sale of Russian joint venture - - - 9,671 - - -
Gain (loss) on sale of proved properties 114 (14) 7,685 4,220 2,254 1,292 418
Gas contract settlement and other 273 202 411 1,391 523 789 6,128
------- ------- ------- ------- ------- ------- -------
Total operating revenues 29,965 39,446 78,744 91,046 59,551 38,650 44,785
------- ------- ------- ------- ------- ------- -------

Operating expenses:
Oil and gas production 7,954 8,116 17,005 15,258 12,897 10,646 10,496
Depletion, depreciation & amortization 10,683 11,880 24,912 18,366 12,732 10,227 10,134
Impairment of proved properties 247 1,445 17,483 5,202 408 2,676 4,219
Exploration 2,942 6,473 11,705 6,847 8,185 5,073 8,104
Abandonment and impairment
of unproved properties 800 615 4,457 2,077 1,469 2,359 1,023
General and administrative 3,629 4,424 7,097 7,645 7,603 5,328 5,261
Writedown of Russian
convertible receivable - - 4,553 - - - -
Writedown of investment
in Summo Minerals - - 3,949 - - - -
Other 338 92 141 281 78 152 493
(Income) loss in equity investees 58 571 661 325 (1,272) 579 348
------- ------- ------- ------- ------- ------- -------
Total operating expenses 26,651 33,616 91,963 56,001 42,100 37,040 40,078
------- ------- ------- ------- ------- ------- -------

Income (loss) from operations 3,314 5,830 (13,219) 35,045 17,451 1,610 4,707
Non-operating expense 264 228 1,027 99 1,951 896 525
Income tax expense (benefit) 1,008 1,896 (5,415) 12,325 5,333 (723) 445
------- ------- ------- ------- ------- ------- -------
Income (loss) from continuing operations 2,042 3,706 (8,831) 22,621 10,167 1,437 3,737
Gain on sale of discontinued operations,
net of income taxes - 34 34 488 159 306 -
------- ------- ------- ------- ------- ------- -------
Net income (loss) $2,042 $3,740 $(8,797) $23,109 $10,326 $1,743 $3,737
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------

</TABLE>

74
<PAGE>

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
--------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
----- ----- ------ ----- ----- ----- -----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA (CONTINUED):
Basic net income (loss) per common share:
Income (loss) from continuing operations $0.19 $0.34 $ (0.81) $2.13 $1.16 $0.17 $0.43
Gain on sale of discontinued operations - - - 0.05 0.02 0.03 -
----- ----- ------- ----- ----- ----- -----
Basic net income (loss) per share $0.19 $0.34 $ (0.81) $2.18 $1.18 $0.20 $0.43
===== ===== ======= ===== ===== ===== =====
Diluted net income (loss) per common share:
Income (loss) from continuing operations $0.19 $0.33 $ (0.81) $2.10 $1.15 $0.17 $0.43
Gain on sale of discontinued operations - - - 0.05 0.02 0.03 -
----- ----- ------- ----- ----- ----- -----
Diluted net income (loss) per share $0.19 $0.33 $ (0.81) $2.15 $1.17 $0.20 $0.43
===== ===== ======= ===== ===== ===== =====

Cash dividends per share $0.10 $0.10 $0.20 $0.20 $0.16 $0.16 $0.16
Basic weighted average common
share outstanding 10,879 10,984 10,937 10,620 8,759 8,760 8,763
Diluted weighted average common shares
outstanding 10,892 11,102 10,937 10,753 8,826 8,801 8,803

BALANCE SHEET DATA (END OF PERIOD):
Working capital $8,558 $3,592 $9,785 $9,618 $13,926 $3,102 $9,444
Net property and equipment 152,198 170,987 143,825 157,481 101,510 71,645 59,655
Total assets 182,831 215,849 184,497 212,135 144,271 96,126 89,392
Long-term debt 20,087 26,615 19,398 22,607 43,589 19,602 11,130
Total stockholders' equity 138,695 150,669 134,742 147,932 75,160 66,282 66,034
</TABLE>

KING RANCH

King Ranch is a privately-held company engaged primarily
in ranching, agricultural and energy development businesses. It
owns the historic 825,000 acre "King Ranch" in South Texas. King
Ranch's oil and gas exploration and production business is
conducted through its subsidiary King Ranch Energy which St. Mary
is to acquire in the merger.

75
<PAGE>

BUSINESS OF KING RANCH ENERGY

King Ranch Energy is a privately held oil and gas company based in
Houston, Texas, and is an indirect wholly-owned subsidiary of King Ranch.
Effective on the close of business on December 31, 1997, King Ranch
reorganized the structure of its energy operations. On that date, all of the
onshore and offshore working interests and related assets owned by King Ranch
were transfered to King Ranch Energy. The information presented for the
periods prior to January 1 1998 reflects the financial position, results of
operations, cash flows and other information attributable to the contributed
assets. The oil and gas operations of King Ranch Energy began during the
early 1980's through direct working interest participation in drilling
projects and producing properties on a non-operated basis. In March 1986,
King Ranch began to assemble a team of geophysicists with its acquisition of
Barrick Exploration. The acquisition of Barrick Exploration also included a
significant seismic database and provided King Ranch Energy with exposure to
several exploration joint ventures. During the later portions of the 1980's,
King Ranch Energy brought its geoscience expertise and seismic database to
numerous exploration joint ventures with onshore and offshore operators along
the Gulf Coast. Currently, King Ranch Energy is an oil and gas exploration,
development, and production company operating primarily in the Gulf Coast
region with emphasis in the Gulf of Mexico. King Ranch Energy identifies
exploratory prospects by: (1) integrating 3-D and 2-D seismic technology with
information about surrounding geological features, and (2) high-grading
prospects that exhibit "bright spot" seismic anomalies by using extensive
computer-aided geophysical modeling and amplitude.

OIL AND GAS RESERVES

The following table sets forth certain information on the total
proved reserves, estimated future net cash flow before income taxes from
proved reserves, and the present value, discounted at 10%, of estimated
future net cash flow from proved reserves for King Ranch Energy during the
periods indicated. Information in the following table is based upon the
Reserve Reports in accordance with the rules and regulations of the SEC.

FUTURE NET CASH FLOW
NET PROVED RESERVES AFTER-TAX
-------------------------------------- ---------------------------
Discounted
Gas Oil Total Total at 10%
---- ---- ------------- ------ -------
(in thousands)
<S> <C> <C> <C> <C> <C>
PROVED RESERVES (MMcf) (MBbl) (Bcfe)
December 31, 1996 38,787 1,717 49,089 $94,992 $71,401
December 31, 1997 38,201 1,407 46,643 $59,480 $46,844
December 31, 1998 42,303 1,675 52,353 $52,763 $42,854

</TABLE>

There are numerous uncertainties inherent in estimating quantities
of proved reserves, including many factors beyond the control of King Ranch
Energy. The reserve data set forth herein represents only estimates.
Reservoir engineering is a subjective process of estimating underground
accumulations of crude oil and natural gas that cannot be measured in an
exact manner, and the accuracy of any reserve estimate is a function of the
quality of available data and of engineering and geological interpretations
and judgment. As a result, estimates of different engineers often vary. In

<PAGE>

addition, results of drilling, testing and production subsequent to the date
of an estimate may justify revision of such estimate. Accordingly, reserve
estimates are often different from the quantities of crude oil and natural
gas that are ultimately recovered. The meaningfulness of such estimates is
highly dependent upon the accuracy of the assumptions upon which they were
based. In general, the volume of production from oil and gas properties owned
by King Ranch Energy declines as reserves are depleted. Except to the extent
King Ranch Energy conducts successful exploration and development activities
or acquires additional properties containing proved reserves, or both, the
proved reserves of King Ranch Energy will decline as reserves are produced.

In accordance with the SEC's guidelines, the estimates of King Ranch
Energy's proved reserves, future net cash flow from proved reserves and the
discounted present value of future net cash flow from proved reserves are
made using oil and natural gas sales prices in effect as of the dates of such
estimates and are held constant throughout the life of the properties except
where such guidelines permit alternate treatment, including the use of fixed
or determinable contractual price escalations. Prices for natural gas and
crude oil are subject to substantial fluctuations as a result of numerous
factors. In accordance with SEC guidelines, the estimates of King Ranch
Energy's proved reserves, future net cash flow from proved reserves and the
discounted present value of future net cash flow from proved reserves are
made using current lease and well operating costs estimated by King Ranch
Energy. Lease operating expenses for wells operated by King Ranch Energy were
estimated using a combination of fixed and variable-by-volume costs
consistent with King Ranch Energy's experience in the areas for such wells.
For purposes of calculating estimated future net cash flow and the discounted
present value thereof, operating costs exclude accounting and administrative
overhead expenses attributable to King Ranch Energy's working interest in
wells operated under joint operating agreements, but include administrative
costs associated with production offices. The discounted present value of
estimated future net cash flow from proved reserves set forth herein should
not be construed as the current market value of the estimated proved oil and
gas reserves attributable to King Ranch Energy's properties.

EXPLORATION AND DEVELOPMENT ACTIVITY

King Ranch Energy drilled, or participated in the drilling of, the
following numbers of wells during the periods indicated.

YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
1998 1997 1996
---------------- ----------------- ----------------
GROSS NET GROSS NET GROSS NET
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Exploratory Wells:
Producing................ 11.0 3.1 6.0 1.3 3.0 1.3
Dry...................... 9.0 3.1 6.0 1.8 5.0 0.9
Total.............. 20.0 6.2 12.0 3.1 8.0 2.2
Development Wells:
Producing................ 20.0 5.8 13.0 3.6 14.0 6.7
Dry...................... 0 0 1.0 0.3 0 0
Total.............. 20.0 5.8 14.0 3.9 14.0 6.7
Total Wells.................... 40.0 12.0 26.0 7.0 22.0 8.9

</TABLE>

<PAGE>

The information contained in the foregoing table should not be
considered indicative of future drilling performance, nor should it be
assumed that there is any necessary correlation between the number of
productive wells drilled and the amount of oil and gas that may ultimately be
recovered form such wells.

PRESENT ACTIVITIES

In the first six months of 1999 King Ranch Energy has completed the
drilling of 8 gross (1.8 net) exploratory wells and 5 gross (1.6 net)
development wells. Of these wells, 2 gross (1.1 net) of the exploratory wells
were productive while all of the development wells were productive.

NET PRODUCTION, UNIT PRICES AND PRODUCTION COSTS

As of July 1, 1999, King Ranch Energy had an ownership interest in
404 gross (80.3 net) productive wells, including 231 gross (45.5 net)
productive natural gas wells and 173 gross (34.8 net) productive crude oil
wells.

The following table sets forth certain information regarding the net
production volumes, average sales prices received, and average production
costs associated with King Ranch Energy's sales of oil and natural gas for
the periods indicated.

YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Production:
Oil and condensate (MBbls)......................... 429 369 325
Gas (MMcf)......................................... 14,826 13,535 13,464
------ ------ ------
Total production (MMcfe)...................... 17,400 15,748 15,414
Average Realized Price:(1)
Oil and condensate (per Bbl)....................... $ 12.25 $ 18.85 $ 19.58
Gas (per Mcf)(2)................................... $ 2.24 $ 2.65 $ 2.54
Average Production Cost:
($/Mcfe)(3)........................................ $ 0.46 $ 0.37 $ 0.28

</TABLE>

(1) Excludes hedging gains of $815,000, $33,000 and $0 for 1998, 1997
and 1996, respectively.

(2) Includes product processing revenue of $342,000, $359,000 and
$500,000 for 1998, 1997 and 1996, respectively.

(3) Excludes production taxes of $294,000, $335,000 and $264,000 for
1998, 1997 and 1996, respectively.

<PAGE>

DEVELOPMENT, EXPLORATION AND ACQUISITION EXPENDITURES

King Ranch Energy's total capital expenditures on oil and gas
properties in 1998 were $65.5 million, with $27.8 million spent on
exploration drilling, $12.4 million spent on development drilling, and $25.3
million spent on acquisitions. The following table sets forth certain
information regarding the costs incurred by King Ranch Energy in its
exploration, development and acquisition activities during the periods
indicated.

YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Acquisition Costs:
Proved properties........................ $16,341 $0 $0
Unproved properties...................... 8,981 8,990 8,415
Exploration costs............................... 27,819 16,611 6,443
Development costs............................... 12,359 11,798 1,430
------- ------- -------
Total Capital Expenditures................... $65,500 $37,399 $16,288
======= ======= =======

</TABLE>

ACREAGE

As of July 1, 1999, King Ranch Energy had an interest in
approximately 528 thousand gross (157 thousand net) acres, including
approximately 304 thousand gross (106 thousand net) offshore acres, and
approximately 224 thousand gross (51 thousand net) onshore acres. Total
producing offshore acres are 160 thousand gross (44 thousand net), while
total non-producing offshore acres are 143 thousand gross (62 thousand net).
Acreage in which King Ranch Energy's interest is limited to royalty,
over-ridding royalty and similar interests is insignificant and, therefore,
excluded.

OIL AND GAS MARKETING

The revenues generated from King Ranch Energy's oil and gas
operations are highly dependent upon the prices of and the demand for its oil
and gas production. The prices received by King Ranch Energy for its oil and
gas production depend upon numerous factors beyond King Ranch Energy's
control.

Generally, King Ranch Energy's gas production is sold under
short-term contracts with index related pricing while oil production is sold
to various purchasers under short-term arrangements at prices no less than
such purchasers' posted prices for the respective areas less standard
deductions. Total sales of gas accounted for 85% of King Ranch Energy's
revenues during 1998 while total sales of oil accounted for 15% of King Ranch
Energy's revenues. In 1998, the weighted average price of gas sold was
$2.24/Mcf and the weighted average price of oil sold was $12.25/Bbl.

<PAGE>

HEDGING

From time to time, King Ranch Energy utilizes hedging transactions
with respect to a portion of its oil and gas production to achieve a more
predictable cash flow, as well as to reduce its exposure to price
fluctuations. While the use of these hedging arrangements limits the downside
risk of adverse price movements, they may also limit future revenues from
favorable price movements. As a result of hedging activities for gas
production for 1998 and 1997, King Ranch Energy realized gains of $815,000
and $33,000, respectively. During 1998, approximately 10% of King Ranch
Energy's equivalent gas production was subject to hedge positions as compared
to 9% in 1997.

The use of hedging transactions also involves the risk that the
counterparties will be unable to meet the financial terms of such
transactions. All of King Ranch Energy's hedging transactions to date were
carried out in the over-the-counter market and the obligations of the
counterparties have been guaranteed by entities with at least an investment
grade rating or secured by letters of credit. King Ranch Energy accounts for
these transactions as hedging activities and, accordingly, gains or losses
are included in oil and gas revenues when the hedged production is delivered.
Neither the hedging contracts nor the unrealized gains or losses on these
contracts are recognized in the financial statements.

COMPETITION

The exploration for and production of oil and gas is highly
competitive. In seeking to obtain desirable properties, leases and
exploration prospects, King Ranch Energy faces competition from both major
and independent oil and natural gas companies, as well as from numerous
individuals and drilling programs. Many of these competitors have financial
and other resources substantially in excess of those available to King Ranch
Energy and, accordingly, may be better positioned to acquire and exploit
prospects, hire personnel and market production. In addition, many of King
Ranch Energy's larger competitors may be better able to respond to factors
that affect the demand for oil and natural gas production such as changes in
worldwide oil and natural gas prices and levels of production, the cost and
availability of alternative fuels and the application of government
regulations.

EMPLOYEES

As of July 31, 1999, following the termination of 14 full-time
employees after the execution of the merger agreement with St. Mary, King
Ranch Energy had 12 full-time employees, none of whom is represented by any
labor union. King Ranch Energy considers its relations with its employees to
be good considering the pending merger. See "King Ranch Energy Stockholders
Meeting -Interests of Certain Persons in the Merger - Termination of King
Ranch Energy Employees; Severance Agreements."

FACILITIES

King Ranch Energy currently leases approximately 16,000 square feet
of office space in Houston, Texas, where its administrative offices are
located.

<PAGE>

TITLE TO PROPERTIES

King Ranch Energy believes it has satisfactory title to all of its
producing properties in accordance with standards generally accepted in the
oil and gas industry. King Ranch Energy's properties are subject to customary
royalty interests, liens incident to operating agreements, liens for current
taxes and other burdens which King Ranch Energy believes do not materially
interfere with the use of or affect the value of such properties.

OPERATING HAZARDS AND UNINSURED RISKS

King Ranch Energy operations are subject to hazards and risks
inherent in drilling for and production and transportation of oil and natural
gas, such as fires, natural disasters, explosions, encountering formations
with abnormal pressures, blowouts, cratering, pipeline ruptures and spills,
any of which can result in loss of hydrocarbons, environmental pollution,
personal injury claims, and other damage to properties of King Ranch Energy
and others. Additionally, a substantial amount of King Ranch Energy's oil and
gas operations are located in an area that is subject to tropical weather
disturbances, some of which can be severe enough to cause substantial damages
to facilities and possibly interrupt production. As protection against
operating hazards, King Ranch Energy maintains insurance coverage against
some, but not all, potential losses. King Ranch Energy believes that its
insurance coverage is adequate and customary for companies of a similar size
engaged in operations similar to those of King Ranch Energy, but losses could
occur for uninsurable or uninsured risks or in amounts in excess of existing
insurance coverage. The occurrence of an event that is not fully covered by
insurance could have an adverse impact on King Ranch Energy's financial
condition and results of operations.

GOVERNMENTAL REGULATIONS

King Ranch Energy's oil and gas exploration, production and related
operations are subject to extensive rules and regulations promulgated by
federal and state agencies. Failure to comply with such rules and regulations
can result in substantial penalties. The regulatory burden on the oil and gas
industry increases King Ranch Energy's cost of doing business and affects its
profitability. To date, expenditures related to complying with these rules
and regulations have not been significant in relation to the results of the
operations of King Ranch Energy. However, because such rules and regulations
are frequently amended or reinterpreted, King Ranch Energy is unable to
predict the future cost or impact of complying with such laws.

ENVIRONMENTAL MATTERS

King Ranch Energy's operations and properties are subject to
extensive and changing federal, state and local laws and regulations relating
to environmental protection, including the generation, storage, handling,
emission, transportation and discharge of materials into the environment, and
relating to safety and health. The recent trend in environmental legislation
and regulations generally is toward stricter standards, and this trend will
likely continue. These laws and regulations may require the acquisition of a
permit or other authorization before construction or drilling commences and
for certain other activities, limit or prohibit construction, drilling and
other activities on certain lands lying within wilderness or wetlands and
other protected areas and impose

81
<PAGE>

substantial liabilities for pollution resulting from King Ranch Energy's
operations. The permits required for various aspects of King Ranch Energy's
operations are subject to revocation, modification and renewal by issuing
authorities. King Ranch Energy believes that its operations currently are in
substantial compliance with applicable environmental regulations.

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF KING RANCH ENERGY

The following selected historical consolidated financial data has
been derived from (i) the audited financial statements of King Ranch Energy
as of and for the years ended December 31, 1998, 1997 and 1996, (ii) the
accounting records of King Ranch as of and for the years ended December 31,
1995 and 1994 and (iii) the unaudited interim financial statements of King
Ranch Energy as of June 30, 1999 and for the six month periods ended June 30,
1999 and 1998. This information is only a summary and you should read it
together with King Ranch Energy's historical financial statements and related
notes contained in this document.

SIX MONTHS
ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
---------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues:
Working and royalty interest $ 20,869 $19,791 $39,290 $43,239 $41,115 $26,384 $ 38,422
Other 60 76 117 365 404 - (460)
--------------------------------------------------------------------------------
Total operating revenues 20,929 19,867 39,407 43,604 41,519 26,384 37,962

Operating expenses:
Oil and gas operating expenses 3,550 3,417 8,373 6,848 4,402 4,965 6,408
Depletion, depreciation, amortization, and
impairment of properties 12,081 11,024 26,363 16,217 20,916 16,544 15,193
Exploration expenses 5,646 6,768 12,301 11,935 7,240 13,086 5,337
General and administrative 1,162 1,387 2,970 3,001 2,980 2,903 2,541
Abandoned Independent Power Production
projects - - - 163 44 1,280 3,379
--------------------------------------------------------------------------------
Total operating expenses 22,439 22,596 50,007 38,164 35,582 38,778 32,858
--------------------------------------------------------------------------------

Income (loss) from operations (1,510) (2,729) (10,600) 5,440 5,937 (12,394) 5,104
Trademark fee - affiliate 250 250 500 250 250 - -
Non-operating expense 633 25 103 146 28 (1,673) -
(Gain) loss of sale of proved properties - - 37 (238) (294) - -
--------------------------------------------------------------------------------
Income (loss) before taxes (2,393) (3,004) (11,240) 5,282 5,953 (10,721) 5,104
Income tax provision (benefit) (825) (794) (4,121) 1,680 1,836 - -
--------------------------------------------------------------------------------
Net income (loss) $ (1,568) $(2,210) $ (7,119) $ 3,602 $ 4,117 $(10,721) $ 5,104
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
</TABLE>

82
<PAGE>

BALANCE SHEET DATA (END OF PERIOD):
Working capital $(15,267) $(2,049) $(14,210) $23,429 $22,830 $(1,712) $11,013
Net property and equipment 67,613 68,356 68,542 41,105 31,986 42,602 53,287
Total assets 81,794 79,734 84,889 74,126 71,198 57,612 85,481
Long-term debt - - - - - 6,927 23,038
Total stockholders' equity 46,782 59,045 48,350 60,682 52,517 34,792 39,671
</TABLE>

KING RANCH ENERGY MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion of the consolidated
financial condition and results of operations of King Ranch Energy
and its subsidiaries for the three years ended December 31, 1998
and the six months ended June 30, 1999 and 1998. This discussion
should be read in conjunction with our "Selected Financial Data"
and our Consolidated Financial Statements, and the notes thereto,
included elsewhere herein. This discussion includes forward-looking
information concerning our future plans, financial condition,
liquidity and capital resources. If the merger with St. Mary is
consummated, our plans will not be implemented and the financial
condition of the combined company will be materially different.

GENERAL

As an independent oil and gas producer, our revenue,
profitability and future rate of growth are substantially dependent
upon prevailing prices for natural gas, oil and condensate, which
are dependent upon numerous factors beyond our control, such as
economic, political and regulatory developments and competition
from other sources of energy. The energy markets have historically
been very volatile and there can be no assurance that oil and gas
prices will not be subject to wide fluctuations in the future. A
substantial or extended decline in oil and gas prices could have a
material adverse effect on our financial position, results of
operations, cash flows, quantities of oil and gas reserves that may
be economically produced and access to capital.

We use the successful efforts method of accounting for oil and gas
properties. Costs to acquire mineral interests in oil and gas properties, to
drill and equip exploratory wells, which find proved

83
<PAGE>

reserves, and to drill and equip developmental wells are capitalized.
Exploratory geological and geophysical costs, delay rentals, and costs to
drill exploratory wells which do not find proved reserves are expensed.
Properties are periodically reviewed for impairment with valuation reserves
provided as required. Depletion, depreciation, and amortization of costs
incurred in connection with the drilling and development of proved oil and
gas reserves and estimated future abandonment and dismantlement costs are
amortized on a field-by-field basis using the units-of-production method
based upon estimates of proved developed oil and gas reserves. The property
acquisition costs of producing properties are amortized on a field-by-field
basis using the units-of-production method based on estimates of total proved
reserves.

FORWARD-LOOKING STATEMENTS

This document includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 2lE of the Exchange
Act of 1934, as amended. All statements other than statements of historical
facts included in this document, including statements regarding production
targets, anticipated production rates, planned capital expenditures, the
availability of capital resources to fund capital expenditures, estimates of
proved reserves, wells planned to be drilled in the future, our financial
position, business strategy and other plans and objectives for future
operations, are forward-looking statements. Although we believe that the
expectations reflected in such forward-looking statements are reasonable,
such statements are based upon assumptions and anticipated results that are
subject to numerous uncertainties. Actual results may vary significantly from
those anticipated due to many factors, including drilling results, oil and
gas prices, industry conditions, the prices of goods and services, the
availability of drilling rigs and other support services and the availability
of capital resources. In addition, the drilling of oil and gas wells and the
production of hydrocarbons are subject to governmental regulations and
operating risks.

RESULTS OF OPERATIONS

The following table sets forth certain operating information with
respect to our oil and gas operations.

Six Month Period
Ended June 30,
----------------------
1999 1998
---- ----
<S> <C> <C>
Production:
Oil and condensate (MBbls) 219 212
Gas (MMcf) 8,877 7,114
Total production (MMcfe) 10,191 8,386
Average Realized Price:
Oil and condensate (per Bbl) $ 12.76 $ 13.28
Gas (per Mcf) 1.99 2.35
</TABLE>

SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998

PRODUCTION. Net production increased 22%, from 8.4 Bcfe for the 1998
period to 10.2 Bcfe for the 1999 period. Oil and condensate production during
1999 increased 7 MBbls, or 3%, compared to the same period in 1998. Increased
oil production for 1999 was due primarily to production increases from
development drilling activities at the Fort Chadbourne Field in the fourth
quarter 1998. Gas production increased by 1.8 Bcf, or 25%, from 7.1 Bcf for
1998 period to 8.9 Bcf for 1999. Increased gas production was due to
production increases from development drilling activities during the fourth

84
<PAGE>

quarter of 1998 at the Judge Digby Field. These increases were partially
offset by natural production decline on other properties held.

OPERATING REVENUES. Oil and gas revenues for 1999 period increased
by $1.1 million, or 5%, compared to the same period in 1998, primarily as a
result of higher natural gas production levels. This increased production was
partially offset by lower realized oil and gas prices. The average realized
price of natural gas decreased by 15% while the average realized price for
oil decreased by 5%. For the 1999 period, the average realized gas price was
$1.99 per Mcf as compared to an average price of $2.35 per Mcf for the same
period in 1998. As a result of hedging activities for gas production during
the six month periods ended June 30, 1999 and 1998, we realized gains of $297
thousand and $67 thousand, respectively. During the 1999 period,
approximately 17% of our equivalent gas production was subject to hedge
positions as compared to 1% for the same period in 1998. The average realized
oil and condensate price was $12.76 per barrel during 1999 as compared to an
average price of $13.47 per barrel for the same period in 1998.

OIL AND GAS OPERATING EXPENSES. Lease operating expense for 1999
period increased to $3.6 million from $3.4 million for the same period in
1998. Lease operating expense per Mcfe decreased from $0.40 for 1998 period
to $0.35 for the 1999 period. This decrease is primarily attributable to
higher production volumes from the Judge Digby Field without a corresponding
increase in lease operating expense.

EXPLORATION EXPENSE. Exploration expense for the 1999 period
decreased to $5.6 million from $6.8 million for the same period in 1998. Dry
hole costs decreased by $3.0 million while geological and geophysical expense
increase by $1.8 million over the comparable periods. Impairment of
non-producing leaseholds decreased during 1999 to $190 thousand from $1.1
million during the comparable period in 1998.

DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE. During the 1999
period, depreciation, depletion and amortization expense increased to $12.1
million from $11.0 million for the comparable 1998 period. The increase was
primarily due to increased production volumes. The depletion rate per unit
for 1999 decreased to $1.19 per Mcfe, from $1.30 per Mcfe for 1998.

GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative
expense, which is net of overhead reimbursements received from other working
interest owners, decreased to $1.2 million, or $0.11 per Mcfe during 1999, as
compared to $1.4 million, or $0.16 per Mcfe, for 1998 period. The reduction
in general and administrative expense per Mcfe resulted from increasing
production levels without a corresponding increase in the number of employees.

TRADEMARK FEE. We pay a trademark fee to King Ranch, Inc. of
$500,000 per year for the use of the King Ranch name and the Running W
trademark.

OTHER EXPENSE. From 1998 to 1999, other expense increased by $600
thousand as a result of interest expense related to the intercompany note
payable that was established in December 1998.

NET INCOME. As a result of the foregoing, we had a net loss of $1.6
million for the 1999 period, as compared to a net loss of $2.2 million for
comparable 1998 period.

RESULTS OF OPERATIONS

The following table sets forth certain operating information with
respect to our oil and gas

85
<PAGE>

operations.

Year Ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Production:
Oil and condensate (MBbls) 429 369 325
Gas (MMcf) 14,826 13,535 13,464
Total production (MMcfe) 17,400 15,749 15,414
Average Realized Price:
Oil and condensate (per Bbl) $ 12.25 $ 18.85 $ 19.58
Gas (per Mcf) 2.24 2.65 2.54
</TABLE>

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

PRODUCTION. Net production increased 11%, from 15.75 Bcfe for 1997
to 17.4 Bcfe for 1998. Oil and condensate production for 1998 increased 60
MBbls, or 16%, compared to 1997. Increased oil production for 1998 was due
primarily to production increases from exploratory drilling activities at
Eugene Island 341 and from the acquisition of the Pittencrieff Americas
properties in the second quarter 1998. Gas production increased by 1.3 Bcf,
or 10%, from 13.5 Bcf for 1997 to 14.8 Bcf for 1998. Increased gas production
was due to production increases from development drilling activities during
1998 at the Judge Digby Field, from the acquisition of interests in several
offshore blocks from NCX Exploration in May 1998, and from exploratory wells
drilled and placed on production during the third quarter of 1998 at
Vermilion 115 and West Cameron 306. These increases were partially offset by
natural production decline on other properties held and by the loss of
reserves from the Shelton Royalty, which was contributed to an affiliated
entity on January 1, 1998.

OPERATING REVENUES. Oil and gas revenues for 1998 decreased by $4.2
million, or 10%, compared to 1997, primarily as a result of lower realized
oil and gas prices. The average realized price of natural gas decreased by
15% while the average realized price for oil decreased by 35%. For 1998, the
average realized gas price was $2.24 per Mcf as compared to an average price
of $2.65 per Mcf for 1997. As a result of hedging activities for gas
production for 1998 and 1997, we realized gains of $815 thousand and $33
thousand, respectively. During 1998, approximately 10% of our equivalent gas
production was subject to hedge positions as compared to 9% in 1997. For
1998, the average realized oil and condensate price was $12.25 per barrel as
compared to an average price of $18.85 per barrel for 1997.

OIL AND GAS OPERATING EXPENSES. Lease operating expense for 1998
increased to $8.4 million from $6.9 million for 1997. Lease operating expense
per Mcfe increased from $0.43 for 1997 to $0.48 for 1998. These increases are
primarily attributable to a general increase in costs in the oilfield service
industry, increased workover activities and lease operating costs associated
with properties acquired during 1998.

EXPLORATION EXPENSE. Exploration expense for 1998 increased to $12.3
million from $11.9 million for 1997. The increase in 1998 is a result of
slightly higher dry hole expense. Dry hole costs for 1997 were $7.4 million
while 1998 dry hole costs were $8.4 million. Impairment of non-producing
leaseholds decreased in 1998 to $1.8 million from $2.7 million during 1997.

DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE. During 1998,
depreciation, depletion and amortization expense increased to $26.4 million
from $16.2 million for 1997. The increase was due in

86
<PAGE>

part to increased production volumes and also due to an increased depletion
rate per Mcfe caused primarily by lower year-end reserve balances. The
depletion rate per unit for 1998 increased to $1.52 per Mcfe, from $1.03 per
Mcfe for 1997.

GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative
expense, which is net of overhead reimbursements received from other working
interest owners, remained the same as the 1997 amount of $3.0 million,
however, decreased per Mcfe to $0.17 in 1998 from $0.19 for 1997. The
reduction in general and administrative expense per Mcfe resulted from
increasing production levels without a corresponding increase in the number
of employees.

TRADEMARK FEE. We pay a trademark fee to King Ranch, Inc. for the
use of the King Ranch name and the Running W trademark. This fee was
increased from $250,000 per year in 1997 to $500,000 per year in 1998.

NET INCOME. As a result of the foregoing, we had a net loss of $7.1
million for 1998, as compared to net income of $3.6 million for 1997.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

PRODUCTION. Net production increased 2%, from 15.4 Bcfe for 1996, to
15.7 Bcfe for 1997. Oil and condensate production for 1997 increased 44
MBbls, or 14%, compared to 1996. Increased oil production for 1997 was due
primarily to production increases from development drilling activities during
1997 at the Clarksville Field. Gas production increased by 0.1 Bcf, or 1%,
from 13.4 Bcf for 1996 to 13.5 Bcf for 1997. Increased gas production was due
to production increases from exploratory drilling activities during 1996 at
Vermilion Block 281. These increases were partially offset by natural
production decline on other properties held.

OPERATING REVENUES. Oil and gas revenues for 1997 increased by $2.1
million, or 5%, compared to 1996, primarily as a result of increased oil and
gas production and slightly higher realized gas prices. The average realized
price of natural gas increased by 4%. For 1997, the average realized gas
price was $2.65 per Mcf as compared to an average price of $2.54 per Mcf for
1996. As a result of hedging activities for gas production for 1997, we
realized a gain of $33 thousand. During 1997, approximately 9% of our
equivalent gas production was subject to hedge positions. We did not hedge
any of its production during 1996. For 1997, the average realized oil and
condensate price was $18.85 per barrel as compared to an average price of
$19.58 per barrel for 1996.

OIL AND GAS OPERATING EXPENSES. Lease operating expense for 1997
increased to $6.9 million from $4.4 million for 1996. Lease operating expense
per Mcfe increased from $0.29 for 1996 to $0.43 for 1997. These increases are
primarily attributable to a general increase in costs in the oilfield service
industry and increased workover activities at the Clarksville Field and at
the East Cameron 56/57, West Cameron 306, and Matagorda Island 650 blocks.

EXPLORATION EXPENSE. Exploration expense for 1997 increased to $11.9
million from $7.2 million for 1996. The increase in 1997 is a result of
higher dry hole expense. Dry hole costs for 1997 were $7.4 million while 1996
dry hole costs were $3.2 million. Impairment of non-producing leaseholds in
1997 was $2.7 million while no leases were impaired during 1996.

DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE. During 1997,
depreciation, depletion and amortization expense decreased to $16.2 million
from $20.9 million for 1996. The decrease is primarily attributable to lower
finding costs related to the discoveries at Vermilion Blocks 273 and 281.
This

87
<PAGE>

decrease resulted in a decreased depletion rate per Mcfe from $1.36 per Mcfe
in 1996 to $1.03 per Mcfe in 1997.

GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative
expense for 1997, which is net of overhead reimbursements received from other
working interest owners, remained the same as the 1996 figures of $3.0
million, or $0.19 per Mcfe.

TRADEMARK FEE. We pay a trademark fee to King Ranch, Inc. of
$250,000 per year for the use of the King Ranch name and the Running W
trademark.

NET INCOME. As a result of the foregoing, we had net income of $3.6
million for 1997, as compared to $4.1 million for 1996.

LIQUIDITY AND CAPITAL RESOURCES

For the six-month periods ending June 30, 1999 and June 30, 1998, we
had negative working capital of ($177) thousand and ($2.1) million,
respectively. The June 30, 1999 working capital amount excludes an
intercompany note payable to our parent company King Ranch, Inc. We had
working capital at December 31, 1998 of $240 thousand excluding the
intercompany note payable to our parent company. Our working capital at
December 31, 1997 was $23.4 million. The $23.2 million decrease in working
capital from December 31, 1997 to December 31, 1998 is primarily due to
several reserve acquisitions and oil and gas exploration activities made
during 1998, which were funded by our parent.

For the six-month periods ending June 30, 1999 and June 30, 1998,
our net cash flows from operations were $12.2 million and $43.3 million,
respectively. The large decrease is the result of a $23.6 million decrease in
intercompany receivable from our parent during the first six months of 1998.
Our net cash flow from operations for 1998 was $52.0 million compared to
$28.0 million for 1997 and $3.9 million for 1996. The increase from 1997 to
1998 is primarily due to a $23.6 million reduction in the intercompany
receivable from our parent. The 1996 cash flow from operations is
substantially below 1997 because of a $24.6 million increase in the
intercompany receivable from our parent.

For the six-month period ending June 30, 1999, capital expenditures
were $12.9 million, consisting of $4.9 million for exploration, $3.1 million
for development and $4.9 million for acquisitions of properties. For the
six-month period ending June 30, 1998, capital expenditures were $44.0
million, consisting of $8.0 million for exploration, $15.0 million for
development and $20.9 million for acquisitions of properties. Capital
expenditures for 1998 were $63.2 million, consisting of $25.5 million for
exploration, $12.4 million for development and $25.3 million for acquisitions
of properties. Capital expenditures for 1997 were $33.2 million, consisting
of $12.4 million for exploration, $11.8 million for development and $9.0
million for acquisitions of properties while in 1996 total capital
expenditures were $14.0 million, consisting of $4.2 million for exploration,
$1.4 million for development and $8.4 million for acquisitions of properties.
Our exploration capital expenditure budget for 1999 is approximately $19
million. While we continue to pursue attractive development opportunities,
the timing and size of its capital commitments are unpredictable.

Actual levels of capital expenditures may vary significantly due to
many factors, including drilling results, oil and gas prices, industry
conditions, the prices and availability of goods and services and the extent
to which proved properties are acquired. We anticipate that capital
expenditures will be funded principally from cash flow from operations.

We participate in revolving credit and cash management with our
parent. Under this policy our

88
<PAGE>

cash requirements are provided by our parent, and our excess cash is remitted
to our parent for investment. During December 1998, our parent began to
charge interest to us at a rate of 8.75% (prime rate + 1%) on the outstanding
balance borrowed, prior to December 1998, no interest income or expense was
recognized as a result of this policy.

To cover the various obligations of lessees on the Outer Continental
Shelf ("OCS"), the Minerals and Management Service ("MMS") generally requires
that lessees post substantial bonds or other acceptable assurances that such
obligations will be met. The cost of such bonds or other surety can be
substantial and there is no assurance that bonds or other surety can be
obtained in all cases. Additionally, the MMS may require operators in the OCS
to post supplemental bonds in excess of lease and area wide bonds to assure
that abandonment obligations on specific properties will be met. We are
currently exempt from the supplemental bonding requirements of the MMS. Under
certain circumstances, the MMS may require operations on federal leases to be
suspended or terminated. Any such suspension or termination could materially
and adversely affect our financial condition, results of operations and cash
flows.

Our operations are subject to various federal, state and local laws
and regulations relating to the protection of the environment. We believe our
current operations are in material compliance with current environmental laws
and regulations. There can be no assurance, however, that current regulatory
requirements will not change, currently unforeseen environmental incidents
will not occur or past non-compliance with environmental laws will not be
discovered.

FINANCIAL INSTRUMENT MARKET RISK

Our Board of Directors has adopted a policy regarding the use of
derivative instruments. This policy requires every derivative used by us to
relate to underlying offsetting positions or firm commitments. It prohibits
the use of speculative, highly complex or leveraged derivatives. Under the
policy, the Chief Executive Officer and Vice President of Finance must review
and approve all risk management programs that use derivatives. The Audit
Committee of our Board of Directors also periodically reviews these programs.

COMMODITY PRICE RISK. From time to time, we utilize hedging
transactions with respect to a portion of our oil and gas production to
achieve a more predictable cash flow, as well as to reduce our exposure to
price fluctuations. While the use of these hedging arrangements limits the
downside risk of adverse price movements, they may also limit future revenues
from favorable price movements. The use of hedging transactions also involves
the risk that the counterparties will be unable to meet the financial terms
of such transactions. All of our hedging transactions to date were carried
out in the over-the-counter market and the obligations of the counterparties
have been guaranteed by entities with at least an investment grade rating or
secured by letters of credit. We account for these transactions as hedging
activities and, accordingly, gains or losses are included in oil and gas
revenues when the hedged production is delivered. Neither the hedging
contracts nor the unrealized gains or losses on these contracts are
recognized in the financial statements.

INTEREST RATE RISK. Market risk is estimated as the potential change
in fair-value resulting from an immediate hypothetical one percentage point
parallel shift in the yield curve. The sensitivity analysis presents the
hypothetical change in fair-value of the financial instrument we held at
December 31, 1998. For floating rate debt, interest rate changes generally do
not affect the fair market value but do impact future results of operations
and cash flows, assuming other factors are held constant. At December 31,
1998, we had intercompany floating debt of $14.45 million and had no fixed
debt. Assuming constant debt levels, the results of operations and cash flows
for the next year resulting from a one percentage

<PAGE>

point change in interest rates would be approximately $145,000 before taxes.

YEAR 2000 ISSUES

Year 2000 issues result from the inability of computer programs or
computerized equipment to accurately calculate, store or use a date
subsequent to December 31, 1999. The erroneous date can be interpreted in a
number of different ways; typically the year 2000 is represented as the year
1900. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in similar normal
business.

Because we were recently formed, we were aware of, and considered
year 2000 issues at the time of purchase or development of our software and
hardware systems. In addition, we have recently completed an assessment of
our core financial and operational systems to ensure year 2000 compliance. As
a result of our assessments we have determined that our land and lease
records software system is not Year 2000 compliant. Further assessment of
other less critical systems and various types of equipment is continuing and
should be completed during the third quarter of 1999. We do not have a
contingency plan to address unavoidable risks, but we intend to formulate one
upon completion of our assessment and testing in the third quarter of 1999.
We believe that the potential impact, if any, of these systems not being year
2000 compliant will at most require employees to manually complete otherwise
automated tasks or calculations and it should not impact our ability to
continue exploration, drilling, production or sales activities.

We rely on other producers and transmission companies to conduct our
basic operations. Should any third party with which we have a material
relationship fail, the impact could impair our ability to perform basic
operations. We have initiated communications with these significant
suppliers, business partners and customers to determine the extent to which
we are vulnerable to those third parties' failure to correct their own year
2000 issues. There can be no guarantee, however, that the systems of other
companies on which our systems rely will be timely converted, or that a
failure to convert by another company, or a conversion that is incompatible
with our systems would not have a material adverse effect on our operations.

We have and will continue to utilize both internal and external
resources to complete tasks and perform testing necessary to address the year
2000 issue. Costs of developing and carrying out our assessment and testing
have been funded from our operations and have not represented a material
expense. We have not completed our assessment and testing; however, we do not
anticipate any significant costs relating to remediation efforts resulting
from the year 2000 issues.

KING RANCH ENERGY CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

During King Ranch Energy's two most recent fiscal years and through
the date of this document, King Ranch Energy has not had any changes in or
disagreements with its independent accountants on accounting and financial
disclosure.

LEGAL MATTERS

The validity of the St. Mary common stock to be issued in the merger
has been passed upon by Ballard Spahr Andrews & Ingersoll, LLP.

Locke Liddell & Sapp LLP has issued an opinion as to the Federal
income tax consequences of the merger and the distribution and Ernst & Young
LLP has issued an opinion as to the Federal income

<PAGE>

tax consequences of the distribution. These opinions have been filed with the
SEC as exhibits to the registration statement relating to this document. See
"The Merger Transaction-Material Federal Income Tax Consequences of the
Merger."

EXPERTS

The consolidated financial statements of St. Mary incorporated by
reference in this document to the extent and for the periods indicated in
their report, have been audited by Arthur Andersen LLP, independent public
accountants, and are included herein in reliance upon the authority of that
firm as experts in auditing and accounting in giving that report.

The consolidated financial statements of St. Mary for the year ended
December 31, 1996 incorporated by reference in this document, have been
incorporated herein in reliance on the report of PricewaterhouseCoopers LLP,
independent public accountants, given as the authority of that firm as
experts in accounting and auditing.

The consolidated financial statements of King Ranch Energy, Inc. as
of December 31, 1998 and 1997 and for each of the three years in the period
ended December 31, 1998 included in this proxy and consent
statement/prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and have been so
included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.

Some of the estimates of oil and gas reserves included or
incorporated by reference in this document were based upon engineering
reports prepared by the independent petroleum engineering firms of Ryder
Scott Company, L.P. and Netherland Sewell & Associates, Inc. Such estimates
are included herein in reliance on the authority of those firms as experts in
such matters.

WHERE YOU CAN FIND MORE INFORMATION

St. Mary files annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information St. Mary files at the SEC's public
reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on
the public reference rooms. St. Mary's SEC filings are also available to the
public from commercial document retrieval services and at the web site
maintained by the SEC at "http://www.sec.gov."

St. Mary has filed a registration statement on Form S-4 to register
with the SEC the St. Mary common stock to be issued in the merger. This
document is a part of that registration statement and constitutes a
prospectus of St. Mary in addition to being a proxy statement King Ranch for
the King Ranch stockholders meeting to vote on the merger agreement. As
allowed by SEC rules, this document does not contain all the information you
can find in the registration statement or the exhibits to the registration
statement.

The SEC allows St. Mary to "incorporate by reference" information
into this document, which means that St. Mary can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of
this document even though it is not included or delivered with this document,
except for any information superseded by information included or incorporated
by reference in this document. This document incorporates by reference those
documents set forth below that St. Mary has previously filed with the SEC.
Those documents contain important business and financial information about
St. Mary.

You can obtain any of the other documents incorporated by reference
through us or the SEC.

<PAGE>

Documents incorporated by reference are available from us without charge,
excluding all exhibits unless we have specifically incorporated by reference
an exhibit in this document. Stockholders may obtain other documents
incorporated by reference in this document by requesting them in writing or
by telephone from St. Mary at the following address:

St. Mary Land & Exploration Company
Attn: Secretary
1776 Lincoln Street, Suite 1100
Denver, CO 80203
Tel: (303) 861-8140

IF YOU WOULD LIKE TO REQUEST FROM ST. MARY DOCUMENTS WHICH ARE
INCORPORATED BY REFERENCE, PLEASE DO SO BY SEPTEMBER 22, 1999 TO RECEIVE THEM
BEFORE THE KING RANCH STOCKHOLDERS MEETING.

ST. MARY SEC FILINGS PERIOD
<S> <C>
(SEC FILE NO. 0-20872)

Annual Report on Form 10-K Fiscal Year ended December 31, 1998

Amendment to Annual Report on Form 10-K/A
filed April 14, 1999 Fiscal Year ended December 31, 1998

Quarterly Report on Form 10-Q Quarter ended March 31, 1999

Quarterly Report on Form 10-Q Quarter ended June 30, 1999

Amendment to Quarterly Report on Form 10-Q/A
filed August 17, 1999 Quarter ended June 30, 1999

Current Report on Form 8-K filed July 28, 1999

Registration Statement on Form 8-A
filed November 18, 1992

</TABLE>

We are also incorporating by reference additional documents that we
file with the SEC between the date of this document and the date of the King
Ranch stockholders meeting.

St. Mary has supplied all information contained or incorporated by
reference in this document relating to St. Mary, and King Ranch and King
Ranch Energy has supplied all information contained in this document relating
to King Ranch and King Ranch Energy.

You can also get more information by visiting St. Mary's web site at
www.stmaryland.com and King Ranch's web site at www.king-ranch.com. Web site
materials are not part of this document.

You should rely only on the information contained or incorporated by
reference in this document to vote on the St. Mary share issuance at the St.
Mary stockholder meeting or to consent to the merger as a King Ranch Energy
stockholder. We have not authorized anyone to provide you with information
that is different from what is contained in this document. This document is
dated August _____, 1999. You should not assume that the information
contained in the document is accurate as of any date other than such date,
and neither the mailing of this document to stockholders nor the issuance

<PAGE>

of St. Mary common stock in the merger shall create any implication to the
contrary.

FUTURE ST. MARY STOCKHOLDER PROPOSALS

Any St. Mary stockholder proposal for the annual meeting of
stockholders in 2000 must be received by St. Mary by November 1, 1999 for the
proposal to be included in the St. Mary proxy statement and form of proxy for
that meeting. If notice of a proposal for which a stockholder will conduct
his or her own proxy solicitation is not received by St. Mary by March 1,
2000, proxies solicited by the St. Mary board of directors may use their
discretionary voting authority when the matter is raised at the meeting,
without including any discussion of the matter in the proxy statement.

CAUTIONARY INFORMATION ABOUT FORWARD-LOOKING STATEMENTS

This document includes or incorporates by reference "forward-looking
statements" that are subject to risks and uncertainties. These
forward-looking statements include statements about:

<TABLE>

<S> <C>
- - synergies expected from the merger - future capital spending and availability

- - efficiencies and costs savings expected to - repayment of debt
be realized from the merger

- - revenue enhancements expected from the - expected oil and natural gas production
merger
- asset portfolios
- - the timetable for closing the merger
- Year 2000 readiness
- - capital productivity and returns on capital
employed by St. Mary after the closing - oil and natural gas potential

- - oil and gas reserve estimates (including - future development and exploration expenditures
estimates of future net revenues associated future net revenues)
with such reserves and the present value of
(including the amount and nature thereof) - planned drilling of wells

- - planned expansion and growth of St. Mary's - business strategies
operations

</TABLE>

The sections of this document which contain forward-looking statements
include:

- Summary,

- The Merger Transaction--Background of the Merger;

- The Merger Transaction--Our Reasons for the Merger,

- Unaudited Pro Forma Condensed Combined Financial Statements,
and

- Opinions of Financial Advisors.

Our forward-looking statements are also identified by words such as:

<PAGE>

- "believes,"

- "expects,"

- "anticipates,"

- "intends,"

- "projects,"

- "estimates," or

- similar expressions.

For those statements by St. Mary, St. Mary claims the protection of the
safe harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.

You should understand that the following important factors, in addition
to those discussed elsewhere in this document and in the documents which are
incorporated by reference, could affect the future results of St. Mary and King
Ranch Energy, and of St. Mary after the closing of the merger, and could cause
those results or other outcomes to differ materially from those expressed in our
forward-looking statements:

ECONOMIC AND INDUSTRY CONDITIONS POLITICAL/GOVERNMENTAL FACTOR
<S> <C>
- - material adverse changes in economic - political developments and laws
and regulations, such as restrictions
or industry conditions generally or in on production, price controls, tax
the markets served by our companies increases and retroactive tax claims,
and environmental regulations
- - supply and demand for and pricing of
crude oil and natural gas - permitting delays
- -
- - changes in demographics and consumer
preferences

- - the uncertainty of estimated oil and gas
resources

</TABLE>

PROJECT/TECHNOLOGY FACTORS OPERATING FACTORS
<S> <C>

- - supply disruptions oil and natural - supply disruptions
gas project advancement
- technical difficulties
- - supply disruptions the development and
use of new technology - changes in operating conditions and costs

- - the impact of the Year 2000 on our - weather
technology systems or the technology
systems of third parties with which we - marketing delays
have material relationships

</TABLE>

<PAGE>

TRANSACTION OR COMMERCIAL FACTORS COMPETITIVE FACTORS
<S> <C>

- - the outcome of negotiations with - the competitiveness of suppliers of
partners, customers or others alternative energy sources or
product substitutes
- - our ability to integrate the businesses
of St. Mary and King Ranch Energy - the actions of competitors
successfully after the merger
- the challenges inherent in diverting
management's focus and resources from
other strategic opportunities and from
operational matters during the merger
and integration process

</TABLE>

You are cautioned that our forward-looking statements are not
guarantees of future performance and that actual results or developments may
differ materially from those expressed or implied by the forward-looking
statements.

SEC POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

Delaware General Corporation Law provides for indemnification by a
corporation of costs incurred by directors, employees, and agents in
connection with an action suit, or proceeding brought by reason of their
position as a director, employee, or agent. The person being indemnified must
have acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation.

Provisions of St. Mary's' certificate of incorporation and by-laws
obligate St. Mary to indemnify its directors and officers to the fullest
extent permitted under Delaware law. Provisions of King Ranch Energy's bylaws
obligate King Ranch Energy to indemnify its directors and officers in a
manner consistent with Delaware General Corporation Law. [King Ranch?]

In so far as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling St. Mary, King Ranch or King Ranch Energy pursuant to the
foregoing provisions or otherwise, St. Mary, King Ranch and King Ranch Energy
have been advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma condensed combined financial
statements combine the historical consolidated balance sheets and statements
of operations of St. Mary and King Ranch Energy giving effect to the merger
using the purchase method of accounting for business combinations.

We are providing the following information to aid you in your
analysis of the financial aspects of the merger. We derived this information
from the audited financial statements of St. Mary for 1998 and the unaudited
financial statements for the six months ended June 30, 1999 and from the
audited financial statements of King Ranch Energy for 1998 and the unaudited
financial statements for the six months ended June 30, 1999. The information
is only a summary and you should read it in conjunction with our historical
financial statements and related notes contained in the annual reports and
other

<PAGE>

information that St. Mary has filed with the SEC and incorporated in this
document by reference and the historical financial statements of King Ranch
Energy and related notes contained in this document. See "Where You Can Find
More Information" on page 91.

The unaudited pro forma condensed combined statements of operations
for the year ended December 31, 1998 and the six months ended June 30, 1999
assume the merger was effected on January 1, 1998. The unaudited pro forma
condensed combined balance sheet gives effect to the merger as if it had
occurred on June 30, 1999. The accounting policies of St. Mary and King Ranch
Energy are substantially comparable. Therefore, we did not make adjustments
to the unaudited pro forma condensed combined financial statements to conform
the accounting policies of the combining companies.

The unaudited pro forma condensed combined financial information is
for illustrative purposes only. The companies may have performed differently
had they always been combined. You should not rely on the pro forma condensed
combined financial information as being indicative of the historical results
that would have been achieved had the companies always been combined or the
future results that the combined company will experience after the merger.

<PAGE>

ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
KING RANCH ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
June 30, 1999
(In thousands, except share amounts)

ASSETS
<TABLE>
<CAPTION>
St. Mary/
Pro Forma King Ranch
St. Mary King Ranch Adjustments Pro Forma
-------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 5,244 $ - $ 5,244
Accounts receivable 12,775 7,651 (2) $ 4,000 24,426
Prepaid expenses and other 816 584 1,400
Refundable income taxes 211 - 211
Refundable income taxes-affiliate - 5,700 (1) (5,700) -
Deferred income taxes 91 - 91
--------- --------- ---------- ---------
Total current assets 19,137 13,935 (1,700) 31,372
--------- --------- ---------- ---------

Property and equipment (successful efforts method), at cost:
Proved oil and gas properties 252,803 257,331 (2) (226,541) 283,593
Unproved oil and gas properties, net 31,455 22,074 (2) (14,074) 39,455
Other, net 4,654 473 5,127
--------- --------- ---------- ---------
288,912 279,878 (240,615) 328,175
Less accumulated depletion, depreciation, amortization
and impairment (136,714) (212,265) (2) 212,265 (136,714)
--------- --------- ---------- ---------
Net property and equipment 152,198 67,613 (28,350) 191,461
--------- --------- ---------- ---------
Other assets:
Khanty Mansiysk Oil Corporation receivable and stock 6,839 - 6,839
Summo Minerals Corporation investment and receivable 1,130 - 1,130
Other assets 3,527 246 (1) (246) 3,527
--------- --------- ---------- ---------
Total other assets 11,496 246 (246) 11,496
--------- --------- ---------- ---------
Total assets $ 182,831 $ 81,794 $ (30,296) $ 234,329
--------- --------- ---------- ---------
--------- --------- ---------- ---------
</TABLE>

97
<PAGE>

ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
KING RANCH ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET (CONTINUED)
June 30, 1999
(In thousands, except share amounts)

<TABLE>
<CAPTION>
St. Mary/
Pro Forma King Ranch
St. Mary King Ranch Adjustments Pro Forma
-------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 10,307 $ 4,795 $ 15,102
Accounts payable-parent - 9,317 (1) (9,317) -
Current notes payable-affiliate - 15,090 (1) (15,090) -
Current portion of stock appreciation rights 272 - 272
--------- --------- ---------- ---------
Total current liabilities 10,579 29,202 (24,407) 15,374
--------- --------- ---------- ---------

Long-term liabilities:
Long-term debt 20,087 - 20,087
Deferred income taxes 11,765 - (2) 683 12,448
Stock appreciation rights 455 - 455
Future platform abandonment - 5,782 5,782
Other noncurrent liabilities 1,250 28 1,278
--------- --------- ---------- ---------
33,557 5,810 683 40,050
--------- --------- ---------- ---------

Stockholders' equity:
Common stock, $.01 par value: authorized - 50,000,000 shares:
issued and outstanding - 11,269,361 for St. Mary -
Pro forma, 13,935,613 issued and outstanding 113 1 (2) 26 140
Additional paid-in capital 71,083 55,468 (2) (33,992) 111,266
(1) 18,707
Treasury stock - 182,800 shares, at cost for St. Mary (2,995) - (2,995)
Retained earnings (deficit) 70,299 (8,687) (2) 8,687 70,299
Unrealized gain on marketable equity securities-available
for sale 195 - 195
--------- --------- ---------- ---------
Total stockholders' equity 138,695 46,782 (6,572) 178,905
--------- --------- ---------- ---------
Total liabilities and stockholders' equity $ 182,831 $ 81,794 $ (30,296) $ 234,329
--------- --------- ---------- ---------
--------- --------- ---------- ---------
</TABLE>

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

98
<PAGE>

ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
KING RANCH ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The unaudited pro forma condensed combined statement of operations for the
fiscal year ended December 31, 1998 gives effect to the Merger as if it
occurred on January 1, 1998 by combining the results of operations for St.
Mary and King Ranch applying the purchase method of accounting.

<TABLE>
<CAPTION>
St. Mary/
King
King Pro Forma Ranch
St. Mary Ranch Adjustments Pro Forma
---------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Operating revenues:
Oil and gas production $ 70,648 $ 39,290 $109,938
Gain on sale of proved properties 7,685 - 7,685
Other revenues 411 117 528
-------- -------- ------- --------
Total operating revenues 78,744 39,407 - 118,151
-------- -------- ------- --------
Operating expenses:
Oil and gas production 17,005 8,373 25,378
Depletion, depreciation, amortization and impairment 42,395 26,363 (5) (16,445) 52,313
Exploration 16,162 12,301 28,463
General and administrative 7,097 2,970 10,067
Writedown of Russian convertible receivable 4,553 - 4,553
Writedown of investment in Summo Minerals Corporation 3,949 - 3,949
Loss in equity investees 661 - 661
Other 141 - 141
-------- -------- ------- --------
Total operating expenses 91,963 50,007 (16,445) 125,525
-------- -------- ------- --------

Loss from operations (13,219) (10,600) 16,445 (7,374)

Nonoperating income and (expense):
Trademark fee-affiliate - (500) (3) 500 -
Interest income 638 - 638
Interest expense (1,665) (50) (4) 50 (1,665)
Other - (90) (90)
-------- -------- ------- --------

Loss from continuing operations before income taxes (14,246) (11,240) 16,995 (8,491)
Income tax benefit (5,415) (4,121) (6) 6,118 (3,418)
-------- -------- ------- --------
Net loss from continuing operations $ (8,831) $ (7,119) $10,877 $ (5,073)
-------- -------- ------- --------
-------- -------- ------- --------
</TABLE>

99
<PAGE>

ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
KING RANCH ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
St. Mary/
King
King Pro Forma Ranch
St. Mary Ranch Adjustments Pro Forma
---------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Basic net loss per common share from continuing
operations $ (.81) $ (.37)
-------- --------
-------- --------
Diluted net loss per common share from continuing
operations $ (.81) $ (.37)
-------- --------
-------- --------

Basic weighted average shares outstanding 10,937 (2) 2,666 13,603
-------- --------
-------- --------
Diluted weighted average shares outstanding 10,937 (2) 2,666 13,603
-------- --------
-------- --------

</TABLE>

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

100
<PAGE>

ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
KING RANCH ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The unaudited pro forma condensed combined statement of operations for the
fiscal year ended June 30, 1998 gives effect to the Merger as if it occurred
on January 1, 1998 by combining the results of operations for St. Mary and
King Ranch applying the purchase method of accounting.

<TABLE>
<CAPTION>
St. Mary/
King
King Pro Forma Ranch
St. Mary Ranch Adjustments Pro Forma
---------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Operating revenues:
Oil and gas production $ 29,578 $ 20,869 $ 50,447
Gain on sale of proved properties 114 - 114
Other revenues 273 60 333
-------- -------- -------- --------
Total operating revenues 29,965 20,929 - 50,894
-------- -------- -------- --------
Operating expenses:
Oil and gas production 7,954 3,550 11,504
Depletion, depreciation, amortization and impairment 10,930 12,081 (5) $ (6,272) 16,739
Exploration 3,742 5,646 9,388
General and administrative 3,629 1,162 4,791
Loss in equity investees 58 - 58
Other 338 - 338
-------- -------- -------- --------
Total operating expenses 26,651 22,439 (6,272) 42,818
-------- -------- -------- --------

Income (loss) from operations 3,314 (1,510) 6,272 8,076

Nonoperating income and (expense):
Trademark fee-affiliate - (250) (3) 250 -
Interest income 252 - 252
Interest expense (516) (600) (4) 600 (516)
Other - (33) (33)
-------- -------- -------- --------

Income (loss) from continuing operations before income
taxes 3,050 (2,393) 7,122 7,779
Income tax expense (benefit) 1,008 (825) (6) 2,564 2,747
-------- -------- -------- --------
Net income (loss) from continuing operations $ 2,042 $ (1,568) $ 4,558 $ 5,032
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>

101
<PAGE>

ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
KING RANCH ENERGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
St. Mary/
King
King Pro Forma Ranch
St. Mary Ranch Adjustments Pro Forma
---------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Basic net income per common share from continuing
operations $ .19 $ .37
-------- --------
-------- --------
Diluted net income per common share from continuing
operations $ .19 $ .37
-------- --------
-------- --------

Basic weighted average shares outstanding 10,879 (2) 2,666 13,545
-------- --------
-------- --------
Diluted weighted average shares outstanding 10,892 (2) 2,666 13,558
-------- --------
-------- --------
</TABLE>

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

102

<PAGE>

ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES

KING RANCH ENERGY, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA

CONDENSED COMBINED FINANCIAL STATEMENTS

Note 1 - Basis of Presentation

On July 27, 1999, St. Mary Land & Exploration Company ("St. Mary")
signed an agreement to acquire King Ranch Energy, Inc. ("King Ranch Energy")
located in Houston, Texas in a merger in which St. Mary will issue 2,666,252
common shares to shareholders of King Ranch. King Ranch Energy will become a
wholly owned subsidiary of St. Mary. The acquisition will be accounted for as
a purchase.

The unaudited pro forma condensed combined statements of income are
based on the consolidated financial statements of St. Mary and King Ranch
Energy for the year ended December 31, 1998 and the six months ended June 30,
1999. The unaudited pro forma condensed combined balance sheet is based on
the unaudited consolidated financial statements of St. Mary and King Ranch
Energy at June 30, 1999.

The St. Mary and King Ranch Energy consolidated financial statements
are prepared in accordance with generally accepted accounting principles and
require St. Mary and King Ranch Energy to make estimates that affect the
reported amounts of assets, liabilities, revenues and expenses and the
disclosure of contingent assets and liabilities. In the opinion of St. Mary
and King Ranch Energy, the unaudited pro forma condensed combined financial
statements include all adjustments necessary to present fairly the results of
the periods presented.

The accompanying pro forma statements 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 included in the Annual Report on Form 10-K of St. Mary
Land & Exploration Company and Subsidiaries for the year ended December 31,
1998. 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 to St. Mary's financial statements in Form 10-K for the year ended December
31, 1998. It is suggested that these financial statements be read in
conjunction with the financial statements and notes included in the Form 10-K.

The accompanying condensed pro forma balance sheet includes pro forma
adjustments to give effect to the acquisition of King Ranch Energy as of June
30, 1999. The condensed pro forma statements of operations for the year ended
December 31, 1998 and the six months ended June 30, 1999 include the
historical revenue and direct operating expenses of St. Mary and King Ranch
Energy for the respective periods presented and adjustments for the pro forma
effects of the acquisition as if the transaction had occurred January 1, 1998.

Note 2 - Accounting Policies and Financial Statement Classifications

The accounting policies of St. Mary and King Ranch Energy are
substantially comparable. Consequently, no adjustments were made to the
unaudited pro forma condensed combined financial statements to conform to the
accounting policies of the combining companies.

103
<PAGE>

Certain revenues, costs and other expenses in the consolidated
statements of operations of King Ranch Energy have been reclassified to
conform to the line item presentation in the pro forma condensed combined
statements of income. Certain assets and liabilities in the consolidated
balance sheets of St. Mary and King Ranch Energy have been reclassified to
conform to the line item presentation in the pro forma condensed combined
balance sheet.

Note 3 - Pro Forma Adjustments

The following pro forma adjustments have been made to the balance
sheet of St. Mary and King Ranch Energy at June 30, 1999 and to the
statements of operations for the six months ended June 30, 1999 and for the
year ended December 31, 1998:

(1) To eliminate all assets and liabilities related to the
parent company, King Ranch, Inc.

(2) To record the purchase transaction and allocate purchase
price.

(3) To eliminate the trademark fee paid by King Ranch Energy
to King Ranch, Inc. for use of logo. This logo will not
be used by St. Mary.

(4) To eliminate the interest expense paid on the note
payable owed to King Ranch, Inc. This debt will not be
assumed by St. Mary.

(5) To adjust depreciation, deletion, and amortization based
on new fair values of producing properties.

(6) To account for the tax effect of the pro forma
adjustments.

There are no adjustments to general and administrative, exploration
or other such expenses for prospective information for what may happen once
the companies are combined.

104
<PAGE>

INDEX TO KING RANCH ENERGY CONSOLIDATED FINANCIAL STATEMENTS

Page
----
<S> <C>
Independent Auditors' Report.....................................................F-2

Consolidated Balance Sheets as of June 30, 1999 (unaudited) and

December 31, 1998 and 1997..............................................F-3

Consolidated Statements of Income for the six months ended

June 30, 1999 and 1998 (unaudited) and the years ended

December 31, 1998, 1997 and 1996........................................F-4

Consolidated Statements of Stockholder's Equity for the six months
ended June 30, 1999 (unaudited) and for the years ended December
31, 1998,
1997 and 1996....................................................................F-5

Consolidated Statements of Cash Flows for the six months ended

June 30, 1999 and 1998 (unaudited) and the years ended

December 31, 1998, 1997 and 1996........................................F-6

Notes to Consolidated Financial Statements.......................................F-7
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
King Ranch, Inc.
Houston, Texas

We have audited the accompanying consolidated balance sheets of King Ranch
Energy, Inc. and subsidiaries (the "Company") as of December 31, 1998 and
1997, and the related consolidated statements of income, stockholder's
equity, and cash flows for each of the three years in the period then ended.
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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
1998 and 1997, and the results of its operations and cash flows for each of
the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles.

/s/ DELOITTE & TOUCHE LLP

Houston, Texas
March 2, 1999

F-2
<PAGE>

KING RANCH ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES)

<TABLE>
<CAPTION>
December 31,
June 30, ------------------
Assets 1999 1998 1997
- ----------------------------------------------------------- ---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Current Assets:
Accounts receivable:
Affiliate $ - $ - $ 23,603
Trade 7,651 8,856 8,543
Current income tax receivable - Affiliate 5,700 5,484 -
Prepaids and other assets 505 1,928 417
Inventories 79 79 134
--------- ---------- ---------
Total Current Assets 13,935 16,347 32,697
--------- ---------- ---------

Property and Equipment:
Oil and gas properties, successful efforts method:
Producing properties 257,331 254,011 210,315
Nonproducing leaseholds 18,223 17,235 14,014
Wells-in-progress 7,464 5,228 5,538
--------- ---------- ---------
Total 283,018 276,474 229,867

Other property and equipment 1,907 1,907 1,647
Accumulated depletion, depreciation and amortization (217,312) (209,839) (190,409)
--------- ---------- ---------
Total Property and Equipment, net 67,613 68,542 41,105
--------- ---------- ---------

Deferred Tax Asset 246 - 324
--------- ---------- ---------
Total Assets $ 81,794 $ 84,889 $ 74,126
--------- ---------- ---------
--------- ---------- ---------
Liabilities and Stockholder's Equity
- -----------------------------------------------------------
Current Liabilities:
Accounts payable:
Parent $ 9,317 $ 4,271 $ -
Trade 3,620 10,360 6,117
Oil and gas 1,175 1,476 2,776
Notes payable - Affiliate 15,090 14,450 -
Current income taxes payable - Affiliate - - 375
--------- ---------- -------
Total Current Liabilities 29,202 30,557 9,268
--------- ---------- -------

Future platform abandonment 5,782 5,091 4,148
Other 28 35 28
Deferred tax liability - 856 -
--------- ---------- -------
Total Liabilities 35,012 36,539 13,444
--------- ---------- -------

Stockholder's Equity:
Common stock, $1 par value -
Authorized, issued, and outstanding shares - 1,000
Paid-in capital 1 1 1
Retained deficit 55,468 55,468 60,681
(8,687) (7,119) -
--------- ---------- -------
Total Stockholder's Equity 46,782 48,350 60,682
--------- ---------- -------
Total Liabilities and Stockholder's Equity $ 81,794 $ 84,889 $74,126
--------- ---------- -------
--------- ---------- -------
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>

KING RANCH ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------------- -------------------------------------
1999 1998 1998 1997 1996
------- ------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Revenues:
Working and royalty interest $20,869 $19,791 $ 39,290 $43,239 $41,115
Other 60 76 117 365 404
------- ------- -------- ------- -------
Total Operating Revenues 20,929 19,867 39,407 43,604 41,519
------- ------- -------- ------- -------
Operating Expenses:
Oil and gas operating expenses 3,550 3,417 8,373 6,848 4,402
Exploration expenses 5,646 6,768 12,301 11,935 7,240
Depletion, depreciation,
amortization and impairment
of properties 12,081 11,024 26,363 16,217 20,916
General and administrative
expenses 1,162 1,387 2,970 3,001 2,980
Abandoned independent Power
Production projects - - - 163 44
------- ------- -------- ------- -------
Total Operating Expenses 22,439 22,596 50,007 38,164 35,582
------- ------- -------- ------- -------
Income (Loss) From Operations (1,510) (2,729) (10,600) 5,440 5,937
Other Income (Expense):
Trademark fee - Affiliate (250) (250) (500) (250) (250)
Gain (loss) on sale of properties - - (37) 238 294
Other (633) (25) (103) (146) (28)
------- ------- -------- ------- -------
Income (Loss) Before Taxes (2,393) (3,004) (11,240) 5,282 5,953
Income Tax Provision (Benefit) (825) (794) (4,121) 1,680 1,836
------- ------- -------- ------- -------
Net Income (Loss) $(1,568) $(2,210) $ (7,119) $ 3,602 $ 4,117
------- ------- -------- ------- -------
------- ------- -------- ------- -------
</TABLE>

SEE ACCOMPANYING NOTES.

F-4
<PAGE>

KING RANCH ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARES)

<TABLE>
<CAPTION>
COMMON STOCK PAID-IN RETAINED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ -------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 - $- $40,891 $ - $40,891

Paid-in capital - - 7,509 - 7,509
Earnings attributable to assets
contributed - - 4,117 - 4,117
------ ------ -------- -------- -------
Balance at December 31, 1996 - - 52,517 - 52,517
Paid-in capital - - 4,562 - 4,562
Earnings attributable to assets
contributed - - 3,602 - 3,602
Issuance of common stock 1,000 1 - - 1
------ ------ -------- -------- -------
Balance at December 31, 1997 1,000 1 60,681 - 60,682
Paid-in capital - - 1,328 - 1,328
Return of capital - - (1,886) - (1,886)
Net loss - - - (7,119) (7,119)
Dividends paid - - (4,655) - (4,655)
------ ------ -------- -------- -------
Balance at December 31, 1998 1,000 1 55,468 (7,119) 48,350
Net loss (unaudited) - - - (1,568) (1,568)
------ ------ -------- -------- -------
Balance at June 30, 1999 (unaudited) 1,000 $1 $55,468 $(8,687) $46,782
------ ------ -------- -------- -------
------ ------ -------- -------- -------
</TABLE>

SEE ACCOMPANYING NOTES.

F-5
<PAGE>

KING RANCH ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
----------------- ------------------------------
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating Activities
Net income (loss) $ (1,568) $ (2,210) $ (7,119) $ 3,602 $ 4,117
Adjustments to reconcile net income (loss) to
net cash provided by operations:
Depletion, depreciation, amortization and
impairment of properties 12,081 11,024 26,363 16,217 20,916
Dry hole costs 2,393 5,774 8,397 7,401 3,175
Gain on sale of unproved properties - - - (238) (294)
Deferred income tax provision (benefit) (1,102) 3,282 1,793 1,570 (2,334)
Deferred revenues - - - - (412)
Changes in assets and liabilities that
provided (used) cash:
Accounts receivable - Affiliate - 23,603 23,603 1,849 (24,576)
Accounts receivable - Trade 1,205 2,195 (313) 2,575 941
Inventories, prepaid and other assets 1,423 (219) (1,456) 197 117
Accounts payable - Affiliate 5,046 4,266 4,271 - -
Accounts payable - Non Affiliate (7,041) 268 2,943 (1,601) 3,859
Current income taxes receivable/payable -
Affiliate (216) (4,635) (6,472) (3,619) (1,640)
-------- -------- -------- -------- -------
Net Cash by Operating Activities 12,221 43,348 52,010 27,953 3,869
-------- -------- -------- -------- -------
Investing Activities
Proceeds from the sale of properties - 300 300 755 1,445
Additions to oil and gas properties (12,854) (43,976) (63,180) (33,169) (13,990)
Additions to other property and equipment - (260) (260) (85) (498)
Other (7) 15 7 (17) 21
-------- -------- -------- -------- -------
Net Cash Used in Investing Activities (12,861) (43,921) (63,133) (32,516) (13,022)
-------- -------- -------- -------- -------
Financing Activities
Dividends paid - - (4,655) - -
Paid-in capital - 573 1,328 4,562 7,509
Issuance of common stock - - - 1 -
Notes payable - Affiliate 640 - 14,450 - -
-------- -------- -------- -------- -------
Net Cash Provided by Financing Activities 640 573 11,123 4,563 7,509
-------- -------- -------- -------- -------

Net Increase in Cash - - - - (1,644)
Cash and Cash Equivalents at Beginning of Year - - - - 1,644
-------- -------- -------- -------- -------
Cash and Cash Equivalents at End of Year $ - $ - $ - $ - $ -
======== ======== ======== ======== =======
Noncash Transaction - Return of Capital $ - $ 1,886 $ 1,886 $ - $ -
======== ======== ======== ======== =======
</TABLE>
SEE ACCOMPANYING NOTES.

F-6

<PAGE>

KING RANCH ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

King Ranch Energy, Inc. (the "Company"), a Delaware corporation, is
a wholly owned subsidiary of King Ranch Minerals, Inc. ("KRM" or
"Parent"). KRM is a wholly owned subsidiary of King Ranch, Inc.
("KRI"). Effective on the close of business on December 31, 1997,
KRI reorganized the structure of its energy operations. On that
date, all of the onshore and offshore working interests and related
assets owned by KRM were transferred to the Company. The
accompanying consolidated financial statements present the balances
and results of operations applicable to the contributed assets.

The consolidated financial statements presented herein at June 30, 1999
and for the six-month periods ended June 30, 1999 and 1998 are
unaudited; however, all adjustments which are, in the opinion of
management, necessary for a fair presentation of the financial
position, results of operations, and cash flows for the periods covered
have been made and are of a normal recurring nature. Accounting
measurements at interim dates inherently involve greater reliance on
estimates than at year end. The results of the interim periods are not
necessarily indicative of results to be expected for the full year.

NATURE OF OPERATIONS

The Company is an independent oil and gas exploration and production
company with operations primarily onshore in Texas, Oklahoma,
Louisiana, North Dakota, and Utah and in the Gulf of Mexico, offshore
Texas and Louisiana.

REVENUE RECOGNITION

The Company recognizes oil and gas revenue from its royalty and working
interests in producing wells as oil and gas is produced and sold from
those wells. Oil and gas sold by the Company is not significantly
different from the Company's share of production.

PROPERTY AND EQUIPMENT AND DEPLETION, DEPRECIATION, AND AMORTIZATION

OIL AND GAS PROPERTIES

The Company accounts for oil and gas properties using the
successful efforts method of accounting. Costs to acquire
mineral interests in oil and gas properties, to drill and
equip exploratory wells which find proved reserves, and to
drill and equip developmental wells are capitalized.
Exploratory geological and geophysical costs, delay rentals,
and costs to drill exploratory wells which do not find
proved reserves are expensed. Properties are periodically
reviewed for impairment with valuation reserves provided as
required.

Depletion, depreciation, and amortization of costs incurred
in connection with the drilling and development of proved
oil and gas reserves and estimated future abandonment and
dismantlement costs are amortized on a field-by-field basis

F-7

<PAGE>

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

using the unit-of-production method based upon estimates of
proved developed oil and gas reserves. The property acquisition
costs of producing properties are amortized on a field-by-field
basis using the unit-of-production method based on estimates of
total proved reserves.

OTHER PROPERTY AND EQUIPMENT

Other property and equipment are stated at cost. Depreciation
is determined using accelerated methods over the estimated
useful lives of the assets.

Repair and maintenance costs are charged to expense as
incurred. Major additions and betterments are capitalized.
Asset and accumulated depreciation accounts are relieved for
dispositions with resulting gains or losses reflected in
income.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company impairs certain producing properties when the market
indicates the carrying amounts of such properties may not be
recoverable. Fair value for producing oil and gas properties is
determined based upon estimated future cash flows on a field-by-field
basis. An impairment loss of approximately $2,511,000, $1,867,000 and
$4,370,000 was recorded for the years ended December 31, 1998, 1997 and
1996, respectively.

The Company also impairs nonproducing leaseholds when such leases are
determined to have a recoverable value less than cost. An impairment
loss of $1,823,000, $2,670,000 and $1,533,000 was recorded for the years
ended December 31, 1998, 1997 and 1996, respectively.

INCOME TAXES

The Company follows the liability method of accounting for income taxes.
Deferred income taxes reflect the impact of temporary differences
between the amount of assets and liabilities recognized for financial
reporting purposes and such amounts recognized for tax purposes at the
enacted tax rates at the end of the period. KRI files a consolidated
federal income tax return which includes the Company. The Company will
pay or receive from KRI the amount of income taxes currently payable or
refundable computed as if the Company filed its annual tax return on a
separate Company basis, except that income tax benefits are recognized
only to the extent utilized by KRI. The Company paid KRI approximately
$514,000, $2,893,000 and $1,026,000 related to their portion of taxes
due during 1998, 1997 and 1996, respectively.

FINANCIAL INSTRUMENTS

The Company uses financial instruments on a limited basis (primarily
futures contracts and swap agreements) as an extension of its natural
gas sales. All such transactions are for natural gas produced by the
Company and hedge future price fluctuations. Accordingly, gains or
losses are deferred until such time as the hedged production is sold.

F-8

<PAGE>

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The following table sets forth the Company's open hedging contracts
for natural gas and the weighted average fixed prices hedged under
various swap agreements entered into as of December 31, 1998. Under
these contracts the Company will receive the fixed price displayed
below and will pay the prevailing NYMEX price at the maturity date
of the respective hedge contracts. As of December 31, 1998, the
prevailing NYMEX price was $1.83 per MMBTU.

<TABLE>
<CAPTION>
NATURAL GAS
-----------
MMBTU PRICE
----- -----
<S> <C> <C>
1999 580,000 $2.33
1999 1,260,000 2.35

2000 219,000 2.26
2000 780,000 2.29

</TABLE>

EMPLOYEE BENEFIT PLANS

Eligible Company employees participate in various benefit plans
sponsored by KRI. KRI does not allocate any expenses associated with
these plans to the Company. See Note 3.

CONCENTRATION OF RISK

Substantially all of the Company's trade accounts receivable result
from oil and gas sales or joint interest billings to third parties in
the oil and gas industry. Historically, the Company has not experienced
credit losses on such receivables.

USE OF ESTIMATES

The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts.
Actual results could differ from these estimates.

RECLASSIFICATIONS

Certain reclassifications have been made to the prior years
consolidated financial statements for consistency with the current year
presentation.

2. INCOME TAXES

Significant components of the Company's deferred tax assets and
liabilities as of December 31, 1998 and 1997 are as follows (in
thousands):

F-9

<PAGE>

<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Difference between tax and book bases of oil and gas properties $(856) $324
----- ----
Net Deferred Tax Assets (Liabilities) $(856) $324

</TABLE>

2. INCOME TAXES (CONTINUED)

Significant components of the income tax provision
(benefit) are as follows for the years ended December 31,
1998, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $(5,958) $ (81) $ 4,246
State 44 191 (76)
------- ------- --------
Total Current (5,914) 110 4,170

Total Deferred - Federal 1,793 1,570 (2,334)
------- ------- --------
$(4,121) $1,680 $ 1,836
======= ======= ========
</TABLE>

The reconciliation of income tax computed at the U.S.
federal statutory tax rates to income tax expense for the
years ended December 31, 1998, 1997 and 1996 are as
follows (in thousands):

<TABLE>
<CAPTION>
1998 1997 1996
-------------------- ------------------ --------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Tax at U.S. $ (3,934) (35.00)% $ 1,849 35.00% $ 2,084 35.00%
statutory rates
Percentage depletion (161) (1.43) (279) (5.28) (172) (2.89)
State income tax 29 0.26 191 3.61 (76) (1.27)
Other, net (55) (0.49) (81) (1.52) - -
-------- ------- -------- ----- ------- -------
Total Expense $ (4,121) (36.66)% $ 1,680 31.81% $ 1,836 (30.84)%
======== ======= ======== ===== ======= =======
</TABLE>

3. EMPLOYEE BENEFIT PLANS

Substantially all employees of the Company are covered by
KRI's defined benefit pension plan. The benefits are
based on years of service and the employee's compensation
during the last five years of employment. KRI contributes
amounts to the pension plan sufficient to meet the
minimum funding requirements as set forth in the Employee
Retirement Income Security Act of 1974. At December 31,
1998, 1997 and 1996, the plan's assets at fair value were
in excess of the projected benefit obligation.

Employees of the Company who have one year of service and
are age 21 or older are eligible to participate in KRI's
defined contribution 401(k) Employee Retirement Savings
plan. Contributions are discretionary and payable by KRI.

F-10

<PAGE>

Retired employees of the Company are eligible to participate in
KRI's noncontributory defined-benefit postretirement plan covering
all full-time U.S. employees who retire after age 60 with 15 years
of service after age 44 (except for certain grandfathered retirees).
The plan provides for comprehensive medical benefits and term life
insurance benefits.

4. RELATED PARTY TRANSACTIONS

At December 31, 1998, the Company had an account payable and a note
payable to an affiliate in the amount of $4,271,000 and $14,450,000,
respectively. At December 31, 1997, the Company had a receivable
from an affiliate in the amount of $23,603,000. These related funds
are borrowed from or swept into the consolidated entity for cash
management and investment purposes. During December 1998, the
affiliate charged the Company $50,000 in interest related to amounts
outstanding under the note payable. Prior to December 1998, the
Company did not record interest income or expense associated with
such funds.

The Company was charged an annual fee of $500,000, $250,000 and
$250,000 by an affiliate for the use of the King Ranch trademark and
brand for 1998, 1997 and 1996, respectively Effective January 1,
1998, the Company contributed $1,886,000 of certain producing
properties to KRM.

5. LEASE COMMITMENTS

The Company leases office space under a noncancelable operating
lease agreement which expires on July 31, 2001. The lease comprises
18,063 square feet, of which KRI utilizes square footage as needed
from the Company.

Rent expense charged to operations was $198,000 for the years ended
December 31, 1998 and 1997 and $45,000 for the year ended December
31, 1996.

Future minimum lease payments under noncancellable operating leases
as of December 31, 1998 are as follows (in thousands):

<TABLE>

<S> <C>
1999 $181
2000 217
2001 126
----
524
----

Less: Sublease rental income 210
----
$314
====
</TABLE>

6. CONTINGENCIES

The Company is party to other litigation and claims which management
believes are normal in the course of its operations; while the
results of such litigation and claims cannot be predicted with
certainty, the Company believes the final outcome of such matters
will not have a material adverse effect on its results of operations
or financial position.

The Company was sued on October 5, 1998 by Pi Energy Corporation
alleging that the Company failed to perform under the terms of a
letter of intent (and other alleged agreements) to purchase

F-11
<PAGE>

an interest in certain leases in Redfish Bay, located in state
waters off of Corpus Christi, Texas, for $10.5 million. Although the
Company believes Pi Energy claims are without substantial merit, the
case is in a preliminary stage which makes it difficult to predict
the ultimate result.

KRI and KRM are 2 of more than 100 named defendants in a suit
originally brought in the 28th District Court of Nueces County,
Texas styled No. 95-2273-A; William Warren Chapman, III et. al. V.
The King Ranch, Inc., King Ranch Oil and Gas, Inc., et. al. The
plaintiffs seek a one-half interest in approximately 15,500 acres in
Kleberg County, Texas-owned or previously owned by KRI, its
predecessors in title, and some of its stockholders. In addition,
the plaintiffs seek rentals, royalties, and other income from the
property since 1883. KRM currently owns mineral interests underlying
the property. On January 13, 1998, the Court entered a summary
judgment in favor of all defendants. The plaintiffs have appealed.

7. SUBSEQUENT EVENTS (UNAUDITED)

On February 18, 1999, the Company acquired a 50% interest in the Flour
Bluff field located in Nueces County, Texas for $4,375,000. The
transaction, which was effective January 4, 1999, added approximately
12.7 Bcfe of proven reserves, 90% of which is natural gas, based on a
report by Ryder Scott Company. The field has an estimated reserve life
of 28 years and encompasses approximately 6,500 net acres.

In July 1999, KRI agreed in principle to sell the Company to St. Mary
Land & Exploration Company ("St. Mary"). Consideration for the sale is
expected to be through newly issued shares of St. Mary's common stock,
the purchase price is subject to final determination at closing, which
is expected to occur during the third quarter of 1999.

8. SUPPLEMENTAL INFORMATION RELATED TO OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED)

The following information concerning the Company's oil and gas
operations has been prepared in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 69, "Disclosure about Oil and Gas
Producing Activities."

The information concerning sales prices and production costs,
capitalized costs of oil and gas properties, costs incurred in property
acquisition, exploration, and development, and operating results from
oil and gas producing activities is taken from the Company's accounting
records with the exception of income taxes. Income tax provisions are
calculated using statutory tax rates and reflect permanent differences
and tax credits and allowances relating to oil and gas operations that
are reflected in the Company's consolidated income tax provision for
the period. The pretax income from oil and gas producing activities
does not agree with the Company's accounting records due to the
exclusion of certain expenses from the information shown as required by
SFAS No. 69.

The following table presents the average sales price per unit of
natural gas and crude oil produced and the production costs per MCF of
gas equivalent for the years ended December 31, 1998, 1997 and 1996:

F-12

<PAGE>

KING RANCH ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. SUPPLEMENTAL INFORMATION RELATED TO OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED) (CONTINUED)

SALES PRICES AND PRODUCTION COSTS

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
AVERAGE SALES PRICE (1):
Natural Gas (per MCF) (2) $ 2.24 $ 2.65 $ 2.54

Crude Oil (per barrel) $12.25 $18.85 $19.58
PRODUCTION COSTS PER MCF EQUIVALENT (3) $ 0.46 $ 0.37 $ 0.28
</TABLE>

(1) Excludes hedging gains of $815,000, $33,000
and $0 for 1998, 1997 and 1996, respectively.

(2) Includes product processing revenue of $342,000, $359,000
and $500,000 for 1998, 1997 and 1996, respectively.

(3) Excludes production taxes of $294,000, $335,000 and
$264,000 for 1998, 1997 and 1996, respectively.

The following table presents the Company's aggregate capitalized costs
relating to oil and gas producing activities, all located in the United
States, and the aggregate amount of related depletion, depreciation,
and amortization for the years ended December 31, 1998, 1997 and 1996
(in thousands):

CAPITALIZED COSTS OF OIL AND GAS PROPERTIES

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Capitalized Costs:
Proved Developed Properties $254,011 $210,315 $208,971
Proved Undeveloped Properties 5,228 5,538 3,383
Unproved Properties 17,235 14,014 6,321
-------- -------- --------
276,474 229,867 218,675
-------- -------- --------

Reserves for Depletion, Depreciation, and Amortization:
Proved Developed Properties 204,016 184,205 184,749
Unproved Properties 4,509 5,071 2,608
-------- -------- --------
208,525 189,276 187,357
-------- -------- --------
Net Capitalized Costs $ 67,949 $ 40,591 $ 31,318
-------- -------- --------
-------- -------- --------
</TABLE>

The following table presents both capitalized and expensed costs
incurred by the Company for oil and gas property acquisition,
exploration, and development activities, all located in the United
States, for the years ended December 31, 1998, 1997 and 1996 (in
thousands):

F-13
<PAGE>

KING RANCH ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. SUPPLEMENTAL INFORMATION RELATED TO OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED) (CONTINUED)

COSTS INCURRED IN PROPERTY ACQUISITION, EXPLORATION, AND
DEVELOPMENT ACTIVITIES

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Acquisition costs:
Proved properties $16,341 $ - $ -
Unproved properties 8,981 8,990 8,415
Exploration costs 27,819 16,611 6,443
Development costs 12,359 11,798 1,430
------- ------- -------
$65,500 $37,399 $16,288
------- ------- -------
------- ------- -------
</TABLE>

The results of operations from oil and gas producing activities, all
located in the United States, for the years ended December 31, 1998,
1997 and 1996, consisted of the following (in thousands):

RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Sales and services $39,290 $43,239 $41,115
Production costs 8,373 6,848 4,402
Exploration expenses 12,301 11,935 7,240
Depletion, depreciation, amortization expense, and
impairment of properties 26,183 16,025 20,711
Income tax expense (benefit) (4,338) 1,644 1,402
------- ------- -------
Results of Operations from Producing Activities* $(3,229) $ 6,787 $ 7,360
------- ------- -------
------- ------- -------
</TABLE>
*Before deducting general, administrative, and interest expense

OIL AND GAS RESERVE INFORMATION

The following table sets forth the Company's reconciliation of the
changes from January 1, 1996 to December 31, 1998 in estimated net
proved oil and gas reserve quantities. This information has been
determined by independent and Company oil and gas reservoir engineers.
All of the Company's reserves are located in the United States.

Proved reserves are the estimated quantities of crude oil and natural
gas which, based upon analysis of geological and engineering data,
appear with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions,
e.g., prices and costs as of the date the estimate is made. Reservoirs
are considered proved if economic producibility is supported by actual
production or conclusive formation testing. Proved developed reserves
are reserves that can be expected to be recovered through existing
wells with existing equipment and operating methods

It should be stressed that these reserve quantities are estimates and
may be subject to substantial upward or downward revisions as indicated
by past experience. The estimates are based on the most current and
reliable information available; however, additional information

F-14
<PAGE>

KING RANCH ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. SUPPLEMENTAL INFORMATION RELATED TO OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED) (CONTINUED)

obtained through future production experience and additional
development of existing reservoirs may significantly alter previous
estimates of proved reserves. Future changes in the costs to develop
and produce reserves can also result in substantial revisions to proved
reserve estimates.

These estimates relate only to those reserves which meet the Securities
and Exchange Commission's (the "SEC") definition of proved reserves and
do not consider probable reserves and the likelihood of their recovery
which, if considered, could result in substantial increases in reported
reserves.

<TABLE>
<CAPTION>
MBbls Bcf
----- ---
<S> <C> <C>
Net Proved Reserves at January 1, 1996 1,043 45.332

Revisions of previous estimates 852 (3.052)
Extensions, discoveries and other additions 147 9.971
Production (325) (13.464)
------ -------
Net Proved Reserves at December 31, 1996 1,717 38.787

Revisions of previous estimates 33 3.624
Extensions, discoveries and other additions 54 9.040
Sales and transfers of minerals in place (28) (0.014)
Purchases of reserves in place 0 0.299
Production (369) (13.535)
------ -------
Net Proved Reserves at December 31, 1997 1,407 38.201

Revisions of previous estimates (2,052) (3.698)
Extensions, discoveries and other additions 823 13.490
Transfer of minerals in place to KRM (56) (2.713)
Purchases of reserves in place 1,982 11.849
Production (429) (14.826)
------ -------
Net Proved Reserves at December 31, 1998 1,675 42.303
------ -------
------ -------
Net Proved Developed Reserves:
January 1, 1996 989 38.092
December 31, 1996 1,581 30.964
December 31, 1997 1,406 37.345
December 31, 1998 1,434 39.910
</TABLE>

The information presented below concerning the net present value of
after-tax cash flows for the Company's oil and gas producing operations
is required by SFAS No. 69 in an attempt to make comparable information
concerning oil and gas producing operations available for financial
statement users. The information is based on proved reserves as of
December 31 for each year and has been prepared in the following
manner:

F-15
<PAGE>

KING RANCH ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. SUPPLEMENTAL INFORMATION RELATED TO OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED) (CONTINUED)

1. Estimates were made of the future periods in which proved
reserves would be produced based on year-end economic
conditions.

2. The estimated future production streams of proved reserves
have been priced using year-end prices.

3. The resulting future gross cash inflows have been reduced by
the estimated future costs to develop and produce the proved
reserves at year-end cost levels.

4. Future income tax payments have been computed by the Company
at statutory rates based on the net future cash inflows, the
remaining tax basis in oil and gas properties, permanent
differences between book and tax income, and tax credits or
other tax benefits available related to the oil and gas
operations.

5. The resulting after-tax future net cash flows are discounted
to present value amounts by applying a 10% annual discount
factor.

The net present value of future cash flows, computed as prescribed by
SFAS No. 69, should not be construed as the fair value of the Company's
oil and gas operations. The computation is based on assumptions which
in some cases may not be realistic and estimates which are subject to
substantial uncertainties. Since the discounted cash flows are based on
proved reserves as defined by the SEC, they are subject to the same
uncertainties and limitations inherent in the reserve estimates which
include, among others, no consideration of probable reserves.
Additionally, the timing of future production and cash flows, given the
current state of the U.S. natural gas market, is subject to significant
uncertainty. The use of a 10% discount factor by all companies does not
provide a basis for quantifying differences in risk with respect to oil
and gas operations among different companies. The computation also
ignores the impact future exploration and development activities may
have on profitability.

STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED RESERVES (IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Future cash inflows $104,725 $111,099 $167,201
Future development and production costs 46,097 37,542 39,915
Future income tax payments 5,865 14,077 32,294
-------- -------- --------
Future net cash flows 52,763 59,480 94,992
10% annual discount 9,909 12,636 23,591
-------- -------- --------
Standardized Measure of Discounted
Future Net Cash Flows $ 42,854 $ 46,844 $ 71,401
-------- -------- --------
-------- -------- --------
</TABLE>

F-16
<PAGE>

KING RANCH ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. SUPPLEMENTAL INFORMATION RELATED TO OIL AND GAS PRODUCING
ACTIVITIES (UNAUDITED) (CONTINUED)

CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH
FLOWS RELATING TO PROVED RESERVES (IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Sales and transfers, net of production costs $(30,917) $(36,391) $(36,713)
Net changes in prices and production costs (14,265) (37,111) 43,366
Extensions and discoveries, net of future
production and development costs 16,848 13,432 25,876
Changes in estimated future development costs (9,020) (3,955) (1,206)
Development costs incurred during the
period that reduced future development costs 10,466 9,424 4,614
Revisions of quantity estimates (18,605) 5,802 4,468
Sales of reserves (2,786) (361) -
Purchases of reserves in place 27,597 223 -
Accretion of discount 5,816 10,022 4,611
Net change in income taxes 6,124 13,755 (12,810)
Changes in production rates, timing and other 4,752 603 (6,911)
-------- -------- --------
Net Change (3,990) (24,557) 25,295

Standardized Measure, Beginning of Year 46,844 71,401 46,106
-------- -------- --------

Standardized Measure, End of Year $ 42,854 $ 46,844 $ 71,401
-------- -------- --------
-------- -------- --------
</TABLE>

F-17

<PAGE>

Annex A

AGREEMENT AND PLAN OF MERGER

dated

July 27, 1999

among

ST. MARY LAND & EXPLORATION COMPANY,

ST. MARY ACQUISITION CORPORATION,

KING RANCH, INC.

and

KING RANCH ENERGY, INC.

A-1
<PAGE>

TABLE OF CONTENTS

Page

RECITALS.....................................................................A-7

ARTICLE I

THE MERGER...................................................................A-8
Section 1.1 The Merger..........................................A-8
Section 1.2 Closing.............................................A-8
Section 1.3 Effective Time......................................A-8
Section 1.4 Effects of the Merger...............................A-8
Section 1.5 Certificate of Incorporation........................A-9
Section 1.6 Bylaws..............................................A-9
Section 1.7 Directors of Surviving Corporation..................A-9
Section 1.8 Officers of Surviving Corporation...................A-9

ARTICLE II

EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES; CASH SETTLEMENT ...............A-9
Section 2.1 Effect on Capital Stock.............................A-9
(a) Conversion of KRE Common Stock......................A-9
(b) Capital Stock of Merger Sub........................A-10
Section 2.2 Exchange of Certificates...........................A-10
(a) Exchange at Closing................................A-10
(b) No Further Ownership Rights in KRE Capital Stock...A-10
(c) Further Assurances.................................A-10

ARTICLE III

REPRESENTATIONS AND WARRANTIES..............................................A-10
Section 3.1 Representations and Warranties of KRI..............A-10
(a) Organization and Standing of KRI...................A-10
(b) Authority; No Conflicts............................A-11
(c) Ownership and Distribution of KRE Common Stock.....A-11
(d) Finders or Advisors................................A-11
Section 3.2 Representations and Warranties of KRI and KRE......A-12
(a) Organization and Standing of KRE...................A-12
(b) Authority; No Conflicts............................A-12
(c) Capitalization of KRE and Indebtedness for
Borrowed Moneys ..................................A-13
(d) KRE Financial Statements...........................A-13
(e) Present Status.....................................A-14
(f) Litigation.........................................A-14

A-2
<PAGE>

(g) Compliance With the Law and Other Instruments......A-14
(h) Title to Properties and Assets.....................A-14
(i) Oil and Gas Leases and Wells.......................A-14
(j) Records............................................A-15
(k) Absence of Certain Changes or Events...............A-15
(l) Taxes..............................................A-15
(m) Environmental Matters..............................A-16
(n) KRE Benefit Plans..................................A-16
(o) Year 2000 Matters..................................A-20
(p) Confidentiality Agreements.........................A-20
(q) Vote Required......................................A-20
(r) Fairness Opinion. ................................A-21
(s) Full Disclosure....................................A-21
Section 3.3 Representations and Warranties by St. Mary.........A-21
(a) Organization and Standing of St. Mary..............A-21
(b) Authority; No Conflicts............................A-21
(c) Capitalization of St. Mary and Indebtedness for
Borrowed Moneys...................................A-22
(d) St. Mary SEC Reports and Financial Statements......A-23
(e) Present Status.....................................A-24
(f) Litigation.........................................A-24
(g) Compliance With the Law and Other Instruments......A-24
(h) Title to Properties and Assets.....................A-24
(i) Oil and Gas Leases and Wells.......................A-24
(j) Records............................................A-25
(k) Absence of Certain Changes or Events...............A-25
(l) Taxes..............................................A-25
(m) Environmental Matters..............................A-26
(n) St. Mary Benefit Plans.............................A-26
(o) Year 2000 Matters..................................A-29
(p) Finders and Advisors...............................A-29
(q) Vote Required......................................A-29
(r) Fairness Opinion...................................A-30
(s) Full Disclosure....................................A-30
Section 3.4 Representations and Warranties of St. Mary and
Merger Sub .......................................A-30
(a) Organization and Standing of Merger Sub............A-30
(b) Authority..........................................A-30
(c) Non-Contravention..................................A-30
(d) No Business Activities by Merger Sub...............A-30

ARTICLE IV

COVENANTS RELATING TO CONDUCT OF BUSINESS...................................A-31
Section 4.1 Covenants of KRI and KRE...........................A-31

A-3
<PAGE>

(a) Ordinary Course....................................A-31
(b) Dividends; Changes in Share Capital................A-32
(c) Issuance of Securities.............................A-32
(d) Governing Documents................................A-32
(e) No Acquisitions....................................A-32
(f) No Dispositions....................................A-33
(g) Investments; Indebtedness..........................A-33
(h) Tax-Free Qualification.............................A-33
(i) Compensation.......................................A-33
(j) Accounting Methods; Income Tax Elections...........A-33
(k) Preservation of Property...........................A-33
Section 4.2 Covenants of St. Mary..............................A-34
(a) Ordinary Course....................................A-34
(b) Dividends; Changes in Share Capital................A-34
(c) Issuance of Securities.............................A-34
(d) Governing Documents................................A-35
(e) Tax-Free Qualification.............................A-35
Section 4.3 Advice of Changes; Governmental Filings............A-35

ARTICLE V

ADDITIONAL AGREEMENTS.......................................................A-36
Section 5.1 Preparation of Proxies and Registration
Statement; Meeting of St. Mary Shareholders.......A-36
Section 5.2 Confidentiality - Access to Information............A-37
Section 5.3 Commercially Reasonable Efforts....................A-37
Section 5.4 Public Announcements...............................A-38
Section 5.5 Restrictions on Transfer of St. Mary Common Stock..A-38
Section 5.6 Representation on St. Mary Board of Directors......A-39
Section 5.7 Expenses...........................................A-40
Section 5.8 King Ranch Trademark and Brand.....................A-40
Section 5.9 KRE Employee Severance Payments....................A-40
Section 5.10 368(a) Reorganization..............................A-41
Section 5.11 355 Distribution...................................A-41
Section 5.12 Continuity of Business.............................A-41
Section 5.13 Indemnification of Officers and Directors..........A-41
Section 5.14 Retained Litigation................................A-41
Section 5.15 Stockholder's Representative.......................A-41
Section 5.16 Voting Commitments.................................A-42
Section 5.17 No Solicitation....................................A-42
Section 5.18 Seismic Data.......................................A-42

A-4
<PAGE>

ARTICLE VI

INDEMNIFICATION.............................................................A-43
Section 6.1 Indemnification by KRI.............................A-43
Section 6.2 Indemnification by St. Mary........................A-43
Section 6.3 Notice and Defense of Third-Party Claims...........A-43
Section 6.4 Limitation of Liability............................A-44
Section 6.5 Exclusivity........................................A-46
Section 6.6 Waiver of Consequential Damages....................A-46

ARTICLE VII

CONDITIONS TO CLOSING.......................................................A-46
Section 7.1 Conditions to Each Party's Obligation to
Effect the Merger ................................A-46
(a) Shareholder Approvals..............................A-46
(b) No Injunctions, Restraints or Illegality...........A-47
(c) Effectiveness of the Form S-4......................A-47
(d) Nasdaq Listing.....................................A-47
(e) Consummation of the Distribution...................A-47
Section 7.2 Additional Conditions to Obligations of
St. Mary and Merger Sub...........................A-47
(a) Representations and Warranties.....................A-47
(b) Performance of Obligations of KRI and KRE..........A-47
(c) Settlement for KRI-KRE Intercompany Balances.......A-47
(d) Certificate of Officers............................A-48
(e) Opinion of Financial Advisor.......................A-48
(f) Opinion of Counsel................................A-48
(g) Non-Exercise of Appraisal Rights...................A-48
(h) Eugene Island Block 341............................A-48
(i) Affiliate Restrictions.............................A-49
Section 7.3 Additional Conditions to Obligations of KRE and
the Shareholders of KRE...........................A-49
(a) Representations and Warranties.....................A-49
(b) Performance of Obligations of St. Mary and
Merger Sub .......................................A-49
(c) Settlement of KRI-KRE Intercompany Balances........A-49
(d) Certificate of Officers............................A-49
(e) Opinion of Financial Advisor.......................A-49
(f) Opinion of Counsel.................................A-49
(g) Tax Certificate....................................A-49
(h) Tax Opinion........................................A-50

A-5
<PAGE>

ARTICLE VIII

TERMINATION AND AMENDMENT...................................................A-50
Section 8.1 Termination........................................A-50
Section 8.2 Effect of Termination..............................A-51
Section 8.3 Amendment..........................................A-52
Section 8.4 Extension; Waiver..................................A-53

ARTICLE IX

ARBITRATION.................................................................A-53
Section 9.1 Mediation..........................................A-53
Section 9.2 Arbitration........................................A-53
Section 9.3 Costs; Enforcement.................................A-55

ARTICLE X

MISCELLANEOUS...............................................................A-55
Section 10.1 Nature of Representations and Warranties;
Survival ........................................A-55
Section 10.2 Counterparts and Facsimile Signatures.............A-55
Section 10.3 Assignment........................................A-56
Section 10.4 Representative of KRH, KRM and KRE................A-56
Section 10.5 Entire Agreement..................................A-56
Section 10.6 Governing Law.....................................A-56
Section 10.7 Severability......................................A-56
Section 10.8 Notices...........................................A-56
Section 10.9 Attorney Fees.....................................A-57
Section 10.10 Certain Definitions..............................A-58

A-5
<PAGE>

SCHEDULES/EXHIBITS

3.1 KRI Disclosure Schedule
3.1(b)(iii) Consents
3.2 KRE Disclosure Schedule
3.2(b)(ii) No Conflicts
3.2(b)(iii) Consents
3.2(e) Present Status
3.2(f) Litigation
3.2(h) Title to Properties and Assets
3.2(k) Absence of Certain Changes or Events
3.2(l) Taxes
3.2(m) Environmental Matters
3.2(n) KRE Benefit Plans
3.2(n)(vii) Severance or Other Compensation
3.2(o) Year 2000 Matters
3.3 St. Mary Disclosure Schedule
3.3(a) St. Mary Subsidiaries
3.3(c) Additional Options
3.3(f) Litigation
3.3(h) Title to Properties and Assets
3.3(n) St. Mary Benefit Plans
4.1(a)(ii) KRE Capital Expenditures Over $500,000
4.2(a)(ii) St. Mary Capital Expenditures Over $1,000,000
5.5(b)(ii) Thomas E. Congdon Letter Regarding Congdon Group
5.9 KRE Employee Severance Payments
7.3(g) Form of Tax Certificate

A-6
<PAGE>

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is entered into this
27th day of July, 1999 among St. Mary Land & Exploration Company, a Delaware
corporation ("St. Mary"), St. Mary Acquisition Corporation, a Colorado
corporation and newly formed first-tier wholly owned subsidiary of St. Mary
("Merger Sub"), King Ranch, Inc., a Texas corporation ("KRI"), and King Ranch
Energy, Inc., a Delaware corporation and a wholly owned third-tier subsidiary of
KRI ("KRE").

RECITALS

WHEREAS, the respective Boards of Directors of St. Mary, Merger Sub, KRI
and KRE have each determined that the merger of Merger Sub with and into KRE
(the "Merger") is advisable and is in their best interests and in the best
interests of their respective shareholders, and such Boards of Directors have
approved such Merger, upon the terms and subject to the conditions set forth in
this Agreement;

WHEREAS, St. Mary desires to avoid the concentration of the ownership of
the St. Mary Common Stock in a single shareholder, and therefore, to induce St.
Mary to enter into this Agreement and consummate the transactions described
herein, immediately prior to the Merger all of the shares of common stock of KRE
shall be distributed (A) by King Ranch Minerals, Inc., a Delaware corporation
("KRM"), the sole shareholder of KRE and a wholly owned subsidiary of King Ranch
Holdings, Inc., a Delaware corporation ("KRH") and a wholly owned subsidiary of
KRI, to KRH, (B) by KRH to KRI, and (C) by KRI pro rata to the shareholders of
KRI (the "Spin-Off") (all of the foregoing, together with the Spin-Off,
collectively referred to as the "Distributions");

WHEREAS, as a result of the Distributions, the shareholders of KRI will
receive all of the common stock of KRE while maintaining their current ownership
of KRI;

WHEREAS, pursuant to the terms of this Agreement, upon consummation of the
Merger, St. Mary will issue to the shareholders of KRE, with respect to their
ownership of all of the shares of common stock of KRE, shares of common stock,
par value $.01 per share, of St. Mary ("St. Mary Common Stock") as set forth in
Section 2.1 hereof;

WHEREAS, St. Mary, Merger Sub, KRI and KRE desire to make certain
representations, warranties, covenants and agreements in connection with the
transactions contemplated hereby and also to set forth various conditions to the
transactions contemplated hereby; and

WHEREAS, for federal income tax purposes it is intended that the Merger
qualify as a tax-free reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
promulgated thereunder, and St. Mary, Merger Sub, KRE and the shareholders of
KRI as the subsequent shareholders of KRE intend, by approving resolutions
authorizing this Agreement, to adopt this Agreement as a plan of

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reorganization within the meaning of Section 368(a) of the Code and the
regulations promulgated thereunder.

NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements set forth herein, and intending to be legally bound
hereby, the parties hereto agree as follows:

ARTICLE I

THE MERGER

Section 1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the corporate laws of Delaware
and Colorado, Merger Sub shall be merged with and into KRE at the Effective Time
(as defined in Section 1.3). Following the Merger, the separate corporate
existence of Merger Sub shall cease and KRE shall continue as the surviving
corporation (the "Surviving Corporation") under the name St. Mary Energy Company
and shall succeed to and assume all the rights and obligations of Merger Sub in
accordance with the corporate laws of Delaware and Colorado.

Section 1.2 Closing. The closing of the Merger (the "Closing") will take
place at 2:00 p.m. Denver, Colorado time on the first business day after the
satisfaction or waiver (subject to applicable law) of the conditions set forth
in Article VII of this Agreement (the "Closing Date"), at the offices of Ballard
Spahr Andrews & Ingersoll, 1225 17th Street, Suite 2300, Denver, Colorado,
unless another date or place is agreed to in writing by the parties hereto. The
parties agree to use all reasonable efforts to close the Merger as soon as
practicable, subject to Article VII hereof.

Section 1.3 Effective Time. Immediately following the Closing, the parties
shall execute and file a certificate of merger or other appropriate documents
(in any such case, the "Certificate of Merger") in accordance with the relevant
provisions of the corporate laws of Delaware and Colorado and shall make all
other filings or recordings required under the corporate laws of Delaware and
Colorado. The Merger shall become effective at such time as the Certificate of
Merger is duly filed with the Delaware Secretary of State and the Colorado
Secretary of State, or at such subsequent time as the parties shall agree, which
subsequent time shall be specified in the Certificate of Merger (the time the
Merger becomes effective being hereinafter referred to as the "Effective Time").

Section 1.4 Effects of the Merger. At and after the Effective Time, the
Merger shall have the effects set forth in the corporate laws of Delaware and
Colorado. Without limiting the generality of the foregoing, and subject thereto,
at the Effective Time all the property, rights, privileges, powers and
franchises of KRE and Merger Sub shall be vested in the Surviving Corporation,
and, except for the indemnification obligations of KRI set forth in Article VI

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hereof, all debts, liabilities and duties of KRE and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.

Section 1.5 Certificate of Incorporation. At the Effective Time, the
certificate of incorporation of the Surviving Corporation shall be amended in
accordance with the corporate laws of Delaware such that the certificate of
incorporation of the Surviving Corporation shall consist of the provisions of
the articles of incorporation of Merger Sub, except that Article I of the
certificate of incorporation of the Surviving Corporation shall be amended to
read in its entirety as follows: "The name of the corporation shall be St. Mary
Energy Company."

Section 1.6 Bylaws. The bylaws of Merger Sub as in effect at the Effective
Time shall be the bylaws of the Surviving Corporation until thereafter changed
or amended as provided therein or by applicable law.

Section 1.7 Directors of Surviving Corporation. The directors of Merger
Sub immediately prior to the Effective Time shall be the directors of the
Surviving Corporation, until the earlier of their resignation or removal or
until their respective successors are duly elected and qualified, as the case
may be.

Section 1.8 Officers of Surviving Corporation. The officers of Merger Sub
immediately prior to the Effective Time shall be the officers of the Surviving
Corporation, until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the case may be.

ARTICLE II

EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES; CASH SETTLEMENT

Section 2.1 Effect on Capital Stock. At the Effective Time, by virtue of
the Merger:

(a) Conversion of KRE Common Stock. The total number of shares of
KRE Common Stock issued and outstanding immediately prior to the Effective
Time shall be automatically converted into a total of 2,666,252 shares of
St. Mary Common Stock (the "St. Mary Share Issuance"). Certificates
representing the shares of St. Mary Common Stock to be issued hereby shall
be delivered pro rata to the shareholders of KRE at the Closing in
exchange for their surrender of all KRE Common Stock certificates. At the
Effective Time, all such shares of KRE Common Stock shall cease to be
outstanding and shall automatically be canceled and retired and shall
cease to exist, and KRM, KRH, KRI and the shareholders of KRI shall
thereafter cease to have any rights with respect to such shares of KRE
Common Stock.

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<PAGE>

(b) Capital Stock of Merger Sub. Each share of common stock, par
value $.01 per share, of Merger Sub issued and outstanding immediately
prior to the Effective Time shall be automatically converted into and
become one fully paid and nonassessable share of common stock, par value
$.01 per share, of the Surviving Corporation.

Section 2.2 Exchange of Certificates.

(a) Exchange at Closing. At the Closing, St. Mary shall deliver pro
rata to the shareholders of KRE certificates aggregating the number of
shares of St. Mary Common Stock set forth in Section 2.1(a) and the
shareholders of KRE shall surrender to St. Mary all certificates
representing all issued and outstanding shares of KRE Common Stock.

(b) No Further Ownership Rights in KRE Capital Stock. All shares of
St. Mary Common Stock issued upon the surrender of KRE Common Stock
certificates in accordance with the terms of this Article II shall be
deemed to have been issued and paid in full satisfaction of all rights
pertaining to the shares of KRE Common Stock theretofore represented by
such certificates.

(c) Further Assurances. If at any time after the Effective Time, any
further assignments or assurances in law or any other things are necessary
or desirable to vest or to perfect or confirm of record in the Surviving
Corporation the title to any property or rights of either KRE or Merger
Sub, or otherwise to carry out the purposes and provisions of this
Agreement, the officers and directors of the Surviving Corporation are
hereby authorized and empowered, in the name of and on behalf of KRE and
Merger Sub, to execute and deliver any and all things necessary or proper
to vest or perfect or confirm title to such property or rights in the
Surviving Corporation, and otherwise to carry out the purposes and
provisions of this Agreement.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

Section 3.1 Representations and Warranties of KRI. Except as set forth in
the KRI Disclosure Schedule attached to this Agreement as Schedule 3.1 (each
section of which qualifies the correspondingly numbered representation and
warranty to the extent specified therein), KRI represents and warrants to St.
Mary as follows:

(a) Organization and Standing of KRI. KRI is a corporation duly
organized and validly existing and in good standing under the laws of the
State of Texas. KRI has all requisite corporate power and authority to
enter into this Agreement and to carry out and perform the terms and
provisions of this Agreement.

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<PAGE>

(b) Authority; No Conflicts.

(i) The execution, delivery and performance of this Agreement
have been duly authorized by all requisite corporate action on the
part of KRI and KRE. This Agreement has been executed and delivered
by KRI and KRE and constitutes valid and binding obligations of KRI
and KRE enforceable in accordance with its terms (except as limited
by bankruptcy, insolvency, or other laws affecting the enforcement
of creditors' rights).

(ii) The execution and delivery of this Agreement by KRI and
KRE does not, and the consummation of the Merger pursuant to this
Agreement and the other transactions contemplated hereby will not,
conflict with or result in any violation of, or constitute a default
(with or without notice or lapse of time, or both) under, any
provision of the certificate of incorporation or bylaws of KRI or
KRE.

(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, any national, state,
municipal or local government, any instrumentality, subdivision,
court, administrative agency or commission or other authority
thereof, or any quasi-governmental or private body exercising any
regulatory, taxing or other governmental or quasi-governmental
authority (a "Governmental Entity"), is required by or is necessary
with respect to KRI or KRE in connection with their execution and
delivery of this Agreement or the consummation of the Merger and the
other transactions contemplated thereby, except for those required
under or in relation to (A) the Securities Act of 1933, as amended
(the "Securities Act"), (B) the corporate laws of Delaware and
Colorado with respect to the filing of the Certificate of Merger
with the Delaware Secretary of State and Articles of Merger with the
Colorado Secretary of State, (C) the rules and regulations of
Nasdaq, and (D) such consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to make
or obtain would not have a Material Adverse Effect on any party
hereto. Consents, approvals, orders, authorizations, registrations,
declarations and filings required under or in relation to any of the
foregoing clauses (A) through (D) are hereinafter referred to as the
"Required Consents."

(c) Ownership and Distribution of KRE Common Stock. KRM owns all of
the issued and outstanding shares of KRE Common Stock free and clear of
any lien, encumbrance or adverse claim. The Boards of Directors of KRM,
KRH and KRI have duly authorized the Distributions.

(d) Finders or Advisors. Except for Nesbitt Burns Securities Inc.
("Nesbitt Burns"), a copy of whose engagement agreement with KRI has been
provided to St. Mary, there is no investment banker, broker, finder or
other intermediary which has been retained by or is authorized to act on
behalf of KRI, KRH, KRM, KRE or the

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<PAGE>

shareholders of KRI who might be entitled to any fee or commission in
connection with the transactions contemplated by this Agreement.

Section 3.2 Representations and Warranties of KRI and KRE. Except as set
forth in the KRE Disclosure Schedule attached to this Agreement as Schedule 3.2
(the "KRE Disclosure Schedule") (each section of which qualifies the
correspondingly numbered representation and warranty to the extent specified
therein), KRI and KRE represent and warrant to St. Mary as follows:

(a) Organization and Standing of KRE. KRE and each of its
Subsidiaries is a corporation duly organized and validly existing and in
good standing under the laws of its jurisdiction of incorporation or
organization, has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted
and is duly qualified to do business and in good standing in each
jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification necessary other than in
such jurisdictions where the failure to so qualify would not, either
individually or in the aggregate, have a Material Adverse Effect on KRE.
KRE is duly qualified to enter into this Agreement and to carry out and
perform the terms and provisions of this Agreement. Except with respect to
the KRE Subsidiaries set forth on the KRE Disclosure Schedule, KRE has no
direct or indirect interest, either by way of stock ownership or
otherwise, in any other firm, corporation, association or business. The
copies of the certificate of incorporation and bylaws of KRE which were
previously furnished to St. Mary are true, complete and correct copies of
such documents as in effect on the date of this Agreement.

(b) Authority; No Conflicts.

(i) The execution, delivery and performance of this Agreement
have been duly authorized by all requisite corporate action on the
part of KRE subject to the Required KRE Vote (as defined below).
This Agreement has been executed and delivered by KRE and
constitutes a valid and binding obligation of KRE enforceable in
accordance with its terms (except as limited by bankruptcy,
insolvency, or other laws affecting the enforcement of creditors'
rights).

(ii) The execution and delivery of this Agreement by KRE does
not, and the consummation of the Merger by KRE and the other
transactions contemplated hereby will not, conflict with, or result
in a violation pursuant to: (A) any provision of the certificate of
incorporation or bylaws of KRE, or (B) any loan or credit agreement,
note, mortgage, bond, indenture, lease, benefit plan or other
agreement, obligation, instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to KRE or any Subsidiary of KRE or any of
their properties or assets, except as would not have a Material
Adverse Effect on to KRE, subject to obtaining the

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<PAGE>

consents, approvals, orders, authorizations, registrations,
declarations and filings referred to in paragraph (iii) below.

(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is
required by or with respect to KRE or its Subsidiaries in connection
with the execution and delivery of this Agreement by KRE or the
consummation of the Merger and the other transactions contemplated
thereby, except for (A) the Required Consents, (B) such consents,
approvals, orders, authorizations, registrations and declarations by
Governmental Entities (including, without limitation, the Minerals
Management Service, the Bureau of Land Management and all other
federal and state regulatory entities having jurisdiction) in
connection with the transfer, sale or conveyance of oil and gas
leases or interests therein if the same are customarily obtained by
a purchaser subsequent to such sale or conveyance, and (C) such
consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to make or obtain
would not have a Material Adverse Effect on KRE or its Subsidiaries.

(iv) Except as set forth in the KRE Disclosure Schedule, all
material contracts of KRE shall remain in full force and effect
following, and notwithstanding the consummation of, the Merger.

(c) Capitalization of KRE and Indebtedness for Borrowed Moneys. KRE
is duly and lawfully authorized by its certificate of incorporation, to
issue 1,000 shares of KRE Common Stock, of which as of the date hereof
there are issued and outstanding 1,000 shares. All outstanding shares of
KRE Common Stock have been issued to and are held by KRM. KRE has no
treasury stock and no other authorized series or class of stock. All the
outstanding shares of KRE Common Stock have been duly authorized and
validly issued and are fully paid and nonassessable and free of preemptive
rights. Neither KRE nor any of its Subsidiaries is obligated to issue any
additional capital stock or voting securities as a result of any options,
warrants, rights, conversion rights, obligations upon default,
subscription agreements or other obligations of any kind. KRE is not
presently liable on account of any indebtedness for borrowed moneys,
except as reflected in the KRE Financial Statements (as hereinafter
defined) or the KRE Disclosure Schedule.

(d) KRE Financial Statements. KRE has furnished to St. Mary its
audited balance sheets as of December 31, 1996, 1997 and 1998, its audited
statements of income and retained earnings and cash flows for each of the
three years ended December 31, 1998, its unaudited balance sheet as of May
31, 1999, and its unaudited statements of income and cash flows for the
five months ended May 31, 1999 (collectively, the "KRE Financial
Statements"). All of the KRE Financial Statements present fairly, in all
material respects, the financial position of KRE as of the respective
balance sheet dates and the results of its operations and cash flows for
the respective periods therein specified. The KRE Financial Statements
have been prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis.

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<PAGE>

(e) Present Status. Except as otherwise disclosed in the KRE
Disclosure Schedule, from May 31, 1999 to the date of this Agreement, KRE
and its Subsidiaries have not incurred any liabilities that are of a
nature that would be required to be disclosed on a consolidated balance
sheet of KRE and its Subsidiaries or the notes thereto prepared in
accordance with GAAP, other than liabilities incurred in the ordinary
course of business of KRE and which do not have a Material Adverse Effect
on KRE.

(f) Litigation. Except as disclosed in the KRE Financial Statements
or Schedule 3.2(f) hereto, there are no legal actions, suits, arbitrations
or other legal or administrative proceedings pending or, to the Knowledge
of KRI or KRE, threatened against KRE or any Subsidiary of KRE which would
reasonably be expected to have a Material Adverse Effect on KRE and its
Subsidiaries. In addition, neither KRI nor KRE is aware of any facts which
to the best of its Knowledge would reasonably be expected to result in any
action, suit, arbitration or other proceeding which would reasonably be
expected to have a Material Adverse Effect on KRE and its Subsidiaries.
Neither KRE nor any of its Subsidiaries is in default of any judgment,
order or decree of any court or, in any material respect of, any
requirements of a government agency or instrumentality, except as set
forth in the KRE Financial Statements or on the KRE Disclosure Schedule.

(g) Compliance With the Law and Other Instruments. To the best of
KRE's and KRI's Knowledge, the business operations of KRE and its
Subsidiaries have been and are being conducted in compliance in all
material respects with all applicable laws, rules, and regulations of all
authorities. Neither KRE nor any of its Subsidiaries are in violation of,
or in default under, any term or provision of its certificate of
incorporation or its bylaws or in any material respect of any lien,
mortgage, lease, agreement, instrument, order, judgment or decree, except
those violations, defaults and restrictions which do not, individually or
in the aggregate, have a Material Adverse Effect on KRE and its
Subsidiaries, or which do not prohibit KRE from entering into this
Agreement.

(h) Title to Properties and Assets. Except as set forth on Schedule
3.2(h) hereto, each of KRE and its Subsidiaries has good and defensible
title to the leasehold or well interests set forth in the Ryder Scott
Company reports as of January 1, 1999, dated April 9, 1999 and as of
January 1, 1999 dated May 21, 1999 (the "Ryder Scott Reports") and the
Netherland Sewell and Associates, Inc. report as of January 1, 1999, dated
April 9, 1999 (the "Netherland Sewell Report"), and as to all of its
material properties and assets, including without limitation those
reflected in the KRE Financial Statements and those used or located on
property controlled by KRE or any of its Subsidiaries in its business
(except assets leased or sold in the ordinary course of business), subject
to no mortgage, pledge, lien, charge, security interest, encumbrance or
restriction except those which (a) are disclosed in the KRE Financial
Statements or the KRE Disclosure Schedule; or (b) do not have a Material
Adverse Effect on KRE and its Subsidiaries, taken together.

(i) Oil and Gas Leases and Wells. KRE has furnished to St. Mary
lists of all oil and gas leases and wells in which either KRE or its
Subsidiaries own or claim any type of

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<PAGE>

right or interest, whether legal, equitable, or beneficial (the "KRE
Leases and Wells Lists"), and the KRE Leases and Wells Lists are accurate
and complete in all material respects. All leases listed on the KRE Leases
and Wells Lists are valid and in full force and effect, and all rentals,
royalties, shut-in payments, minimum royalties, and other payments due
thereunder have been timely and properly made. Except as specifically set
forth on the KRE Leases and Wells Lists, KRE and its Subsidiaries enjoy
and are in peaceful and undisturbed possession under each lease and for
each well so listed. Neither KRE nor any of its Subsidiaries has received
any notice of, and there does not exist, any default, event, occurrence or
act which, with the giving of notice or lapse of time or both, would
become a default under any such lease, and neither KRE nor any of its
Subsidiaries has violated any of the terms or conditions under any such
lease in any material respect. To the Knowledge of KRI and KRE, such real
property and the wells, pipelines, gathering lines and facilities,
processing facilities, flow lines, tanks, pumps, production platforms,
equipment and any and all other buildings, fixtures, equipment and other
property attached or appurtenant thereto or situated thereon are in good
operating condition and repair, in compliance in all material respects
with all applicable laws and are adequate and suitable for the purposes
for which they are presently being used, except for such matters which in
the aggregate, would not have a Material Adverse Effect on KRE and its
Subsidiaries, taken together.

(j) Records. To the best of KRI's and KRE's Knowledge, the books of
account and other records of KRE and its Subsidiaries are complete and
correct in all material respects, and there have been no material
transactions involving the business of KRE and its Subsidiaries which
properly should have been set forth in such records, other than those set
forth therein.

(k) Absence of Certain Changes or Events. Except as set forth in
Schedule 3.2(k) hereto, since May 31, 1999, (i) there has not been any
material adverse change in, or event or condition which has had a Material
Adverse Effect on, the condition (financial or otherwise), properties,
assets, liabilities or, to the best of KRI's and KRE's Knowledge, the
business of KRE and its Subsidiaries, taken together, (other than any
change or circumstance relating to the economy or securities markets in
general or to the oil and gas industry in general and not specifically
relating to KRE) and (ii) KRE has not declared or paid any dividend or
made any other distribution in respect of any of its capital stock or
repurchased or redeemed or otherwise acquired any shares of its capital
stock or obligated itself to do any of the foregoing.

(l) Taxes. To the Knowledge of KRI and KRE, except as set forth in
Schedule 3.2(l) hereto, KRE and KRE's Subsidiaries have duly filed all
federal, state, county, local and foreign income, franchise, excise, real
and personal property and other tax returns and reports (including, but
not limited to, those relating to social security, withholding,
unemployment insurance and occupation (sales) and use taxes) required to
have been filed up to the date hereof. To the Knowledge of KRI and KRE,
all of the foregoing returns are true and correct in all material respects
and KRE and KRE's Subsidiaries have

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paid or provided for all taxes, interest and penalties shown on such
returns or reports as being due. To the Knowledge of KRI and KRE, KRE and
KRE's Subsidiaries have no liability for any amount of taxes, interest or
penalties of any nature whatsoever, except for those taxes which may have
arisen up to the Closing Date in the ordinary course of business and are
properly accrued on the books of KRI, KRE and KRE's Subsidiaries as of the
Closing Date.

(m) Environmental Matters. Neither KRI nor KRE is aware of any
actions, proceedings or investigations pending or, to the best of KRI's
and KRE's Knowledge, threatened before any federal, state or foreign
environmental regulatory body or before any federal, state or foreign
court alleging material noncompliance by KRE or any of its Subsidiaries
with CERCLA or any other laws or regulations regulating the discharge of
materials into the environment ("Environmental Laws"). To the best of
KRI's and KRE's Knowledge: (i) there is no reasonable basis for the
institution of any material action, proceeding or investigation against
KRE or any of its Subsidiaries for violation of any Environmental Law;
(ii) neither KRE nor any of its Subsidiaries is responsible under any
Environmental Law for any release by any person at or in the vicinity of
real property of any hazardous substance (as defined by CERCLA) caused by
the spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, dumping or disposing of any such hazardous
substance into the environment, other than routine incidental releases
associated with normal operations the remediation of which is required
under the Environmental Laws and the cost of which will not be material to
KRE; (iii) neither KRE nor any of its Subsidiaries is responsible for any
costs of any remedial action required by virtue of any release of any
hazardous substance, pollutant or contaminant into the environment, other
than routine incidental releases associated with normal operations the
remediation of which is required under the Environmental Laws and the cost
of which will not be material to KRE; (iv) KRE and its Subsidiaries are in
compliance in all material respects with all applicable Environmental
Laws; and (v) no real property used, owned, managed or controlled by KRE
or any of its Subsidiaries contains any toxic or hazardous substance
including, without limitation, any asbestos, PCBs or petroleum products or
byproducts in any form, the presence, location or condition of which
violates any Environmental Law in any material respect.

(n) KRE Benefit Plans.

(i) Attached hereto as Schedule 3.2(n) is a list identifying
each Benefit Plan of KRE or any of its Subsidiaries or in which they
participate. For purposes of this Agreement, the term "Benefit Plan"
means, with respect to any Person (as defined in Section 7.5), any
employee benefit plan (within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended
("ERISA")), written or oral employment or consulting agreement,
severance pay plan or agreement, employee relations policy (or
practice, agreement or arrangement), agreements with respect to
leased or temporary employees, vacation plan or arrangement, sick
pay plan, stock purchase plan, stock option

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<PAGE>

plan, fringe benefit plan, incentive plan, bonus plan, cafeteria or
flexible spending account plan and any deferred compensation
agreement, (or plan, program, or arrangement) covering any present
or former employee of such Person or a Subsidiary of such Person and
which is, or at any time was, sponsored or maintained by (or to
which contributions are, were, or at any time were required to have
been, made by such Person or a Subsidiary of such Person).

(ii) With respect to each KRE Benefit Plan, there has been
delivered to St. Mary, (i) copies of each such KRE Benefit Plan
(including all trust agreements, insurance or annuity contracts,
descriptions, general notices to employees or beneficiaries and any
other material documents or instruments relating thereto); (ii) the
most recent audited (if required or otherwise available) or
unaudited financial statement with respect to each such KRE Benefit
Plan; (iii) copies of the most recent determination letters with
respect to any such KRE Benefit Plan which is an employee pension
benefit plan (as such term is defined under ERISA) intended to
qualify under the Internal Revenue Code of 1986 (the "Code") ; and
(iv) copies of the most recent actuarial reports, if any, of each
such KRE Benefit Plan.

(iii) With respect to each KRE Benefit Plan:

(A) each such KRE Benefit Plan which is an employee
pension benefit plan intended to qualify under the Code so
qualifies and has received a favorable determination letter as
to its qualification under the Code, and no event has occurred
that will or could reasonably be expected to give rise to
disqualification or loss of tax-exempt status of any such plan
or related trust;

(B) KRE has complied in all material respects with all
provisions of ERISA and no act or omission by KRE in
connection with any KRE Benefit Plan has occurred that will or
could reasonably be expected to give rise to liability for a
breach of fiduciary responsibilities under ERISA or to any
fines or penalties under ERISA;

(C) all insurance and annuity premiums, if any, required
for all periods up to and including the Closing have been or
will be paid;

(D) no KRE Benefit Plan provides for any post-retirement
life, medical, dental or other welfare benefits (whether or
not insured) for any current or former employee except as
required under the Code or ERISA or applicable state or local
Law;

(E) all contributions required to have been made by law
or under the terms of any contract, agreement or KRE Benefit
Plan for all complete

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<PAGE>

and partial periods up to and including the Closing have been
made or will be made;

(F) the transactions contemplated by this Agreement will
not be the direct or indirect cause of any amount paid or
payable from such KRE Benefit Plan being classified as an
excess parachute payment under the Code;

(G) there are no matters pending before the United
States Internal Revenue Service, the United States Department
of Labor or the Pension Benefit Guaranty Corporation ("PBGC");

(H) there have been no claims or notice of claims filed
under any fiduciary liability insurance policy covering any
KRE Benefit Plan;

(I) each and every such KRE Benefit Plan which is a
group health plan (as such term is defined under the Code or
ERISA) complies in all material respects, and in each and
every case has complied in all material respects, with the
applicable requirements of the Code, ERISA, the applicable
requirements of the Health Insurance Portability and
Accountability Act of 1996, and all other federal, state or
local Laws or ordinances requiring the provision or
continuance of health or medical benefits;

(J) each and every KRE Benefit Plan which is a cafeteria
plan or flexible spending account plan complies in all
material respects, and in each and every case has complied in
all material respects, with the applicable requirements of the
Code and all other applicable federal, state, or local Laws or
ordinances; and

(K) each and every KRE Benefit Plan which is a dependent
care assistance program complies in all material respects, and
in each and every case has complied in all material respects,
with the applicable requirements of the Code and all other
applicable federal, state or local Laws or ordinances.

(iv) With respect to any employee benefit plan (within the
meaning of ERISA), stock purchase plan, stock option plan, fringe
benefit plan, bonus plan or any deferred compensation agreement,
plan or program (whether or not any such plan, program, or agreement
is currently in effect):

(A) there are no actions, suits, or claims (other than
routine claims for benefits in the ordinary course) pending
or, to the best Knowledge of KRE threatened, and to the best
Knowledge of KRE there are no facts

A-18
<PAGE>

which could give rise to any such actions, suits, or claims
(other than routine claims for benefits in the ordinary
course), which could subject KRE to any material liability;

(B) KRE has not engaged in a prohibited transaction, as
such term is defined in the Code which would subject KRE to
any taxes, penalties or other liabilities resulting from
prohibited transactions under the Code or under ERISA; and

(C) KRE is not subject to (1) any liability, lien or
other encumbrance under any agreement imposing secondary
liability on KRE as a seller of the assets of a business under
ERISA or the Code, (2) contingent liability under ERISA to the
PBGC or to any plan, participant, or other person or (3) a
lien or other encumbrance under ERISA.

(v) (A) KRE is not subject to any legal, contractual,
equitable, or other obligation to continue any KRE Benefit Plan of
any nature, including, without limitation any KRE Benefit Plan or
any other pension, profit sharing, welfare, or post-retirement
welfare plan, or any stock option, stock or cash award,
non-qualified deferred compensation or executive compensation plan,
policy or practice (or to continue participation in any such benefit
plan, policy or practice) on or after the Closing;

(B) KRE may, in any manner, and without the consent of
any employee, beneficiary or other person, terminate, modify
or amend any such KRE Benefit Plan (or its participation in
such KRE Benefit Plan or any other plan, program or practice)
effective as of any date on or after the Closing; and

(C) no representations or communications (directly or
indirectly, orally, in writing or otherwise) with respect to
participation, eligibility for benefits, vesting, benefit
accrual coverage or other material terms of any KRE Benefit
Plan have been made prior to the Closing to any employee,
beneficiary or other person other than those which are in
accordance with the terms and provisions of each such KRE
Benefit Plan as in effect immediately prior to the Closing.

(vi) KRE has at no time participated in a multi-employer
pension plan defined under Section 3(37) of ERISA.

(vii) With respect to each and every KRE Benefit Plan subject
to ERISA: (A) no such KRE Benefit Plan or related trust has been
terminated or partially terminated; (B) no liability to the PBGC has
been or is expected to be incurred with respect to such KRE Benefit
Plan; (C) the PBGC has not instituted

A-19
<PAGE>

and to the best Knowledge of KRE is not expected to institute any
proceedings to terminate such KRE Benefit Plan; (D) there has been
no reportable event (within the meaning of ERISA); (E) there exists
no condition or set of circumstances that presents a material risk
of the termination of such KRE Benefit Plan by the PBGC; (F) no
accumulated funding deficiency (as defined under ERISA and the
Code), whether or not waived, exists with respect to such KRE
Benefit Plan; and (G) the current value of all vested accrued
benefits under each such KRE Benefit Plan did not as of the last day
of the most recently ended fiscal year of each KRE Benefit Plan, and
will not as of the Closing, exceed the current value of the assets
of each such KRE Benefit Plan allocable to such vested accrued
benefits determined by KRE Benefit Plans' actuary on an ongoing
basis.

(viii) Except as set forth on Schedule 3.2(n)(viii) hereto, no
director or officer or other employee of KRE or any of its
Subsidiaries will become entitled to any retirement, severance or
similar benefit or enhanced or accelerated benefit (including any
acceleration of vesting or lapse of repurchase rights or obligations
with respect to any employee stock option or other benefit under any
stock option plan or compensation plan or arrangement of KRE) solely
as a result of the transactions contemplated by this Agreement.

(o) Year 2000 Matters. Except as set forth on Schedule 3.2(o)
hereto, the computer software operated by KRE and each of its Subsidiaries
is capable of providing or is being adapted to provide uninterrupted
millennium functionality to record, store, process and present calendar
dates falling on or after January 1, 2000 in substantially the same manner
and with the same functionality as such software records, stores,
processes and presents such calendar dates falling on or before December
31, 1999. The costs of the adaptations referred to in the prior sentence
will not be material to KRE and its Subsidiaries. To the Knowledge of KRI
and KRE, neither KRE nor any of its Subsidiaries has relationships with
third parties the failure of whose systems to be Year 2000 compliant will
be material to KRE.

(p) Confidentiality Agreements. All current employees of KRE and its
Subsidiaries have executed the KRE Information Resources User
Acknowledgment and have received a copy of the KRE Information Resources
Use and Protection Policy.

(q) Vote Required. The affirmative vote of the holders of the
majority of the outstanding shares of KRE Common Stock at a duly held
meeting of such holders (the "Required KRE Vote") to approve the Merger is
the only vote of the shareholders of KRE, KRH, KRM or KRI required, other
than the votes of the Boards of Directors of KRM, KRH and KRI to approve
the Merger.

A-20
<PAGE>

(r) Fairness Opinion. KRI has received from Nesbitt Burns, KRI's
financial advisor with respect to the transactions contemplated by this
Agreement, an opinion to the effect that the consideration to be received
by the KRI shareholders in the Merger is fair to the KRI shareholders from
a financial point of view.

(s) Full Disclosure. To the best of KRI's and KRE's Knowledge, this
Agreement and any Schedules, certificates and the KRE Leases and Wells
Lists delivered by KRI and KRE in connection herewith or with the
transactions contemplated hereby, taken as a whole, neither contain any
untrue statement of a material fact nor omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. To the best of KRI's and KRE's Knowledge, there are no facts
or circumstances relating to KRE or any Subsidiary of KRE that will have,
or would be reasonably likely to have, a Material Adverse Effect on St.
Mary following the Closing Date, other than any facts or circumstances (A)
disclosed in this Agreement or any schedule, exhibit or other document
delivered in connection herewith, or (B) previously disclosed to St. Mary
by KRI or KRE.

Section 3.3 Representations and Warranties by St. Mary. Except as set
forth in the St. Mary Disclosure Schedule attached to this Agreement as Schedule
3.3 (the "St. Mary Disclosure Schedule") (each section of which qualifies the
correspondingly numbered representation and warranty or covenant to the extent
specified therein), St. Mary hereby represents and warrants to KRI as follows:

(a) Organization and Standing of St. Mary. St. Mary and each of its
Subsidiaries is a corporation duly organized and validly existing and in
good standing under the laws of its jurisdiction of incorporation or
organization, has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being
conducted, and is duly qualified to do business and is in good standing in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties make such qualification necessary other than in
jurisdictions where the failure to so qualify would not, either
individually or in the aggregate, have a Material Adverse Effect on St.
Mary. Except with respect to the St. Mary Subsidiaries set forth on the
St. Mary Disclosure Schedule, St. Mary has no direct or indirect interest,
either by way of stock ownership or otherwise, in any other firm,
corporation, association, or business. The copies of the certificate of
incorporation and bylaws of St. Mary which were previously furnished to
KRI and KRE are true, complete and correct copies of such documents as in
effect on the date of this Agreement.

(b) Authority; No Conflicts.

(i) The execution, delivery and performance of this Agreement
have been duly authorized by all requisite corporate action on the
part of St. Mary, subject to the Required St. Mary Vote (as defined
below). This Agreement has been

A-21
<PAGE>

executed and delivered by St. Mary and constitutes a valid and
binding obligation of St. Mary enforceable in accordance with its
terms (except as limited by bankruptcy, insolvency, or other laws
affecting the enforcement of creditors' rights).

(ii) The execution and delivery of this Agreement by St. Mary
does, and the consummation by St. Mary of the Merger and the other
transactions contemplated hereby will not, conflict with or result
in a violation pursuant to: (A) any provision of the certificate of
incorporation or bylaws of St. Mary, (B) any loan or credit
agreement, note, mortgage, bond, indenture, lease, benefit plan or
other agreement, obligation, instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to St. Mary or any
Subsidiary of St. Mary or any of its properties or assets, except as
would not have a Material Adverse Effect on St. Mary, subject to
obtaining the consents, approvals, orders, authorizations,
registrations, declarations and filings referred to in paragraph
(iii) below.

(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, a Governmental Entity is
required by or with respect to St. Mary or its Subsidiaries in
connection with the execution and delivery of this Agreement by St.
Mary or the consummation of the Merger and the other transactions
contemplated hereby, except for the Required Consents and such
consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to make or obtain
would not have a Material Adverse Effect on St. Mary or its
Subsidiaries.

(c) Capitalization of St. Mary and Indebtedness for Borrowed Moneys.
St. Mary is duly and lawfully authorized by its certificate of
incorporation to issue 50,000,000 shares of St. Mary Common Stock, of
which as of the date hereof there are 11,276,938 shares issued and
outstanding and 182,800 shares held by St. Mary as treasury stock. St.
Mary has no other authorized series or class of stock. All the outstanding
shares of St. Mary Common Stock have been duly authorized and validly
issued and are fully paid and nonassessable and free of preemptive rights.
All of the shares of St. Mary Common Stock to be issued upon consummation
of the Merger will be, at the time of issuance, duly authorized and
validly issued, and will be fully paid and nonassessable and free of
preemptive rights. St. Mary has a Stock Option Plan and an Incentive Stock
Option Plan (collectively, the "St. Mary Option Plans") which provide for
the issuance of up to an aggregate of 1,650,000 shares of St. Mary Common
Stock pursuant to the exercise of options granted under the St. Mary
Option Plans. As of the date hereof, options representing in the aggregate
the right to purchase 684,322 shares of St. Mary Common Stock have been
granted under the St. Mary Option Plans and remain outstanding. St. Mary
has an Employee Stock Purchase Plan for the purchase of up to 500,000
shares of St. Mary Common Stock, under which 24,821 shares of St. Mary
Common Stock have been purchased through the date hereof. Except with
respect to the foregoing and to this

A-22
<PAGE>

Agreement, and except as set forth on Schedule 3.3(c), neither St. Mary
nor any of its Subsidiaries is obligated to issue any additional capital
stock or voting securities as a result of any options, warrants, rights,
conversion rights, obligations upon default, subscription agreement or
other obligation of any kind. St. Mary is not presently liable on account
of any indebtedness for borrowed moneys, except as reflected in the St.
Mary Financial Statements (as hereinafter defined).

(d) St. Mary SEC Reports and Financial Statements.

(i) St. Mary has filed all required reports, schedules, forms,
statements and other documents required to be filed with the SEC
(collectively, including all exhibits thereto, the "St. Mary SEC
Reports"). No Subsidiary of St. Mary is required to file any form,
report or other document with the SEC. None of the St. Mary SEC
Reports, as of their respective dates (and, if amended or superseded
by filings prior to the date of this Agreement or the Closing Date,
then on the date of such filing), contained any untrue statement of
a material fact or omitted 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.
Each of the financial statements (including the related notes)
included in the St. Mary SEC Reports presents fairly, in all
material respects, the consolidated financial position and
consolidated results of operations and cash flows of St. Mary and
its Subsidiaries as of the respective dates or for the respective
periods set forth therein, all in accordance with GAAP consistently
applied during the periods involved except as otherwise noted
therein. All of such St. Mary SEC Reports, as of their respective
dates (and as of the date of any amendment to the respective St.
Mary SEC Report), complied as to form in all material respects with
the applicable requirements of the Securities Act and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder.

(ii) St. Mary has furnished to KRM and KRI its audited balance
sheets as of December 31, 1996, 1997 and 1998, its audited
statements of operations and statements of cash flows for each of
the three years ended December 31, 1998, its unaudited balance sheet
as of May 31, 1999, and its unaudited income statement and statement
of cash flows for the five months ended May 31, 1999 and 1998
(collectively, the "St. Mary Financial Statements"). All of the St.
Mary Financial Statements present fairly, in all material respects,
the financial position of St. Mary as of the respective balance
sheet dates, and the results of its operations and cash flows for
the respective periods therein specified. The St. Mary Financial
Statements were prepared in accordance with GAAP (except in the case
of unaudited interim financial statements, as permitted by the rules
and regulations of the SEC) applied on a consistent basis.

A-23
<PAGE>

(e) Present Status. Except as otherwise disclosed in the St. Mary
Disclosure Schedule, from May 31, 1999 to the date of this Agreement, St.
Mary and its Subsidiaries have not incurred any liabilities that are of a
nature that would be required to be disclosed on a consolidated balance
sheet of St. Mary and its Subsidiaries or the notes thereto prepared in
accordance with GAAP, other than liabilities incurred in the ordinary
course of business of St. Mary and which do not have a Material Adverse
Effect on St. Mary.

(f) Litigation. Except as disclosed in the St. Mary Financial
Statements, the St. Mary Disclosure Schedule or Schedule 3.3(f) hereto,
there are no legal actions, suits, arbitrations, or other legal or
administrative proceedings pending or, to the Knowledge of St. Mary,
threatened against St. Mary or any Subsidiary of St. Mary which would
reasonably be expected to have a Material Adverse Effect on St. Mary and
its Subsidiaries. In addition, St. Mary is not aware of any facts which to
the best of its Knowledge would reasonably be expected to result in any
action, suit, arbitration or other proceeding which would reasonably be
expected to have a Material Adverse Effect on St. Mary and its
Subsidiaries. Neither St. Mary nor any of its Subsidiaries is in default
of any judgment, order or decree of any court or, in any material respect
of, any requirements of a government agency or instrumentality.

(g) Compliance With the Law and Other Instruments. To the best of
St. Mary's Knowledge, the business operations of St. Mary have been and
are being conducted in compliance in all material respects with all
applicable laws, rules, and regulations of all authorities. St. Mary is
not in violation of, or in default under, any term or provision of its
certificate of incorporation or its bylaws or in any material respect of
any lien, mortgage, lease, agreement, instrument, order, judgment or
decree, except those violations, defaults and restrictions which do not,
individually and in the aggregate, have a Material Adverse Effect on St.
Mary and its Subsidiaries, or which do not prohibit St. Mary from entering
into this Agreement.

(h) Title to Properties and Assets. Except as set forth on Schedule
3.3(h) hereto, St. Mary and its Subsidiaries have good and defensible
title to all of its material properties and assets, including without
limitation those reflected in the St. Mary Financial Statements and those
used or located on property controlled by St. Mary or any of its
Subsidiaries in its business (except assets leased or sold in the ordinary
course of business), subject to no mortgage, pledge, lien, charge,
security interest, encumbrance or restriction except those which (a) are
disclosed in the St. Mary Financial Statements; or (b) do not have a
Material Adverse Effect on St. Mary and its Subsidiaries, taken together.

(i) Oil and Gas Leases and Wells. St. Mary has furnished to KRI
lists of all oil and gas leases and wells in which St. Mary owns or claims
any type of right or interest whether legal, equitable, or beneficial (the
"St. Mary Leases and Wells Lists") and the St. Mary Leases and Wells Lists
are accurate and complete in all material respects. All leases listed on
the St. Mary Leases and Wells Lists are valid and in full force and
effect,

A-24
<PAGE>

and all rentals, royalties, shut-in payments, minimum royalties, and other
payments due thereunder have been timely and properly made. Except as
specifically set forth on the St. Mary Leases and Wells Lists, St. Mary
enjoys and is in peaceful and undisturbed possession under each lease and
for each well so listed. St. Mary has not received any notice of, and
there does not exist, any default, event, occurrence or act which, with
the giving of notice or lapse of time or both, would become a default
under any such lease, and St. Mary has not violated any of the terms or
conditions under any such lease in any material respect. To the Knowledge
of St. Mary, such real property and the wells, pipelines, gathering lines
and facilities, processing facilities, flow lines, tanks, pumps,
production platforms, equipment and any and all other buildings, fixtures,
equipment and other property attached or appurtenant or situated thereon
are in good operating condition and repair, in compliance in all material
respects with all applicable laws and are adequate and suitable for the
purposes for which they are presently being used, except for such matters
which in the aggregate, would not have a Material Adverse Effect on St.
Mary.

(j) Records. To the best of St. Mary's Knowledge, the books and
other records of St. Mary and its Subsidiaries are complete and correct in
all material respects, and there have been no material transactions
involving the business of St. Mary and its Subsidiaries which properly
should have been set forth in such records, other than those set forth
therein.

(k) Absence of Certain Changes or Events. Since May 31, 1999, (i)
there has not been any material adverse change in, or event or condition
which has had a Material Adverse Effect on, the condition (financial or
otherwise), properties, assets, liabilities or, to the best of St. Mary's
Knowledge, the business of St. Mary and its Subsidiaries, taken together
(other than any change or circumstance relating to the economy or
securities markets in general or to the oil and gas industry in general
and not specifically relating to St. Mary), and (ii) except for its $0.05
per share St. Mary Common Stock dividend per quarter, St. Mary has not
declared or paid any dividend or made any other distribution in respect of
any of its capital stock, and except for the purchase of 182,800 shares of
St. Mary Common Stock under its open market share repurchase program, St.
Mary has not repurchased or redeemed or otherwise acquired any shares of
its capital stock or obligated itself to do any of the foregoing.

(l) Taxes. To the Knowledge of St. Mary, St. Mary and its
Subsidiaries have duly filed all federal, state, county, local and foreign
income, franchise, excise, real and personal property and other tax
returns and reports (including, but not limited to, those relating to
social security, withholding, unemployment insurance, and occupation
(sales) and use taxes) required to have been filed by St. Mary and its
Subsidiaries up to the date hereof. To the Knowledge of St. Mary, all of
the foregoing returns are true and correct in all material respects and
St. Mary and its Subsidiaries have paid or provided for all taxes,
interest and penalties shown on such returns or reports as being due. To
the Knowledge of St. Mary, St. Mary and its Subsidiaries have no liability
for any amount of taxes,

A-25
<PAGE>

interest or penalties of any nature whatsoever, except for those taxes
which may have arisen up to the Closing Date in the ordinary course of
business and are properly accrued on the books of St. Mary and its
Subsidiaries as of the Closing Date.

(m) Environmental Matters. St. Mary is not aware of any actions,
proceedings or investigations pending or, to the best of St. Mary's
Knowledge, threatened before any federal, state or foreign environmental
regulatory body or before any federal, state or foreign court alleging
material noncompliance by St. Mary or any of its Subsidiaries with any
Environmental Laws. To the best of St. Mary's Knowledge: (i) there is no
reasonable basis for the institution of any material action, proceeding or
investigation against St. Mary or any of its Subsidiaries for violation of
any Environmental Law; (ii) neither St. Mary nor any of its Subsidiaries
is responsible under any Environmental Law for any release by any person
at or in the vicinity of real property of any hazardous substance (as
defined by CERCLA) caused by the spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping or
disposing of any such hazardous substance into the environment, other than
routine incidental releases associated with normal operations the
remediation of which is required under the Environmental Laws and the cost
of which will not be material to St. Mary; (iii) neither St. Mary nor any
of its Subsidiaries is responsible for any costs of any remedial action
required by virtue of any release of any hazardous substance, pollutant or
contaminant into the environment, other than routine incidental releases
associated with normal operations the remediation of which is required
under the Environmental Laws and the cost of which will not be material to
St. Mary; (iv) St. Mary and its Subsidiaries are in compliance in all
material respects with all applicable Environmental Laws; and (v) no real
property used, owned, managed or controlled by St. Mary or any of its
Subsidiaries contains any toxic or hazardous substance including, without
limitation, any asbestos, PCBs or petroleum products or byproducts in any
form, the presence, location or condition of which violates any
Environmental Law in any material respect.

(n) St. Mary Benefit Plans.

(i) Attached hereto as Schedule 3.3(n) is a list identifying
each Benefit Plan of St. Mary or any of its Subsidiaries.

(ii) With respect to each St. Mary Benefit Plan, there has
been delivered to KRM and KRI, (i) copies of each such St. Mary
Benefit Plan (including all trust agreements, insurance or annuity
contracts, descriptions, general notices to employees or
beneficiaries and any other material documents or instruments
relating thereto); (ii) the most recent audited (if required or
otherwise available) or unaudited financial statement with respect
to each such St. Mary Benefit Plan; (iii) copies of the most recent
determination letters with respect to any such St. Mary Benefit Plan
which is an employee pension benefit plan (as such term is defined
under ERISA) intended to qualify under the Code; and (iv) copies of
the most recent actuarial reports, if any, of each such St. Mary
Benefit Plan.

A-26
<PAGE>

(iii) With respect to each St. Mary Benefit Plan:

(A) each such St. Mary Benefit Plan which is an employee
pension benefit plan intended to qualify under the Code so
qualifies and has received a favorable determination letter as
to its qualification under the Code, and no event has occurred
that will or could reasonably be expected to give rise to
disqualification or loss of tax-exempt status of any such plan
or related trust;

(B) St. Mary has complied in all material respects with
all provisions of ERISA and no act or omission by St. Mary in
connection with any St. Mary Benefit Plan has occurred that
will or could reasonably be expected to give rise to liability
for a breach of fiduciary responsibilities under ERISA or to
any fines or penalties under ERISA;

(C) all insurance and annuity premiums, if any, required
for all periods up to and including the Closing have been or
will be paid;

(D) no St. Mary Benefit Plan provides for any
post-retirement life, dental or other welfare benefits
(whether or not insured) for any current or former employee
except as required under the Code or ERISA or applicable state
or local Law;

(E) all contributions required to have been made by law
or under the terms of any contract, agreement or St. Mary
Benefit Plan for all complete and partial periods up to and
including the Closing have been made or will be made;

(F) the transactions contemplated by this Agreement will
not be the direct or indirect cause of any amount paid or
payable from such St. Mary Benefit Plan being classified as an
excess parachute payment under the Code;

(G) there are no matters pending before the United
States Internal Revenue Service, the United States Department
of Labor or the PBGC;

(H) there have been no claims or notice of claims filed
under any fiduciary liability insurance policy covering any
St. Mary Benefit Plan;

(I) each and every such St. Mary Benefit Plan which is a
group health plan (as such term is defined under the Code or
ERISA), complies in all material respects, and in each and
every case has complied in all material respects, with the
applicable requirements of the Code, ERISA, the applicable
requirements of the Health Insurance Portability and

A-27
<PAGE>

Accountability Act of 1996, and all other federal, state or
local Laws or ordinances requiring the provision or
continuance of health or medical benefits;

(J) each and every St. Mary Benefit Plan which is a
cafeteria plan or flexible spending account plan complies in
all material respects, and in each and every case has complied
in all material respects, with the applicable requirements of
the Code and all other applicable federal, state, or local
Laws or ordinances; and

(K) each and every St. Mary Benefit Plan which is a
dependent care assistance program complies in all material
respects, and in each and every case has complied in all
material respects, with the applicable requirements of the
Code and all other applicable federal, state or local Laws or
ordinances.

(A) there are no actions, suits, or claims (other than
routine claims for benefits in the ordinary course) pending
or, to the best Knowledge of St. Mary threatened, and to the
best Knowledge of St. Mary there are no facts which could give
rise to any such actions, suits, or claims (other than routine
claims for benefits in the ordinary course), which could
subject St. Mary to any material liability;

(B) St. Mary has not engaged in a prohibited
transaction, as such term is defined in the Code which would
subject St. Mary to any taxes, penalties or other liabilities
resulting from prohibited transactions under the Code or under
ERISA; and

(C) St. Mary is not subject to (1) any liability, lien
or other encumbrance under any agreement imposing secondary
liability on St. Mary as a seller of the assets of a business
under ERISA or the Code, (2) contingent liability under ERISA
to the PBGC or to any plan, participant, or other person or
(3) a lien or other encumbrance under ERISA.

(v) St. Mary has at no time participated in a multi-employer
pension plan defined under Section 3(37) of ERISA.

(vi) With respect to each and every St. Mary Benefit Plan
subject to ERISA: (A) no such St. Mary Benefit Plan or related trust
has been terminated or

A-28
<PAGE>

partially terminated; (B) no liability to the PBGC has been or is
expected to be incurred with respect to such St. Mary Benefit Plan;
(C) the PBGC has not instituted and to the best Knowledge of St.
Mary is not expected to institute any proceedings to terminate such
St. Mary Benefit Plan; (D) there has been no reportable event
(within the meaning of ERISA); (E) there exists no condition or set
of circumstances that presents a material risk of the termination of
such St. Mary Benefit Plan by the PBGC; (F) no accumulated funding
deficiency (as defined under ERISA and the Code), whether or not
waived, exists with respect to such St. Mary Benefit Plan; and (G)
the current value of all vested accrued benefits under each such St.
Mary Benefit Plan did not as of the last day of the most recently
ended fiscal year of each St. Mary Benefit Plan, and will not as of
the Closing, exceed the current value of the assets of each such St.
Mary Benefit Plan allocable to such vested accrued benefits
determined by St. Mary Benefit Plans' actuary on an ongoing basis.

(vii) No director or officer or other employee of St. Mary or
any of its Subsidiaries will become entitled to any retirement,
severance or similar benefit or enhanced or accelerated benefit
(including any acceleration of vesting or lapse of repurchase rights
or obligations with respect to any employee stock option or other
benefit under any stock option plan or compensation plan or
arrangement of St. Mary) solely as a result of the transactions
contemplated by this Agreement.

(o) Year 2000 Matters. The computer software operated by St. Mary is
capable of providing or is being adapted to provide uninterrupted
millennium functionality to record, store, process and present calendar
dates falling on or after January 1, 2000 in substantially the same manner
and with the same functionality as such software records, stores,
processes and presents such calendar dates falling on or before December
31, 1999. The costs of the adaptations referred to in the prior sentence
will not be material to St. Mary and its Subsidiaries. To the Knowledge of
St. Mary, neither St. Mary nor any of its Subsidiaries has relationships
with third parties the failure of whose systems to be Year 2000 compliant
will be material to St. Mary.

(p) Finders and Advisors. Except for Deutsche Bank Securities Inc. a
copy of whose engagement agreement with St. Mary has been provided to KRM
and KRI, there is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf
of St. Mary or any of its Subsidiaries who might be entitled to any fee or
commission in connection with the transactions contemplated by this
Agreement.

(q) Vote Required. The affirmative vote of the holders of shares of
St. Mary Common Stock representing a majority of the total shares
represented at a duly held meeting of the holders of outstanding shares of
St. Mary Common Stock (the "Required St. Mary Vote") to approve the St.
Mary Share Issuance pursuant to the terms of this

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Agreement is the only vote of the holders of St. Mary capital stock
necessary for the Merger.

(r) Fairness Opinion. St. Mary has received from Deutsche Bank
Securities Inc., St. Mary's financial advisor with respect to the
transactions contemplated by this Agreement, an opinion to the effect that
the consideration to be paid by St. Mary in the Merger is fair to St. Mary
from a financial point of view.

(s) Full Disclosure. To the best of St. Mary's Knowledge, this
Agreement, and any Schedules, certificates and other St. Mary Leases and
Wells Lists delivered by St. Mary in connection herewith or with the
transactions contemplated hereby, taken as a whole, neither contain any
untrue statement of a material fact nor omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. To the best of St. Mary's Knowledge, there are no facts or
circumstances relating to St. Mary or any Subsidiary of St. Mary that will
have, or would be reasonably likely to have, a Material Adverse Effect on
St. Mary following the Closing Date, other than any facts or circumstances
(A) disclosed in this Agreement or any schedule, exhibit or other document
delivered in connection herewith, or (B) previously disclosed to KRI or
KRE by St. Mary.

Section 3.4 Representations and Warranties of St. Mary and Merger Sub. St.
Mary and Merger Sub represent and warrant to KRI and KRE as follows:

(a) Organization and Standing of Merger Sub. Merger Sub is a
corporation duly incorporated, validly existing and in good standing under
the laws of the State of Colorado. Merger Sub is a first-tier wholly owned
subsidiary of St. Mary.

(b) Authority. Merger Sub has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance by Merger Sub
of this Agreement and the consummation by Merger Sub of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Merger Sub. This Agreement has been duly executed
and delivered by Merger Sub and constitutes a valid and binding agreement
of Merger Sub, enforceable against it in accordance with its terms, except
as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting
creditors generally.

(c) Non-Contravention. The execution, delivery and performance by
Merger Sub of this Agreement and the consummation by Merger Sub of
transactions contemplated hereby do not and will not contravene or
conflict with the certificate of incorporation or bylaws of Merger Sub.

(d) No Business Activities by Merger Sub. Merger Sub has not
conducted any activities other than in connection with the organization of
Merger Sub, the negotiation

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and execution of this Agreement and the consummation of the transactions
contemplated hereby. Merger Sub has no subsidiaries.

ARTICLE IV

COVENANTS RELATING TO CONDUCT OF BUSINESS

Section 4.1 Covenants of KRI and KRE. During the period from the date of
this Agreement and continuing until the Effective Time, KRI and KRE agree that
(except as expressly contemplated or permitted by this Agreement or as otherwise
indicated on the KRE Disclosure Schedule or as required by a Governmental Entity
of competent jurisdiction or to the extent that St. Mary shall otherwise consent
in writing):

(a) Ordinary Course.

(i) KRE and its Subsidiaries shall carry on their respective
businesses in the usual, regular and ordinary course in all material
respects, in substantially the same manner as heretofore conducted,
and shall use all reasonable efforts to preserve intact their
present lines of business, maintain their rights and franchises and
preserve their relationships with customers, suppliers and other
having business dealings with them to the end that their ongoing
businesses shall not be impaired in any material respect at the
Effective Time; provided, however, that no action by KRE or its
Subsidiaries with respect to matters specifically addressed by any
other provision of this Section 4.1 shall be deemed a breach of this
Section 4.1(a)(i) unless such action would constitute a breach of
one or more of such other provisions.

(ii) KRI or KRE shall promptly give St. Mary notice of what it
reasonably believes to be any material occurrence in the business of
KRE or any of its Subsidiaries. KRE shall not, and shall not permit
any of its Subsidiaries to, incur or commit to any capital or other
expenditure, whether or not in the ordinary course of business, in
excess (as to KRE and its Subsidiaries) of $500,000 without the
prior written consent of St. Mary, except for capital or other
expenditures set forth on Schedule 4.1(a)(ii) attached to this
Agreement.

(iii) Notwithstanding the provisions of Section 4.1(a)(i), the
parties agree and acknowledge that from the date hereof through the
Closing Date, KRE will substantially reduce (and possibly eliminate)
its drilling, exploration, development and related activities,
provided that such reduction (or elimination) does not constitute,
or result in, a material breach by KRE of a written commitment,
contract or agreement in effect as of the date hereof or otherwise
does not result in a penalty which would have a Material Adverse
Effect on KRE. The parties further agree and acknowledge that any
such reduction (or elimination) will not constitute a violation of
the obligations of KRI and KRE hereunder. In the event

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that KRE elects not to pursue a material drilling, exploration,
development or related opportunity presented to KRE by a third party
from the date hereof through the Closing Date, KRE shall give St.
Mary written notice thereof, and St. Mary shall have the right to
pursue such opportunity for its own benefit and at its own cost and
expense. KRE will use its commercially reasonable efforts to assist
St. Mary in exercising the right to pursue any such opportunity.

(b) Dividends; Changes in Share Capital. KRE shall not (i) declare
or pay any dividends on or make other distributions in respect of any of
its capital stock, (ii) split, combine or reclassify any of its capital
stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for, shares of its
capital stock, except for any such transaction by a wholly owned
Subsidiary of KRE which remains a wholly owned Subsidiary after
consummation of such transactions, or (iii) repurchase, redeem or
otherwise acquire any shares of its capital stock or any securities
convertible into or exercisable for any shares of its capital stock;
provided, however, that KRE may increase its authorized capital stock and
take such other action as necessary to insure that the distribution of KRE
stock to shareholders of KRI is on a one for one basis; and provided,
further, that this provision shall not prohibit intercompany transactions
in the ordinary course of business consistent with past practice.

(c) Issuance of Securities. KRE shall not, and shall not permit any
of its Subsidiaries to, issue, deliver or sell, or authorize or propose
the issuance, delivery or sale of, any shares of its capital stock of any
class, any voting securities or any securities convertible into or
exercisable for, or any rights, warrants or options to acquire, any such
shares or voting securities, or enter into any agreement with respect to
any of the foregoing, other than issuances by a wholly owned Subsidiary of
KRE of capital stock to such Subsidiary's parent.

(d) Governing Documents. Except to the extent required to comply
with obligations hereunder or required by law, KRE and its Subsidiaries
shall not amend in any material respect or propose to so amend their
respective certificates of incorporation, bylaws or other governing
documents.

(e) No Acquisitions. KRE shall not, and shall not permit any of its
Subsidiaries to, acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial
portion of the assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or
division thereof or otherwise acquire or agree to acquire any assets
(other than the acquisition of assets used in the operations of the
business of KRE and its Subsidiaries in the ordinary course subject to
Section 4.1(a)(ii)); provided, however, that the foregoing shall not
prohibit (y) internal reorganizations or consolidations involving existing
Subsidiaries of KRE, or (z) the creation of new Subsidiaries of KRE
organized to conduct or continue activities otherwise permitted by this
Agreement.

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(f) No Dispositions. Other than (i) internal reorganizations or
consolidations involving existing Subsidiaries of KRE, or (ii) in the
ordinary course of business, KRE shall not, and shall not permit any
Subsidiary of KRE to, sell, lease, encumber or otherwise dispose of, or
agree to sell, lease, encumber or otherwise dispose of, any of its assets
(including capital stock of Subsidiaries of KRE) which are material
individually or in the aggregate to KRE.

(g) Investments; Indebtedness. Subject to the provisions of Section
7.2(c) and 7.3(c), KRE shall not, and shall not permit any of its
Subsidiaries to, (i) make any loans, advances or capital contributions to,
or investments in, any other Person, (ii) pay, discharge or satisfy any
claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than payments, discharges or
satisfactions incurred or committed to in the ordinary course of business
consistent with past practice, or (iii), subject to Section 4.1(a)(ii),
create, incur, assume or suffer to exist any indebtedness, issuances of
debt securities, guarantees, loans or advances not in existence as of the
date of this Agreement other than the incurring of accounts payable and
accrued expenses, extensions of credit, advances of funds and intercompany
transactions in the ordinary course of business consistent with past
practices.

(h) Tax-Free Qualification. KRI and KRE shall not, and shall not
permit any of KRI's or KRE's Subsidiaries to, take any action that would
reasonably be expected to prevent or impede the Merger from qualifying as
a reorganization under Section 368 of the Code.

(i) Compensation. Except as contemplated in Section 5.9 hereof, KRE
shall not, and shall not permit any of its Subsidiaries to, increase the
amount of compensation of any executive officer or other senior employee,
make any increase in, or commitment to increase, any employee benefits,
adopt or make any commitment to adopt any additional employee benefit plan
or make any contribution, other than regularly scheduled contributions, to
any KRE Benefit Plan.

(j) Accounting Methods; Income Tax Elections. Except as required by
a Governmental Entity, KRE shall not change its methods of accounting in
effect at December 31, 1998, except as required by changes in GAAP as
concurred in by KRE's independent auditors. KRE shall not (i) change its
fiscal year or (ii) make any material tax election.

(k) Preservation of Property. KRE shall take such reasonable actions
and institute such reasonable procedures as St. Mary may from time to time
specify for assuring that the property of KRE, including but not limited
to its equipment and records, is preserved for the benefit of St. Mary
upon the completion of the Merger, and all reasonable costs associated
with such actions and procedures shall be borne by KRI.

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Section 4.2 Covenants of St. Mary. During the period from the date of this
Agreement and continuing until the Effective Time, St. Mary agrees as to itself
and its Subsidiaries that (except as expressly contemplated or permitted by this
Agreement or as otherwise indicated on the St. Mary Disclosure Schedule or as
required by a Governmental Entity of competent jurisdiction or to the extent
that KRM, KRI and KRE shall otherwise consent in writing):

(a) Ordinary Course.

(i) St. Mary and its Subsidiaries shall carry on their
respective business in the usual, regular and ordinary course in all
material respects, in substantially the same manner as heretofore
conducted, and shall use all reasonable efforts to preserve intact
their present lines of business, maintain their rights and
franchises and preserve their relationships with customers,
suppliers and others having business dealings with them to the end
that their ongoing businesses shall not be impaired in any material
respect at the Effective Time; provided, however, that no action by
St. Mary or its Subsidiaries with respect to matters specifically
addressed by any other provisions of this Section 4.2 shall be
deemed a breach of this Section 4.2(a)(i) unless such action would
constitute a breach of one or more of such other provisions.

(ii) St. Mary shall promptly give KRE notice of what it
reasonably believes to be any material occurrence in the business of
St. Mary or any of its Subsidiaries. St. Mary shall not, and shall
not permit any of its Subsidiaries to, incur or commit to any
capital or other expenditure, whether or not in the ordinary course
of business, in excess of $1,000,000 without the prior written
consent of KRE, which consent shall not be unreasonably withheld or
delayed, except for capital or other expenditures set forth on
Schedule 4.2(a)(ii) attached to this Agreement.

(b) Dividends; Changes in Share Capital. St. Mary shall not (i)
declare or pay any dividends on or make other distributions in respect of
any of its capital stock, except for a dividend not to exceed $0.05 per
share of St. Mary Common Stock per quarter, (ii) split, combine or
reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in
substitution for, shares of its capital stock, except for any such
transaction by a wholly owned Subsidiary of St. Mary which remains a
wholly owned Subsidiary after consummation of such transaction, or (iii)
except under its current open market St. Mary Common Stock share
repurchase program (which shall not be expanded or altered), repurchase,
redeem or otherwise acquire any shares of its capital stock or any
securities convertible into or exercisable for any shares or its capital
stock.

(c) Issuance of Securities. St. Mary shall not, and shall not permit
any of its Subsidiaries to, issue, deliver or sell, or authorize or
propose the issuance, delivery or sale of, any shares of its capital stock
of any class or any securities convertible into or

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exercisable for, or any rights, warrants or options to acquire, any such
shares, or enter into any agreement with respect to any of the foregoing,
other than (i) the issuance of St. Mary Common Stock upon the exercise of
stock options pursuant to the St. Mary Option Plans or pursuant to the St.
Mary Employee Stock Purchase Plan, (ii) issuances by a wholly owned
Subsidiary of St. Mary of capital stock to such Subsidiary's parent or
another wholly owned Subsidiary of St. Mary, (iii) issuances of
equity-related awards pursuant to St. Mary Benefit Plans consistent with
past practices, and (iv) issuances in respect of any acquisitions,
mergers, share exchanges, consolidations, business combinations or similar
transactions by St. Mary or its Subsidiaries which issuances shall not
exceed in the aggregate 550,000 shares.

(d) Governing Documents. Except to the extent required to comply
with their respective obligations hereunder, required by law or required
by the rules and regulations of Nasdaq, St. Mary and its Subsidiaries
shall not amend in any material respect, or propose to so amend their
respective certificates of incorporation, bylaws or other governing
documents.

(e) Tax-Free Qualification. St. Mary shall not, and shall not permit
any of its Subsidiaries to, take any action that would reasonably be
expected to (i) prevent or impede the Merger from qualifying as a
reorganization under Section 368 of the Code, or (ii) prevent the Spin-Off
from qualifying as a distribution in which Section 355(e) applies or
prevent such distribution from not being taxable to the shareholders of
KRI.

Section 4.3 Advice of Changes; Governmental Filings. Each party shall (a)
confer on a regular and frequent basis with the other and (b) promptly report to
the other parties on material operational matters or any event or circumstance
which (alone or together with other such matters) may have a Material Adverse
Effect on such party. KRE and St. Mary shall file all reports required to be
filed by each of them with the SEC and all other Governmental Entities between
the date of this Agreement and the Effective Time and shall deliver to the other
party copies of all such reports promptly after the same are filed. Each of KRE
and St. Mary shall have the right to review in advance, and will consult with
the other with respect to, all the information relating to the other party and
each of their respective Subsidiaries which appears in any filings,
announcements or publications made with, or written materials submitted to, any
third party or any Governmental Entity in connection with the transactions
contemplated by this Agreement. In exercising the foregoing right, each of the
parties hereto agrees to act reasonably and as promptly as necessary with
respect to such materials. Each party agrees that, to the extent practicable and
as timely as practicable, it will consult with, and provide all appropriate and
necessary assistance to, the other party with respect to the obtaining of all
permits, consents, approvals and authorizations of all third parties and
Governmental Entities necessary or advisable to consummate the transactions
contemplated by this Agreement and each party will keep the other party apprised
of the status of matters relating to completion of the transactions contemplated
hereby.

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ARTICLE V

ADDITIONAL AGREEMENTS

Section 5.1 Preparation of Proxies and Registration Statement; Meeting of
St. Mary Shareholders.

(a) As promptly as practicable following the execution of this
Agreement, St. Mary shall, in cooperation with KRI and KRE, prepare and
file with the SEC materials which shall constitute the proxy statements
and the registration statement on Form S-4 with respect to the approval of
the Merger by the shareholders of KRI and the St. Mary Share Issuance by
the shareholders of St. Mary (such proxy statements and registration
statement being hereinafter together referred to as the "Form S-4"). St.
Mary shall cause the Form S-4 to comply as to form in all material
respects with the applicable provisions of the Securities Act and the
rules and regulations thereunder. St. Mary shall, as promptly as
practicable after receipt thereof, provide copies to KRI and KRE of any
written comments received from the SEC with respect to the Form S-4 and
advise KRI and KRE of any oral comments with respect to the Form S-4
received from the SEC. St. Mary agrees that none of the information
supplied or to be supplied by St. Mary for inclusion or incorporation by
reference in the Form S-4 and each amendment or supplement thereto, at the
time of mailing thereof and at the time of the St. Mary Shareholders
Meeting and the KRE Shareholders Meeting (as defined below), will contain
an 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.
KRI and KRE agree that none of the information supplied or to be supplied
by KRI or KRE for inclusion in the Form S-4 and each amendment or
supplement thereto, at the time of mailing thereof and at the times of the
St. Mary and KRE Shareholders Meetings, will contain an 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. For purposes of
the foregoing, it is understood and agreed that information concerning or
related to St. Mary and the St. Mary shareholders meeting will be deemed
to have been supplied by St. Mary and information concerning or related to
KRI and KRE, and the KRE Shareholders Meeting, shall be deemed to have
been supplied by KRI. St. Mary will provide KRI and KRE with a reasonable
opportunity to review and comment on any amendment or supplement to the
Form S-4 prior to filing such with the SEC, and will provide KRI and KRE
with a copy of all such filings made with the SEC. No amendment or
supplement for inclusion in the Form S-4 shall be made without the
approval of KRI and KRE, which approvals shall not be unreasonably
withheld or delayed.

(b) St. Mary shall, as promptly as practicable following the date on
which the Form S-4 is declared effective by the SEC, duly call, give
notice of, convene and hold a special meeting of its shareholders (the
"St. Mary Shareholders Meeting") for the purpose

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of obtaining the Required St. Mary Vote, shall take all lawful action to
solicit the approval of the St. Mary Share Issuance by the Required St.
Mary Vote and the Board of Directors of St. Mary shall, subject to its
fiduciary duties, recommend approval of the St. Mary Share Issuance by the
shareholders of St. Mary.

(c) KRE shall, as promptly as practicable following the date on
which the Form S- 4 is declared effective by the SEC, duly call, give
notice of, convene and hold a special meeting of those persons who will be
its shareholders ("KRE Shareholders") following the Distributions (the
"KRE Shareholders Meeting") for the purpose of obtaining the Required KRE
Vote, shall take all lawful action to solicit the approval of the Merger
by the Required KRE Vote and the Boards of Directors of KRI and KRE shall,
subject to their fiduciary duties, recommend approval of the Merger by the
shareholders of KRE.

Section 5.2 Confidentiality - Access to Information. Notwithstanding
anything contained in this Agreement to the contrary, all of the parties hereto
agree and acknowledge that they are bound by those certain confidentiality
agreements between KRI and St. Mary dated February 25, 1999, and April 21, 1999
(the "Confidentiality Agreements"), which remain in full force and effect and
shall also govern the information disclosed pursuant to this Agreement. Upon
reasonable notice, and subject to the Confidentiality Agreements, each party
shall (and shall cause its subsidiaries to) afford to the officers, employees,
accountants, counsel, financial advisors and other representatives of the other
party reasonable access during normal business hours, during the period prior to
the Effective Time, to all its properties, books, contracts, commitments and
records and, during such period, such party shall (and shall cause its
subsidiaries to) furnish promptly to the other party (a) a copy of each report,
schedule and other document filed, published, announced or received by it during
such period pursuant to the requirements of federal or state securities laws, as
applicable (other than documents which such party is not permitted to disclose
under applicable law), and (b) consistent with its legal obligations, all other
information concerning its business, properties and personnel as such other
party may reasonably request. The parties shall hold any such information which
is non-public in confidence in accordance with the Confidentiality Agreements.
Any investigation by St. Mary, KRI or KRE shall not affect the representations
and warranties of KRI and KRE or of St. Mary, as the case may be.

Section 5.3 Commercially Reasonable Efforts.

(a) Subject to the terms and conditions of this Agreement, each
party will use its commercially reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate
the Merger and the other transactions contemplated by this Agreement as
soon as practicable after the date hereof.

(b) In furtherance and not in limitation of the covenants of the
parties contained in Section 5.3(a), if any administrative or judicial
action or proceeding, including any proceeding by a private party, is
instituted (or threatened to be instituted) challenging any

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transaction contemplated by this Agreement, each of the parties shall
cooperate in all respects with each other and use its respective
commercially reasonable efforts to contest and resist any such action or
proceeding and to have vacated, lifted, reversed or overturned any decree,
judgment, injunction or other order, whether temporary, preliminary or
permanent, that is in effect and that prohibits, prevents or restricts
consummation of the transactions contemplated by this Agreement.

Section 5.4 Public Announcements. St. Mary shall consult with KRI and KRE
before issuing any press release or otherwise making any public statements with
respect to the transactions contemplated by this Agreement, and shall not issue
any such press release or make any such public statement, including a public
statement required by applicable law or by obligations pursuant to St. Mary's
listing agreement with Nasdaq, prior to such consultation and approval, which
approval shall not be unreasonably withheld or delayed. Neither KRI nor KRE nor
any Subsidiary of KRI shall issue any press release or otherwise make any public
statements with respect to the transactions contemplated by this Agreement
without the prior approval of St. Mary, which approval shall not be unreasonably
withheld or delayed.

Section 5.5 Restrictions on Transfer of St. Mary Common Stock.

(a) The KRE Shareholders shall not make any disposition by sale,
pledge or any other transfer of all or any portion of the shares of St.
Mary Common Stock acquired by them pursuant to this Agreement for a period
of two years from the Closing Date. The certificates representing the
shares of St. Mary Common Stock to be issued to the KRE Shareholders
pursuant to this Agreement shall be stamped or otherwise imprinted with a
legend substantially similar to the following:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF AN AGREEMENT AND PLAN OF MERGER WHICH PLACES
CERTAIN RESTRICTIONS ON THE TRANSFER OF THE SHARES REPRESENTED
HEREBY. A COPY OF SUCH AGREEMENT AND PLAN OF MERGER IS AVAILABLE AT
THE COMPANY'S PRINCIPAL EXECUTIVE OFFICES.

(b) Notwithstanding the foregoing, the above-referenced transfer
restrictions shall not apply to the following transactions or under the
following circumstances:

(i) The KRE Shareholders may transfer the shares of St. Mary
Common Stock acquired under this Agreement pursuant to the laws of
descent and distribution and for customary estate planning purposes,
and such shares shall continue to be bound by the restrictions set
forth in this Section 5.5 for the remainder of the restricted
period, as evidenced by the above-referenced legend;

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(ii) Subject to the provisions of Rule 145 under the
Securities Act of 1933, as amended (the "Securities Act"), if any of
Thomas E. Congdon, his spouse or a descendant of his, or any trust
or other entity controlled directly or indirectly by any of them, or
the MMC 1961 Trust, the TEC 1966 Trust or Greenhouse Associates
(together the "Congdon Group"), shall after the Closing Date sell
any of their shares of St. Mary Common Stock (other than to another
member of the Congdon Group), St. Mary shall give prompt notice
thereof to the former shareholders of KRE, and each former
shareholder of KRE may sell a percentage of his, her or its
aggregate shares of St. Mary Common Stock equal to the percentage of
shares owned by the Congdon Group which are so sold. The number of
shares of St. Mary Common Stock owned by the Congdon Group on the
date of this Agreement is 1,288,870. Attached hereto as Exhibit 5.5
is a letter of Thomas E. Congdon setting forth that the members of
the Congdon Group have no current intention to sell any of their
shares of St. Mary Common Stock. Without limiting the generality of
the foregoing, in the event of a tender offer made to the
shareholders of St. Mary which is subject to Regulation 14D of the
Securities Exchange Act of 1934 (a "Tender Offer"), and which is not
approved by the Board of Directors of St. Mary, and in the event
that the Congdon Group sells shares of St. Mary Common Stock
pursuant to such Tender Offer, each former shareholder of KRE may
sell pursuant to such Tender Offer a percentage of his, her or its
aggregate shares of St. Mary Common Stock equal to the percentage of
shares owned by the Congdon Group which are so sold.

(iii) In the event of an Acquisition of St. Mary (as
hereinafter defined), the restrictions on the sale, pledge or other
transfer of shares of St. Mary Common Stock described in Section
5.5(a) above shall terminate and any shares of capital stock of the
acquirer (or an affiliate of the acquirer) received by the former
shareholders of KRE in the Acquisition of St. Mary shall not be
subject to such restrictions. For purposes of this Agreement, the
term "Acquisition of St. Mary" means the occurrence of any of the
following events: (i) St. Mary shall not be the surviving entity in
any merger (other than a merger with a subsidiary of St. Mary),
share exchange, consolidation or other reorganization (or survives
only as a subsidiary of an entity other than an Affiliate of St.
Mary); or (ii) St. Mary sells, leases or exchanges all or
substantially all of its assets to any other person or entity (other
than a wholly owned subsidiary of St. Mary). In the event of a
Tender Offer which is approved by the Board of Directors of St. Mary
pursuant to a plan intended to result in a subsequent Acquisition of
St. Mary, the former shareholders of KRE may participate in such
Tender Offer to the extent of up to all of his, her or its aggregate
shares of St. Mary Common Stock.

Section 5.6 Representation on St. Mary Board of Directors. At the
Effective Time, St. Mary shall cause the Board of Directors of St. Mary to
consist of not more than eleven directors, nine of whom shall be the Directors
of St. Mary immediately prior to the Effective Time and two of whom shall be
Jack Hunt and William Gardiner (the "KRE Board Designees"). Thereafter

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until two years after the Closing Date, or until such time as the former
shareholders of KRE own no shares of St. Mary Common Stock, St. Mary shall
utilize commercially reasonable efforts at the time of each annual meeting of
the shareholders of St. Mary to cause the KRE Board Designees to be elected to
the St. Mary Board of Directors. In the event one or both of the KRE Board
Designees are unwilling or unable to serve on the Board of Directors of St. Mary
for any reason during the foregoing period, the first alternate to replace a KRE
Board Designee shall be John Alexander and the second alternate KRE Board
Designee shall be James Clement.

Section 5.7 Expenses. St. Mary shall be responsible for all of its own
expenses, including but not limited to legal, accounting and other professional
fees and the fees of Deutsche Bank Securities Inc. incurred with respect to this
Agreement and the transactions provided for herein. Without limiting the
generality of the foregoing, St. Mary shall also be responsible for all costs
and registration fees associated with the preparation and filing of the Form
S-4. KRI shall be responsible for all the expenses of KRI and KRE, including but
not limited to legal, accounting and other professional fees and the fees of
Nesbitt Burns, incurred by them with respect to this Agreement and the
transactions provided for herein including the preparation of the Form S-4
except that St. Mary shall pay up to $12,000 of the fees of Deloitte & Touche
LLP incurred on behalf of KRI and KRE in connection with the Form S-4.

Section 5.8 King Ranch Trademark and Brand. As soon as practicable
following the Effective Date, St. Mary and its Subsidiaries, shall not utilize
the names "King Ranch," "King Ranch Energy," "King Ranch Oil & Gas," "Running W"
or any confusingly similar derivation thereof in connection with their
businesses and they shall within such period utilize their commercially
reasonable efforts to remove such names, or logos which include such names, from
any stationery, purchase orders, equipment or machinery owned by them. Effective
January 1, 1999, KRE will not be liable for any fees associated with the use of
the "King Ranch" trademark or brand.

Section 5.9 KRE Employee Severance Payments. KRI shall reimburse KRE or
St. Mary for severance payments to (i) KRE employees to whom St. Mary does not
offer continued employment and who remain employed by KRE until the Closing Date
or until such earlier date as agreed upon by KRE and St. Mary and (ii) KRE
employees whose employment is continued by St. Mary after the Closing Date for a
transition period not in excess of six months. Notwithstanding anything to the
contrary contained in the foregoing, (A) the severance payment reimbursement
liability of KRI for KRE employees described above shall be based, in St. Mary's
discretion, upon not more than two weeks for each full year of prior employment
by KRE except for those employees who are entitled to severance payments
computed in accordance with existing agreements with them, as described on
Schedule 5.9 hereto, provided that the severance payment to any such employee
shall not be less than thirty days salary, (B) the aggregate liability of KRI
under this Section 5.9 shall not exceed $850,000, and any excess shall be paid
by St. Mary and (C) the payment of severance may be conditioned upon an
employee's agreement to a customary confidentiality covenant with respect to
KRE's confidential information.

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Section 5.10 368(a) Reorganization. St. Mary, Merger Sub, KRI and KRE
shall each use commercially reasonable efforts to cause the business combination
to be effected by the Merger to be treated as a reorganization within the
meaning of Section 368(a) of the Code. From and after the date of this Agreement
and after the Effective Time, each party shall use its commercially reasonable
efforts to cause the Merger to qualify, and shall not knowingly take any actions
or cause any actions to be taken which could prevent the Merger from qualifying,
as a reorganization under the provisions of Section 368(a) of the Code.

Section 5.11 355 Distribution. St. Mary, Merger Sub, KRI and KRE shall
each use commercially reasonable efforts to cause the Spin-Off to qualify as a
distribution in which Section 355(e) of the Code applies and to prevent such
distribution from being taxable to the shareholders of KRI. From and after the
date of this Agreement and after the Effective Time, each party shall use its
commercially reasonable efforts to cause the Spin-Off to qualify, and shall not
knowingly take any actions or cause any actions to be taken which are reasonably
likely to prevent the Spin-Off from qualifying as a distribution to which
Section 355(e) of the Code applies.

Section 5.12 Continuity of Business. Following the Merger, St. Mary
intends to cause Merger Sub to continue to a significant extent the historic
business of KRE or to use a significant portion of the historic business assets
of KRE in a business in substantially the same manner as such business was
conducted prior to Closing.

Section 5.13 Indemnification of Officers and Directors. The
indemnification obligations set forth in KRE's Certificate of Incorporation and
KRE's Bylaws shall survive the Merger, and shall not be amended, repealed or
otherwise modified for a period of two years after the Effective Time in any
manner that would adversely affect the rights thereunder of the individuals who
on or prior to the Effective Time were directors, officers, employees or agents
of KRE.

Section 5.14 Retained Litigation. KRI shall retain all liability
associated with, and responsibility for the defense of and the costs thereof,
the Pi Energy Corporation litigation described in Note 6 of the Notes to the KRE
Financial Statements as of December 31, 1998, and any other litigation or
threatened litigation set forth on Schedule 3.2(f) hereto (the "Retained
Litigation"). Notwithstanding the foregoing, St. Mary shall be obligated to use
its commercially reasonable efforts to cooperate with KRI in connection with the
defense of the Retained Litigation, including, without limitation, providing KRI
access to St. Mary's documents and/or employees, which obligation shall survive
the Closing.

Section 5.15 Stockholder's Representative. KRI shall act as the agent and
attorney-in-fact with full power and authority in connection with the
administration of this Agreement on behalf of the KRE shareholders, including
the prosecution of indemnification claims against St. Mary. This appointment
shall be coupled with an interest and shall be irrevocable and binding in all
respects upon St. Mary and the KRE shareholders and their successors and
assigns, and heirs and devisees.

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Section 5.16 Voting Commitments. KRI shall obtain from Stephen Kleberg,
John Alexander and James Clement, members of the KRI Board of Directors and
substantial shareholders of KRI, commitments to (i) vote the shares of stock of
KRE which they will receive in the Distributions in favor of the Merger and (ii)
subject to their fiduciary obligations as Directors, recommend to the members of
their immediate families who are shareholders of KRI that they vote the shares
of KRE stock which they will receive in the Distributions in favor of the
Merger.

Section 5.17 No Solicitation.

(a) KRI and KRE shall immediately cease and cause to be terminated
all existing discussions and negotiations, if any, with any parties
conducted heretofore with respect to any Acquisition Proposal. As used in
this Section 5.17, "Acquisition Proposal" means any tender offer or
exchange offer by a non-affiliated third party for fifty percent or more
of the outstanding shares of KRE common stock or any proposal or offer by
a non-affiliated third party for a merger, consolidation, amalgamation or
other business combination involving KRE or any equity securities (or
securities convertible into equity securities) of KRE, or any proposal or
offer by a non-affiliated third party to acquire in any manner a fifty
percent or greater equity or beneficial interest in, or a material amount
of the assets or value of, KRE, other than pursuant to the transactions
contemplated by this Agreement.

(b) Unless and until this Agreement shall have been terminated, KRI
and KRE shall not permit any of their officers, directors, employees,
agents, financial advisors, counsel or other representatives
(collectively, the "Representatives") to, directly or indirectly, (i)
solicit, initiate or take any action with the intent of facilitating the
making of, any offer or proposal that constitutes or that is reasonably
likely to lead to any Acquisition Proposal, (ii) participate in any
discussions or negotiations regarding any Acquisition Proposal or (iii)
furnish to any Person (other than St. Mary or any Affiliate or
Representative of KRI) any nonpublic information or nonpublic data outside
the ordinary course of conducting KRE's business; provided, however, that
to the extent required by their fiduciary duties under applicable law and
after consultation with and based upon the advice of outside legal
counsel, KRI's or KRE's Board of Directors and officers may in response to
a Person who initiates communication with KRI or KRE, without there having
occurred any action prohibited by clause (i) of this sentence, take such
actions as would otherwise be prohibited by clauses (ii) and (iii). KRI
shall notify St. Mary of any such inquiries, offers or proposals
(including the identity of the Person making any inquiry, offer or
proposal) as promptly as possible and in any event within 24 hours after
receipt thereof or the occurrence of such events, as appropriate, and
shall give St. Mary ten days' advance notice of any agreement to be
entered into with, or any information or data to be furnished to, any
Person in connection with any such inquiry, offer or proposal.

Section 5.18 Seismic Data. The parties agree that neither KRI nor KRE is
making any representation or warranty regarding the continued access of St. Mary
or the Surviving

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Corporation following the consummation of the Merger to any of the seismic data
under the seismic licenses to which KRE or any Subsidiary of KRE is a party.
Furthermore, the parties agree that (A) certain of such seismic data and
licenses are not transferrable to St. Mary or the Surviving Corporation upon
consummation of the Merger, and (B) certain of the seismic data and licenses
will transfer to St. Mary or the Surviving Corporation only upon the payment of
a transfer fee or other penalty. Neither KRI nor KRE shall have any liability to
St. Mary or Surviving Corporation in the event that any such seismic data or
licenses are not transferrable, or in the event that the consummation of the
Merger triggers the payment of a transfer fee or other penalty.

ARTICLE VI

INDEMNIFICATION

Section 6.1 Indemnification by KRI. KRI agrees to and shall defend,
indemnify and hold harmless St. Mary, the Surviving Corporation, and each of
their subsidiaries, stockholders, affiliates, officers, directors, employees,
counsel, agents, successors, assigns and legal representatives (St. Mary and all
such other Persons are collectively referred to as the "St. Mary Indemnified
Persons") from and against, and shall reimburse the St. Mary Indemnified Persons
for, each and every Loss paid, imposed on or incurred by the St. Mary
Indemnified Persons, directly or indirectly, relating to, resulting from or
arising out of (i) any inaccuracy in any representation or warranty of KRI or
KRE under this Agreement, or the KRI or KRE Disclosure or other Schedules hereto
or any agreement or certificate delivered or to be delivered by KRI or KRE
pursuant hereto, (ii) any claim by a third party against St. Mary Indemnified
Persons arising out of an act or omission of KRI or KRE occurring before the
Closing Date, or (iii) the Retained Litigation. The indemnification obligations
set forth herein shall be that of KRI, and the shareholders of KRI shall have
absolutely no liability or obligation hereunder.

Section 6.2 Indemnification by St. Mary. St. Mary agrees to and shall
defend, indemnify and hold harmless KRI and each of KRI's respective
subsidiaries, stockholders, affiliates, officers, directors, employees, counsel,
agents, successors, assigns and legal representatives (KRI and all such other
Persons are collectively referred to as the "KRI Indemnified Persons") from and
against, and shall reimburse the KRI Indemnified Persons for, each and every
Loss paid, imposed on or incurred by the KRI Indemnified Persons, directly or
indirectly, relating to, resulting from or arising out of (i) any inaccuracy in
any representation or warranty of St. Mary or Merger Sub under this Agreement,
or the St. Mary Disclosure Schedule hereto or any agreement or certificate
delivered or to be delivered by St. Mary pursuant hereto, or (ii) any claim by a
third party against KRI Indemnified Persons arising out of an act or omission of
St. Mary or KRE occurring after the Closing Date.

Section 6.3 Notice and Defense of Third-Party Claims. If any Proceeding
shall be brought or asserted under this Article against an indemnified party or
any successor thereto (the "Indemnified Person") in respect of which indemnity
may be sought under this Article from an

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indemnifying Person or any successor thereto (the "Indemnifying Person"), the
Indemnified Person shall give prompt written notice of such Proceeding to the
Indemnifying Person who shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Person and the
payment of all expenses; provided, that any delay or failure to so notify the
Indemnifying Person shall relieve the Indemnifying Person of its obligations
hereunder only to the extent, if at all, that it is prejudiced by reason of such
delay or failure. In no event shall any Indemnified Person be required to make
any expenditure or bring any cause of action to enforce the Indemnifying
Person's obligations and liability under and pursuant to the indemnifications
set forth in this Article. In addition, actual or threatened action by a
Governmental Entity or other entity is not a condition or prerequisite to the
Indemnifying Person's obligations under this Article. The Indemnified Person
shall have the right to employ separate counsel in any of the foregoing
Proceedings and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of the Indemnified Person unless the
Indemnified Person shall in good faith determine that there exist actual or
potential conflicts of interest which make representation by the same counsel
inappropriate, as evidenced by the written opinion of outside counsel to the
Indemnified Person. The Indemnified Person's right to participate in the defense
or response to any Proceeding should not be deemed to limit or otherwise modify
its obligations under this Article. In the event that the Indemnifying Person,
within 15 days after notice of any such Proceeding, fails to assume the defense
thereof, the Indemnified Person shall have the right to undertake the defense,
compromise or settlement of such Proceeding for the account of the Indemnifying
Person, subject to the right of the Indemnifying Person to assume the defense of
such Proceeding with counsel reasonably satisfactory to the Indemnified Person
at any time prior to the settlement, compromise or final determination thereof.
Anything in this Article to the contrary notwithstanding, the Indemnifying
Person shall not, without the Indemnified Person's prior written consent, which
consent shall not be unreasonably withheld, settle or compromise any Proceeding
or consent to the entry of any judgment with respect to any Proceeding;
provided, however, that the Indemnifying Person may, without the Indemnified
Person's prior written consent, settle or compromise any such Proceeding or
consent to entry of any judgment with respect to any such Proceeding that
requires solely the payment of money damages by the Indemnifying Person and that
includes as an unconditional term thereof the release by the claimant or the
plaintiff of the Indemnified Person from all liability in respect of such
Proceeding.

Section 6.4 Limitation of Liability.

(a) Survival. An Indemnifying Person shall have no liability under
this Article unless notice of a claim for indemnity, or notice of facts as
to which an indemnifiable Loss is expected to be incurred, shall have been
given within one year after the Closing Date, except that (i) an
Indemnified Person may give notice of and may make a claim for
indemnification for any indemnifiable Loss which results from any claim by
any third party at any time within two years after the Closing Date, (ii)
an Indemnified Person may give notice of and may make a claim relating to
the payment of federal or state taxes (including with respect to matters
set forth on Schedule 3.2(l)), or compliance with or obligations under
ERISA at any time prior to ninety days after the expiration of

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the appropriate statute of limitation, if any, with respect thereto, and
(iii) St. Mary's Indemnified Persons may give notice of and may make a
claim relating to the Retained Litigation at any time.

(b) Limitation on KRI Liability. In addition to the other
limitations set forth in Section 6.4 (a) and (d), the liability of KRI to
St. Mary's Indemnified Persons shall be subject to the following
limitations:

(i) No St. Mary Indemnified Person shall be entitled to
indemnification from KRI pursuant to Section 6.1 hereof, except for
single Losses in excess of $100,000 (for which the full Loss shall
be indemnified and not solely the amount of the Loss in excess of
$100,000), unless and until the aggregate of all Losses (excluding
single Losses in excess of $100,000 which have been indemnified) for
which indemnification would (but for the limitation of this
sentence) be required to be paid by KRI hereunder exceeds $600,000
(the "KRI Loss Threshold") after which the St. Mary Indemnified
Persons shall be entitled to recover for all Losses and for which
indemnification is required to be paid hereunder (including such
$600,000).

(ii) In no event shall the aggregate liability of KRI
hereunder exceed $25,000,000 ("KRI Loss Ceiling"). KRI shall have no
further obligations under this Article VI of this Agreement at the
earlier of the time when KRI has paid or is required to pay to St.
Mary's Indemnified Persons an amount equal to the KRI Loss Ceiling.

(iii) Notwithstanding anything in this Section 6.4(b) to the
contrary, amounts paid by KRI in connection with the Retained
Litigation, including attorneys' fees, court costs, settlements or
judgements shall not be used in calculating the KRI Loss Threshold,
shall not be limited by the KRI Loss Ceiling and shall be due from
KRI irrespective of the provisions of paragraphs (i) and (ii) above.

(c) Limitation on St. Mary Liability. In addition to the other
limitations set forth in Section 6.4(a) and (d), the liability of St. Mary
to KRI's Indemnified Persons shall be subject to the following
limitations:

(i) No KRI Indemnified Person shall be entitled to
indemnification from St. Mary pursuant to Section 6.2 hereof, except
for single Losses in excess of $100,000 (for which the full Loss
shall be indemnified and not solely the amount of the Loss in excess
of $100,000), unless and until the aggregate of all Losses
(excluding single Losses in excess of $100,000 which have been
indemnified) for which indemnification would (but for the limitation
of this sentence) be required to be paid by St. Mary hereunder
exceeds $600,000 (the "St. Mary Loss Threshold") after which the KRI
Indemnified Persons shall be entitled

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to recover for all Losses and for which indemnification is required
to be paid hereunder (including such $600,000).

(ii) In no event shall the aggregate liability of St. Mary
hereunder exceed $25,000,000 ("St. Mary Loss Ceiling"). St. Mary
shall have no further obligations under this Article VI of this
Agreement at the earlier of the time when St. Mary has paid or is
required to pay to KRI an amount equal to the St. Mary's Loss
Ceiling.

(d) Tax Benefits; Insurance Recoveries. In calculating the amount of
any Loss for which any Indemnifying Person is liable under this Article,
there shall be taken into consideration (i) the value of any federal or
state income tax benefits and (ii) the amount of any insurance recoveries,
net of any amounts which are in effect self-insured, whether through
deductibles, co-payments, retention amounts, retroactive premium
adjustments or other similar adjustments, the Indemnified Person in fact
receives as a direct consequence of the circumstances to which the Loss
related or from which the Loss resulted or arose.

Section 6.5 Exclusivity. After the Effective Time, the provisions of this
Article shall be the exclusive basis for the assertion of claims by or
imposition of liability on the parties hereto arising under or as a result of
this Agreement; provided, however, nothing herein shall preclude any party
hereto from asserting a claim for equitable non-monetary remedies.

Section 6.6 Waiver of Consequential Damages. With respect to any and all
Losses for which indemnification may be available hereunder, each party hereby
expressly waives any consequential and punitive damages with respect to a claim
against the other party hereto; provided, however, that this waiver shall not
apply to the extent such consequential or punitive damages are awarded in a
Proceeding brought or asserted by a third party against an Indemnified Person.

ARTICLE VII

CONDITIONS TO CLOSING

Section 7.1 Conditions to Each Party's Obligation to Effect the Merger.
Except as may be waived in writing by the Parties, all of the obligations of the
Parties under this Agreement are subject to the fulfillment, prior to or at the
Closing, of each of the following conditions:

(a) Shareholder Approvals. St. Mary shall have obtained the Required
St. Mary Vote in connection with the approval of the St. Mary Share
Issuance by the shareholders of St. Mary and KRI shall have obtained the
Required KRE Vote in connection with the approval of the Merger by the
shareholders of KRE.

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(b) No Injunctions, Restraints or Illegality. No laws shall have
been adopted or promulgated, and no temporary restraining order,
preliminary or permanent injunction or other order issued by a court or
other governmental entity of competent jurisdiction shall be in effect,
having the effect of making the Merger illegal or otherwise prohibiting
consummation of the Merger, provided however, that the provisions of this
Section 7.1(b) shall not be available to any party whose failure to
fulfill its obligations pursuant to Section 5.3 shall have been the cause
of, or shall have resulted in, such order or injunction.

(c) Effectiveness of the Form S-4. The Form S-4 shall have been
declared effective by the SEC and shall have become effective in all
states where required.

(d) Nasdaq Listing. The shares of St. Mary Common Stock to be issued
pursuant to this Agreement shall have been approved upon official notice
of issuance for quotation on Nasdaq.

(e) Consummation of the Distribution. The shares of KRE shall have
been distributed to the KRI shareholders in accordance with the
Distributions.

Section 7.2 Additional Conditions to Obligations of St. Mary and Merger
Sub. The obligations of St. Mary and Merger Sub to effect the Merger are subject
to the satisfaction of, or waiver by St. Mary, on or prior to the Closing Date
of the following conditions:

(a) Representations and Warranties. The representations and
warranties of KRI and KRE set forth in Sections 3.1 and 3.2 shall be true
and correct in all respects as of the Closing Date and as if made on the
Closing Date subject to any changes contemplated by this Agreement.

(b) Performance of Obligations of KRI and KRE. KRI and KRE shall
have performed or complied in all material respects with all agreements
and covenants required to be performed by it under this Agreement at or
prior to the Closing Date.

(c) Settlement for KRI-KRE Intercompany Balances. KRI shall have
paid to KRE an amount equal to the amount, if any, of intercompany
transactions subsequent to May 31, 1999 and up to the Closing Date between
KRE (together with any KRE Subsidiary) and KRI (together with any other
Subsidiary of KRI), net of any intercompany transactions between KRI
(together with any other Subsidiary of KRI) and KRE (together with any KRE
Subsidiary) subsequent to that date. No interest shall have accrued from
and after December 31, 1998 on any outstanding obligations between KRE or
any KRE Subsidiary and KRI or any other KRI Subsidiary. KRI shall provide
evidence of the cancellation of any obligation of KRE to repay KRI, or any
other Subsidiary of KRI, for (i) the funds advanced by KRI to KRE for the
acquisition by KRE of the Flour Bluff properties, and (ii) any
indebtedness of KRE to KRI or any other Subsidiary of KRI existing on May
31, 1999.

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(d) Certificate of Officers. KRI shall have delivered to St. Mary
certificates dated as of the Closing Date, executed in their respective
corporate names by, and verified by, the oath of its chief executive
officer and chief financial officer certifying to the fulfillment of the
conditions specified in subsections (a) and (b) of this Section 7.2.

(e) Opinion of Financial Advisor. The opinion referred to in Section
3.3(r) shall not have been withdrawn by Deutsche Bank Securities Inc.

(f) Opinion of Counsel. St. Mary shall have received a customary
opinion of Locke Liddell & Sapp LLP, counsel to KRE and KRI, in a form
approved by St. Mary, which approval shall not be unreasonably withheld or
delayed.

(g) Non-Exercise of Appraisal Rights. In connection with the
Required KRE Vote, the holders of no more than five percent of the
outstanding shares of common stock of KRE shall have exercised the rights
of dissenting shareholders under Section 262 of the Delaware General
Corporation Law ("Dissenting Shares"); provided, however, that if more
than five percent, but less than ten percent, of the shares of KRE common
shares are Dissenting Shares ("Excess Shares"), KRI shall have the right,
but not the obligation, to assume the liability for any Excess Payment (as
hereinafter defined). In the event that KRI assumes the liability for any
Excess Payment, this condition shall be deemed satisfied. The term "Excess
Payment" is the amount by which St. Mary's per share liability for Excess
Shares (as adjusted by the exchange ratio into shares of St. Mary Common
Stock) exceeds$19.76 per share of St. Mary Common Stock.

(h) Eugene Island Block 341. With respect to the Eugene Island Block
341 oil and gas property, KRE shall have obtained in a form substantially
similar to that previously provided to St. Mary the assignment of interest
contemplated by that certain Participation Agreement dated February 17,
1998 between NCX Company, Inc. ("NCX") and KRE, which assignment shall be
subject to a contract operations agreement between NCX and Chevron U.S.A.
Production Company ("Chevron"), a throughput agreement between NCX and
Chevron, and an operating agreement between NCX and KRE. If such
assignment is not obtained, KRI shall indemnify St. Mary in accordance
with the provisions of Article VI hereof to the extent that St. Mary is
unable to recover currently non-producing reserves solely due to a lack of
rights or interests in such reserves, and this condition to closing shall
be deemed satisfied thereby. The liability for such indemnity obligation
shall be the values used by St. Mary in the net asset value determination
for KRE in connection with the Merger on a case-by-case basis as to each
currently non-producing interval covered by such assignment. Such
indemnification obligation of KRI shall remain in full force and effect
for a period of five years after the Closing Date or until any earlier
obtaining of such assignment. If there exists any conflict between this
provision and any other provision contained in this Agreement, the
provisions set forth in this Section shall control. Notwithstanding the
foregoing, no indemnification shall apply if such reserves are not
recoverable for any reason other than as specified herein.

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(i) Affiliate Restrictions. KRI shall have notified, in writing,
persons who are affiliates of KRI or KRE within the meaning of the
Securities Act (i) of the application to them of Rule 145 under the
Securities Act with respect to St. Mary Common Stock to be issued to them
pursuant to this Agreement and (ii) that the certificates of St. Mary
Common Stock issued to such persons will bear an additional restrictive
legend with respect to the foregoing.

Section 7.3 Additional Conditions to Obligations of KRE and the
Shareholders of KRE. The obligations of the shareholders of KRE and KRE to
effect the Merger are subject to the satisfaction of, or waiver by KRI on or
prior to the Closing Date of the following conditions:

(a) Representations and Warranties. The representations and
warranties of St. Mary and Merger Sub set forth in Section 3.3 and Section
3.4 shall be true and correct in all respects as of the Closing Date and
as if made on the Closing Date, subject to any changes contemplated by
this Agreement.

(b) Performance of Obligations of St. Mary and Merger Sub. St. Mary
and Merger Sub shall have performed or complied in all material respects
with all agreements and covenants required to be performed by them under
this Agreement at or prior to the Closing Date.

(c) Settlement of KRI-KRE Intercompany Balances. KRE shall have paid
KRI an amount equal to the amount, if any, of intercompany transactions
subsequent to May 31, 1999 and up to the Closing Date between KRI
(together with any other Subsidiary of KRI) and KRE (together with any KRE
Subsidiary), net of any intercompany transactions between KRE (together
with any KRE Subsidiary) and KRI (together with any other Subsidiary of
KRI) subsequent to that date, exclusive of funds advanced by KRI to KRE
for the acquisition by KRE of the Flour Bluff properties.

(d) Certificate of Officers. St. Mary shall have delivered to KRI a
certificate dated as of the Closing Date, executed in its corporate name
by, and verified by, the oath of its chief executive officer and vice
president of finance certifying to the fulfillment of the conditions
specified in subsections (a) and (b) of this Section 7.3.

(e) Opinion of Financial Advisor. The opinion referred to in Section
3.2(r) shall not have been withdrawn by Nesbitt Burns.

(f) Opinion of Counsel. KRI shall have received a customary opinion
of Ballard Spahr Andrews & Ingersoll, LLP, counsel to St. Mary, in a form
approved by KRI, which approval shall not be unreasonably withheld or
delayed.

(g) Tax Certificate. Counsel to KRI shall have received a tax
certificate from St. Mary in the form attached hereto as Exhibit 7.3(g).

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(h) Tax Opinion. KRI shall have received the opinions of Locke
Liddell & Sapp LLP and Ernst & Young LLP that (i) the Merger qualifies as
a reorganization under Section 368(a) of the Code, and (ii) the Spin-Off
qualifies as a tax-free distribution to the shareholders of KRI under
Section 355 of the Code.

ARTICLE VIII

TERMINATION AND AMENDMENT

Section 8.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time by action taken or authorized by the Board of
Directors of the terminating party or parties, whether before or after approval
of the St. Mary Share Issuance by the shareholders of St. Mary and approval of
the Merger by the shareholders of KRE, as follows:

(a) by mutual written consent of St. Mary, KRI and KRE, by action of
their respective Boards of Directors;

(b) by KRE or by St. Mary if the Effective Time shall not have
occurred on or before November 30, 1999 (the "Termination Date");
provided, however, that the right to terminate this Agreement under this
Section 8.1(b) shall not be available to any party whose failure to
fulfill any obligation under this Agreement (including without limitation
Section 5.3) has to any material extent been the cause of, or resulted in,
the failure of the Effective Time to occur on or before the Termination
Date;

(c) by KRE or by St. Mary if any Governmental Entity (i) shall have
issued an order, decree or ruling or taken any other action (which the
parties shall have used their commercially reasonable efforts to resist,
resolve or lift, as applicable, in accordance with Section 5.3)
permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement, and such order, decree,
ruling or other action shall have become final and nonappealable or (ii)
shall have failed to issue an order, decree or ruling or to take any other
action (which order, decree, ruling or other action the parties shall have
used their commercially reasonable efforts to obtain, in accordance with
Section 5.3), in each case of (i) and (ii) which is necessary to fulfill
the conditions set forth in subsections 7.1(b) and 7.1(c) as applicable,
and such denial of a request to issue such order, decree, ruling or take
such other action shall have become final and nonappealable; provided
however, that the right to terminate this Agreement under this Section
8.1(c) shall not be available to any party whose failure to comply with
Section 5.3 has to any material extent been the cause of such action or
inaction;

(d) by KRE or by St. Mary if (i) the approval by the shareholders of
St. Mary required for the St. Mary Share Issuance to consummate the Merger
shall not have been obtained by reason of the failure to obtain the
Required St. Mary Vote, upon the taking of such vote at a duly held
meeting of the shareholders of St. Mary or at any reconvened

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meeting after any adjournment or postponement thereof, or (ii) the
approval by the shareholders of KRE required for the Merger shall not have
been obtained by reason of the failure to obtain the Required KRE Vote,
upon the taking of such vote at a duly held meeting of the shareholders of
KRE or at any reconvened meeting after any adjournment or postponement
thereof;

(e) by St. Mary if there has been a material breach of a
representation, warranty, covenant or agreement contained in this
Agreement on the part of KRI or KRE, and as a result of such breach the
conditions precedent set forth in Section 7.1 or Section 7.2, as the case
may be, would not then be satisfied; provided, however, that if such
breach is curable by KRI or KRE through the exercise of commercially
reasonable efforts within the earlier of (i) thirty days from the receipt
of written notice of breach by KRI from St. Mary or (ii) November 30,
1999, then for so long as KRI continues to exercise such commercially
reasonable efforts, St. Mary may not terminate this Agreement under this
Section 8.1(e) unless the breach is not cured in full within such time
period; and

(f) by KRI if there has been a material breach of a representation,
warranty, covenant or agreement contained in this Agreement on the part of
St. Mary, and as a result of such breach the conditions precedent set
forth in Section 7.1 or Section 7.3, as the case may be, would not then be
satisfied; provided, however, that if such breach is curable by St. Mary
through the exercise of commercially reasonable efforts within the earlier
of (i) thirty days from receipt of written notice of breach by St. Mary
from KRI or (ii) November 30, 1999, then for so long as St. Mary continues
to exercise such commercially reasonable efforts, KRI may not terminate
this Agreement under this Section 8.1(f) unless the breach is not cured in
full within such time period.

Section 8.2 Effect of Termination.

(a) In the event of termination of this Agreement by KRE or by St.
Mary as provided in Section 8.1, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of St. Mary
or KRI or their respective subsidiaries, affiliates, employees, officers,
directors or counsel, except with respect to the first sentence of Section
5.2, Section 5.7 and this Section 8.2.

(b) If St. Mary shall terminate this Agreement pursuant to Section
8.1(e) hereof, St. Mary may elect (i) to require KRI to pay to it the sum
of $1,000,000 (the "Termination Fee"), or (ii) in lieu of the Termination
Fee, to exercise its legal right to assert a claim for all available legal
monetary and equitable non-monetary remedies against KRI and KRE with
respect to such breach. If St. Mary shall terminate this Agreement
pursuant to Section 8.1(e) hereof, and on or before December 31, 1999
there is a proposal reflected by a written document (an "Alternative
Acquisition Proposal") for an Alternative Transaction (as hereinafter
defined), KRI shall be obligated to pay to St. Mary an additional sum of
$2,000,000 (the "Alternative Transaction Fee") upon the closing of such
Alternative Transaction. An "Alternative Transaction" shall mean a

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merger, a tender offer or exchange offer for substantially all or the
outstanding capital stock of KRE, or a sale of substantially all of the
assets of KRE to one or more non-affiliated purchasers but shall not mean
a liquidation or dissolution of KRE which is not a part of one of the
foregoing transactions. KRI acknowledges that St. Mary will have incurred
significant costs and will have invested significant amounts of time and
resources investigating and negotiating the acquisition of KRE, and agrees
that the Termination Fee and the Alternative Transaction Fee constitute,
if applicable, reasonable liquidated damages in light of the anticipated
or actual harm to St. Mary that would be caused by a termination subject
to this Section 8.2(b). KRI and KRE further acknowledge that St. Mary may
suffer irreparable harm as a result of entering into this Agreement, and
in the event St. Mary shall be entitled to terminate this Agreement
pursuant to Section 8.1(e) hereof, but elects not to so terminate, St.
Mary shall have the right to seek specific enforcement of this Agreement.

(c) If KRI shall terminate this Agreement pursuant to Section 8.1(e)
hereof, KRI may elect (i) to require St. Mary to pay to it the Termination
Fee, or (ii) in lieu of the Termination Fee, to exercise its legal right
to assert a claim for all available legal monetary and equitable
non-monetary remedies against St. Mary with respect to such breach. St.
Mary acknowledges that KRI will have incurred significant costs and will
have invested significant amounts of time and resources investigating and
negotiating the acquisition of KRE, and agrees that the Termination Fee,
if applicable, constitutes reasonable liquidated damages in light of the
anticipated or actual harm to KRI that would be caused by a termination
subject to this Section 8.2(b). St. Mary further acknowledges that KRE may
suffer irreparable harm through the loss of personnel and/or business
opportunities as a result of entering into this Agreement, and in the
event KRE shall be entitled to terminate this Agreement pursuant to
Section 8.1(f) hereof, but elects not to so terminate, KRI and KRE shall
have the right to seek specific enforcement of this Agreement.

(d) Notwithstanding the provisions of paragraphs (a) and (b) above,
if this Agreement is terminated because of a failure to obtain the
Required St. Mary Vote or the Required KRE Vote, a Termination Fee shall
not be payable. However, if this Agreement is terminated because of a
failure to obtain the Required KRE Vote, and on or before December 31,
1999 there is an Alternative Acquisition Proposal, an Alternative
Transaction Fee shall be payable as set forth in paragraph (b) above upon
the closing of such Alternative Transaction, and in that event the
Alternative Transaction Fee payable upon the closing of such Alternative
Transaction shall be $3,000,000.

(e) Any payment required to be made pursuant to Sections 8.2(b) and
(c) shall be made by wire transfer not later than ten business days after
first due.

Section 8.3 Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after approval of the St. Mary Share Issuance by the
shareholders of St. Mary and the approval of the

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Merger by the shareholders of KRI, but, after any such approval, no amendment
shall be made which by law or in accordance with the rules of Nasdaq requires
further approval by such shareholders without such further approval. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.

Section 8.4 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of all parties hereto. The
failure of any party to this Agreement to assert any of its rights under this
Agreement or otherwise shall not constitute a waiver of those rights.

ARTICLE IX

ARBITRATION

Section 9.1 Mediation. The parties hereto agree that if any claim, action,
dispute or controversy of any kind arises out of or relates to this Agreement or
concerns any aspect of performance by any party under the terms of this
Agreement, prior to seeking any other remedies, including arbitration or
litigation, the aggrieved party shall give written notice to the other party
describing the disputed issue. Within ten days after the receipt of such a
notice, the parties shall mutually appoint a single mediator to assist in the
resolution of the dispute. If the parties cannot agree upon a mediator, either
KRI or St. Mary shall have the right to apply to the American Arbitration
Association ("AAA") for a single mediator to be appointed to mediate the dispute
in accordance with the rules applicable to AAA sponsored proceedings and, upon
the appointment of such a mediator by AAA, such mediator shall be deemed to be
accepted by the parties hereto. Within twenty days after the appointment of a
mediator, either by the parties hereto or, if necessary, by AAA, the parties
shall meet one or more times with such mediator in an effort to resolve the
matters in dispute. If after such meeting or meetings any aspect of the dispute
remains unresolved for a period of an additional ten days, the parties shall be
obligated to submit the dispute to arbitration in accordance with the provisions
of Section 9.2 immediately below. Any meeting or meetings with the mediator
appointed pursuant to this Article IX shall be conducted in Denver, Colorado.
The costs and expenses of the mediator shall be borne equally by KRI and St.
Mary.

Section 9.2 Arbitration.

(a) Any claim, action, dispute or controversy of my kind arising out
of or relating to this Agreement or concerning any aspect of performance
by any party under the terms of this Agreement that is not resolved by the
mediation process set forth in Section 9.1 above ("Dispute") shall be
resolved by mandatory and binding arbitration administered

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by the AAA pursuant to the Federal Arbitration Act (Title 9 of the United
States Code) in accordance with this Agreement and the then-applicable
Commercial Arbitration Rules of the AAA. The parties acknowledge and agree
that the transactions evidenced and contemplated hereby involve "commerce"
as contemplated in Section 2 of the Federal Arbitration Act. To the extent
that any inconsistency exists between this Agreement and the foregoing
statutes or rules, this Agreement shall control. Judgment upon the award
rendered by the arbitrator acting pursuant to this Agreement may be
entered in, and enforced by, any court having jurisdiction absent manifest
disregard by such arbitrator of applicable law; provided, however, that
the arbitrator shall not amend, supplement or reform in any manner any of
the rights or obligations of any party hereunder or the enforceability of
any of the terms of this Agreement. Any arbitration proceedings under this
Agreement shall be conducted in Denver, Colorado, before a single
arbitrator being a member of the State Bar of Colorado for over ten years
and having recognized expertise in the field or fields of the matter(s) in
dispute.

(b) After first exhausting the mediation process set forth in
Section 9.1 upon the request by written notice delivered in accordance
with the terms hereof, whether made before or after the institution of any
legal proceeding, but prior to the expiration of the statutory time period
within which a party must respond upon receipt of valid service of process
in order to avoid a default judgment, any Dispute shall be resolved by
mandatory and binding arbitration in accordance with the terms of this
Agreement. Within ten days after a party's receipt of such notice, each of
the parties shall select one qualified arbitrator. The two arbitrators
selected by the parties shall then mutually select a third arbitrator (the
"Third Arbitrator"), and the Third Arbitrator shall resolve the Dispute in
accordance with this Agreement and the applicable AAA rules. If a
replacement arbitrator is necessary for any reason, such replacement
arbitrator shall be appointed by the Third Arbitrator or, alternatively,
if the Third Arbitrator is to be replaced, mutually by the two arbitrators
selected by the parties.

(c) All statutes of limitation that would otherwise be applicable
shall apply to my arbitration proceeding. Any attorney-client privilege
and other protection against disclosure of privileged or confidential
information including, without limitation, any protection afforded the
work-product of any attorney, that could otherwise be claimed by any party
shall be available to, and may be claimed by, any such party in any
mediation or arbitration proceeding. No party waives my attorney-client
privilege or any other protection against disclosure of privileged or
confidential information by reason of anything contained in, or done
pursuant to, the mediation or arbitration provisions of this Agreement.

(d) The arbitration shall be conducted and concluded as soon as
reasonably practicable, based on a schedule established by the Third
Arbitrator. Any arbitration award shall be based on and accompanied by
findings of fact and conclusions of law, shall be conclusive as to the
facts so found and shall be confirmable by my court having jurisdiction
over the Dispute, provided that such award, findings and conclusions are
not

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in manifest disregard of applicable law. The Third Arbitrator shall have
no authority to award punitive damages or any other damages not measured
by the prevailing party's actual damages, and may not, in my event, make
any ruling, finding or award that does not conform to the terms and
conditions of this Agreement.

(e) In order for an arbitration award to be conclusive, binding and
enforceable under this Agreement, the arbitration must follow the
procedures set forth in the portions of this Agreement relating to such
arbitration and any award or determination shall not be in manifest
disregard of applicable law. The obligation to mediate or arbitrate my
Dispute shall be binding upon the successors and assigns of each of the
parties hereto.

(f) Notwithstanding anything to the contrary contained in this
Article IX, the obligation of the parties hereto to mediate and arbitrate
shall not apply to any dispute in which injunctive or other equitable
relief is sought.

Section 9.3 Costs; Enforcement. Each party shall bear its own expenses,
including, without limitation, expenses of counsel incident to any mediation or
arbitration. The expenses of the Third Arbitrator and the AAA shall be born
equally by KRI and St. Mary. The Third Arbitrator shall have the power and
authority to award expenses to the prevailing party if the Third Arbitrator
elects to do so. A party may bring summary proceedings (including, without
limitation, a plea in abatement or motion to stay further proceedings) in court
to compel mediation or arbitration of any Dispute in accordance with this
Agreement.

ARTICLE X

MISCELLANEOUS

Section 10.1 Nature of Representations and Warranties; Survival. The
representations and warranties of the parties under this Agreement shall survive
for a period of one year from the Closing Date; provided, however, that (i) the
representations and warranties shall survive for a period of two years from the
Closing Date to the extent that any inaccuracy in any representation or warranty
results in or involves a claim by any third party and (ii) the representations
and warranties made with respect to taxes and benefit plans shall survive until
ninety days after the expiration of the appropriate statue of limitation, if
any, with respect thereto. Further, the Confidentiality Agreements (defined in
Section 5.2) and the obligations with respect to the Retained Litigation (as
defined in Section 5.13), shall survive the Closing and remain in full force and
effect without a time limitation.

Section 10.2 Counterparts and Facsimile Signatures. In order to facilitate
the execution of this Agreement, the same may be executed in any number of
counterparts and signature pages may be delivered by telefax, with original
executed signature pages to be furnished promptly thereafter.

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Section 10.3 Assignment. Neither this Agreement nor any right created
hereby shall be assignable by KRI, KRE or St. Mary without the prior written
consent of the other parties. Nothing in this Agreement, express or implied, is
intended to confer upon any person, other than the parties hereby and their
respective successors, assigns, heirs, executors, administrators, or personal
representatives, any rights or remedies under or by reason of this Agreement.

Section 10.4 Representative of KRH, KRM and KRE Any executive officer of
KRI is hereby authorized to execute any document or take any other action on
behalf of KRH, KRM or KRE.

Section 10.5 Entire Agreement. This Agreement, the schedules hereto, and
the other documents delivered pursuant hereby constitute the full and entire
understanding and agreement between the parties with regard to the subject
hereof and no party shall be liable or bound to any other in any manner by any
representations, warranties, covenants or agreements except as specifically set
forth herein. All prior agreements and understandings are superseded by this
Agreement and the schedules hereto.

Section 10.6 Governing Law. This Agreement shall be governed by the laws
of the State of New York, except that the Delaware General Corporation Law shall
govern as to matters of corporate law pertaining to St. Mary and KRE, the
corporate laws of Texas shall govern as to the matters of corporate law
pertaining to KRI and the corporate laws of Colorado shall govern as to matters
of corporate law pertaining to Merger Sub. Subject to the alternative dispute
resolution provisions set forth in Article IX, any action brought to enforce
this Agreement or any term thereof shall be brought in a court of competent
jurisdiction in Denver, Colorado and each party hereto affirmatively agrees to
submit to the jurisdiction in that city and state.

Section 10.7 Severability. In case any provision of this Agreement shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.

Section 10.8 Notices. Any notice, communication, request, reply or advice,
hereinafter severally and collectively called "notice," in this Agreement
provided or permitted to be given, made or accepted by either party to the other
must be in writing and may be given by personal delivery or U.S. mail or
confirmed telefax. If given by mail, such notice must be sent by registered or
certified mail, postage prepaid, mailed to the party at the respective address
set forth below, and shall be effective only if and when received by the party
to be notified. For purposes of notice, the addresses of the parties shall,
until changed as hereinafter provided, be as follows:

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(a) If to St. Mary and/or Merger Sub:

St. Mary Land & Exploration Company
Attn: Mr. Mark A. Hellerstein
President and Chief Executive Officer
1776 Lincoln Street, Suite 1100
Denver, CO 80203-1080
Telefax: (303) 861-0934

With a copy to:

Milam Randolph Pharo, Esq.
Vice President Land & Legal
St. Mary Land & Exploration Company
1776 Lincoln Street, Suite 1100
Denver, CO 80203-1080
Telefax: (303) 863-1040

(b) If to KRH, KRM, KRI and/or KRE:

King Ranch Inc.
Attn: Mr. Jack Hunt, President
1415 Louisiana, Suite 2300
Houston, TX 77002
Telefax: (713) 752-0101

With a copy to:

Greg Hill, Esq.
Locke Liddell & Sapp LLP
3400 Chase Tower
600 Travis
Houston, Texas 77002
Telefax: (713) 223-3717

or at such other address or telefax number as any party may have advised the
others in writing.

Section 10.9 Attorney Fees. Except as otherwise provided herein, in the
event any party hereto institutes a proceeding against any other party hereto
for a claim arising out of or to enforce this Agreement, the parties agree that
the judge or arbitrator in any such proceeding shall be entitled to determine
the extent to which any party shall pay the reasonable attorneys' fees incurred
by the other party in connection with such proceeding, which determination shall
take into consideration the outcome of such Proceeding and such other factors as
the judge may determine to be equitable in the circumstances.

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Section 10.10 Certain Definitions.

(a) "Affiliate" means, with respect to any Person, any other Person
that directly, or indirectly through one or-more intermediaries, controls
or is controlled by or is under common control with, such Person; as used
in this definition, "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through ownership of voting
securities, by contract, or otherwise.

(b) "Knowledge" means (i) with respect to KRI and KRE, the actual
conscious knowledge of Jack Hunt, William Gardiner, Tom Fiorito, William
Silk, Brian Romere, Sonny Bryant, Dwight Bowles and Dennis Haydel and (ii)
with respect to St. Mary or Merger Sub, the actual conscious knowledge of
Thomas E. Congdon, Mark Hellerstein, Ronald Boone, Douglas York, Milam
Randolph Pharo, Richard Norris and Gary Wilkering.

(c) "Loss" means any loss, damage, injury, diminution in value,
liability, claim, demand, proceeding, judgment, punitive damage, fine,
penalty, tax, cost or expense (including reasonable costs of investigation
and the fees, disbursements and expenses of attorneys, accountants and
other professionals incurred in proceedings, investigations or disputes
involving third parties, including governmental agencies).

(d) "Material Adverse Effect" means, with respect to KRE or St.
Mary, or any of their respective Subsidiaries, any adverse change,
circumstance or effect that, individually or in the aggregate with all
other adverse changes, circumstances and effects, or is reasonably likely
to be materially adverse to the business, properties, assets, financial
conditions or results or such operations of such entity and its
Subsidiaries, taken as a whole, other than any change, circumstance or
effect relating to the economy or securities markets in general, the price
or oil or natural gas, or the industries in which KRE or St. Mary operates
and are not specifically relating to KRE or St. Mary.

(e) "Person" means an individual, corporation, limited liability
company, partnership, association, trust, unincorporated organization,
other entity or group (as defined in the Exchange Act).

(f) "Proceeding" means any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal,
administrative, investigative, or informal) commenced, brought, conducted,
or heard by or before, or otherwise involving, any Governmental Entity or
arbitrator.

(g) "Subsidiary" when used with respect to any party means any
corporation or other organization, whether incorporated or unincorporated,
(i) of which such party or any other Subsidiary of such party is a general
partner (excluding partnerships, the general partnership interests of
which held by such party or any Subsidiary of such party do not have a
majority of the voting interests in such partnership) or (ii) at least a
majority of the

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securities or other interests of which having by their terms ordinary
voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such party
or by any one or more or its Subsidiaries, or by such party and one or
more of its Subsidiaries.

{Remainder of Page Intentionally Left Blank}

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<PAGE>

IN WITNESS WHEREOF, this Agreement is hereby duly executed by each party
hereto as of the date first written above.

ST. MARY:

ST. MARY LAND & EXPLORATION COMPANY,
a Delaware corporation

By: /S/ MARK A HELLERSTEIN
-------------------------------------
Mark A. Hellerstein, President and
Chief Executive Officer

MERGER SUB:

ST. MARY ACQUISITION CORPORATION,
a Colorado corporation

By: /S/ MARK A. HELLERSTEIN
-------------------------------------
Mark A. Hellerstein, President

KRI:

KING RANCH INC.,
a Texas corporation

By: /S/ JACK HUNT
-------------------------------------
Jack Hunt, President

KRE:

KING RANCH ENERGY, INC.,
a Delaware corporation

By: /S/ WILLIAM GARDINER
-------------------------------------
William Gardiner, Vice President

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Annex B

July 27, 1999

Board of Directors
St. Mary Land & Exploration Company
1776 Lincoln Street
Suite 1100
Denver, Colorado 80203

Gentlemen:

Deutsche Bank Securities Inc. ("Deutsche Bank") has acted as financial
advisor to St. Mary Land & Exploration Company ("St. Mary") in connection with
the proposed merger of St. Mary Acquisition Corporation ("Merger Sub"), a
wholly-owned subsidiary of St. Mary, and King Ranch Energy, Inc. ("KRE"), a
wholly-owned subsidiary of King Ranch, Inc. ("KRI"), pursuant to the Agreement
and Plan of Merger, dated July 27, 1999, among St. Mary, Merger Sub, KRI and KRE
(the "Merger Agreement"), which provides, among other things, for the merger of
Merger Sub with and into KRE (the "Transaction"), as a result of which KRE will
become a wholly-owned subsidiary of St. Mary. As set forth more fully in the
Merger Agreement, as a result of the Transaction, the total number of shares of
the Common Stock, par value $0.01 per share, of KRE ("KRE Common Stock") issued
and outstanding will be converted into the right to receive 2,666,252 shares
(the "Exchange Ratio") of Common Stock, par value $0.01 per share, of St. Mary
("St. Mary Common Stock"). Immediately prior to the completion of the
Transaction, all the issued and outstanding shares of KRE Common Stock will be
distributed pro rata to the shareholders of KRI (the "Distribution"). Each of
the shareholders of KRE who receives St. Mary Common Stock will be restricted
from selling such St. Mary Common Stock for a period of two years following the
effectiveness of the Transaction, subject to limited exceptions specified in the
Merger Agreement. The terms and conditions of the Transaction are more fully set
forth in the Merger Agreement.

You have requested Deutsche Bank's opinion, as investment bankers, as to
the fairness, from a financial point of view, to St. Mary of the Exchange Ratio.

In connection with Deutsche Bank's role as financial advisor to St. Mary,
and in arriving at its opinion, Deutsche Bank has reviewed certain publicly
available financial and other information concerning KRE and St. Mary and
certain internal analyses and other information furnished to it by KRE and St.
Mary. Deutsche Bank has also held discussions with members of the senior
managements of KRE and St. Mary regarding the businesses and prospects of their
respective companies and the joint prospects of a combined company. In addition,
Deutsche Bank has (i) reviewed the reported prices and trading activity for St.
Mary Common Stock, (ii) compared certain financial information for KRE and St.
Mary, and certain stock market

B-1
<PAGE>

St. Mary Land & Exploration Company
July 27, 1999
Page 2

information for St. Mary, with similar information for certain other companies
whose securities are publicly traded, (iii) reviewed the financial terms of
certain recent business combinations which it deemed comparable in whole or in
part, (iv) reviewed the terms of the Merger Agreement and certain related
documents, and (v) performed such other studies and analyses and considered such
other factors as it deemed appropriate.

Deutsche Bank has not assumed responsibility for independent verification
of, and has not independently verified, any information, whether publicly
available or furnished to it, concerning KRE or St. Mary, including, without
limitation, any financial information, forecasts or projections considered in
connection with the rendering of its opinion. Accordingly, for purposes of its
opinion, Deutsche Bank has assumed and relied upon the accuracy and completeness
of all such information and Deutsche Bank has not conducted a physical
inspection of any of the properties or assets, and has not prepared or obtained
any independent evaluation or appraisal of any of the assets or liabilities, of
KRE or St. Mary. With respect to the financial forecasts and projections,
including any analyses and forecasts of certain cost savings, operating
efficiencies, revenue effects and financial synergies expected by St. Mary to be
achieved as a result of the Transaction (collectively, the "Synergies"), made
available to Deutsche Bank and used in its analyses, Deutsche Bank has assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management of St. Mary, as the case may
be, as to the matters covered thereby. In rendering its opinion, Deutsche Bank
expresses no view as to the reasonableness of such forecasts and projections,
including the Synergies, or the assumptions on which they are based. Deutsche
Bank's opinion is necessarily based upon economic, market and other conditions
as in effect on, and the information made available to it as of, the date
hereof.

For purposes of rendering its opinion, Deutsche Bank has assumed that, in
all respects material to its analysis, the representations and warranties of St.
Mary, Merger Sub, KRI and KRE contained in the Merger Agreement are true and
correct, St. Mary, Merger Sub, KRI and KRE will each perform all of the
covenants and agreements to be performed by it under the Merger Agreement and
all conditions to the obligations of each of St. Mary, Merger Sub, KRI and KRE
to consummate the Transaction will be satisfied without any waiver thereof.
Deutsche Bank has also assumed that all material governmental, regulatory or
other approvals and consents required in connection with the consummation of the
Transaction will be obtained and that in connection with obtaining any necessary
governmental, regulatory or other approvals and consents, or any amendments,
modifications or waivers to any agreements, instruments or orders to which any
of St. Mary, Merger Sub, KRI or KRE is a party or is subject or by which it is
bound, no limitations, restrictions or conditions will be imposed or amendments,
modifications or waivers made that would have a material adverse effect on St.
Mary or KRE or materially reduce the contemplated benefits of the Transaction to
St. Mary. In addition, you have informed

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<PAGE>

St. Mary Land & Exploration Company
July 27, 1999
Page 3

Deutsche Bank, and accordingly for purposes of rendering its opinion Deutsche
Bank has assumed, that the Transaction will be tax-free to each of St. Mary and
KRE.

This opinion is addressed to, and for the use and benefit of, the Board of
Directors of St. Mary and is not a recommendation to the stockholders of St.
Mary to approve the Transaction or the issuance of shares of St. Mary Common
Stock in the Transaction. This opinion is limited to the fairness, from a
financial point of view, to St. Mary of the Exchange Ratio, and Deutsche Bank
expresses no opinion as to the merits of the underlying decision by St. Mary to
engage in the Transaction.

Deutsche Bank will be paid a fee for its services as financial advisor to
St. Mary in connection with the Transaction, a substantial portion of which is
contingent upon consummation of the Transaction. We are an affiliate of Deutsche
Bank AG (together with its affiliates, the "DB Group"). One or more members of
the DB Group have, from time to time, provided investment banking and other
financial services to St. Mary or its affiliates for which it has received
compensation, including certain transactions to hedge price fluctuations of oil
and gas. In the ordinary course of business, members of the DB Group may
actively trade in the securities and other instruments and obligations of St.
Mary for their own accounts and for the accounts of their customers.
Accordingly, the DB Group may at any time hold a long or short position in such
securities, instruments and obligations.

Based upon and subject to the foregoing, it is Deutsche Bank's opinion as
investment bankers that the Exchange Ratio is fair, from a financial point of
view, to St. Mary.

Very truly yours,

DEUTSCHE BANK SECURITIES INC.

/S/ DEUTSCHE BANK SECURITIES INC.

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<PAGE>

Annex C

July 26, 1999

The Board of Directors
King Ranch, Inc.
1415 Louisiana, Suite 2300
Houston, Texas 77002

Members of the Board:

You have requested our opinion as to the fairness from a financial point
of view to the holders of the outstanding shares of common stock (the "Common
Stock") of King Ranch, Inc. ("KRI") of the consideration to be received by such
shareholders in connection with the proposed merger (the "Merger") of St. Mary
Acquisition Corporation ("Merger Sub"), a wholly-owned subsidiary of St. Mary
Land & Exploration Company ("St. Mary"), with and into King Ranch Energy, Inc.
("KRE"), a wholly-owned third-tier subsidiary of KRI pursuant to the Agreement
and Plan of Merger substantially in the form of the draft dated July 25, 1999,
among KRI, KRE, St. Mary and Merger Sub (the "Merger Agreement"). We understand
the Merger Agreement provides, among other things, that (i) immediately prior to
the Merger all of the shares of common stock of KRE shall be distributed pro
rata to the shareholders of KRI, and (ii) upon consummation of the Merger, the
KRE common stock held by the holders of Common Stock will be converted into the
right to receive 2,666,252 shares of St. Mary common stock in the manner and
more fully described in the Merger Agreement (the "Merger Consideration"). We
also understand the shares of St. Mary common stock to be received by the
holders of KRE common stock in the Merger will be subject, except as set forth
in the Merger Agreement, to certain restrictions on transfer for a period of two
years from the Closing Date (as such term is defined in the Merger Agreement).

In arriving at our opinion, we have, among other things:

(i) reviewed certain publicly available business and financial
information relating to KRI, KRE and St. Mary;

(ii) reviewed certain internal financial and operating information,
including financial forecasts of the respective results of
operations of KRE and St. Mary as well as certain estimates of the
expected operational and financial benefits expected to result from
the Merger ("the Expected Synergies"), prepared and provided to us
by the managements of KRI, KRE and St. Mary, respectively;

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<PAGE>

(iii) held discussions with certain senior officers, directors and other
representatives and advisors of KRI, KRE and St. Mary concerning
their respective strategic objectives, businesses, operations,
assets, financial condition and prospects before and after giving
effect to the Merger and the Expected Synergies;

(iv) reviewed the reported prices and trading activity for St. Mary
common stock;

(v) considered, to the extent publicly available, the financial terms of
certain other similar transactions recently effected which we
considered relevant in evaluating the transaction contemplated by
the Merger Agreement;

(vi) analyzed certain financial, stock market and other publicly
available information relating to the businesses of other companies
whose operations we considered relevant in evaluating those of KRE
and St. Mary;

(vii) participated in discussions and negotiations among representatives
of KRI, KRE and St. Mary and their respective legal and financial
advisors;

(viii) reviewed the draft Merger Agreement and certain related agreements
(the "Reviewed Documents"); and

(ix) conducted such other analyses, inquiries and examinations and
considered such other financial, engineering, economic and market
criteria as we deemed appropriate in arriving at our opinion.

In rendering our opinion, we have assumed and relied upon, without
independent verification, the accuracy, fair representation and completeness of
all financial and other information, data, advice, opinions and representations
publicly available or furnished to or otherwise reviewed by or discussed with us
and our opinion is conditional upon such accuracy, fairness and completeness.
With respect to financial forecasts, Expected Synergies and other information
provided to or otherwise reviewed by or discussed with us by management of KRI,
KRE or St. Mary, we have assumed that they have been reasonably prepared and
reflect the best currently available estimates and judgment of KRI's, KRE's or
St. Mary's management as to the expected future financial performance of KRE or
St. Mary, as the case may be. Subject to the exercise of professional judgment
and except as expressly described herein, we have not assumed any responsibility
or attempted to verify independently the accuracy or completeness of any such
information, data, advice, opinions and representations. We have further assumed
that the Merger will be accounted for as a purchase under generally accepted
accounting principles and that it will qualify as a tax-free reorganization for
U.S. Federal income tax purposes. We have also assumed that the final form of
the transaction documents, including the Merger Agreement, will be substantially
similar to the Reviewed Documents.

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We have not made or been provided with an independent evaluation of the
assets or liabilities (contingent or otherwise) of KRI, KRE, or St. Mary nor
have we made any physical inspection of the properties or assets of KRI, KRE or
St. Mary. Our opinion is also based upon the condition and prospects, financial
and otherwise, of KRE and St. Mary as they were reflected in the information and
documents reviewed by us and as they were represented to us in our discussions
with management of KRI, KRE and St. Mary. In our analyses and in connection with
the preparation of our opinion, we made numerous assumptions with respect to
industry performance, general business, market and economic conditions and other
matters, many of which are beyond the control of any party involved. For the
purpose of rendering this opinion, we have assumed that in the course of
obtaining the necessary regulatory or other consents or approvals (contractual
or otherwise) for the Merger, no restriction, including any divestiture
requirements or amendments or modifications, will be imposed that will have a
material adverse effect on the contemplated benefits of the Merger.

Our opinion is necessarily rendered on the basis of information available
to us including financial and securities markets, economic and general business
and financial conditions and other conditions and circumstances existing and
disclosed to us, as at the date hereof. The opinion expressed herein is the
opinion of Nesbitt Burns and the form and content herein have been approved for
release by a committee of its directors, each of whom is experienced in merger,
acquisition, divestiture and valuation matters.

We are acting as financial advisor to KRI in connection with the Merger
and will receive a fee from KRI for our services, a significant portion of which
is contingent upon the consummation of the Merger. In addition, KRI has agreed
to indemnify us for certain liabilities arising out of our engagement.

In the ordinary course of our business, we and certain of our affiliates
may actively trade the securities of St. Mary for our own account or for the
account of our customers and, accordingly, may at any time hold a long or short
position in such securities. We have in the past provided certain financial
advisory and investment banking services to KRI and may continue to do so and
have received, and may receive, compensation for the rendering of such services.

Our advisory services and the opinion expressed herein are provided for
the use and benefit of the Board of Directors of KRI in its evaluation of the
Merger. Our opinion does not address the merits of the underlying decision by
KRI to engage in the Merger and is not intended to be and does not constitute a
recommendation to any shareholder of KRI or KRE as to how such shareholder
should vote on the proposed Merger or any matter related thereto. We are not
expressing any opinion herein as to the prices at which the St. Mary common
stock will trade following the announcement or consummation of the Merger. Our
opinion may not be published or otherwise used or referred to, nor shall any
public reference to Nesbitt Burns be made, without our prior written consent in
each specific instance, except that this opinion may be included in its entirety
in any proxy statement to be distributed to the holders of Common Stock in
connection with the Merger.

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Based upon and subject to all the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the Merger Consideration to be
received by the holders of Common Stock is fair from a financial point of view
to the holders of Common Stock.

Yours truly,

/S/ NESBITT BURNS SECURITIES INC.

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Annex D

SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW

Section 262. Appraisal rights.

(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to ss.228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.

(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ss. 251 (other than a merger effected pursuant to ss.
251(g) of this title), ss. 252, ss.254, ss.257, ss.258, ss.263 or ss.264 of this
title:

(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer
quotation system by National Association of Securities Dealers, Inc. or
(ii) held of record by more than 2,000 holders; and further provided that
no appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of ss.251 of this title.

(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class
or series of stock of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation pursuant
to ss.ss. 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:

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<PAGE>

a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in respect
thereof;

b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective
date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more
than 2,000 holders;

c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or

d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of
this paragraph.

(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under ss.253 of this title is not
owned by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware
corporation.

(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d)
and(e) of this section, shall apply as nearly as is practicable.

(d) Appraisal rights shall be perfected as follows:

(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking
of the vote on the merger or consolidation, a written demand for appraisal
of such stockholder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
stockholder's shares. A proxy or vote against the

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<PAGE>

merger or consolidation shall not constitute such a demand. A stockholder
electing to take such action must do so by a separate written demand as
herein provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or

(2) If the merger or consolidation was approved pursuant to ss.228
or ss.253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before
the effective date of the merger or consolidation notifying each of the
holders of any class or series of stock of such constituent corporation
that are entitled to appraisal rights of the effective date of the merger
or consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or
of the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided,
that if the notice is given on or after the effective date or the merger
or consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given prior to the effective date,
the record date shall be the close of business on the day next preceding
the day on which the notice is given.

(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery

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<PAGE>

demanding a determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.

(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.

(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.

(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or execution of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder

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<PAGE>

entitled to participate in the appraisal proceeding, the Court may, in its
discretion, permit discovery or other pretrial proceedings and may proceed to
trial upon the appraisal prior to the final determination of the stockholder
entitled to an appraisal. Any stockholder whose name appears on the list filed
by the surviving or resulting corporation pursuant to subsection (f) of this
section and who has submitted his certificates of stock to the Register in
Chancery, if such is required, may participate fully in all proceedings until it
is finally determined that he is not entitled to appraisal rights under this
section.

(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.

(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.

(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.

(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.

D-5

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Indemnification Under Delaware Law and St. Mary Certificate of Incorporation
and By-Laws

As permitted by the provisions of the Delaware General Corporation Law,
the St. Mary certificate of incorporation eliminates in certain circumstances
the monetary liability of directors of St. Mary for a breach of their
fiduciary duty as directors. These provisions do not eliminate the liability
of a director for:

- a breach of the director's duty of loyalty to St. Mary or its
stockholders,

- acts or omissions by a director not in good faith or which involve
intentional misconduct or a knowing violation of law,

- 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

- 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
St. Mary 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.

St. Mary's certificate of incorporation and by-laws provide that St. Mary
shall indemnify all directors and officers of St. Mary 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 St. Mary
board of directors 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
interests of St. Mary. The St. Mary certificate of incorporation, by-laws 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 of incorporation, the
by-laws, 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
St. Mary pursuant to the foregoing provisions, St. Mary has been informed
that in the opinion of the SEC such indemnification is against public policy
as expressed in the Securities Act of 1933 and is therefore unenforceable.

St. Mary D&O Insurance

The directors and officers of St. Mary are insured under a policy of
directors' and officers' liability insurance issued by Executive Risk.

Merger Agreement Provisions For King Ranch Energy Directors and Officers

Under the merger agreement, the provisions in the King Ranch Energy
certificate of incorporation

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<PAGE>

and bylaws for the indemnification of King Ranch Energy officers and
directors will survive the merger for a period of two years.

While the King Ranch Energy certificate of incorporation does not contain
any express provisions concerning the indemnification of directors and
officers, the King Ranch Energy bylaws generally provide that a directors or
officer who in the capacity as such is made or threatened to be made a party
to a lawsuit or proceeding shall be indemnified if the individual acted in
good faith and in a manner the individual reasonably believed to be in or not
opposed to the best interests of King Ranch Energy. The King Ranch Energy
bylaws further provide that such indemnification is not exclusive of any
other rights to which such individual may be entitled under the certificate
of incorporation, any agreement, vote of stockholders or disinterested
directors or otherwise.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) List of Exhibits

The following exhibits are furnished as part of this registration
statement:

<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger dated July 27, 1999 among St. Mary Land & Exploration
Company, St. Mary Acquisition Corporation, King Ranch Minerals, Inc., King Ranch
Holdings, Inc., King Ranch, Inc. and King Ranch Energy, Inc. (included as Annex
A to the document contained in this registration statement)*
3.1 Restated Certificate of Incorporation of St. Mary Land & Exploration Company dated
November 11, 1992 (filed as Exhibit 3.1A to the registrant's Registration
Statement on Form S-1 (Registration No. 33-53512) and incorporated herein by
reference)
3.2 Certificate of Amendment to Certificate of Incorporation of St. Mary Land &
Exploration Company dated June 22, 1998*
3.3 Restated By-laws of St. Mary Land & Exploration Company as of June 15, 1994*
3.4 Certificate of Incorporation of King Ranch Energy, Inc.*
3.5 Bylaws of King Ranch Energy, Inc.*
4.1 St. Mary Land & Exploration Company Shareholder Rights Plan adopted on July 15,
1999 (filed as Exhibit 4.1 to the registrant's Quarterly
Report on Form 10-Q/A (File No. 0-20872) for the quarter
ended June 30, 1999 and incorporated herein by reference)
5.1 Opinion of Ballard Spahr Andrews & Ingersoll, LLP regarding the
validity of the securities being registered*
8.1 Opinion of Locke Liddell & Sapp LLP regarding certain federal
income tax consequences relating to the merger*
8.2 Opinion of Ernst & Young LLP regarding certain federal income
tax consequences relating to the merger*
10.1 Stock Option Plan (filed as Exhibit 10.3 to the
registrant's Registration Statement on Form S-1
(Registration No. 33-53512) and incorporated herein by
reference)
10.2 Stock Appreciation Rights Plan (filed as Exhibit 10.4 to the registrant's
Registration Statement on Form S-1 (Registration No. 33-53512) and incorporated
herein by reference)
10.3 Cash Bonus Plan (filed as Exhibit 10.5 to the registrant's
Registration Statement on Form S-1 (Registration No.
33-53512) and incorporated herein by reference)
10.4 Net Profits Interest Bonus Plan (filed as Exhibit 10.6 to the registrant's
Registration Statement on Form S-1 (Registration No. 33-53512) and incorporated
herein by reference)
10.5 Summary Plan Description/Pension Plan dated January 1, 1985 (filed as
Exhibit 10.7 to the registrant's Registration Statement on Form S-1
(Registration No. 33-53512) and incorporated

II-2
<PAGE>

herein by reference)
10.6 Non-qualified Unfunded Supplemental Retirement Plan, as amended (filed
as Exhibit 10.8 to the registrant's Registration Statement on Form S-1
(Registration No. 33-53512) and incorporated herein by reference)
10.7 Summary Plan Description Custom 401(k) Plan and Trust (filed as Exhibit
10.10 to the registrant's Registration Statement on Form S-1
(Registration No. 33-53512) and incorporated herein by reference)
10.8 Stock Option Agreement - Mark A. Hellerstein (filed as Exhibit 10.11 to
the registrant's Registration Statement on Form S-1 (Registration No.
33-53512) and incorporated herein by reference)
10.9 Stock Option Agreement - Ronald D. Boone (filed as Exhibit 10.12 to the
registrant's Registration Statement on Form S-1 (Registration No.
33-53512) and incorporated herein by reference)
10.10 Employment Agreement between Registrant and Mark A. Hellerstein
(filed as Exhibit 10.13 to the registrant's Registration Statement on
Form S-1 (Registration No. 33-53512) and incorporated herein by
reference)
10.11 Summary Plan Description 401(k) Profit Sharing Plan( filed as Exhibit
10.34 to the registrant's Annual Report on Form 10-K (File No. 0-20872)
for the year ended December 31, 1994 and incorporated herein by
reference)
10.12 Summary Plan Description/Pension Plan dated December 30, 1994 (filed as
Exhibit 10.35 to the registrant's Annual Report on Form 10-K (File No.
0-20872) for the year ended December 31, 1994 and incorporated herein
by reference)
10.13 Second Restated Partnership Agreement - Panterra Petroleum (filed as Exhibit 10.41 to the
registrant's Annual Report on Form 10-K (File No. 0-20872) for the year ended December 31, 1995 and
incorporated herein by reference)
10.14 Purchase and Sale Agreement between Siete Oil & Gas Corporation and St.
Mary Land & Exploration Company (filed as Exhibit 10.42 filed to the
registrant's Current Report on Form 8-K (File No. 0-20872) dated June
28, 1996, as amended by Registrant's Current Report on Form 8-K/A (File
No. 0-20872) dated June 28, 1996 and incorporated herein by reference)
10.15 Acquisition Agreement regarding the sale of the St. Mary Land &
Exploration Company's interest in the Russian joint venture (filed as
Exhibit 10.43 filed to the registrant's Current Report on Form 8-K
(File No. 0-20872) dated December 16, 1996 and incorporated herein by
reference)
10.16 Employment Agreement between registrant and Ralph H. Smith, effective
October 1, 1995 (filed as Exhibit 99 filed to the registrant's Current
Report on Form 8-K (File No. 0-20872) dated January 28, 1997 and
incorporated herein by reference)
10.17 St. Mary Land & Exploration Company Employee Stock Purchase Plan (filed
as Exhibit 10.48 filed to the registrant's Annual Report on Form 10-K
(File No. 0-20872) for the year ended December 31, 1997 and
incorporated herein by reference)
10.18 Credit Agreement dated June 30, 1998 (filed as Exhibit 10.52 to the
registrant's Quarterly Report on Form 10-Q (File No. 0-20872) for the
quarter ended June 30, 1998 and incorporated herein by reference)
10.19 Purchase and Sale Agreement dated November 12, 1998 between ONEOK
Resources Company (filed as Exhibit 10.53 filed to the registrant's
Current Report on Form 8-K (File No. 0-20872) dated December 30, 1998
and incorporated herein by reference)
10.20 Credit Agreement between Panterra Petroleum and Colorado National Bank
dated June 17, 1997 (filed as Exhibit 10.25 to the registrant's Annual
Report on Form 10-K (File No. 0-20872) for the year ended December 31,
1998 and incorporated herein by reference)
10.21 Agreement between Summo Minerals Corporation, Summo USA Corporation,
St. Mary Land & Exploration Company, and St. Mary Minerals Inc. re the
formation of Lisbon Valley Mining Company dated May 15, 1997 (filed as
Exhibit 10.26 to the registrant's Annual Report on Form 10-K (File No.
0-20872) for the year ended December 31, 1998 and incorporated herein
by reference)

II-3
<PAGE>

10.22 Pledge and Security Agreement From Summo USA Corporation and Lisbon
Valley Mining Co. LLC to St. Mary Minerals Inc. dated November 23, 1998
(filed as Exhibit 10.27 to the registrant's Annual Report on Form 10-K
(File No. 0-20872) for the year ended December 31, 1998 and
incorporated herein by reference)
10.23 Deed of Trust, Assignment of Rents and Security Agreement by Lisbon
Valley Mining Co. LLC and Stewart Title Guaranty Company for the
benefit of St. Mary Minerals Inc. dated November 23, 1998 (filed as
Exhibit 10.28 to the registrant's Annual Report on Form 10-K (File No.
0-20872) for the year ended December 31, 1998 and incorporated herein
by reference)
10.24 St. Mary Land & Exploration Company Incentive Stock Option Plan, As
Amended on March 25, 1999 (filed as Exhibit 10.1 to registrant's
Quarterly Report on Form 10-Q (File No. 0-20872) for the quarter ended
March 31, 1999 and incorporated herein by reference)
10.25 St. Mary Land & Exploration Company Stock Option Plan, As Amended on
March 25, 1999 (filed as Exhibit 10.2 to registrant's Quarterly Report
on Form 10-Q (File No. 0-20872) for the quarter ended March 31, 1999
and incorporated herein by reference)
10.26 Net Profits Interest Bonus Plan, As Amended on September 19, 1996 and
July 24, 1997 and January 28, 1999 (filed as Exhibit 10.3 to
registrant's Quarterly Report on Form 10-Q (File No. 0-20872) for the
quarter ended March 31, 1999 and incorporated herein by reference)
10.27 Stock Exchange Agreement dated June 1, 1999 among St. Mary Land & Exploration Company, Robert L.
Nance, Penni W. Nance, Amy Nance Cebull and Robert Scott Nance*
10.28 Stock Exchange Agreement dated June 1, 1999 between St. Mary Land & Exploration Company and Robert
T. Hanley*
10.29 Stock Exchange Agreement dated June 1, 1999 among St. Mary Land & Exploration Company, Robert L.
Nance and Robert T. Hanley*
10.30 Loan and Stock Purchase Agreement dated June 25, 1999 among Resource Capital Fund L.P., St. Mary
Land & Exploration Company and St. Mary Minerals Inc.*
10.31 Credit Agreement dated June 25, 1999 among Summo Minerals Corporation, Summo USA Corporation,
Resource Capital Fund L.P. and St. Mary Minerals Inc.*
10.32 Replacement Promissory dated June 25, 1999 payable to St. Mary Minerals Inc. in the amount of
$1,400,000*
10.33 Pledge and Security Agreement dated June 25, 1999 among Summo Minerals Corporation, Resource
Capital Fund L.P., and St. Mary Minerals Inc.*
10.34 Pledge and Security Agreement dated June 25, 1999 among Summo USA Corporation, Resource Capital
Fund L.P., and St. Mary Minerals Inc.*
10.35 Warrant Agreement dated June 25, 1999 among Summo Minerals Corporation, Resource Capital Fund L.P.
and St. Mary Minerals Inc.*
21.1 Subsidiaries of St. Mary Land & Exploration Company*
23.1 Consent of Arthur Andersen LLP*
23.2 Consent of PricewaterhouseCoopers LLP*
23.3 Consent of Deloitte & Touche LLP*
23.4 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included in the opinion filed as Exhibit 5.1 to
this Registration Statement)*
23.5 Consent of Locke Liddell & Sapp LLP*
23.6 Consent of Ernst & Young LLP*
23.7 Consent of Ryder Scott Company, L.P. with respect to St. Mary reserve reports*
23.8 Consent of Deutsche Bank Securities Inc.*
23.9 Consent of Nesbitt Burns Securities Inc.*
23.10 Consent of Ryder Scott Company, L.P. with respect to King Ranch Energy reserve reports*
23.11 Consent of Netherland Sewell & Associates, Inc. with respect to King Ranch Energy reserve reports*
24.1 Power of Attorney*
99.1 Form of St. Mary Proxy Card*
99.2 Form of King Ranch Energy Written Consent*
</TABLE>

II-4
<PAGE>

- --------------------
* Filed herewith.

ITEM 22. UNDERTAKINGS.

(a) The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:

(i) To include any prospectus required by
section 10(a)(3) of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or
events arising after the effective date of the
registration statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in
the form of prospectus filed with the SEC pursuant to Rule
424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 % change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement; and

(iii) To include any material information with
respect to the plan of distribution not previously
disclosed in the registration statement or any material
change to such information in the registration statement;
and

(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective amendment
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;

(3) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering;

(4) That, for purposes of determining any liability under
the Securities Act of 1933, each filing of the registrant's annual
report pursuant to Section 13(a) or 15(d) of the Securities Exchange
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;

(5) That prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part of
this registration statement, by any person or party who is deemed to
be an underwriter within the meaning of Rule 145(c), such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be
deemed underwriters, in addition to the information called for by
the other

II-5
<PAGE>

items of the applicable form;

(6) That every prospectus (i) that is filed pursuant to
paragraph (5) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Securities Act of 1933
and is used in connection with an offering of securities subject to
Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under
the Securities Act of 1933, each such post-effective amendment 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; and

(7) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the registrant pursuant to any
provision or arrangement whereby the registrant may indemnify a
director, officer or controlling person or the registrant against
liabilities arising under the Securities Act, or otherwise, the
registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant 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 registrant 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 Securities Act and will be governed by the final
adjudication of such issue.

(b) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
the registration statement through the date of responding to the request.

(c) The undersigned registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.

II-6
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Denver, State of
Colorado, on August 19, 1999.

ST. MARY LAND & EXPLORATION COMPANY

By: /S/ THOMAS E. CONGDON
----------------------------------------
Thomas E. Congdon, Chairman of the Board

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.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------ ----------------------------------------- ---------------
<S> <C> <C>
/S/ THOMAS E. CONGDON Chairman of the Board and Director August 19, 1999
- ---------------------
Thomas E. Congdon

/S/ MARK A. HELLERSTEIN President, Chief Executive Officer and August 19, 1999
- ----------------------- Director
Mark A. Hellerstein

Executive Vice President, Chief Operating August ___, 1999
- ----------------------- Officer and Director
Ronald D. Boone

/S/ RICHARD C. NORRIS Vice President - Finance, Secretary and August 19,1999
- --------------------- Treasurer
Richard C. Norris

/S/ GARRY A. WILKENING Vice President - Administration and August 19, 1999
- ---------------------- Controller
Garry A. Wilkening

/S/ LARRY W. BICKLE Director August 16, 1999
- -------------------
Larry W. Bickle

/S/ DAVID C. DUDLEY Director August 13, 1999
- -------------------
David C. Dudley

/S/ RICHARD C. KRAUS Director August 19, 1999
- --------------------
Richard C. Kraus

Director August __, 1999
- -----------------------
R. James Nicholson

II-7
<PAGE>

/S/ AREND J. SANBULTE Director August 15, 1999
- ---------------------
Arend J. Sandbulte

Director August ____, 1999
- -----------------------
John M. Seidl

</TABLE>

II-8

<PAGE>

EXHIBIT 3.2

CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION

St. Mary Land & Exploration Company, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
does hereby certify:

1. That at a regular meeting of the Board of Directors of St. Mary Land &
Exploration Company (the "Company") a resolution was adopted proposing an
amendment to the restated Certificate of Incorporation of the Company declaring
such amendment to be advisable and calling for a vote of its shareholders at the
annual meeting held on May 20, 1998 which was adjourned to June 3, 1998. The
resolution setting forth the proposed amendment was as follows:

RESOLVED, that Article Fourth of the Company's restated Certificate
of Incorporation is hereby amended to read as follows:

FOURTH: The total number of shares of capital stock which the corporation
shall have authority to issue is 50,000,000 shares of $.01 par value each.

FURTHER RESOLVED, that the officers of the Company are hereby
authorized and empowered to do or cause to be done all such acts or things
and to sign and deliver or cause to be signed and delivered all such
documents, instruments and certificates, in the name and on behalf of the
Company or otherwise, as such officers may deem necessary, advisable or
appropriate to effectuate and carry out the purposes and intent of the
foregoing resolutions.

2. That thereafter at the annual meeting of the shareholders called and
held on May 20, 1998 and adjourned to June 3, 1998 upon notice and accordance
with Section 222 of the General Corporation Law of the State of Delaware the
necessary number of shares as required by law were voted in favor of the
amendment.

3. That the amendment was duly adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the State of Delaware.

IN WITNESS WHEREOF, St. Mary Land and Exploration Company has caused this
certificate to be signed by Mark A. Hellerstein, its President, and attested by
David L. Henry, its Secretary, this 22nd day of June, 1998.

ST. MARY LAND & EXPLORATION
COMPANY, a Colorado
ATTEST:

/S/ DAVID L. HENRY By: /S/MARK A. HELLERSTEIN
- --------------------------------- ------------------------------
David L. Henry, Secretary Mark A. Hellerstein, President

<PAGE>

EXHIBIT 3.3

6/15/94

RESTATED BY-LAWS

ST. MARY LAND & EXPLORATION COMPANY

-----------------------

NAME

1. The title of this Corporation is St. Mary Land & Exploration Company.

OFFICE

2. This Corporation may establish or discontinue, from time to time, such
offices and places of business within or without the State of Delaware as the
Board of Directors may deem proper for the conduct of the Corporation's
business.

SEAL

3. The corporate seal of this Corporation shall have inscribed thereon the
name of this Corporation and the year of its creation and the words "Corporate
Seal, Delaware."

STOCKHOLDERS' MEETINGS

4. (a) The annual meeting of the Stockholders shall be held on the third
Thursday in May of each year, or at such other time, at the principal office of
the Corporation, or such other place, within or without the State of Colorado,
as the Board of Directors may determine, when the Stockholders shall elect a
Board of Directors for the ensuing year and transact such other business as may
come before it.

(b) Special meetings of the Stockholders shall be held at the place
prescribed for the annual meetings, unless otherwise ordered by the Board of
Directors, and shall be called by the Secretary on the written request of two
Directors, or on the written request of the owners of a majority of the capital
stock.

(c) Except as otherwise provided by law or the Certificate of
Incorporation, the holders of one-third (1/3) of the shares of the capital stock
entitled to vote at the meeting present in person or by proxy shall constitute a
quorum at all meetings of the Stockholders. In the absence of a quorum, the
holders of a majority of such shares of stock present in person or by proxy may
adjourn any meeting from time to time, until a quorum shall be present. At any
such adjourned

<PAGE>

meeting at which a quorum may be present, any business may be transacted which
might have been transacted at the meeting as originally called. No notice of any
adjourned meeting need be given other than by announcement at the meeting that
is being adjourned, provided that if the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, then a notice of the adjourned meeting shall be given to each
Stockholder of record entitled to vote at the meeting.

(d) Each Stockholder of record, as determined pursuant to Article 16
of these By-Laws, shall be entitled to one vote either in person or by proxy for
each share of capital stock registered in his name on the books of the
Corporation, provided, that, each Stockholder of record of a fractional share
shall be entitled to a vote equal to such fractional share. Except as otherwise
provided by law, by the Certificate of Incorporation or by Article 5 of these
By-Laws, all elections of Directors and all other actions to be taken by
Stockholders shall be decided by the vote of the holders of a majority of the
shares of capital stock present in person or by proxy at the meeting and
entitled to vote in the election or on the action.

(e) Notice of the meetings and the conduct of the same shall be as
prescribed by the Board of Directors, subject to applicable law.

(f) Any action required to be taken, or which may be taken, at any
meeting of Stockholders may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of shares of outstanding capital stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares of stock entitled to vote
thereon were present and voted; provided, that prompt notice of the taking of
corporate action without a meeting by less than unanimous written consent shall
be given to those Stockholders who have not consented in writing.

DIRECTORS

5. (a) The property and business of this Corporation shall be
managed by a Board of at least three Directors.

(b) The number of Directors may be fixed from time to time by
resolution by the Board of Directors but shall not be less than three; the Board
of Directors may at any regular or special meeting increase its number by
electing additional members to hold office until the next annual meeting of the
Stockholders, or until their successors shall be elected and qualified or until
their earlier resignation or removal.

(c) Regular meetings of the Board of Directors shall be held at such
times as may be determined by resolution of the Board of Directors and no notice
shall be required for any regular meeting. Except as otherwise provided by law,
any business may be transacted at any regular meeting of the Board of Directors.

(d) Special meetings of the Board of Directors shall be called by
the Secretary on the request of the President, or on the request in writing of
any two other Directors stating the purpose or purposes of such meeting. Notice
of any special meeting shall be in form approved by the President. Notices of
special meetings shall be mailed to each Director, addressed to him at his

2
<PAGE>

residence or usual place of business, not later than three (3) days before the
day on which the meeting is to be held, or shall be sent to him at such place by
telegraph, cable or other form of recorded communication or be delivered
personally or by telephone, not later than the day before such day of meeting.
Notice of any meeting of the Board of Directors need not be given to any
Director if he shall sign a written waiver thereof either before or after the
time stated therein, or if he shall attend a meeting, except when he attends
such meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any special meeting of the Board of Directors need be specified in any
notice or written waiver of notice. Unless limited by law, by the Certificate of
Incorporation or by these By-Laws, any and all business may be transacted at any
special meeting.

(e) A majority of the whole Board of Directors (the whole Board of
Directors being the number of Directors fixed by resolution of the Board of
Directors from time to time) shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors. The act of the majority of
the Directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors unless otherwise provided by law, the Certificate of
Incorporation or these By-Laws. A majority of the Directors present at any
meeting may adjourn the meeting from time to time without further notice other
than announcement at the meeting. If at any meeting a quorum is not present, a
majority of the Directors present may adjourn the meeting from time to time
without notice other than announcement at the meeting until a quorum is present.

(f) Any action required or permitted to be taken at any meeting of
the Board of Directors, or of any committee thereof, may be taken without a
meeting if all members of the Board of Directors, or of such committee, as the
case may be, consent thereto in writing, and such written consent is filed with
the minutes of the proceedings of the Board of Directors or of such committee.
Furthermore, members of the Board of Directors, or any committee thereof, may
participate in a meeting of the Board of Directors, or of such committee, by
means of conference telephone or other similar communications equipment by means
of which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this provision shall constitute presence
in person at such meeting.

(g) In case of any increase in the number of Directors, or of any
vacancy in the Board of Directors, the additional director or directors may be
elected, or, as the case may be, the vacancy or vacancies may be filled, either
(a) by the Board of Directors at any meeting by affirmative vote of a majority
of the remaining Directors, though the remaining Directors be less than a
quorum, or by a sole remaining Director, or (b) by the holders of capital stock
of the Corporation entitled to vote thereon, either at an annual meeting of
Stockholders or at a special meeting of such holders called for that purpose.
The Directors so chosen shall hold office until the next annual meeting of
Stockholders and until their successors are elected and qualify or until their
earlier resignation or removal.

(h) By resolution of the Board of Directors, any Director may be
paid any one or more of the following: his expenses, if any, of attendance at
meetings; a fixed sum for attendance at meetings; or a stated salary as
Director. Nothing here in contained shall be construed to preclude

3
<PAGE>

any Director from serving the Corporation in any capacity as an officer,
employee, agent or otherwise, and receiving compensation therefor.

(i) The Board of Directors shall have power to elect or appoint all
necessary officers and committees, to employ agents, factors, clerks and
workmen, to require any of them to give such bond for the faithful discharge of
their duties as may be deemed wise, to fix their compensation, to prescribe
their duties, to dismiss any appointed officer or employee, and generally to
control all the officers of the Corporation.

(j) The Board of Directors may, by resolution passed by a majority
of the whole Board of Directors as specified in the Certificate of
Incorporation, designate one or more committees, each to consist of one or more
of the Directors of the Corporation, and may appoint chairmen of any such
committees. To the extent provided in the resolution designating such committee,
and to the extent permitted by law, each such committee shall have and may
exercise the powers of the Board of Directors in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it. The Board of Directors may
designate one or more Directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.

(k) The Board of Directors, in addition to the powers and authority
expressly conferred upon them by these By-Laws, may exercise all such powers and
do all such things as may be exercised or done by the Corporation, but subject,
nevertheless, to the provisions of the law, of the Certificate of Incorporation,
and of these By-Laws.

OFFICERS

6. The officers of the Corporation shall be a Chairman of the Board,
President, one or more Vice-Presidents, a Secretary, a Treasurer, one or more
Assistant Secretaries, one or more Assistant Treasurers, a Controller and such
other officers as may from time to time be elected or appointed by the Board of
Directors. The determination of whether or not to fill such positions shall be
within the discretion of the Board of Directors, except as otherwise provided by
law. Any offices except those of President and Vice-President or President and
Secretary may be held by the same person. All officers shall serve at the
pleasure of the Board of Directors. Any officer may be removed by the Board of
Directors at anytime with or without cause. A vacancy in any office shall be
filled by the Board of Directors.

CHAIRMAN OF THE BOARD

7. The Chairman of the Board shall preside at all meetings of the
Stockholders and at all meetings of the Board of Directors. He shall have
general powers and duties of management and such other powers and duties as may
be prescribed by the Board of Directors or the By-Laws.

PRESIDENT

8. The President shall be a member of the Board of Directors, and he shall
be the chief executive officer of the Corporation and shall exercise general
supervision and administration over all

4
<PAGE>

its affairs and shall have such further duties as are incident to the office of
President or prescribed by law or as shall from time to time be designated by
the Board of Directors. He shall, in the absence of the Chairman of the Board,
preside at all meetings of the Stockholders and Directors. He shall sign or
countersign as may be necessary all such bills, notes, checks, contracts and
other instruments as may pertain to the business and affairs of the Corporation,
and he shall sign, when duly authorized, all contracts, orders, deeds, liens,
licenses and other instruments of a special nature. He shall, as far as may be
possible and desirable, familiarize himself with and exercise supervision over
the affairs of this or any other corporation in which this Corporation may be
interested.

VICE-PRESIDENT

9. In the absence of the President or in the event of his inability or
refusal to act, the Vice-President, if any (or, if there be more than one, the
Vice-Presidents in the order designated by the President, subject to revision by
the Board of Directors, and, absent such designation or revision, in the order
of their first election to that office), shall perform the duties and discharge
the responsibilities of the President. They shall have such other duties and
powers as shall from time to time be designated by the Board of Directors or by
the President.

SECRETARY

10. The Secretary shall be sworn to the faithful discharge of his duties
and shall keep full minutes of all the meetings of the Stockholders and of the
Board of Directors, and shall perform the same duty for the standing committees
when required. He shall issue all calls for meetings of the Stockholders and
Directors and shall notify all officers and Directors of their election. He
shall have charge of the seal of the Corporation and affix the same to any
instrument requiring it. He shall have charge of the stock certificate books,
stock transfer books, and stock ledgers, and such other books and papers as the
Board of Directors may place in his charge. He shall make such reports to the
Board of Directors as they may require, and he shall also prepare such reports
and statements as may be required by the provisions of the law.

ASSISTANT SECRETARY

11. The Assistant Secretary (or if there be more than one, the Assistant
Secretaries in the order designated by the President, subject to revision by the
Board of Directors, and, absent such designation or revision, in the order of
their first election to that office) shall, in the absence, disability, or
refusal to act of the Secretary, be vested with all the powers of the Secretary
and shall perform all his duties. He shall assist the Secretary in the
performance of his duties, and shall have such powers and perform such other
duties as the Board of Directors may from time to time direct.

TREASURER

12. The Treasurer shall be the custodian of all the funds and securities
of the Corporation and shall keep full and accurate records and accounts in
books provided for that purpose of all receipts, disbursements, credits, assets,
liabilities and general financial transactions of the Corporation. He shall
endorse for collection or deposit, to the credit of the Corporation, all bills,
notes, checks and other negotiable instruments of the Corporation coming into
his hands in such depositories and safe deposits

5
<PAGE>

as may be designated by the Board of Directors. He shall disburse the funds of
the Corporation as may be ordered by the specific instructions of the Board of
Directors or any committee established thereby, taking proper vouchers for all
such disbursements, and he shall give bond to the Corporation in such sum and
with such surety as shall be satisfactory to the proper officers of the
Corporation.

ASSISTANT TREASURER

13. The Assistant Treasurer (or, if there be more than one, the Assistant
Treasurers in the order designated by the President, subject to revision by the
Board of Directors, and, absent such designation or revision, in the order of
their first election to that office) shall, in the absence, disability or
refusal to act of the Treasurer, be vested with all the powers of the Treasurer
and shall perform all his duties. He shall assist the Treasurer in the
performance of his duties, and shall have such powers and perform such other
duties as the Board of Directors may from time to time direct.

CONTROLLER

14. The Controller shall exercise and perform such powers and duties with
respect to the administration of the business and affairs of the Corporation as
may from time to time be assigned to him by the Board of Directors.

OFFICER PRO TEM

15. In the absence of any officer, the Board of Directors may delegate his
powers and duties to any other officers or to any Director, for the time being.

STOCK

16. (a) Every Stockholder shall be entitled to have a certificate, in such
form as the Board of Directors shall from time to time approve, signed by or in
the name of the Corporation by the President or any Vice-President and by the
Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary,
certifying the number of shares owned by him.

(b) Any or all the signatures on a certificate may be a facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.

(c) A record of the name and address of the holder of such
certificate, the number of shares represented thereby, and the date of issue
thereof, shall be made on the Corporation's books. The Corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
holder in fact thereof, and accordingly, shall not be bound to recognize any
equitable or other claim to or interest in any share on the part of any other
person whether or not it shall have express or other notice thereof, except as
required by the laws of Delaware.

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(d) Any person claiming a stock certificate in lieu of one lost,
stolen, mutilated or destroyed shall give the Corporation an affidavit as to his
ownership of the certificate and of the facts as to its loss, theft, mutilation
or destruction. He shall also, if required by the Board of Directors, give the
Corporation a bond, in such form and amount as may be approved by the Board of
Directors, sufficient to indemnify the Corporation against any claim that may be
made against it on account of the alleged loss or theft of the certificate or
the issuance of a new certificate.

(e) The Corporation may maintain one or more transfer offices or
agencies, each under the control of a transfer agent designated by the Board of
Directors, where the shares of stock of the Corporation shall be transferable.
The Corporation may also maintain one or more registry offices, each under the
control of a registrar designated by the Board of Directors, wherein such shares
of stock shall be registered.

(f) Transfer of shares shall, except as provided in paragraph 16(d)
of this Article, be made on the books of the Corporation only by direction of
the person named in the certificate or his attorney, lawfully constituted in
writing, and only upon the surrender for cancellation of the certificate
therefor, duly endorsed or accompanied by a written assignment of the shares
evidenced thereby.

(g) In order that the Corporation may determine the Stockholders
entitled to notice of or to vote at any meeting of Stockholders or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting, nor more than sixty (60) days prior to any other action.

INSPECTION OF BOOKS AND ACCOUNTS

17. Except as otherwise provided by law and the Certificate of
Incorporation, the Directors shall determine from time to time whether, and, if
allowed, when and under what conditions and regulations the accounts and books
of the Corporation, or any of them, shall be open to the inspection of the
Stockholders, and the Stockholders' rights in this respect are and shall be
restricted and limited accordingly.

ALTERATION AND AMENDMENT

18. The Board of Directors may by a majority vote of the whole Board,
adopt, amend or repeal these By-Laws at any regular meeting or at any special
meeting.

DEFERRED MEETINGS

19. If any meeting provided for in these By-Laws should fall upon a legal
holiday, the same shall be held upon the next succeeding business day at the
same hour and place.

INDEMNIFICATION OF OFFICERS, DIRECTORS
EMPLOYEES AND AGENTS: INSURANCE

20. (a) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding,

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whether civil, criminal, administrative or investigative (other than an action
by or in the right of the Corporation) by reason of the fact that he is or was a
Director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as Director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.

(b) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he is or was a Director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a Director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.

(c) To the extent that a Director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b), or in defense
of any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.

(d) Any indemnification under subsections (a) and (b) (unless
ordered by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the Director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b). Such
determination shall be made (1) by the Board of Directors by a majority vote of
a quorum consisting of Directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion.

(e) Expenses incurred by an officer or Director in defending a civil
or criminal action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such

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<PAGE>

action, suit or proceeding upon receipt of an undertaking by or on behalf of
such Director or officer to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the Corporation as
authorized in this Article 20. Such expenses incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the Board of
Directors deems appropriate.

(f) (i) The indemnification and advancement of expenses provided by,
or granted pursuant to, the other subsections of this Article shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any by-law, agreement, vote of
Stockholders or disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office; and (ii) the indemnification and advancement of expenses provided by, or
granted pursuant to, this Article shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a Director,
officer, employee or agent, and shall inure to the benefit of the heirs,
executors and administrators of such a person.

(g) The Company may purchase and maintain insurance on behalf of any
person who is or was a Director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a Director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of this section.

(h) The provisions of this Article 20 shall be separable and the
invalidity of all or any part thereof as applied to any particular type of
liability or any particular person shall not preclude application of any
remaining portion thereof to such situation or such person, nor application of
the provisions of this Article to any other situation or person.

COMPENSATION TO DIRECTORS

21. By resolution of the Board of Directors, any Director may be paid any
one or more of the following: his expenses, if any, of attendance at meetings, a
fixed sum for attendance at meetings; or a stated salary as Director. Nothing
herein contained shall be construed to preclude any Director from serving the
Corporation in any capacity as an officer, employee, agent or otherwise, and
receiving compensation therefor.

CONFLICTS OF INTEREST

22. No Director may pursue for his own account a business or investment
opportunity if he has obtained knowledge of such opportunity through his
affiliation with the Corporation, provided that the Corporation is interested in
pursuing such opportunity and provided that the Corporation is financially or
otherwise able to pursue such opportunity. No officer or employee of the
Corporation may pursue for his own account an oil and gas opportunity unless (a)
with respect to a non-officer of the Corporation, such employee's pursuit of
such opportunity has been approved by a senior officer of the Corporation with
full knowledge of such opportunity and (b) with respect

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<PAGE>

to an officer of the Corporation, such officer's pursuit of such opportunity has
been approved by the Board of Directors. The foregoing restrictions shall not
apply to the acquisition of less than one percent of the publicly traded
securities of another company, provided that the Corporation is not at such time
engaged in any present or pending transaction with such other company.

<PAGE>

EXHIBIT 3.4

CERTIFICATE OF INCORPORATION

KING RANCH ENERGY, INC.

1. The name of the corporation is King Ranch Energy, Inc.

2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.

3. The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.

4. The total number of shares of stock which the corporation shall have
authority to issue is one thousand (1,000) and the par value of each of such
shares is One Dollar ($1.00) amounting in the aggregate to One Thousand Dollars
($1,000.00).

5A. The name and mailing address of each incorporator is as follows:

NAME MAILING ADDRESS

Larry L. Worden c/o King Ranch, Inc.
1400 Louisiana Street, Suite 2300
Houston, TX 77002-7352

5B. The name and mailing address of each person, who is to serve as a
director until the first annual meeting of the stockholders or until a successor
is elected and qualified, is as follows:

NAME MAILING ADDRESS

Jack Hunt c/o King Ranch, Inc.
1400 Louisiana Street, Suite 2300
Houston, TX 77002-7352

Abraham Zaleznik c/o King Ranch, Inc.
1400 Louisiana Street, Suite 2300
Houston, TX 77002-7352

<PAGE>

6. The corporation is to have perpetual existence.

7. In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized to make or repeal the
by-laws of the corporation.

8. Elections of directors need not be written by ballot unless the by-laws
of the corporation shall so provide.

Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated form time to time by the
board of directors or in the by-laws of the corporation.

IN WITNESS WHEREOF, I execute this Certificate of Incorporation on
this 6th day of November, 1997.

/s/ LARRY L. WORDEN
-------------------------
Larry L. Worden

STATE OF TEXAS

COUNTY OF HARRIS

I, the undersigned Notary Public, do hereby certify that on this 6th
day of November, 1997, personally appeared before me, Larry L. Worden, who being
by me first duly sworn, declared that he is the person who signed the foregoing
document as incorporator, and that the statements therein contained are true.

IN WITNESS WHEREOF, I have hereunto set my hand and seal the day and
year above written.

/s/ KATHY SOSTAK
-------------------------
Notary Public in and for
the State of Texas

My commission expires: 9/26/99

<PAGE>
EXHIBIT 3.5

KING RANCH ENERGY, INC.

B Y L A W S

ARTICLE 1

Offices

Section 1.1 Principal Office. The principal office of the
Corporation shall be at 1415 Louisiana Street, Suite 2300, Houston, Texas
77002-7352, or at such other place as the Board may from time to time select.

Section 1.2 Registered Office and Agent. The registered office of
the Corporation required by the General Corporation Law of Delaware to be
maintained in the State of Delaware is Corporation Trust Center, 1209 Orange
Street, Wilmington, Delaware, and the name of its registered agent at such
office is The Corporation Trust Company. The registered agent and the address of
the registered office may be changed, and the required filing with the Secretary
of State of Delaware in connection with any such change may be authorized from
time to time, by the Board of Directors.

Section 1.3 Other Offices. The Corporation may also have offices at
such other places, both within and without the State of Delaware, as the Board
of Directors may from time to time determine or the business of the Corporation
may require.

<PAGE>

ARTICLE 2

Meetings of Stockholders

Section 2.1 Place of Meetings. The Board of Directors may designate
any place, either within or without the State of Delaware, as the place of
meeting for any annual meeting or for any special meeting called by the Board.

Section 2.2 Annual Meeting. (a) An annual meeting of stockholders
shall be held in each year on the first Saturday in June at ten o'clock in the
morning for the election of a Board of Directors and for the transaction of such
other business as may properly be brought before the meeting.

(b) The Board of Directors may change the date and time specified in
paragraph (a) above for the holding of any annual meeting of the stockholders as
it shall deem advisable, provided, however, that no change of the date and time
of any such meeting shall be made within ten (10) days next before the date
specified for such meeting in paragraph (a) above.

Section 2.3 Special Meetings. Special meetings of the stockholders
for any purpose or purposes, unless otherwise prescribed by law or by the
Articles of Incorporation, may be called by (a) the President, (b) the Board of
Directors or (c) the holders of at least one-fifth (1/5) of the votes which all
stockholders are entitled to cast at the particular meeting. Business transacted
at all special meetings shall be confined to the purpose or purposes stated in
the call.

Section 2.4 Notice of Meetings. Written or printed notice of all
meetings of stockholders stating the place, day and hour thereof, and in the
case of a special meeting the purpose or purposes for which the meeting is
called, shall be personally delivered or mailed, not less than ten (10) days nor
more than sixty (60) days prior to the date of the meeting, to the stockholders
of record entitled to vote at such meeting. If mailed, the notice shall be
addressed

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<PAGE>

to the stockholders as their addresses appear on the stock transfer books of the
Corporation and the postage shall be prepaid. Personal delivery of any such
notice to any officer of a corporation or association, or to any member of a
partnership, shall constitute delivery of such notice to such corporation,
association or partnership.

Section 2.5 Voting Lists. The officer or agent having charge of the
stock transfer books for shares of the Corporation shall make, at least ten (10)
days before each meeting of the stockholders, a complete list of stockholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address of each and the number of shares held by
each, which list, for a period of ten (10) days prior to such meeting, shall be
kept on file at the registered office of the Corporation and shall be subject to
inspection by any stockholders at any time during usual business hours. Such
list shall also be produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any stockholder for the duration of
the meeting. The original stock transfer books shall be prima facie evidence as
to who are the stockholders entitled to examine such list or transfer books or
to vote at any meeting of stockholders. Failure to comply with the Section 2.5
with respect to any meeting of stockholders shall not affect the validity of any
action taken at such meeting. In lieu of making such list, the Corporation may
make the information therein available by any other means permitted by statute.

Section 2.6 Quorum. The holders of a majority of the shares entitled
to vote, present in person or represented by proxy, shall constitute a quorum at
all meetings of the stockholders for the transaction of business, except as
otherwise provided by law, by the Articles of Incorporation or by these Bylaws.
If, however, such quorum shall not be present or represented at any meeting of
the stockholders, the stockholders entitled to vote at such meeting, present in
person or represented by proxy, shall have the power to adjourn the meeting from
time

3
<PAGE>

to time without notice other than announcement at the meeting until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented any business may be transacted which might have
been transacted at the meeting as originally convened. The stockholders present
at a duly organized meeting at which a quorum was present may continue to
transact business until adjournment notwithstanding the withdrawal of enough
stockholders to leave less than a quorum present.

Section 2.7 Organization. (a) The Chairman of the Board, if one
shall be elected, shall preside at all meetings of the stockholders. In the
absence of the Chairman of the Board or should one not be elected, the President
or, in his absence, such other officer designated by the Board shall preside.

(b) The Secretary of the Corporation shall act as secretary at all
meetings of the stockholders. In his absence an Assistant Secretary shall so act
and in the absence of all of these officers the presiding officer may appoint
any person to act as secretary of the meeting.

Section 2.8 Homes. (a) At any meeting of the stockholders every
stockholder entitled to vote at such meeting shall be entitled to vote in person
or by proxy executed in writing by such stockholder or by his duly authorized
attorney-in-fact. Proxies shall be filed with the Secretary immediately after
the meeting has been called to order.

(b) No proxy shall be valid after eleven (11) months from the date
of its execution unless such proxy otherwise provides.

(c) Each proxy shall be revocable before it has been voted unless
the proxy form conspicuously states that the proxy is irrevocable and the proxy
is coupled with an interest, including the appointment as proxy of (i) a
pledgee, (ii) a person who purchased or agreed to purchase, or owns or holds an
option to purchase, the shares, (iii) a creditor of the Corporation

4
<PAGE>

who extended its credit under terms requiring the appointment, (iv) an employee
of the Corporation whose employment contract requires the appointment or (v) a
party to a voting agreement created under the General Corporation Law of the
State of Delaware. A revocable proxy shall be deemed to have been revoked if the
Secretary of the Corporation shall have received at or before the meeting
instructions of revocation or a proxy bearing a later date, which instructions
or proxy shall have been duly executed and dated in writing by the stockholder.

(d) In the event that any instrument in writing shall designate two
(2) or more persons to act as proxies, a majority of such persons present at the
meeting or, if only one shall be present, then that one, shall have and may
exercise all of the powers conferred by such written instrument upon all the
persons so designated unless the instrument shall otherwise provide.

(e) A telegram or other electronic transmission which contains the
information required to be set forth in a proxy shall be deemed to be a written
proxy for purposes of any meeting of stockholders.

Section 2.9 Voting of Shares. (a) Except as otherwise provided by
law, the Articles of Incorporation or these Bylaws, each stockholder shall be
entitled at each meeting of stockholders to one (1) vote on each matter
submitted to a vote at such meeting for each share having voting rights thereon
registered in his name on the books of the Corporation at the time of the
closing of the stock transfer books (or at the record date) for such meeting. At
each election for Directors, each stockholder entitled to vote at such election
shall have the right to vote, in person or by proxy, only the number of shares
owned by him for as many persons as there are to be elected, and no stockholder
shall ever have the right or be permitted to cumulate his votes on any basis.

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<PAGE>

(b) When a quorum is present at any meeting (and notwithstanding the
subsequent withdrawal of enough stockholders to leave less than a quorum
present), the vote of holders of a majority of the outstanding shares entitled
to vote thereon shall decide any matter submitted to such meeting, unless the
matter is one upon which by law or by express provision of the Articles of
Incorporation the vote of a greater number is required, in which case the vote
of such greater number shall govern and control the decision of such matter.

(c) No vote upon any matter, except the election of Directors or the
amendment of the Articles of Incorporation, is required to be by ballot unless
demanded by the holders of not less than ten percent (10%) of the shares
represented and entitled to vote at the meeting.

(d) All motions to introduce a matter for a vote by the stockholders
at a meeting thereof, except for nominations for election as Directors
recommended by the Board, shall be seconded prior to a vote thereon by the
stockholders.

(e) All votes by ballot at any meeting of stockholders shall be
conducted by two or more judges appointed by the presiding officer of the
meeting. The judges shall decide upon the qualifications of votes and declare
the result.

Section 2.10 Voting of Shares by Certain Holders. (a) Shares
standing in the name of another corporation may be voted by such officer, agent
or proxy as the bylaws of such corporation may authorize or, in the absence of
such authorization, as the board of directors of such corporation may determine.

(b) Shares held by an administrator, executor, guardian or
conservator may be voted by him so long as such shares forming a part of an
estate are in the possession and form a part of the estate being served by him,
either in person or by proxy, without a transfer of such

6
<PAGE>

shares into his name. Shares standing in the name of a trustee may be voted by
him, either in person or by proxy, but no trustee shall be entitled to vote
shares held by him without a transfer of such shares into his name as trustee.

(c) Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his name if authority to do so
be contained in an appropriate order of the court by which such receiver was
appointed.

(d) A stockholder whose shares are pledged shall be entitled to vote
such shares until the shares have been transferred into the name of the pledgee,
and thereafter the pledgee shall be entitled to vote the shares so transferred.

(e) Shares of the Corporation's stock (i) owned by the Corporation
itself, (ii) owned by another corporation, the majority of the voting stock of
which is owned or controlled by the Corporation, or (iii) held by the
Corporation in a fiduciary capacity shall not be voted, directly or indirectly,
at any meeting, and shall not be counted in determining the total number of
outstanding shares at any given time.

Section 2.11 Nomination of Directors. Nominations for the election
of Directors may be made by the affirmative vote of a majority of the entire
Board of Directors or by any stockholder of record entitled to vote generally in
the election of Directors. However, any stockholder of record entitled to vote
generally in the election of directors may nominate one or more persons for
election as Directors at a meeting only if a written notice of such
stockholder's intent to make such nomination or nominations, meeting the
requirements described below, has been given, either by personal delivery or by
United States mail, postage prepaid, to the

7
<PAGE>

Secretary of the Corporation, and received by the Corporation, not less than
thirty (30) days nor more than seventy-five (75) days prior to the meeting,
provided, however, that in the event that less than sixty (60) days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth (10th) day following the day on
which such notice of the date of meeting was mailed or such public disclosure
was made, whichever first occurs. Each such notice to the Secretary shall set
forth: (i) the name and address of record of the stockholder who intends to make
the nomination; (ii) a representation that the stockholder is a holder of record
of shares of the Corporation entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (iii) the name, age, business and residence addresses,
and principal occupation or employment of each nominee; (iv) a description of
all arrangements or understandings between the stockholder and each nominee and
any other person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by the stockholder; (v) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission; and (vi) the consent of each nominee
to serve as a Director of the Corporation if so elected. The Corporation may
require any proposed nominee to furnish such other information as may reasonably
be required by the Corporation to determine the eligibility of such proposed
nominee to serve as a Director of the Corporation. The presiding officer of the
meeting may, if the facts warrant, determine that a nomination was not made in
accordance with the foregoing procedure, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be disregarded.

8
<PAGE>

Section 2.12 Telephone Meetings. Stockholders may participate in and
hold a meeting of the stockholders by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other and participation in a meeting pursuant to this
Section shall constitute presence in person at such meeting, except where a
person participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.

Section 2.13 Action Without Meeting. Any action required by any
provision of law or of the Articles of Incorporation or these Bylaws to be taken
at a meeting of the stockholders or any action which may be taken at a meeting
of the stockholders may be taken without a meeting if a consent in writing,
setting forth the action so taken, shall be signed by all of the stockholders
entitled to vote with respect to the subject matter thereof, and such consent
shall have the same force and effect as a unanimous vote of the stockholders.

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<PAGE>

ARTICLE III

Directors

Section 3.1 Number and Qualification. The number of Directors
constituting the whole Board of Directors shall be four (4) until changed in
accordance with the following sentence. Subject to any limitations specified by
law or in the Articles of Incorporation, the number of Directors may be
increased or decreased by resolution adopted by a majority of the Board of
Directors. No decrease in the number of Directors shall have the effect of
shortening the term of any incumbent Director. Directors need not be residents
of the State of Delaware or stockholders of the Corporation.

Section 3.2 Election and Term of Office. The Directors shall be
elected at the annual meeting of the stockholders (except as provided in
Sections 3.4 and 3.5). Each Director elected shall hold office until his
successor shall be elected at an appropriate annual meeting of the stockholders
and shall qualify, or until his death, resignation or removal in the manner
hereinafter provided.

Section 3.3 Resignation. Any Director may resign at any time by
giving written notice to the President or Secretary. Such resignation shall take
effect at the time specified therein, and unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.

Section 3.4 Removal. At any special meeting of the stockholders
called expressly for that purpose, any Director or Directors, including the
entire Board of Directors, may be removed, either with or without cause, and
another person or persons may be elected to serve for the remainder of his or
their term by a vote of the holders of a majority of all shares outstanding and
entitled to vote at an election of Directors. In case any vacancy so created
shall not be filled

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<PAGE>

by the stockholders at such meeting, such vacancy may be filled by the Directors
as provided in Section 3.5.

Section 3.5 Vacancies. (a) Any vacancy occurring in the Board of
Directors (except by reason of an increase in the number of Directors) may be
filled in accordance with subsection (c) of this Section 3.5 or may be filled by
the affirmative vote of a majority of the remaining Directors though less than a
quorum of the Board of Directors. A Director elected to fill a vacancy shall be
elected for the unexpired term of his predecessor in office.

(b) A directorship to be filled by reason of an increase in the
number of Directors may be filled in accordance with subsection (c) of this
Section 3.5 or may be filled by the Board of Directors for a term of office
continuing only until the next election of one (1) or more Directors by the
stockholders; provided, however, that the Board of Directors may not fill more
than two (2) such directorships during the period between any two (2) successive
annual meetings of stockholders.

(c) Any vacancy occurring in the Board of Directors or any
directorship to be filled by reasons of an increase in the number of Directors
may be filled by election at an annual or special meeting of stockholders called
for that purpose.

Section 3.6 General Powers. The property, business and affairs of
the Corporation shall be managed by the Board of Directors. In addition to the
powers and authorities expressly conferred upon them by these Bylaws, the Board
of Directors may exercise all such powers of the Corporation and do all such
lawful acts and things as are not by law or by the Articles of Incorporation or
by these Bylaws directed or required to be exercised or done by the stockholder.

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<PAGE>

Section 3.7 Compensation. The Board of Directors may fix the
compensation of Directors for services to the Corporation in any capacity. The
Board may likewise provide that the Corporation shall reimburse each Director
for any expenses incurred by him on account of his attendance at meetings of the
Board of Directors or any committee thereof. Nothing herein contained shall be
construed to preclude any Director of the Corporation from serving the
Corporation in any other capacity and receiving compensation therefor.

Section 3.8 Inspectors. The Board of Directors may, in advance of
any meeting of stockholders, appoint one or more inspectors to act at such
meeting or any adjournment thereof. If the inspector or inspectors shall not be
so appointed or shall fail to qualify or if any of them shall fail to appear or
act, the chairman of the meeting may, and on the request of any stockholder
entitled to vote thereat shall, appoint an inspector or inspectors. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspector or
inspectors shall determine the number of shares represented at the meeting, the
existence of a quorum, the validity and effect of proxies, and shall receive
votes or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes or consents,
determine the result and do such acts as are proper to conduct the election or
vote with fairness to all stockholders. On request of the chairman of the
meeting or any stockholders entitled to vote thereat, the inspector or
inspectors shall make a report in writing of any challenge, question or matter
determined by them and shall file such report with the minutes of the meeting.
Inspectors need not be stockholders. No person shall be elected a Director at a
meeting at which he has served as an inspector.

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ARTICLE IV

Meetings of the Board

Section 4.1 Place of Meetings. The Directors of the Corporation may
hold their meetings, both regular and special, either within or without the
State of Delaware.

Section 4.2 Annual Meeting. The first meeting of each newly elected
Board shall be held immediately following the adjournment of the annual meeting
of the stockholders and no notice of such meeting shall be necessary to the
newly elected Directors in order legally to constitute the meeting, provided a
quorum shall be present, or they may meet at such time and place as shall be
fixed by the consent in writing of all of the Directors.

Section 4.3 Regular Meetings. Regular meetings of the Board, in
addition to the annual meetings referred to in Section 4.2, may be held without
notice at such time and place as shall from time to time be determined by the
Board.

Section 4.4 Special Meetings. Special meetings of the Board may be
called by the Chairman of the Board, if one shall be elected, or by the
President, if a Chairman of the Board is not elected, on one (1) day's notice
(oral or written) to each Director. Special meetings shall be called by the
President or the Secretary on like notice on the written request of any
Director. Neither the purpose of, nor the business to be transacted at, any
special meeting of the Board of Directors need be specified in the notice or
waiver of notice of such meeting. Attendance of a Director at a meeting shall
constitute a waiver of notice of such meeting except where a Director attends a
meeting for the express purpose of objecting to the transaction of any business
on the grounds that the meeting is not lawfully called or convened.

Section 4.5 Quorum and Action. At all meetings of the Board, the
presence of a majority of the Directors shall be necessary and sufficient to
constitute a quorum for the

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transaction of business and the act of a majority of the Directors present at
any meeting at which a quorum is present shall be the act of the Board of
Directors unless the act of a greater number is required by law, the Articles of
Incorporation or these Bylaws; provided, however, that in the event that one or
more Directors abstains from voting on any matter because he may be deemed
interested therein, the act of a majority of the disinterested Directors present
at any meeting at which a quorum is present shall be the act of the Board of
Directors. If a quorum shall not be present at any meeting of Directors, the
Directors present may adjourn the meeting from time to time without notice other
than announcement at the meeting until a quorum shall be present.

Section 4.6 Presumption of Assent to Action. A Director who is
present at a meeting of the Board at which action on any corporate matter is
taken shall be presumed to have assented to the action taken unless his dissent
shall be entered in the minutes of the meeting or unless he shall file his
written dissent to such action with the secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
Secretary of the Corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a Director who voted in favor of such
action.

Section 4.7 Telephone Meetings. Directors may participate in and
hold a meeting of the Board of Directors by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other and participation in a meeting pursuant to this
Section shall constitute presence in person at such meeting, except where a
person participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.

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Section 4.8 Action Without Meeting. Any action required or permitted
to be taken at a meeting of the Board of Directors, or any committee thereof,
may be taken without a meeting if a consent in writing, setting forth the action
so taken, is signed by all the members of the Board of Directors, or committee,
as the case may be, and such consent shall have the same force and effect as a
unanimous vote at a meeting.

ARTICLE V

Committees of the Board

Section 5.1 Membership and Authorities. The Board of Directors, by
resolution adopted by a majority of the full Board, may designate one (1) or
more Directors to constitute an Executive Committee and such other committees,
as the Board may determine, each of which committees to the extent provided in
such resolution, shall have and may exercise all of the authority of the Board
of Directors in the business and affairs of the Corporation, except in those
cases where the authority of the Board of Directors is specifically denied to
the Executive Committee or such other committee or committees by applicable law,
the Articles of Incorporation or these Bylaws. The designation of an Executive
Committee or other committee and the delegation thereto of authority shall not
operate to relieve the Board of Directors, or any member thereof, of any
responsibility imposed upon it or him by law. The members of each such committee
shall serve at the pleasure of the Board.

Section 5.2 Meetings and Notices. Each committee of Directors shall
hold meetings, regular or special, at such time or times, at such place or
places and upon such notice as shall be specified by the Board of Directors or,
in the absence of any such specification, by its rules of procedure, provided
that the Chairman of the Board, if one shall be elected, or the

15
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President, if a Chairman of the Board is not elected, may call a special meeting
of any committee of Directors, and any member of a committee of Directors may
call a meeting of such committee, on twenty-four (24) hours' notice (written or
oral) to each member of such committee.

Section 5.3 Quorum and Action. At all meetings of each committee of
Directors, the presence of a majority of the members of such committee shall be
necessary and sufficient to constitute a quorum for the transaction of business
and, except as may be otherwise prescribed by the Board of Directors, the act of
the majority of the members present at any meeting at which a quorum is present
shall be the act of such committee except as may be otherwise specifically
provided by law, by the Articles of Incorporation or by these Bylaws.

Section 5.4 Minutes and Rules of Procedure. Each committee
designated by the Board shall keep regular minutes of its proceedings and report
the same to the Board when required. Subject to the provisions of these Bylaws,
the members of any committee may fix such committee's own rules of procedure.

Section 5.5 Vacancies. The Board of Directors shall have the power
at any time to fill vacancies in, to change the membership of, or to dissolve,
any committee.

Section 5.6 Telephone Meetings. Members of any committee designated
by the Board may participate in or hold a meeting by use of conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other. Participation in a meeting pursuant to this
Section shall constitute presence in person at such meeting, except where a
person participates in the meeting for the express purpose of objecting to the
transaction of any business on the grounds that the meeting is not lawfully
called or convened.

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Section 5.7 Action Without Meeting. Any action required or permitted
to be taken at a meeting of any committee designated by the Board may be taken
without a meeting if a consent in writing, setting forth the action so taken, is
signed by all the members of the committee, and such consent shall have the same
force and effect as a unanimous vote at a meeting.

ARTICLE VI

Officers

Section 6.1 Number. The officers of the Corporation shall be a
President and a Secretary. The Board of Directors may also elect a Chairman of
the Board, one (1) or more Vice Presidents (the number and categories thereof to
be determined by the Board of Directors), a Treasurer, a Controller, one (1) or
more Assistant Secretaries and one (1) or more Assistant Treasurers. One person
may hold any two (2) or more of these offices.

Section 6.2 Election, Term of Office and Qualification. The Board of
Directors shall elect officers, none of whom need be a member of the Board,
except for the Chairman of the Board, if one shall be elected, at its first
meeting after each annual meeting of stockholders. Each officer so elected shall
hold office until his successor shall have been duly elected and qualified or
until his death, resignation or removal in the manner hereinafter provided.

Section 6.3 Subordinate Officers. The Board of Directors may appoint
such other officers and agents as it shall deem necessary who shall hold their
offices for such terms, have such authority and perform such duties as the Board
of Directors may from time to time determine. The Board of Directors may
delegate to any committee or officer the power to appoint any such subordinate
officer or agent. No subordinate officer appointed by any

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committee or superior officer as aforesaid shall be considered as an officer of
the Corporation, the officers of the Corporation being limited to the officers
elected or appointed as such by the Board of Directors.

Section 6.4 Resignation. Any officer may resign at any time by
giving written notice thereof to the Board of Directors or to the President or
Secretary of the Corporation. Any such resignation shall take effect at the time
specified therein and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.

Section 6.5 Removal. Any officer elected or appointed by the Board
of Directors may be removed at any time with or without cause by the affirmative
vote of a majority of the whole Board of Directors. Any other officer may be
removed at any time with or without cause by the Board of Directors or by any
committee or superior officer in whom such power of removal may be conferred by
the Board of Directors. The removal of any officer shall be without prejudice to
the contract rights, if any, of the person so removed. Election or appointment
of an officer or agent shall not of itself create any contract rights.

Section 6.6 Vacancies. A vacancy in any office shall be filled for
the unexpired portion of the term by the Board of Directors, but in case of a
vacancy occurring in an office filled by a committee or superior officer in
accordance with the provisions of Section 6.3, such vacancy may be filled by
such committee or superior officer.

Section 6.7 The Chairman of the Board. The Chairman of the Board, if
one shall be elected, shall preside at all meetings of the stockholders and
Directors, shall have general and active management of the business of the
Corporation, shall have the general supervision and direction of all other
officers of the Corporation with full power to see that their duties are
properly performed and shall see that all orders and resolutions of the Board of
Directors are

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carried into effect. He may sign, with any other proper officer, certificates
for shares of the Corporation and any deeds, bonds, mortgages, contracts and
other documents which the Board of Directors has authorized to be executed,
except where required by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
Board of Directors or these Bylaws, to some other officer or agent of the
Corporation. In addition, the Chairman of the Board shall perform whatever
duties ad shall exercise all powers that are given to him by the Board of
Directors.

Section 6.8 The President. If no Chairman of the Board shall be
elected, the President shall be the chief executive officer of the Corporation
ad shall have the powers and duties of the Chairman of the Board as set forth in
Section 6.7. In the absence of the Chairman of the Board, if one shall be
elected, the President shall preside at all meetings of the stockholders and
Directors. He may sign, with any other proper officer, certificates for shares
of the Corporation and any deeds, bonds, mortgages, contracts and other
documents which the Board of Directors has authorized to be executed, except
where required by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors or these Bylaws to some other officer or agent of the Corporation. In
addition, the President shall perform whatever duties and shall exercise all the
powers that are given to him by the Board of Directors or by the Chairman of the
Board, if one shall be elected.

Section 6.9 The Vice Presidents. The Vice Presidents shall perform
the duties as are given to them by these Bylaws and as may from time to time be
assigned to them by the Board of Directors, by the Chairman of the Board, if one
shall be elected, or by the President, if a Chairman of the Board is not
elected, and may sign, with any other proper officer, certificates for

19
<PAGE>

shares of the Corporation. At the request of the President, or in his absence or
disability, the Vice President, designated by the President (or in the absence
of such designation, the senior Vice President), shall perform the duties and
exercise the powers of the President.

Section 6.10 The Secretary. The Secretary, when available, shall
attend all meetings of the Board of Directors and all meetings of the
stockholders and record all votes and the minutes of all proceedings in a book
to be kept for that purpose and shall perform like duties for the Executive
Committee and standing committees when required. He shall give, or cause to be
given, notice of all meetings of the stockholders and special meetings of the
Board of Directors as required by law or these Bylaws, be custodian of the
corporate records and have general charge of the stock books of the Corporation
and shall perform such other duties as may be prescribed by the Board of
Directors, by the Chairman of the Board, if one shall be elected, or by the
President, if no Chairman of the Board is elected, under whose supervision he
shall be. He may sign, with any other proper officer, certificates for shares of
the Corporation and shall keep in safe custody the seal of the Corporation, and,
when authorized by the Board, all the same to any instrument requiring it and,
when so affixed, it shall be attested by his signature or by the signature of
the Treasurer or an Assistant Secretary.

Section 6.11 Assistant Secretaries. The Assistant Secretaries shall
perform the duties as are given to them by these Bylaws or as may from time to
time be assigned to them by the Board of Directors or by the Secretary. At the
request of the Secretary, or in his absence or disability, the Assistant
Secretary, designated by the Secretary (or in the absence of such designation
the senior Assistant Secretary), shall perform the duties and exercise the
powers of the Secretary.

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Section 6.12 The Treasurer. The Treasurer shall (i) have custody and
be responsible for all corporate funds and securities and keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation;
(ii) deposit all monies and securities of the Corporation in the name and to the
credit of the corporation in such depositories as may be selected by him; (iii)
disburse the funds of the Corporation as may be directed by the Board or upon
vouchers duly processed and under such rules and regulations as the Board or the
Chairman of the Board, if one be elected, or the President, if a Chairman of the
Board is not elected, may from time to time adopt; (iv) establish appropriate
credit policies, negotiate and procure capital required by the Corporation,
including long-term debt and equity, establish and maintain adequate sources for
the Corporation's short-term facing requirements, and establish and maintain
relationships in the name and on behalf of the corporation with banks, trust
companies, securities or commodities brokers, and other institutions
(collectively "Institutions"); (v) open one or more accounts with such
Institutions as he may deem appropriate and in the best interest of the
Corporation; (vi) designate such person or persons who may give written or oral
instructions under accounts of the Corporation with Institutions and whose
signature(s) shall be required on checks, drafts and orders for the payment of
money drawn against any accounts with Institutions; (vii) prepare, execute and
deliver, in the name and on behalf of the Corporation, such designations,
applications, notes, certificates or other instruments, documents or papers as
in his judgment may be necessary or appropriate to open such account or accounts
with Institutions; (viii) render such account of the transactions of his office
as may be from time to time directed by the Board or by the Chairman of the
Board, if one shall be elected, or by the President, if a Chairman of the Board
is not elected; and (ix) in general have such other powers or perform such other
duties as may be assigned to him from time to time by the Board or by the

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<PAGE>

Chairman of the Board, if one shall be elected, or by the President, if a
chairman of the Board is not elected.

Section 6.13 Assistant Treasurers. The Assistant Treasurers shall
perform the duties as are given to them by these Bylaws or as may from time to
time be assigned to them by the Board of Directors or by the Treasurer. At the
request of the Treasurer, or in his absence or disability, the Assistant
Treasurer, designated by the Treasurer (or in the absence of such designation,
the senior Assistant Treasurer), shall perform the duties and exercise the
powers of the Treasurer.

Section 6.14 Treasurer's Bond. If required by the Board of
Directors, the Treasurer and any Assistant Treasurer shall give the Corporation
a bond in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of his office
and for the restoration to the Corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control belonging
to the Corporation.

Section 6.15 Controller. The Controller shall be the principal
accounting and tax officer of the Corporation and shall perform all other duties
that ordinarily relate to his office or that may be delegated to him by the
Board of Directors from time to time.

Section 6.16 Salaries. The salary or other compensation of officers
shall be fixed from time to time by the Board of Directors. The Board of
Directors may delegate to any committee or officer the power to fix from time to
time the salary or other compensation of subordinate officers and agents
appointed in accordance with the provisions of Section 6.3.

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ARTICLE VII

Corporate Shares

Section 7.1 Share Certificates. (a) The certificates representing
shares of the Corporation shall be in such form, not inconsistent with statutory
provisions and the Articles of Incorporation, as shall be approved by the Board
of Directors. The certificates shall be signed by the Chairman of the Board, if
one shall be elected, the President or a Vice President and a Secretary or
Assistant Secretary, or such other or additional officers as may be prescribed
from time to time by the Board of Directors, and may be sealed with the
corporate seal or a facsimile thereof. The signatures of such officer or
officers upon a certificate may be facsimiles, if the certificate is
countersigned by a transfer agent, or registered by a registrar, either of which
is other than the Corporation itself or an employee of the Corporation. In case
any officer who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer before such certificate is
issued, it may be issued with the same effect as if he were such officer at the
date of its issuance.

(b) If the Corporation is authorized to issue shares of more than
one (1) class or more than one (1) series of any class, there shall be set forth
on the face or back of the certificate or certificates, which the corporation
shall issue to represent shares of such class or series of stock, such legends
or statements as may be required by applicable law or the Articles of
Incorporation or as may be approved by the Board of Directors.

(c) The denial of preemptive rights of holders of Preferred Stock
and Class B Common Stock shall be set forth on the face or back of the
certificate or certificates which the Corporation shall issue to represent
shares of such classes of stock.

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<PAGE>

(d) All certificates for each class or series of stock shall be
consecutively numbered and the name of the person owning the shares represented
thereby, with the number of such shares and the date of issue, shall be entered
on the Corporation's books.

(e) All certificates surrendered to the Corporation shall be
canceled, and, except as provided in Section 7.2 with respect to lost, destroyed
or mutilated certificates, no new certificate shall be issued until the former
certificate to the same number of shares has been surrendered and canceled.

Section 7.2 Lost Certificates, etc. The Board of Directors may
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost or destroyed. In authorizing
such issue of a new certificate or certificates, the Board of Directors may, in
its discretion and as a condition precedent to the issue thereof, require the
owner of such lost or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require and/or
indemnify the Corporation as the Board of Directors may prescribe.

Section 7.3 Transfer of Shares. Subject to any restrictions upon
transfer, upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer and satisfaction of
the Corporation that the requested transfer complies with the provisions of
applicable state and federal laws ad regulations and any agreements to which the
Corporation is a party, the Corporation shall issue a new certificate to the
person entitled thereto, cancel the old certificate and record the transaction
upon its books.

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<PAGE>

Section 7.4 Ownership of Shares. The Corporation shall be entitled
to treat and recognize the holder of record of any share or shares as the holder
in fact thereof and, accordingly, shall not be bound to recognize any equitable
or other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of the State of Delaware.

Section 7.5 Closing of Transfer Books. For the purpose of
determining stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive a distribution
by the Corporation (other than a distribution involving a purchase or redemption
by the Corporation of its own shares) or a share dividend, or in order to make a
determination of stockholders for any other proper purpose, the Board of
Directors may provide that the stock transfer books shall be closed for a stated
period but not to exceed, in any case, sixty (60) days. If the stock transfer
books shall be closed for the purpose of determining stockholders entitled to
notice of or to vote at a meeting of stockholders, such books shall be closed
for at least ten (10) days immediately preceding such meeting. In lieu of
closing the stock transfer books, the Board of Directors may fix in advance a
date as the record date for any such determination of stockholders, such date in
any case to be not more than sixty (60) days and, in case of a meeting of
stockholders, not less than ten (10) days prior to the date on which the
particular action requiring such determination of stockholders is to be taken,
and the determination of stockholders on such record date shall apply with
respect to the particular action requiring the same notwithstanding any transfer
of shares on the books of the Corporation after such record date.

Section 7.6 Dividends. The Board of Directors may, from time to
time, declare, and the Corporation may pay, dividends on its outstanding shares
in the manner and upon the

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terms and conditions provided by the Articles of Incorporation and by law, such
dividends to be paid in cash or in property or in shares of capital stock of the
Corporation.

ARTICLE VIII

Indemnification

Section 8.1 Definitions. In this Article:

(a) "Indemnitee" means (i) any present or former Director, advisory
director or officer of the Corporation, (ii) any person who while serving in any
of the capacities referred to in clause (i) hereof served at the Corporation's
request as a director, officer, partner, venturer, proprietor, trustee,
employee, agent or similar functionary of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, and (iii) any person nominated or designated by (or pursuant to
authority granted by) the Board of Directors or any committee thereof to serve
in any of the capacities referred to in clauses (i) or (ii) hereof.

(b) "Official Capacity" means (i) when used with respect to a
Director, the office of Director of the Corporation, and (ii) when used with
respect to a person other than a Director, the elective or appointive office of
the Corporation held by such person or the employment or agency relationship
undertaken by such person on behalf of the Corporation, but in each case does
not include service for any other foreign or domestic corporation or any
partnership, joint venture, sole proprietorship, trust, employee benefit plan or
other enterprise.

(c) "Proceeding" means any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative, arbitrative or
investigative, any appeal in

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<PAGE>

such an action, suit or proceeding, and any inquiry or investigation that could
lead to such an action, suit or proceeding.

Section 8.2 Indemnification. The Corporation shall indemnify every
Indemnitee against all judgments, penalties (including excise and similar
taxes), fines, amounts paid in settlement and reasonable expenses actually
incurred by the Indemnitee in connection with any Proceeding in which he was, is
or is threatened to be named defendant or respondent, or in which he was or is a
witness without being named a defendant or respondent, or in which he was or is
a witness without being named a defendant or respondent, by reason, in whole or
in part, of his serving or having served, or having been nominated or designated
to serve, in any of the capacities referred to in Section 8.1, if it is
determined in accordance with Section 8.4 that the Indemnitee (a) conducted
himself in good faith, (b) reasonably believed, in the case of conduct in his
Official Capacity, that his conduct was in the Corporation's best interests and,
in all other cases, that his conduct was at least not opposed to the
Corporation's best interests, and (c) in the case of any criminal proceeding,
had no reasonable cause to believe that his conduct was unlawful; provided,
however, that in the event that an Indemnitee is found liable to the Corporation
or is found liable on the basis that personal benefit was improperly received by
the Indemnitee, the indemnification (i) is limited to reasonable expenses
actually incurred by the Indemnitee in connection with the Proceeding and (ii)
shall not be made in respect of any Proceeding in which the Indemnitee shall
have been found liable for willful or intentional misconduct in the performance
of his duty to the Corporation. Except as provided in the immediately preceding
proviso to the first sentence of this Section 8.2, no indemnification shall be
made under this Section 8.2 in respect of any Proceeding in which such
Indemnitee shall have

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<PAGE>

been (x) found liable on the basis that personal benefit was improperly received
by him, whether or not the benefit resulted from an action taken in the
Indemnitee's Official Capacity, or (y) found liable to the Corporation. The
termination of any Proceeding by judgment, order, settlement or conviction, or
on a plea of nolo contendere or its equivalent, is not of itself determinative
that the Indemnitee did not meet the requirements set forth in clauses (a), (b)
or (c) in the first sentence of this Section 8.2. An Indemnitee shall be deemed
to have been found liable in respect of any claim, issue or matter only after
the Indemnitee shall have been so adjudged by a court of competent jurisdiction
after exhaustion of all appeals therefrom. Reasonable expenses shall include,
without limitation, all court costs and all fees and disbursements of attorneys
for the Indemnitee. The indemnification provided herein shall be applicable
whether or not negligence or gross negligence of the Indemnitee is alleged or
proven.

Section 8.3 Successful Defense. Without limitation of Section 8.2
and in addition to the indemnification provided for in Section 8.2, the
Corporation shall indemnify every Indemnitee against reasonable expenses
incurred by such person in connection with any Proceeding in which he is a
witness or a named defendant or respondent because he served in any of the
capacities referred to in Section 8.1, if such person has been wholly
successful, on the merits or otherwise, in defense of the Proceeding.

Section 8.4 Determinations. Any indemnification under Section 8.2
(unless ordered by a court of competent jurisdiction) shall be made by the
Corporation only upon a determination that indemnification of the Indemnitee is
proper in the circumstances because he has met the applicable standard of
conduct. Such determination shall be made (a) by the Board of Directors by a
majority vote of a quorum consisting of Directors who, at the time of such vote,
are not named defendants or respondents in the Proceeding; (b) if such a quorum
cannot be

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<PAGE>

obtained, then by a majority vote of all Directors (in which designation
Directors who are named defendants or respondents in the Proceeding may
participate), such committee to consist solely of two (2) or more Directors who,
at the time of the committee vote, are not named defendants or respondents in
the Proceeding; (c) by special legal counsel selected by the Board of Directors
or a committee thereof by vote as set forth in clauses (a) or (b) of this
Section 8.4 or, if the requisite quorum of all of the Directors cannot be
obtained therefor and such committee cannot be established, by a majority vote
of all of the directors (in which Directors who are named defendants or
respondents in the Proceeding may participate); or (d) by the stockholders in a
vote that excludes the shares held by Directors that are named defendants or
respondents in the Proceeding. Determination as to reasonableness of expenses
shall be made in the same manner as the determination that indemnification is
permissible, except that if the determination that indemnification is
permissible is made by special legal counsel, determination as to reasonableness
of expenses must be made in the manner specified in clause (c) of the preceding
sentence for the selection of special legal counsel. In the event a
determination is made under this Section 8.4 that the Indemnitee has met the
applicable standard of conduct as to some matters but not as to others, amounts
to be indemnified may be reasonably prorated.

Section 8.5 Advancement of Expenses. Reasonable expenses (including
court costs and attorneys' fees) incurred by an Indemnitee who was or is a
witness or was, is or is threatened to be made a named defendant or respondent
in a Proceeding shall be paid by the Corporation at reasonable intervals in
advance of the final disposition of such Proceeding, and without making any of
the determinations specified in Section 8.4, after receipt by the Corporation of
(a) a written affirmation by such Indemnitee of his good faith belief that he
has met the standard of conduct necessary for indemnification by the Corporation
under this Article

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<PAGE>

and (b) a written undertaking by or on behalf of such Indemnitee to repay the
amount paid or reimbursed by the Corporation if it shall ultimately be
determined that he is not entitled to be indemnified by the Corporation as
authorized in this Article. Such written undertaking shall be an unlimited
obligation of the Indemnitee but need not be secured and it may be accepted
without reference to financial ability to make repayment. Notwithstanding any
other provision of this Article, the Corporation may pay or reimburse expenses
incurred by an Indemnitee in connection with his appearance as a witness or
other participation in a Proceeding at a time when he is not named a defendant
or respondent in the Proceeding.

Section 8.6 Employee Benefit Plans. For purposes of this Article,
the Corporation shall be deemed to have requested an Indemnitee to serve an
employee benefit plan whenever the performance by him of his duties to the
Corporation also imposes duties on or otherwise involves services by him to the
plan or participants or beneficiaries of the plan. Excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall be deemed fines. Action taken or omitted by an Indemnitee with respect to
an employee benefit plan in the performance of his duties for a purpose
reasonably believed by him to be in the interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose which is not
opposed to the best interests of the Corporation.

Section 8.7 Other Indemnification and Insurance. The indemnification
provided by this Article shall (a) not be deemed exclusive of, or to preclude,
any other rights to which those seeking indemnification may at any time be
entitled under the Corporation's Articles of Incorporation, any law, agreement
or vote of stockholders or disinterested Directors, or otherwise, or under any
policy or policies of insurance purchased and maintained by the Corporation on
behalf of any Indemnitee, both as to action in his Official Capacity and as to

30
<PAGE>

action in any other capacity, (b) continue as to a person who has ceased to be
in the capacity by reason of which he was an Indemnitee with respect to matters
arising during the period he was in such capacity, (c) inure to the benefit of
the heirs, executors and administrators of such a person, and (d) not be
required if and to the extent that the person otherwise entitled to payment of
such amounts hereunder has actually received payment therefor under any
insurance policy, contract or otherwise.

Section 8.8 Notice. Any indemnification of or advance of expenses to
an Indemnitee of the Corporation in accordance with this Article shall be
reported in writing to the stockholders of the Corporation with or before the
notice or waiver of notice of the next stockholders' meeting or with or before
the next submission to stockholders of a consent to action without a meeting
and, in any case, within the twelve-month period immediately following the date
of the indemnification or advance.

Section 8.9 Construction. The indemnification provided by this
Article shall be subject to all valid and applicable laws, including, without
limitation, the General Corporation Law of the State of Delaware, and, in the
event this Article or any of the provisions hereof or the indemnification
contemplated hereby are found to be inconsistent with or contrary to any such
valid laws, the latter shall be deemed to control and this Article shall be
regarded as modified accordingly, and, as so modified, to continue in full force
and effect.

Section 8.10 Continuing Offer, Reliance, etc. The provisions of this
Article (i) are for the benefit of, and may be enforced by, each Indemnitee of
the Corporation; the same as if set forth in their entirety in a written
instrument duly executed and delivered by the Corporation and such Indemnitee
and (ii) constitute a continuing offer to all present and future Indemnitees.
The Corporation, by its adoption of these Bylaws, (i) acknowledges and agrees
that each Indemnitee

31
<PAGE>

of the Corporation has relied upon and will continue to rely upon the provisions
of this Article in becoming, and serving in any of the capacities referred to in
Section 8.1(a) of the Article, (ii) waives reliance upon, and all notices of
acceptance of, such provisions by such Indemnitees and (iii) acknowledges and
agrees that no present or future Indemnitee shall be prejudiced in his right to
enforce the provisions of this Article in accordance with their terms by any act
or failure to act on the part of the Corporation.

Section 8.11 Effect of Amendment. No amendment, modification or
repeal of this Article or any provision hereof shall in any manner terminate,
reduce or impair the right of any past, present or future Indemnitees to be
indemnified by the Corporation, nor the obligation of the Corporation to
indemnify any such Indemnitee, under and in accordance with the provisions of
the Article as in effect immediately prior to such amendment, modification or
repeal with respect to claims arising from or relating to matters occurring, in
whole or in part, prior to such amendment, modification or repeal, regardless of
when such claims may arise or be asserted.

ARTICLE IX

General Provisions

Section 9.1 Waiver of Notice. (a) Whenever, under the provisions of
applicable law or of the Articles of Incorporation or of these Bylaws, any
notice is required to be given to any stockholder or Director, a waiver thereof
in writing signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be equivalent to the giving of
such notice.

(b) Attendance of a Director at a meeting shall constitute a waiver
of notice of such meeting except where a Director attends a meeting for the
express purpose of objecting to

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<PAGE>

the transaction of any business on the grounds that the meeting is not lawfully
called or convened.

Section 9.2 Seal. If one be adopted, the corporate seal shall have
inscribed thereon the name of the Corporation and shall be in such form as may
be approved by the Board of Directors. Said seal may be used by causing it or a
facsimile of it to be impressed or affixed or in any manner reproduced.

Section 9.3 Fiscal Year. The fiscal year of the Corporation shall be
the calendar year, unless otherwise fixed by resolution of the Board of
Directors.

Section 9.4 Checks, Notes, etc. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate. The Board of Directors may authorize any officer or officers or such
other person or persons to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation, and such authority
may be general or confined to specific instances.

Section 9.5 Examination of Books and Records. The Board of Directors
shall determine from time to time whether, and if allowed, when and under what
conditions and regulations the accounts and books of the corporation (except
such as may by statute be specifically opened to inspection) or any of them
shall be open to inspection by the stockholders, and the stockholders rights in
this respect are and shall be restricted and limited accordingly.

Section 9.6 Voting Upon Shares Held by the Corporation. Unless
otherwise ordered by the Board of Directors, the Chairman of the Board, if one
shall be elected, or the President, if a Chairman of the Board shall not be
elected, acting on behalf of the Corporation, shall have full power and
authority to attend and to act and to vote at any meeting of stockholders

33
<PAGE>

of any corporation in which the Corporation may hold shares and at any such
meeting, shall possess and may exercise any and all of the rights and powers
incident to the ownership of such shares which, as the owner thereof, the
Corporation might have possessed and exercised, if present. The Board of
Directors by resolution from time to time may confer like powers upon any other
person or persons.

ARTICLE X

Amendments

Section 10.1 Amendment by Board of Directors. The Board of Directors
shall have the exclusive power to alter, amend or repeal these Bylaws or adopt
new Bylaws. The Board of Directors may exercise this power at any regular or
special meeting at which a quorum is present by the affirmative vote of a
majority of the Directors present at the meeting and without any notice of the
action taken with respect to the Bylaws having been contained in the notice or
waiver of notice of such meeting.

ARTICLE XI

Subject to All Laws

Section 11.1 Subject to All Laws. The provisions of these Bylaws
shall be subject to all valid and applicable laws, including, without
limitation, the General Corporation Law of the State of Delaware, as now or
hereafter amended, and in the event that any of the provisions of these Bylaws
are found to be inconsistent with or contrary to any such valid laws,

34
<PAGE>

the latter shall be deemed to control and these Bylaws shall be deemed modified
accordingly, and, as so modified, to continue in full force and effect.

<PAGE>

EXHIBIT 5.1

August 18, 1999

St. Mary Land & Exploration Company
1776 Lincoln Street, Suite 1100
Denver, Colorado 80203

Re: Common Stock of St. Mary Land & Exploration Company, a Delaware
Corporation ("St. Mary"), to be Issued Under the Agreement and
Plan of Merger dated July 27, 1999

Gentlemen:

We have acted as your counsel in connection with the proposed issuance
of shares of common stock under the Agreement and Plan of Merger dated July 27,
1999 (the "Merger Agreement") whereby a wholly owned subsidiary of St. Mary will
be merged with and into King Ranch Energy, Inc., a Delaware corporation ("King
Ranch Energy"), and King Ranch Energy will become a wholly owned subsidiary of
St. Mary, as more fully described in the related Registration Statement on Form
S-4 (the "Registration Statement") to be filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended.

In that connection, we have examined originals and copies, certified
or otherwise identified to our satisfaction, of such documents, corporate
records and other instruments as we have deemed necessary for the purposes of
the opinion expressed below, including but not limited to the Merger Agreement.

Based upon the foregoing, we are of the opinion that the shares of
common stock to be issued by St. Mary under the Merger Agreement have been duly
authorized and, when duly executed, delivered and when issued in accordance with
the terms of the Merger Agreement and upon effectiveness of the Registration
Statement, and upon satisfaction of all applicable conditions, will be duly and
validly issued, fully paid and nonassessable.

We express no opinion concerning the laws of any jurisdiction other
than the laws of the United States and the laws of the State of Delaware.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the joint proxy/consent statement and prospectus included in
the Registration Statement.

Very truly yours,

/S/ BALLARD SPAHR ANDREWS & INGERSOLL, LLP

<PAGE>

EXHIBIT 8.1

July 27, 1999

King Ranch, Inc.
1415 Louisiana, Suite 2300
Wedge International Tower
Houston, Texas 77002

Gentlemen:

We have acted as counsel to King Ranch, Inc., a Texas corporation
("KING RANCH"), in connection with the merger (the "MERGER") between St. Mary
Acquisition Corporation, a Colorado corporation ("SUB"), and King Ranch
Energy, Inc., a Delaware corporation ("ENERGY"), in which Energy will be the
surviving entity, pursuant to that certain Agreement and Plan of Merger dated
the 27th day of July, 1999 ("AGREEMENT AND PLAN OF MERGER") by and between
St. Mary Land & Exploration Company, a Delaware corporation ("ST. MARY"),
Sub, King Ranch and Energy. King Ranch, King Ranch Holdings, Inc., a Delaware
corporation ("HOLDINGS"), King Ranch Minerals, Inc., a Delaware corporation
("MINERALS") and Energy are sometimes referred to as the "CONSOLIDATED
GROUP." We have been asked to render an opinion as to whether a distribution
from King Ranch of all of the stock of Energy in the manner described herein
("STOCK DISTRIBUTION") will be an income taxable event for Federal tax
purposes to the shareholders of King Ranch (collectively, the "SHAREHOLDERS"
or singularly, a "SHAREHOLDER") under Section 355 of the Internal Revenue
Code of 1986, as amended ("CODE;" all Section references in this opinion are
references to the Code, unless otherwise indicated).

As of the date of this opinion, the Consolidated Group is structured
as follows: King Ranch owns all of the outstanding stock of Holdings;
Holdings owns all of the outstanding stock of Minerals; and Minerals owns all
of the outstanding stock of Energy. You have represented to us that Energy
was formed on December 31, 1997 through a contribution by Minerals to Energy
in a non-taxable transfer of assets to a corporation qualifying under Code
Section 351.

In anticipation of the Stock Distribution and the Merger, Minerals
will distribute the stock of Energy to Holdings which will in turn distribute
the stock of Energy to King Ranch. In addition and as a condition to the
Merger, Holdings will forgive a debt obligation ("DEBT") of Energy in an
amount approximately equal to $14 million which may have certain Federal and
state tax consequences. This opinion will not discuss any state or Federal
tax consequences of the distribution of the stock of Energy through the
Consolidated Group to King Ranch or any issues related to the cancellation of
the Debt. It is our understanding that Ernst & Young LLP will undertake the
tax analysis with respect to such issues.

<PAGE>

In order to facilitate the Merger, King Ranch will distribute all of
the stock of Energy that it owns, which constitutes 100 percent of all of the
issued and outstanding stock of Energy, to the Shareholders. You have
represented that the Shareholders have not and will not receive any cash or
any other property as a distribution from King Ranch and will not exchange or
redeem any of their stock of King Ranch due to the Stock Distribution. The
Shareholders will receive a number of shares of Energy in proportion to each
Shareholder's ownership interest of King Ranch as of the record date for the
Stock Distribution. The shareholders will subsequently exchange their stock
of Energy for stock of St. Mary, and Sub will be merged into Energy under the
applicable provisions of Delaware and Colorado law.

Our opinions are based upon the provisions of the Code, the Treasury
Regulations (the "REGULATIONS") and the interpretation thereof by the
Internal Revenue Service (the "IRS") and relevant case law, all as of the
date of this opinion. These opinions are also based upon certain assumptions
and representations as stated below. There can be no assurance that the
provisions of the Code, the Regulations or that the interpretations of the
IRS or the courts will not change in a manner such that the conclusions
expressed herein would change. Moreover, any such changes in the Code, the
Regulations or the interpretations thereof may have retroactive effect. We do
not accept the responsibility to inform you of any such changes. Because none
of our opinions are binding upon the IRS or the courts, there can be no
assurance that contrary positions may not be successfully asserted by the
IRS. Because there may be certain ancillary Federal income tax consequences
for each Shareholder with respect to issues not specifically addressed in
this opinion, each individual Shareholder is urged to consult his, her or its
own tax advisor as to the Federal income tax consequences associated with the
Stock Distribution to such Shareholder.

In rendering this opinion, we have examined and are relying upon
such documents (including all exhibits and schedules attached thereto) as we
have deemed relevant or necessary, including (1) the Agreement and Plan of
Merger, (2) certain tax representation letters (the "TAX REPRESENTATION
LETTERS") of King Ranch, Energy, St. Mary and Sub satisfactory to us which
have been received prior to the date of this opinion, and (3) such other
documents as we have deemed necessary or appropriate in order to enable us to
render the opinion below, and our opinion is conditioned on (without any
independent investigation or review thereof) the truth and accuracy, at all
relevant times, of the representations and warranties, covenants and
statements contained therein. The initial and continuing truth and accuracy
of the representations contained in the Tax Representation Letters
constitutes an integral basis for the opinions expressed herein and this
opinion is conditioned upon the initial and continuing truth of the accuracy
of these representations.

In rendering this opinion, we have assumed (without any independent
investigation or review thereof) and our opinion is conditioned upon the
correctness of, the following: (1) each original document submitted to us
(including signatures thereto) is authentic, each document submitted to us as
a copy conformed to the original documents, and all documents have been (or
will be by the date of this opinion) duly and validly executed and delivered
where due execution and delivery are a prerequisite to the effectiveness
thereof; (2) all representations, warranties and statements made or agreed to
in connection with the Merger by King Ranch, Energy, Holdings,

<PAGE>

Minerals, St. Mary and Sub, their managements, employees, officers,
directors, and shareholders, including, but not limited to, those set forth
in the Agreement and Plan of Merger (including the exhibits thereto) and the
Tax Representation Letters, are true and accurate at all relevant times; (3)
all covenants contained in the Agreement and Plan of Merger (including
exhibits thereto) and the Tax Representation Letters are performed without
waiver or breach of any material provision thereof; (4) the Merger will be
reported by King Ranch, Energy, Holdings, Minerals, St. Mary and Sub on their
respective Federal income tax returns in a manner consistent with the opinion
set forth below; and (5) any representation or statement made "to the best of
knowledge" or similarly qualified is correct without qualification. We have
also assumed in connection with rendering this opinion that the Merger will
be consummated in accordance with the Agreement and Plan of Merger (and
without any waiver, breach or amendment of any of the provisions thereof).

Based on our examination of the foregoing items and subject to the
limitations, qualifications, assumptions and caveats set forth herein, we are
of the opinion that:

(i) For the United States Federal income tax purposes, the Stock
Distribution, when made as provided herein, should qualify as
a distribution to which Code Section 355(e) applies and,
accordingly, the receipt of the stock of Energy by the
Shareholders upon the Stock Distribution should not be taxable
to the Shareholders for Federal income tax purposes.

(ii) The Merger of Sub with and into Energy, when consummated as
provided herein, should qualify as a reorganization within the
meaning of Code Section 368(a).

(iii) Upon the consummation of the Merger of Sub with and
into Energy as provided herein, St. Mary, Sub and
Energy should each be a party to the reorganization
within the meaning of Code Section 368(b).

An opinion of counsel merely represents counsel's best judgment with
respect to the probable outcome on the merits and is not binding on the IRS
or the courts. There can be no complete assurance that positions contrary to
our opinions will not be taken by the IRS, or that a court considering the
issues would not hold contrary to such an opinion.

This opinion has been prepared and delivered effective as of the
date hereof, and based upon certain facts, assumptions, representations and
warranties as of the date hereof, as provided herein. This opinion may not be
used or relied upon by any person other than the addressee and the
Shareholders as of the record date of the Stock Distribution. This opinion
may not be used for any other purpose and may not be disclosed, quoted,
circulated, published, filed with a governmental agency or otherwise referred
to without our prior written consent.

Very truly yours,

/S/ LOCKE LIDDELL & SAPP LLP

<PAGE>

EXHIBIT 8.2

July 26, 1999

Mr. Bill Gardiner
Chief Financial Officer
King Ranch, Inc.
1415 Louisiana, Suite 2300
Wedge International Tower
Houston, Texas 77002

Dear Bill:

You have requested our opinion regarding whether the distribution of all of the
stock of King Ranch Energy, Inc. ("Controlled") by King Ranch, Inc. ("KRI") to
its shareholders qualifies as a tax-free "spin-off" within the meaning of
Section 355(a) of the Internal Revenue Code.(1)

In rendering the opinion expressed herein, we have relied upon the completeness,
truth and accuracy of (i) the Statement of Facts, as set forth below, provided
by an authorized representative of KRI, (ii) the Representations, as provided by
an authorized representative of KRI in the Certificate of Representations, dated
July 23, 1999, (iii) the Revenue Procedure 96-30, 1996-1 C.B. 696, Checklist
Questionnaire, dated July 23, 1999, (iv) the letter from the management of St.
Mary's Land and Exploration Company, dated July 23, 1999, and (v) the following
documents (the "Documents"):

1. Financial Statements for King Ranch, Inc. and subsidiaries for the calendar
year ended December 31, 1998;

2. Summary Profit and Loss Statements for King Ranch, Inc., King Ranch
Holdings, Inc., King Ranch Minerals, Inc., and King Ranch Energy, Inc. for
the calendar years ended December 31, 1994, 1995, 1996, 1997, and 1998.

You have advised us that the Statement of Facts and the Representations, both
set forth below, as well as the Revenue Procedure 96-30 Checklist Questionnaire
and the Documents, provide a complete and accurate description of all relevant
facts and circumstances surrounding the Proposed Transaction. We have made no
independent determination with respect to the facts and, therefore, have relied
upon the completeness, truth and accuracy of the Statement of Facts, the
Representations, Revenue Procedure 96-30, and the Documents for purposes of this
letter. Any omissions from, or modifications to,

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(1) All section references ("Section") are to the Internal Revenue Code of
1986, as amended. Unless otherwise specified, all regulation section
references are to sections of the Federal Income Tax Regulations.

<PAGE>

Mr. Bill Gardiner July 26, 1999
King Ranch, Inc. Page 2

the Statement of Facts, Representations, Revenue Procedure 96-30 or Documents
may affect the conclusions stated herein, perhaps in an adverse manner.

This opinion is being rendered only to the addressee in connection with the
Proposed Transaction, described below, and is intended solely for the benefit of
KRI and its shareholders. This opinion may not be relied upon by any other
person or persons, or used for any other purposes, including, but not
necessarily limited to, filings with governmental agencies without the prior
written consent of Ernst & Young LLP.

STATEMENT OF FACTS AND REPRESENTATIONS

KING RANCH, INC.

KRI, (EIN: 74-0726547) a Texas corporation, is the common parent of an
affiliated group of corporations that files a consolidated federal income tax
return (the "Distributing Group") using a calendar year end. KRI and its
subsidiaries are accrual basis taxpayers. KRI was incorporated in 1934 and has
been engaged in ranching operations since its incorporation.

KRI currently has 42,938 shares of Class A voting common stock ("Class A stock")
and 367,328 shares of Class B nonvoting common stock ("Class B stock")
outstanding. Such shares are beneficially owned by several generations of the
King family. The Class A stock is owned by approximately 40 individuals and 50
entities. The Class B stock is owned by approximately 35 individuals and 75
entities. The entities are generally trusts for the benefit of King family
members. In addition, two charities own shares of KRI's Class B stock.

KRI is directly engaged in the business of conducting ranching, farming,
commodity market operations and various other agricultural pursuits (the
"Agribusiness Operations"). KRI conducts its operations on a total of
approximately 900,000 acres of land located in Texas and Florida.(2) A
substantial part of the KRI's operations consists of breeding and raising its
cattle herd (using approximately 825,000 acres in South Texas and 5,000 acres
in Central Texas). The cattle operations consist primarily of breeding,
pasture grazing and operating a commercial feedyard. KRI also breeds and
raises quarter horses for ranch use, as well as for sale to third parties. In
addition, KRI conducts various farming operations in South Texas and Florida.
The farming operations consist primarily of producing cotton and milo crops
in South Texas, and sod, sugar cane and rice crops in Florida.

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(2) Foreign operations are conducted through a corporate subsidiary in Brazil.

<PAGE>

Mr. Bill Gardiner July 26, 1999
King Ranch, Inc. Page 3

KRI had a total of 273 full-time and 57 part-time employees in its domestic
Agribusiness Operations as of the end of 1998.

KING RANCH HOLDINGS, INC.

King Ranch Holdings, Inc. ("KRH") (EIN: 74-2617718), was incorporated as a
holding company under the laws of Delaware in November, 1991. The stock of KRH
is owned 100 percent by KRI. KRH owns the stock of five subsidiaries. In
addition, KRH owns a 95 percent limited partnership interest in Running W, Ltd.,
an accrual basis limited partnership that provides administrative services to
members of the Distributing Group, employs approximately 40 personnel, and
receives royalties from members of KRI's affiliated group for the use of various
intangibles.

KING RANCH MINERALS, INC.

King Ranch Minerals, Inc. ("KRM") (EIN 74-2102814), a Delaware corporation, was
incorporated in November, 1991, as King Ranch Oil and Gas, Inc. Effective
January 1, 1998, the corporation changed its name King Ranch Minerals, Inc. The
stock of KRM is owned 100 percent by KRH. KRM is engaged in the management of
its minority ownership in oil and gas royalty interests operated by Exxon. KRM
employs two individuals, a "land manager" and a "lease analyst," to oversee the
risks and hazards associated with the oil and gas production operations
conducted on King Ranch, and to advise and consult with KRI shareholders
regarding their individually owned royalty interests. The land manager is also
actively involved in negotiations with Exxon regarding lease terms and
structure.

KING RANCH ENERGY, INC.

Controlled (EIN 76-0554924), a Delaware corporation, was incorporated on
December 31, 1997, by KRM. Upon the incorporation of Controlled, KRM (known
at the time as King Ranch Oil and Gas, Inc.) transferred assets and
liabilities associated with its Energy Business Operations, discussed below,
to Controlled in exchange for stock of Controlled in a transaction qualifying
as a tax-free contribution to capital under Section 351.(3) The stock of
Controlled is currently owned 100 percent by KRM. Since its incorporation,
Controlled has been directly engaged in the exploration for, and the
development and production of, natural gas and crude oil (the "Energy
Business Operations"). Prior to the incorporation of Controlled, its
operations were conducted by KRM since its incorporation in 1991.

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(3) Ernst & Young LLP has not rendered an opinion regarding the qualification
of the asset transfer under Section 351.

<PAGE>

Mr. Bill Gardiner July 26, 1999
King Ranch, Inc. Page 4

Controlled has a total of 28 employees engaged in its domestic Engergy Business
Operations as of June 39, 1999; the employees perform exploration, production,
marketing, and administrative functions. Controlled's onshore operations are
conducted in Texas, Louisiana, Oklahoma, North Dakota, and Utah, while its
offshore operations are conducted in the Gulf Coast regions of Louisiana and
Texas.

INTERCOMPANY OBLIGATIONS

As of June 30, 1999, Controlled has the following intercompany obligations
outstanding: a payable in the approximate amount of $12,226,000 (the "Payable"),
and a long-term note in the approximate amount of $15,089,000 (the "Long-Term
Note"). The creditor on the Payable is Running W, Ltd., in which KRI is a 5
percent general partner, and KRH is a 95 percent limited partner. Controlled
issued the Payable to compensate Running W, Ltd. for the use of certain
trademark names and symbols, as well as for general administrative, legal, and
management services; the amount of the payable has accumulated and accrued since
1995. Controlled issued the Long-Term Note to compensate KRH for funding
operating and production activities of Controlled in prior years. The Long-Term
Note was originally issued November, 1998.

Prior to consummating the Proposed Transaction, Running W, Ltd. will make an
operating distribution of the Payable from Controlled to its partners (KRI and
KRH). KRI will then contribute its interest in the Payable to KRH; KRH will
contribute the Payable and the Long-Term Note to KRM, and KRM will contribute
the Payable and the Long-Term Note to Controlled. Upon receipt of the Payable
and the Long-Term Note, Controlled's obligations will be extinguished.(4)

BUSINESS PURPOSE

St. Mary's Land and Exploration Company ("Acquirer"), a publicly traded Delaware
corporation, and a geographically diversified oil and gas producer, is
interested in acquiring KRI's Energy Business Operations, located in Controlled.
Acquirer is currently negotiating with KRI to acquire all of the outstanding
stock of Controlled in exchange for Acquirer voting stock in a transaction
intended to qualify under Section 368(a)(1)(B). Acquirer has indicated orally as
well as in a letter to the management of KRI that it does not want to have a
significant corporate shareholder of its stock. Moreover, it is the
understanding of the management of KRI that Acquirer will consummate the
acquisition only if it is able to acquire the stock of Controlled from KRI's
shareholders, rather than

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(4) Assuming that the fair market value and the basis in the hands of the
creditors equal the face amount of the Payable and the Long-Term Note,
respectively, then none of the parties to the transfers of the Payable and
the Long-Term Note will recognize gain (or income) or loss (or deductions) as
a result of the transfers. SEE Section 721; Treas. Reg. Section 1.1502-13(g);
Prop. Treas. Reg. Section 1.1502-13(g)(3); Section 108(e)(6).

<PAGE>

Mr. Bill Gardiner July 26, 1999
King Ranch, Inc. Page 5

from KRM (or another member of the Distributing Group). Accordingly, the
Proposed Transaction is necessary to facilitate the acquisition of the stock
of Controlled by Acquirer.

PROPOSED TRANSACTION

For the reasons discussed above, the parties propose the following steps (the
"Proposed Transaction"):

(i) KRM will distribute all of the stock of Controlled to its sole
shareholder, KRH (the "First Distribution").

(ii) KRH will distribute all of the stock of Controlled to its sole
shareholder, KRI (the "Second Distribution").

(iii) KRI will distribute all of the stock of Controlled to its shareholders
pro rata (the "Third Distribution").

(iv) The shareholders of KRI will then transfer all of the stock of
Controlled to Acquirer in exchange solely for Acquirer voting stock (the
"Acquisition"). Immediately after consummation of the Acquisition, the
KRI shareholders will own, in the aggregate, approximately 19 percent of
the outstanding stock of Acquirer.

REPRESENTATIONS

The management of KRI makes the following representations, including
representations required by Rev. Proc. 96-30, 1996-1 C.B. 696, in connection
with step (iii) above:

(a) After the Proposed Transaction, Controlled will not be indebted
to KRI or any member of the Distributing Group, except for
amounts arising out of the course of ordinary intercompany
operations. Such debt, if any, will not constitute stock or
securities.

(b) No part of the stock of Controlled distributed in the Third
Distribution will be received by a shareholder of KRI as a
creditor, employee, or in any capacity other than that of
shareholder of KRI.

(c) The 5 years of financial information submitted on behalf of KRI
and Controlled is representative of each corporation's present
operation, and with regard to such corporation, there have been
no substantial operational changes since the date of the last
financial statements submitted.

<PAGE>

Mr. Bill Gardiner July 26, 1999
King Ranch, Inc. Page 6

(d) No changes in the ownership of the stock of KRI have occurred
during the five year period ending on the date of the Proposed
Transaction, except for (i) gifts of KRI stock to charitable
organizations, charitable trusts, or charitable split-interest
trusts (the non-charitable beneficiary (or beneficiaries) of
which is the donor shareholder, or one or more family members,
as defined in Section 267(c)(4), of the donor shareholder), and
(ii) gifts of KRI stock for estate planning purposes to one or
more family members as defined in Section 267(c)(4) of the
shareholder or to entities if the shareholder is considered
under the constructive ownership rules of Section 267(c) to own
any Distributing 3 stock owned by such entity.

(e) Following the Third Distribution, KRI and Controlled will each
continue the active conduct of its business, independently and
with its separate employees.

(f) The distribution of the stock of Controlled will be carried out
for the following corporate business purpose: to facilitate the
acquisition of the stock of Controlled by Acquirer. The
distribution is motivated, in whole or substantial part, by this
corporate business purpose.

(g) It is the understanding of the management of KRI that Acquirer
will consummate the acquisition only if it is able to acquire
the stock of Controlled from KRI's shareholders, rather than
from KRM (or another member of the Distributing Group).

(h) There is no plan or intention by any shareholder who owns 5
percent or more of the stock of KRI, and the management of KRI,
to its best knowledge, is not aware of any plan or intention on
the part of any particular remaining shareholder of KRI to
sell, exchange, transfer by gift, or otherwise dispose of any
stock in, or securities of, either KRI or Controlled after the
Proposed Transaction other than (i) the proposed Acquisition
described in step (iv) above, (ii) gifts of Acquirer,
Controlled, or KRI stock to charitable organizations, charitable
trusts, or charitable split-interest trusts (the non-charitable
beneficiary (or beneficiaries) of which is the donor
shareholder, or one or more family members, as defined in
Section 267(c)(4), of the donor shareholder), and (iii) gifts of
Acquirer, Controlled, or KRI stock for estate planning purposes
to one or more family members as defined in Section 267(c)(4)
of the shareholder or to entities if the shareholder is
considered under the constructive ownership rules of Section
267(c) to own any Acquirer, Controlled or KRI stock owned by
such entity.

(i) There is no plan or intention by either KRI or Controlled,
directly or through any subsidiary corporation, to purchase any
of its outstanding stock after the Proposed Transaction.

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Mr. Bill Gardiner July 26, 1999
King Ranch, Inc. Page 7

(j) Other than the Acquisition of the stock of Controlled, there is
no plan or intention to liquidate either KRI or Controlled, to
merge either corporation with any other corporation, or to sell
or otherwise dispose of the assets of either corporation after
the Proposed Transaction, except in the ordinary course of
business.

(k) KRI neither accumulated its receivables nor made extraordinary
payment of its payables in anticipation of the Proposed
Transaction.

(l) Immediately before the distribution, items of income, gain,
loss, deduction, and credit, if any, will be taken into
account as required by the applicable intercompany transaction
regulations. Further, KRI's excess loss account, if any, with
respect to the stock of Controlled will be included in income
immediately before the distribution.

(m) Payments made in connection with all continuing transactions, if
any, between Controlled and any member of the Distributing Group
will be for fair market value based on terms and conditions
arrived at by the parties bargaining at arm's length.

(n) No parties to the Proposed Transaction are investment companies
as defined in Section 368(a)(2)(F)(iii) and (iv).

(o) Neither KRI nor Controlled is an S corporation (within the
meaning of Section 1361(a)), and there is no plan or intention
by KRI or Controlled to make an S Corporation election pursuant
to Section 1362(a).

FEDERAL INCOME TAX CONSEQUENCES

Based solely upon the information contained in the "Statement of Facts and
Representations" above, and provided that the Acquisition constitutes a tax-free
reorganization within the meaning of Section 368(a)(1)(B), we believe that the
following federal income tax consequences should result from the Proposed
Transaction:

(1) If Section 355 would otherwise apply, Section 355(f) will apply
to the First and Second Distributions (steps (i) and (ii) of the
Proposed Transaction), because they are intragroup distributions
that are part of a plan (or series of related transactions)
pursuant to which one or more persons acquire directly or
indirectly stock representing a 50 percent or greater interest
in the distributing corporation or any controlled corporation,
within the meaning of Section

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Mr. Bill Gardiner July 26, 1999
King Ranch, Inc. Page 8

355(e)(2)(A)(ii). As a consequence, Section 355 (or so much of
Section 356 as relates to Section 355) will not apply to the
First and Second Distributions.(5)

(2) The shareholders of KRI will recognize no gain or loss (and no
amount will be included in their income) upon the receipt of the
stock of Controlled as a result of the Third Distribution.
(Section 355(a)(1)).

(3) Section 355(e) will apply to the Third Distribution (step (iii)
of the Proposed Transaction), because it is part of a plan (or
series of related transactions) pursuant to which one or more
persons acquire directly or indirectly stock representing a 50
percent or greater interest in the distributing corporation or
any controlled corporation, within the meaning of Section 355(e)
(2)(A)(ii). As a consequence, the stock of Controlled will not
be treated as qualified property for purposes of Section 355(c)
(2). KRI will recognize gain upon the distribution of the stock
of Controlled to its shareholders as if such stock were sold to
the shareholders at its fair market value.

(4) The aggregate basis of the Controlled and KRI stock in the
hands of each shareholder after the Third Distribution will
equal the aggregate basis of the KRI stock held immediately
before the Proposed Transaction, allocated in proportion to the
fair market value of each in accordance with Treas. Reg.
Section 1.358-2(a)(2). (Section 358(b)(2)).

(5) The holding period of the Controlled stock received by each KRI
shareholder will include the holding period of the KRI stock with
respect to which the distribution will be made, provided that the
shareholder holds the KRI stock as a capital asset on the date
of the distribution (Section 1223(1)).

(6) As provided in Section 312(h), proper allocation of earnings and
profits between KRI and Controlled will be made in accordance
with Treas. Reg. Section 1.312-10(b).

(7) Assuming that the Acquisition qualifies as tax-free under
Section 368(a)(1)(B), the Acquisition will not adversely affect
opinions (1) through (6).

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(5) We note that even in the event that Sections 355(e) and (f) did not apply
to the First and Second Distributions, it is not clear that either of these
distributions would qualify as tax-free under Section 355. We have not
established whether either KRM or KRH would satisfy the active trade or
business requirement that is necessary for tax-free treatment under Section 355.
This requirement is discussed in more detail below.

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Mr. Bill Gardiner July 26, 1999
King Ranch, Inc. Page 9

ANALYSIS

REQUIREMENTS FOR QUALIFICATION UNDER SECTION 355. Section 355 provides
generally for the tax-free distribution of the stock of a controlled
subsidiary. In particular, where the requirements of Section 355 are
satisfied, Section 355(a) provides for the tax-free receipt by a shareholder
of a distributing corporation of the stock of a controlled subsidiary. In
addition, Section 355(c) permits the distributing corporation to distribute
the stock of a controlled subsidiary without the recognition of gain or loss.
To qualify under Section 355, a transaction must satisfy each of the
following requirements:

(a) Immediately before the distribution, the distributing corporation must
own stock constituting control of the corporation whose shares are being
distributed. Section 368(c) defines the term "control" as the ownership
of stock possessing at least 80 percent of the total combined voting
power of the corporation and at least 80 percent of the total number of
shares of all other classes of stock. Section 355(a)(1)(A).

(b) Immediately after the distribution, both the distributing and the
controlled corporations must be engaged in the active conduct of a trade
or business. Section 355(a)(1)(C) and (b). This requirement is satisfied
only if the trade or business is actively conducted throughout the
five-year period ending on the date of the distribution.
Section 355(b)(2).

(c) The distributing corporation must distribute all of its stock and
securities in the controlled corporation, or distribute enough stock to
constitute control and establish to the satisfaction of the Commissioner
that the retention of stock in the controlled corporation was not in
pursuance of a plan having as one of its principal purposes the
avoidance of federal income tax. Section 355(a)(1)(D).

(d) The transaction must not be used principally as a device for the
distribution of earnings and profits. Section 355(a)(1)(B).

(e) In addition to the statutory requirements of Section 355, a distribution
must be supported by a substantial corporate business purpose, a
continuity of proprietary interest, and a continuity of business
enterprise.

SECTION 355(e) AND (f). As discussed above, Section 355(c) permits a
corporation to distribute the stock of a controlled subsidiary, i.e.,
qualified property without the recognition of gain or loss, provided that the
requirements of Section 355 are satisfied. As an exception to the general
rule of Section 355(c), Section 355(e)(1) provides generally that if there is
a distribution to which Section 355(e) applies, any stock or securities in
the controlled corporation shall not be treated as qualified property for
purposes of Section 355(c)(2) or Section 361(c)(2). IRC Section 355(e)(2)(A)
provides that Section 355(e)

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Mr. Bill Gardiner July 26, 1999
King Ranch, Inc. Page 10

applies to any distribution (i) to which Section 355 (or so much of
Section 356 as relates to the section) applies, and (ii) which is part of a
plan (or series of related transactions) pursuant to which one or more
persons acquire directly or indirectly stock representing a 50 percent or
greater interest in the distributing corporation or any controlled
corporation. The term "50 percent or greater interest" means stock possessing
at least 50 percent of the total combined voting power of all classes of
stock entitled to vote or at least 50 percent of the total value of shares of
all classes of stock.

Assuming that Section 355 would otherwise apply, Section 355(f) provides that
Section 355 shall not apply to the distribution of the stock of one member of
an affiliated group to another member if such distribution is part of a plan
described in Section 355(e)(2)(A)(ii). In other words, if Section 355(f)
applies to an intragroup distribution, neither Section 355(a) nor
Section 355(c) will apply to cause the transaction to be tax-free to either
the distributee/shareholder or the distributing corporation, respectively.

(i) APPLICATION OF SECTION 355(e) AND (f) TO THE FIRST AND SECOND
DISTRIBUTIONS.

As discussed above, the First, Second and Third Distributions will occur as
part of a plan pursuant to which Acquirer will acquire a 50 percent or
greater stock interest in Controlled. Acquirer plans to acquire the stock of
Controlled in exchange for Acquirer stock. Acquirer has indicated that it
does not want to acquire the stock of Controlled from a member of the
Distributing Group, because Acquirer does not want a significant corporate
shareholder. Thus, each distribution is a step in a plan to facilitate the
Acquisition. Once the Acquisition is consummated, the shareholders of KRI
will own approximately 19 percent of the outstanding stock of Acquirer,
thereby retaining only approximately a 19 percent indirect interest in
Controlled.

Assuming that Section 355 would otherwise apply, Section 355(f) will apply to
the First and Second Distributions, because each distribution will occur
pursuant to a plan described in Section 355(e)(2)(A)(ii).(6) As a result,
neither Section 355(a) nor Section 355(c) will apply to the parties to the
First and Second Distributions. Instead, the First Distribution will
constitute a taxable distribution of the stock of Controlled by KRM to KRH.
Similarly, the Second Distribution will constitute a taxable distribution of
the stock of Controlled by KRH to KRI.

The First Distribution will constitute an intercompany distribution from KRM
to KRH within the meaning of Treas. Reg. Section 1.1502-13(b)(1). Pursuant to
Treas. Reg. Section 1.1502-13(f)(2)(ii), the intercompany distribution is not
included in the gross

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(6) As noted above, it is not clear whether either the First or Second
Distribution would qualify as tax-free under Section 355. It is not clear
whether either KRM or KRH would satisfy the active trade or business
requirement that is necessary for tax-free treatment under Section 355.

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Mr. Bill Gardiner July 26, 1999
King Ranch, Inc. Page 11

income of KRH, to the extent that there is a corresponding negative
adjustment reflected under Treas. Reg. Section 1.1502-32 in KRH's basis in
the stock of KRM. Under Section 301(d), KRH's basis in the stock of
Controlled received will equal the fair market value of those shares. KRM
will have a deferred intercompany gain or loss to the extent of the
difference between the fair market value of the Controlled shares and KRM's
basis in those shares. Under Treas. Reg. Section 1.1502-13, the deferred gain
or loss will be triggered when Controlled leaves the Distributing Group. At
that time, KRH's basis in the stock of KRM will be increased (or decreased)
to reflect the gain (or loss) triggered.

The Second Distribution will constitute an intercompany distribution from KRH
to KRI within the meaning of Treas. Reg. Section 1.1502-13(b)(1). Pursuant to
Treas. Reg. Section 1.1502-13(f)(2)(ii), the intercompany distribution is not
included in the gross income of KRI, to the extent that there is a
corresponding negative adjustment reflected under Treas. Reg. Section 1.1502-32
in KRI's basis in the stock of KRH. Under Section 301(d), KRI's basis in the
stock of Controlled received will equal the fair market value of those
shares. KRH will have a deferred intercompany gain or loss to the extent of
the difference, if any, between the fair market value of the Controlled
shares and KRH's basis in those shares. Under Treas. Reg. Section 1.1502-13,
the deferred gain or loss will be triggered when Controlled leaves the
Distributing Group. At that time, KRI's basis in the stock of KRH will be
increased (or decreased) to reflect the gain (or loss) triggered.

(ii) APPLICATION OF SECTION 355(e) TO THE THIRD DISTRIBUTION

Unlike the First and Second Distributions, the Third Distribution is not an
intragroup distribution. KRI will distribute the stock of Controlled out of
the Distributing Group to its shareholders. As a result, Section 355(e), and
not Section 355(f), will apply to the Third Distribution. Pursuant to
Section355(e)(1), the stock of Controlled will not be qualified property for
purposes of Section 355(c)(2). However, Section 355(a)(1) will apply to the
shareholders' receipt of the stock of Controlled. Thus, provided that the
requirements of Section 355 are otherwise satisfied, the Third Distribution
will be taxable to KRI, while no gain or loss will be recognized by the
shareholders of KRI upon their receipt of the stock of Controlled.

APPLICATION OF THE SECTION 355 REQUIREMENTS TO THE THIRD DISTRIBUTION. As a
result of the application of Section 355(f), Section 355 will not apply to
the First and Second Distributions. Thus, the remainder of this analysis
focuses on the Section 355 requirements as they relate to the Third
Distribution.

CONTROL IMMEDIATELY BEFORE THE DISTRIBUTION AND DISTRIBUTION OF CONTROL
REQUIREMENTS. Immediately before the Third Distribution, and upon
consummation of the First and Second Distributions, KRI will own all of the
outstanding stock of Controlled. Moreover, KRI will distribute all of the
stock of Controlled to its shareholders pro rata. Thus, the control
requirements will be satisfied.

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Mr. Bill Gardiner July 26, 1999
King Ranch, Inc. Page 12

The fact that Acquirer will acquire all of the stock of Controlled
immediately after the Third Distribution and as part of the same plan will
not preclude KRI from being considered to own and distribute stock of
Controlled constituting control. In Rev. Rul. 98-27, 1998-2 I.R.B. 4, the
Internal Revenue Service (the "Service") stated that it would not apply the
step transaction doctrine to determine whether the distributed corporation
was a controlled corporation immediately before the distribution under
Section 355(a) solely because of any post-distribution acquisition or
restructuring of the distributed corporation, whether prearranged or not.(7)

In addition, the Service has acknowledged that a distributing corporation can
receive the stock of a controlled corporation immediately prior to
distributing it, if the distributing corporation receives the stock as a
result of a distribution from a subsidiary. Rev. Rul. 62-138, 1962-2 C.B. 95,
involved two successive distributions of the stock of a controlled subsidiary
for a valid corporate business purpose. In that ruling, Parent, a corporation
engaged in banking, owned all of the stock of Subsidiary, a corporation
engaged in an active real estate business. For a valid business purpose,
Subsidiary transferred a business to newly formed Controlled and distributed
the stock of Controlled to Parent. Parent then distributed the stock of
Controlled to its shareholders. The Service determined that each distribution
qualified a tax-free under Section 355.

ACTIVE CONDUCT OF A TRADE OR BUSINESS. To satisfy the active trade or
business requirement of Section 355(b), (i) the distributing and controlled
corporations must each be engaged in the active conduct of a trade or
business immediately after the distribution; (ii) the businesses must have
been actively conducted for the 5-year period immediately before the
distribution; and (iii) neither the active businesses nor the stock of a
controlled corporation conducting such an active business may have been
acquired in a taxable transaction during the five year period preceding the
distribution. Section 355(b)(1) and (2).

The five year active business requirement is satisfied if the businesses have
been actively conducted by the distributing and controlled corporations for
five years before the distribution. Generally, a corporation is considered to
be engaged in the active conduct of a trade or business if it carries on a
specific group of activities, including the collection of income, for the
purpose of earning a profit. The group of activities should include every
operation that forms a part of, or a step in, the process of earning such
profit. Treas. Reg. Section 1.355-3(b)(2)(ii). The determination of whether a
trade or business is active is

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(7) SEE Rev. Rule. 98-44, 1998-37 I.R.B. 4 (declaring obsolete Rev.
Rul. 70-225, 1970-1 C.B. 80. Rev. Rul. 70-225 involved a distribution of the
stock of a newly formed controlled corporation followed by an acquisition of
the stock of the controlled corporation; applying the step transaction
doctrine, the Service concluded that the transaction was an integrated plan,
the distributing corporation did not distribute control of the controlled
corporation.).

<PAGE>

Mr. Bill Gardiner July 26, 1999
King Ranch, Inc. Page 13

based on all of the relevant facts and circumstances. Treas. Reg.
Section 1.355-3(b)(2)(iii). In RAFFERTY V. COMMISSIONER, 452 F.2d 767 (1st
Cir. 1971), the court concluded that "in order to be an active trade or
business under Section 355, a corporation must engage in entrepreneurial
endeavors of such a nature and to such an extent as to qualitatively
distinguish its operations from mere investments."

As described immediately below, KRI and Controlled each satisfy the "active
conduct of a trade or business" requirement as defined in Section 355(b),
because (i) KRI will continue to directly operate its historic Agribusiness
Operations following the Proposed Transaction, and (ii) Controlled will
continue to conduct its historic Energy Business Operations.

Even though KRI will receive the stock of Controlled as a taxable distribution
from KRH, the distribution will not constitute the acquisition of control in
a transaction in which gain or loss is recognized in whole or in part within
the meaning of Section 355(b)(2)(D)(ii). Section 355(b)(2)(D)(ii) provides
that a corporation shall be treated as engaged in the active conduct of a
trade or business if and only if "control of a corporation which (at the time
of acquisition of control) was conducting such trade or business . . . was so
acquired by any such corporation within [the five year period ending on the
date of the distribution], but, in each case in which such control was so
acquired, it was so acquired, only by reason of transactions in which gain or
loss was not recognized in whole or in part, or only by reason of such
transactions combined with acquisitions before the beginning of such period."

In Rev. Rul. 69-461, 1969-2 C.B. 52, the Service concluded that
Section 355(b)(2)(D)(ii) did not apply to facts similar to those currently
under consideration. In that ruling, X owned all of the stock of Y. In 1963,
Y purchased for cash all of the stock of Z, which conducted an active trade
or business. In 1966, Y distributed all of the stock of Z to X. In 1969,
X distributed the stock of Z to its shareholders. Because Y had not owned the
Z stock for at least five years, Y's distribution of the stock did not qualify
as tax-free under Section 355. With respect to X's distribution of the stock
of Z, however, the ruling states that

[d]istributions of stock from one corporation to another corporation,
where the distributee is in control of the distributor is not the type
of transaction to which Section 355(b)(2)(D) was intended to apply.
Section 355(b)(2)(D) was intended to prevent the acquisition of stock
of a corporation conducting an active trade or business in a taxable
transaction from a party not within the direct or indirect control of
the distributing corporation.

Where the distributing corporation acquires the stock of the controlled
corporation as the result of a distribution from a subsidiary that
merely has

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Mr. Bill Gardiner July 26, 1999
King Ranch, Inc. Page 14

the effect of converting indirect control into direct control, the
abuse that section 355(b)(2)(D) of the Code was designed to prevent is
not present. This section of the Code applies to a transaction in
which stock is acquired from a corporation outside a direct chain of
ownership.

Thus, the Service concluded in Rev. Rul. 69-461 that since the Z stock was
acquired by Y at least five years prior to X's distribution of such stock to
its shareholders, the requirement of Section 355(b)(2)(D) was satisfied.
Similarly, the fact that KRI will receive the stock of Controlled as a
taxable distribution from KRH will not prevent the requirements of
Section 355(b)(2)(D) from being satisfied.(8)

DEVICE TO DISTRIBUTE EARNINGS AND PROFITS. Section 355(a)(1)(B) and Treas.
Reg. Section 1.355-2(d) provide that Section 355 does not apply to a
transaction used principally as a device for the distribution of the earnings
and profits of the distributing corporation, the controlled corporations, or
both. The regulations provide that, generally, the determination of whether a
transaction will be used principally as a device will be made from all of the
facts and circumstances, including but not limited to, the presence or
absence of certain factors described therein.

Factors that constitute evidence of device include the following: (i) a pro
rata distribution of the controlled corporation stock to the shareholders of
the distributing corporation;(9) (ii) a sale or exchange of the stock of the
distributing or controlled corporations after the distribution;(10) (iii) the
existence of assets that are not used in the conduct of a trade or
business;(11) and (iv) a business of either the distributing or controlled
corporations (or a corporation controlled by either) that is a "secondary
business" (a business whose principal function is to serve the business of
the other corporation) that continues as a secondary business for a
significant period after the distribution and can be sold without adversely
affecting the business of the corporation.(12)

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(8) SEE ALSO Rev. 78-442, 1978-2 C.B. 143 (concluding that the recognition of
gain under Section 357(c) upon the transfer of a business from a distributing
corporation to a controlled corporation will not cause Section 355(b)(2)(C)
to apply. The ruling reasons that Section 355(b)(2)(C) is intended to prevent
the acquisition of a trade or business by a distributing or controlled
corporation from an outside party in a taxable transaction within 5 years of
a purported Section 355 distribution. Section 355(b)(2)(C) was not intended
to apply to an acquisition of a trade or business by the controlled corporation
from the distributing corporation.).

(9) Treas. Reg. Section 1.355-2(d)(2)(ii).

(10) Treas. Reg. Section 1.355-2(d)(2)(iii).

(11) Treas. Reg. Section 1.355-2(d)(2)(iv).

(12) Treas. Reg. Section 1.355-2(d)(2)(iv)(C).

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Mr. Bill Gardiner July 26, 1999
King Ranch, Inc. Page 15

Nondevice factors include (i) a corporate business purpose which
supports/motivates the transaction;(13) (ii) a distributing corporation that is
publicly traded and widely held;(14) and (iii) a distribution to one or more
domestic corporate shareholders that, if section 355 did not apply, would be
entitled to a deduction under Section 243(a).(15)

The Proposed Transaction will not constitute a device to distribute earnings
and profits. As discussed above, each distribution in the series of
distributions is motivated by a corporate business purpose, namely the
acquisition of Controlled by Acquirer. Moreover, although the distributions
are part of a plan pursuant to which the shareholders of KRI will exchange
their Controlled shares for Acquirer shares, this will not cause the
distribution to be a device. The shareholders will retain their ownership of
Controlled through their stock in Acquirer. Moreover, the Service has
permitted a distribution of stock to be followed by the tax-free acquisition
of either the distributing or the controlled corporation.(16) Apart from the
Acquisition, the shareholders of KRI have no plan or intention to dispose of
their stock in KRI, Controlled or Acquirer.

BUSINESS PURPOSE. Treas. Reg. Section 1.355-2(b) provides that Section 355
applies to a transaction only if it is carried out for one or more corporate
business purposes. A transaction is carried out for a corporate business
purpose if it is motivated, in whole or in substantial part, by one or more
corporate business purposes. A corporate business purpose is a real and
substantial non-federal tax purpose germane to the business of the
distributing and controlled corporations (or the affiliated group as defined
in Treas. Reg. Section 1.355-3(b)(4)(iv)) to which the distributing
corporation belongs. Treas. Reg. Section 1.355-2(b)(3) provides that the
business purpose requirement is not satisfied if a corporate business purpose
can be achieved through a nontaxable transaction that does not involve the
distribution of controlled stock and which is neither impractical nor unduly
expensive.

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(13) Treas. Reg. Section 1.355-2(d)(3)(ii).

(14) Treas. Reg. Section 1.355-2(d)(3)(iii).

(15) Treas. Reg. Section 1.355-2(d)(3)(iv).

(16) SEE Rev. Rul. 75-406, 1975-2 C.B. 125, MODIFIED BY Rev. Rule. 96-30,
1996-1 C.B. 35, OBSOLETED BY Rev. Rul. 98-27, 1998-22 I.R.B. 4 (involving the
distribution of a controlled corporation followed by a tax-free merger of the
controlled corporation with and into acquiring. The Service explained that
the distribution was not a device to distribute earnings and profits, because
after the transaction, the shareholders maintained a continuing stock interest
in the distributing corporation directly, and in the controlled corporation
indirectly through stock of the acquiring. Modified and obsoleted on other
grounds). SEE ALSO Rev. Rule. 68-603, 1968-2 C.B. 148 (indicating the extent
to which the Service will follow the decision in MARY ARCHER W. MORRIS TRUST,
367 F.2d 794 (4th Cir. 1966), permitting a spin-off followed by a
reorganization of the distributing corporation); Rev. Rul. 78-251, 1978-1
C.B. 89 (involving a spin-off followed by the acquisition of the stock of a
parent corporation by an unrelated corporation in a Type B reorganization);
Rev. Rul. 70-434, 1970-2 C.B. 83 (same).

<PAGE>

Mr. Bill Gardiner July 26, 1999
King Ranch, Inc. Page 16

As described in detail above, the business purpose for the Proposed
Transaction is to facilitate the acquisition of Controlled by Acquirer. To
accommodate Acquirer, Controlled must be owned directly by diverse
shareholders, rather than a single corporate shareholder.(17) No practical,
non-taxable alternative to the Proposed Transaction exists.

CONTINUITY OF SHAREHOLDER INTEREST. Treas. Reg. Section 1.355-2(c) provides
that Section 355 applies to a separation that effects only a readjustment of
continuing interests in the property of the distributing and controlled
corporations. One or more persons who, directly or indirectly, were the
owners of the enterprise prior to the distribution or exchange must own, in
the aggregate, an amount of stock establishing a continuity of interest in
each of the modified corporate forms in which the enterprise is conducted
after the separation.

As discussed in detail above, following consummation of the Proposed
Transaction, the shareholders of KRI will continue their ownership in KRI
directly. Moreover, the shareholders will continue their ownership in
Controlled indirectly through their stock in Acquirer. In Rev. Rul. 75-406,
SUPRA, the Service acknowledged that the continuity of shareholder interest
requirement will be satisfied even where a distribution is followed by a
tax-free exchange of stock for stock of an acquiring corporation.

CONTINUITY OF BUSINESS OPERATION. Treas. Reg. Section 1.355-1(b) provides
that Section 355 contemplates the continued operation of the business or
businesses existing prior to the separation. Because KRI will continue its
historic active business operations and Controlled will continue its historic
active business operations as a subsidiary of Acquirer corporation, the
continuity of business enterprise requirement should be satisfied.

SECTION 355(d)--DISQUALIFIED DISTRIBUTIONS. Section 355(d) provides an
exception to the general rule of Section 355(c). Section 355(d) characterizes
certain controlled subsidiary stock distributions as "disqualified
distributions," thereby requiring the distributing corporation to recognize
gain on the distribution. Section 355(d)(2) defines a "disqualified
distribution" as any distribution to which Section 355 applies if,
immediately after the distribution, any person holds disqualified stock in
either the distributing or controlled corporation which constitutes a
50 percent or greater interest in such corporation. Section 355(d)(3) defines
disqualified stock as any stock in the distributing or controlled corporation
acquired by "purchase" during the five year period ending on the date of the
distribution, or stock received in a distribution to the extent the
distribution is attributable to stock acquired by "purchase."

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(17) Rev. Rul. 68-603, SUPRA, acknowledges that this is a valid business
purpose. SEE ALSO Rev. Rul. 78-251, SUPRA, Rev. Rul. 75-406, SUPRA, Rev.
Rul. 70-434, SUPRA.

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Mr. Bill Gardiner July 26, 1999
King Ranch, Inc. Page 17

For purposes of applying Section 355(d), Section 355(d)(5) defines the term
"purchase." Section 355(d)(5)(A) provides the general rule that a purchase is
any acquisition if (i) the basis of the property acquired is not determined
either by reference to the transferor's adjusted basis or under Section 1014,
and (ii) the property is not acquired in an exchange to which Section 351,
354, 355, or 356 applies. Section 355(d)(5)(B) treats certain Section 351
exchanges as purchases, if the property received in the Section 351 exchange
is acquired for any cash or cash item, any marketable stock or security, or
any debt of the transferor. Finally, Section 355(d)(5)(C) provides that
certain carryover basis transactions are treated as purchases. In particular,
if a person acquires property from another person who acquired such property
by purchase, and the acquirer's basis is determined by reference to the
transferor's basis in such property, such acquirer is treated as having
acquired the property by purchase on the date it was acquired by the
transferor.

As of June 1, 1999, none of the shareholders of KRI acquired their stock in
KRI by purchase as defined in Section 355(d) during the five year period
immediately prior to the consummation of the Proposed Transaction. As a
result, neither the KRI stock nor the Controlled stock is disqualified stock
within the meaning of Section 355(d).

SCOPE OF OPINION

The scope of this opinion is expressly limited to the federal income tax issues
specifically addressed in paragraphs (1) through (7) of the section above
entitled "Federal Income Tax Consequences." We have made no determination nor
expressed any opinion as to (i) any employee benefit issues which may arise
as a result of the Proposed Transaction; (ii) the fair market value of any
property, including the stock of Controlled, transferred in the Proposed
Transaction, or the extent of gain, if any, on the First or Second
Distribution; (iii) whether the Acquisition qualifies as a reorganization
within the meaning of Section 368(a)(1)(B); or (iv) whether KRH and KRM are
each engaged in an active trade or business within the meaning of
Section 355(b). Furthermore, no opinion is expressed with respect to any
state or local tax consequences of the Proposed Transaction.

Our opinion, as stated above, is based upon an analysis of the Internal
Revenue Code, the Regulations, current case law, and published rulings. The
foregoing are subject to change, and such change may be retroactively
effective. If so, our views, as set forth above, may be affected and may not
be relied upon. Further, any variations or differences in the facts or
representations recited herein, for any reason, might affect our conclusions,
perhaps in an adverse manner, and make them inapplicable. Further, we have
undertaken no obligation to update this opinion for changes in facts or law
occurring subsequent to the date thereof.

This letter is an opinion of Ernst & Young LLP as to the interpretation of
existing law and, as such, is not binding on the Service or the courts. This
letter may be used by KRI

<PAGE>

Mr. Bill Gardiner July 26, 1999
King Ranch, Inc. Page 18

in responding to inquiries from the Internal Revenue Service regarding the
Proposed Transaction.

Very Truly Yours,

/s/ RANDY

T. Randall Cain
Partner

Copy to: Tracy Janik, Director of Tax, King Ranch, Inc.
Kent E. Gerety, Manager, Ernst & Young LLP
Brian B. Gibney, Partner, Ernst & Young LLP
Kirsten Simpson, Senior Manager, Ernest & Young LLP

<PAGE>
EXHIBIT 10.27

STOCK EXCHANGE AGREEMENT

This Stock Exchange Agreement (the "Agreement") dated the 1st day of June,
1999, is by and between ST. MARY LAND & EXPLORATION COMPANY, a Delaware
corporation ("St. Mary"), and ROBERT L. NANCE, PENNI W. NANCE, AMY NANCE CEBULL,
AMY NANCE CEBULL AS TRUSTEE OF THE CLAY RICHARD CEBULL TRUST, ROBERT SCOTT
NANCE, and BRIAN R. CEBULL, all of whom are together referred to herein as the
"Stockholders" and who own all of the capital stock of Nance Petroleum
Corporation, a Montana corporation ("Nance").

WHEREAS, St. Mary desires to acquire all of the capital stock of Nance
from the Stockholders in exchange for shares of the common stock, par value of
$0.01 per share, of St. Mary ("St. Mary Stock") as hereinafter provided, and the
Stockholders desire to effect such exchange; and

WHEREAS, St. Mary and the Stockholders desire that the transactions
provided for herein shall qualify as a reorganization pursuant to Section
368(a)(1)(B) of the Internal Revenue Code of 1986, as amended.

NOW, THEREFORE, in consideration of the covenants and agreements contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound hereby, agree as follows:

ARTICLE 1
DEFINITIONS; HEADINGS

1.01 Defined Terms. As used in this Agreement, terms defined in the
preamble and recitals of this Agreement have the meanings set forth therein, and
the following terms have the meanings set forth below:

(1) "Affiliates" mean Panterra, Quanterra Partnership and Quanterra
Corporation as subsequently defined.

(2) "Closing" has the meaning ascribed to such term in Section 2.03.

(3) "Code" means the Internal Revenue Code of 1986, as amended.

<PAGE>

(4) "Consideration" means those shares of St. Mary Stock set forth
on Schedule 1.01(4) which have been calculated in accordance with that
certain letter dated March 2, 1999, from St. Mary to Robert L. Nance, as
amended by oral understanding which provides for the use of a five year
NYMEX strip pricing run as opposed to the two year NYMEX price strip
stated in the letter. This letter provides that the number of shares of
St. Mary Stock that the Shareholders shall receive is based on a
proportionate net asset value comparison of St. Mary with Nance and its
Affiliates. This comparison is expressed by using a formula wherein X (the
number of shares of St. Mary Stock that the Stockholders are to receive)
is the numerator of a fraction and the number of shares of St. Mary Stock
issued and outstanding is the denominator of the fraction, and such
fraction equals a fraction in which the numerator is the net asset value
of Nance and its Affiliates and the denominator is the net asset value of
St. Mary. Net asset value has been determined in accordance with the above
referenced letter subject to the referenced amended hydrocarbon pricing.

(5) "Environmental Laws" mean all federal, state and local rules and
regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without
limitation, laws and regulations relating to Releases or threatened
Releases of Hazardous Materials, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials.

(6) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.

(7) "GAAP" means generally accepted accounting principles
consistently applied.

(8) "Governmental Authority" means any federal, state, or local
court, arbitration tribunal or governmental department, board, commission,
bureau, agency, authority or instrumentality.

(9) "Hazardous Materials" mean (a) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is friable,
urea-formaldehyde foam insulation, and transformers or other equipment
that contain dielectric fluid containing

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<PAGE>

polychlorinated biphenyls (PCBs); (b) any chemicals, materials or
substances which are now defined as or included in the definition of
"hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes," "toxic
substances," "toxic pollutants," or words of similar import, under any
Environmental Law; (c) naturally occurring radioactive material (NORM);
and (d) any other chemical, material, substance or waste, exposure to
which is prohibited, limited or regulated by any Governmental Authority in
a jurisdiction in which Nance operates.

(10) "Knowledge" as used (i) with respect to St. Mary shall mean
those facts that are actually known or should reasonably have been or
become known in the ordinary course of business by the officers of St.
Mary, taking into account the scope and nature of such officers'
responsibilities, and (ii) with respect to the Stockholders shall mean
facts that are actually known or should reasonably have been or become
known to any of the Stockholders in the ordinary course of business,
taking into account the scope and nature of the Stockholders' involvement
in the operation of Nance, Panterra, Quanterra Partnership and Quanterra
Corporation.

(11) "Laws" mean all (i) federal, state, or local or foreign laws,
rules and regulations, (ii) orders, (iii) Permits, and (iv) agreements
with federal, state, local, or foreign regulatory authorities to which the
Stockholders, Nance, Panterra, Quanterra Partnership, Quanterra
Corporation or St. Mary, as the case may be, is a party or by which any of
them or their property is bound.

(12) "Liens" mean all liens, liabilities, claims, security
interests, mortgages, pledges, agreements, obligations, restrictions, or
other encumbrances of any nature whatsoever, whether absolute, legal,
equitable, accrued, contingent or otherwise, including, without
limitation, any rights of first refusal.

(13) "1933 Act" means the Securities Act of 1933, as amended.

(14) "1934 Act" means the Securities Exchange Act of 1934, as
amended.

(15) "Nance Financial Statements" mean the unaudited financial
statements of Nance for each of its past two fiscal years,

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<PAGE>

July 31, 1997, July 31, 1998, and that prepared in connection with this
transaction dated as of December 31, 1998.

(16) "Nance Stock" means all of the issued and outstanding shares of
all Class A and Class B common stock of Nance

(17) "NASDAQ" means National Association of Securities Dealers
Automated Quotations System.

"Panterra" means Panterra Petroleum, a Montana general partnership
of which Nance and St. Mary are the partners and of which Nance is the
managing partner.

"Panterra Financial Statements" mean the audited financial
statements of Panterra for the years ended December 31, 1996, December 31,
1997, and December 31, 1998.

(20) "Permits" mean all permits, licenses, franchises, orders,
certificates and approvals.

(21) "Quanterra Corporation" means Quanterra Energy Corporation.

(22) "Quanterra Partnership" means Quanterra Alpha Limited
Partnership of which Quanterra Corporation, Nance and Robert T. Hanley are
the partners.

(23) "Related Agreements" mean all of the other agreements to be
executed in connection with and pursuant to this Agreement.

(24) "Release" means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping,
or disposing into the environment.

(25) "SEC" means the United States Securities and Exchange
Commission.

(26) "SEC Documents" mean all registration statements, proxy
statements, periodic reports and schedules filed by St.
Mary with the SEC under the Securities Laws.

(27) "Securities Laws" mean the 1933 Act, the 1934 Act, the
Investment Company of Act of 1940, as amended, the Trust

4
<PAGE>

Indenture Act of 1939, as amended, and the rules and regulations of the
SEC promulgated thereunder.

(28) "Taxes" mean any taxes or other governmental charges or
assessments of whatever kind or nature imposed by the United States, by
any other nation or by any state, county, municipality or governmental
subdivision, including without limitation, any income, franchise or any
other similar taxes based on or measured by income or otherwise, any sales
or use taxes, property, employment and employer withholdings,
unemployment, social security, occupational, customs, excise or other
taxes, together with any interest or penalties relating thereto.

(29) "Tax Reports" mean all returns or reports required to be filed
relating to the federal and state income tax filings of Nance and its
Affiliates..

1.02 Other Definitional Provisions. Wherever the context so requires,
words used herein in the masculine gender shall be deemed to include the
feminine and neuter. A definition of any term shall be equally applicable to
both the singular and plural forms of the term defined.

1.03 Titles; Headings. All titles and headings appearing in this Agreement
are for identification only and are not to be used for interpretive purposes.

ARTICLE 2
EXCHANGE OF STOCK; CLOSING

2.01 Acquisition of Nance Stock. Subject to the terms and conditions
herein stated, the Stockholders agree to assign, transfer and deliver to St.
Mary at Closing, and St. Mary agrees to acquire from the Stockholders at
Closing, all of the issued and outstanding Nance Stock. The certificates
representing the Nance Stock shall be duly endorsed in blank by the
Stockholders. The Stockholders agree to cure any deficiencies with respect to
the endorsement of the certificates representing the Nance Stock.

2.02 Exchange of Shares. At Closing, the Stockholders shall surrender the
certificate or certificates representing all the issued and outstanding Nance
Stock in exchange for certificates for the St. Mary Stock issued in the name of
the Stockholders in the amount of the Consideration. The Stockholders shall
receive their certificates for the St. Mary Stock issued as the Consideration as
set forth on Schedule 2.02 attached hereto.

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<PAGE>

2.03 Closing. The closing of the transaction provided for herein (the
"Closing") shall take place at the offices of Nance on June 1, 1999, at 10:00
a.m., local time.

ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDERS

The Stockholders represent and warrant to St. Mary as follows:

3.01 Ownership of Shares. The Stockholders are the lawful sole owners,
beneficially and of record, of all of the issued and outstanding shares of Nance
Stock and such stock is free and clear of all Liens. The ownership of Nance
Stock by the Stockholders is as set forth in Schedule 3.01 hereto.

3.02 Stockholders' Due Execution, Enforceability Against Stockholders.
This Agreement has been duly executed and delivered by the Stockholders and is a
valid and binding obligation of the Stockholders, enforceable in accordance with
its terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application referring to or
affecting enforcement of creditors' rights and general principles of equity. The
execution, delivery and performance of this Agreement by the Stockholders will
not violate or conflict with any agreement, instrument, judgment or decree to
which the Stockholders, Nance or any Affiliate is a party or is subject.

3.03 Stockholders' Capacity. The Stockholders have full legal right,
power, authority and capacity to execute, deliver and perform their obligations
under this Agreement to consummate the transactions contemplated hereunder or
thereunder.

3.04 Organization Existence. Nance is a corporation duly organized and
validly existing under the laws of Montana with all requisite corporate power
and authority to own, operate and lease its properties and assets and to carry
on its business as now being conducted. Nance is duly qualified to do business
and is in good standing in each jurisdiction where the conduct of its business
or the ownership of its property requires such qualification. The jurisdictions
in which Nance is qualified to do business, and the names and addresses of
Nance's registered agents in such jurisdictions, are set forth on Schedule 3.04
hereto. Schedule 3.04 hereto sets forth all names under which Nance has
conducted or purported to conduct business since the date of its incorporation.

6
<PAGE>

3.05 Capital Stock. Nance is authorized to issued 10,000 shares of Class A
common voting stock without par value and 40,000 shares of Class B common
non-voting stock without par value. As of the date of this Agreement, Nance has
issued and there are outstanding 5,000 shares of Class A common stock and 20,000
shares of Class B common stock. Other than the Nance Stock, there is no class or
series of equity of Nance authorized, issued or outstanding. All such
outstanding shares of Nance Stock have been duly authorized and validly issued
and are fully paid and nonassessable. There are no outstanding options,
warrants, rights, calls, commitments, conversions rights, rights of exchange,
plans or other agreements of any character providing for the purchase, issuance
or sale of any shares of any equity security of Nance, including any Nance
Stock, other than as contemplated by this Agreement.

3.06 Subsidiaries. Except as set forth in Schedule 3.06 hereto, Nance does
not have any subsidiaries or hold any equity or ownership interest of any kind,
whether beneficially or of record, in any corporation, partnership, liability
company, joint venture, or other enterprise or entity of any nature whatsoever.

3.07 No Restrictions Against Performance. Neither the execution, delivery
nor performance of this Agreement or the Related Agreements, nor the
consummation of the transactions contemplated in this Agreement or in the
Related Agreements will, with or without the giving of notice or the passage of
time, or both, violate any provisions of, conflict with, result in a breach of,
constitute a default under, or result in the creation or imposition of any Lien
or adverse condition under:

(a) the Articles of Incorporation and By-Laws of Nance or of
Quanterra Corporation;

(b) any Law which is applicable to Nance or any Affiliate or any of
their properties or assets;

(c) any contract, indenture, instrument, agreement, mortgage, lease,
right, or other obligation or restriction to which Nance or any Affiliate is a
party or by which Nance or any Affiliate or any of their properties or assets is
or may be bound; or

(d) any order, judgment, writ, injunction, decree, license,
franchise, permit or other authorization of any Governmental Authority by which
either Nance or any Affiliate or any of their properties or assets is or may be
bound or by which the Stockholders may be bound.

7
<PAGE>

3.08 Historical Financial Information. The Nance Financial Statements,
true and complete copies of which have been previously delivered to St. Mary
present fairly the financial position, assets and liabilities of Nance as of the
dates thereof and the revenues, expenses, results of operations and cash flows
of Nance for the periods covered thereby, on a tax basis with adjustments made
in accordance with GAAP so that the net asset value of Nance can be determined
and reasonably compared with the net asset value of St. Mary. The Nance
Financial Statements are in accordance with the books and records of Nance and
do not reflect any transactions which are not bona fide transactions. The books
and records of Nance have been maintained in accordance with applicable laws,
rules and regulations, and in the ordinary course of business. To the best of
Stockholders' Knowledge, the accounts and notes receivable of Nance reflected in
the Nance Financial Statements are valid, existing and genuine and represent
sales actually made or services actually delivered by Nance in bona fide
transactions in the ordinary course of business consistent with past practice
and there is no material right of setoff or counterclaim or threat thereof that
would jeopardize the collectability of such accounts and notes receivable at the
aggregate recorded amounts thereof. The Stockholders have no Knowledge of any
material difference that would arise if the Nance Financial Statements were
prepared in accordance with GAAP as opposed to being prepared on a tax basis
with the GAAP-type adjustments that have been made.

3.09 No Undisclosed Liabilities. To the best of Stockholders' Knowledge,
no basis exists on the date hereof for assertions against Nance of any material
claim or liability of any nature other than (i) those which have been disclosed
in the Nance Financial Statements, or (ii) have been incurred in the ordinary
course of the business of Nance since December 31, 1998 and which do not
constitute a breach of the representation and warranty set forth in Section
3.10. For purposes of this Section 3.09, a claim or liability shall be deemed to
be "material" if it involves an amount in excess of $25,000, individually or in
the aggregate, as the context requires.

3.10 No Adverse Effects or Changes. Since December 31, 1998, Stockholders
are not aware of any event involving either Nance or any Affiliate that has had
a material adverse effect on its business or its assets. Except as listed on
Schedule 3.10, since December 31, 1998, neither Nance nor any Affiliate has:

(a) made any change in its authorized capital or outstanding
securities;

(b) borrowed or agreed to borrow any funds, guaranteed the repayment
of any indebtedness or incurred any other contingent financial

8
<PAGE>

obligations, except borrowings incurred in the ordinary course of its business
in accordance with its past practices;

(c) satisfied any obligation or liability (absolute or contingent),
other than obligations and liabilities incurred in the ordinary course of its
business in accordance with its past practices;

(d) declared or made, or agreed to declare or make, any payment of
dividends or distributions of any assets of any kind whatsoever in respect of
its capital stock, or purchased, redeemed or otherwise acquired, or agreed to
purchase, redeem or otherwise acquire, any of its outstanding capital stock;

(e) except as set forth on Schedule 3.10(e), sold, transferred or
otherwise disposed of, or agreed to sell transfer or otherwise dispose of, any
material assets, properties or rights, except inventory and equipment in the
ordinary course of its business in accordance with its past practices, or
canceled or otherwise terminated, or agreed to cancel or otherwise terminate,
any debts or claims other than accounts receivable write-offs and writedowns in
the ordinary course of its business in accordance with its past practices;

(f) other than in the ordinary course of business in accordance with
its past practices, entered, or agreed to enter, into any agreement or
arrangements to sell any of its assets, properties or rights, including
inventories and equipment;

(g) made or permitted any amendment or termination of any material
contract, agreement, permit or license to which it is a party or by which it or
any of its properties are bound;

(h) except as set forth on Schedule 3.10(h), made, directly or
indirectly, any accrual or arrangement for or payment of any bonuses or special
compensation of any kind or any severance or termination pay to any present or
former officer, director or executive employee;

(i) except for customary raises granted in the ordinary course of
its business in accordance with its past practices, increased the rate of
compensation payable, or to become payable, by it to any of its officers,
directors or employees or adopted any new, or made any increase in, any profit
sharing, bonus, deferred compensation, savings, insurance, pension, retirement
or other employee benefit plan payment or arrangement made to, for or with any
present or former such officers, directors, or executive employees;

9
<PAGE>

(j) incurred, or become subject to, any uninsured claim or liability
for any material damages for any negligence or other tort or breach of contract;

(k) made any capital expenditures (or commitments therefor) which in
the aggregate exceed $50,000;

(l) suffered any damages, destruction or casualty losses in excess
of $10,000 as to any single occurrence or $50,000 in the aggregate;

(m) entered into any other material transaction other than in the
ordinary course of its business in accordance with its past practices; or

(n) suffered any material adverse change in condition of or title to
any of its assets except depletion through normal production within authorized
allowables, ordinary changes in rates of production, and depreciation of
equipment through ordinary wear and tear.

3.11 Third-Party and Governmental Consents. Except as set forth in
Schedule 3.11 hereto, no approval, consent, waiver, order or authorization of,
or registration, qualification, declaration, or filing with, or notice to, any
Governmental Authority or other third party is required on the part of the
Stockholders, Nance or any Affiliate in connection with the execution and
delivery of this Agreement or the Related Agreements by the Stockholders or the
consummation of the transactions contemplated hereby or thereby. All of the
consents and approvals set forth on Schedule 3.11 have been obtained.

3.12 Real and Personal Property

(a) Real Property. Schedule 3.12(a) sets forth a list of all real
properties, other than properties acquired for the development of or exploration
for oil and gas resources, owned, leased, or subject to a contract or purchase
and sale or lease commitment by Nance, written or oral, (collectively "Real
Property"), and with respect to all owned Real Property, a description of the
nature and amount of any liens, mortgages and encumbrances incurred by Nance
affecting such Real Property. Except as set forth in Schedule 3.12(a), the
buildings, premises and equipment that are owned or leased by Nance are in good
operating condition and repair, subject only to ordinary wear and tear customary
within the local trade. To the Knowledge of the Stockholders there is no matter
currently pending the effect of which in any material respect would interfere
with or prevent the continued use of any of the Real Property for the purposes
for which it is now being used or would materially affect the values thereof.

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<PAGE>

(b) Oil and Gas Leases and Wells. Schedule 3.12(b) sets forth a
true, correct and complete list of all oil and gas leases and wells in which
either Nance or its Affiliates is a party, whether as lessor, lessee, or the
owner of any non-cost bearing interest. The interests of either Nance or its
Affiliates in all leases listed on such Schedule are valid and subsisting and in
full force and effect, and all rentals and other payments now due have been
paid. Nance and its Affiliates enjoy and are in peaceful and undisturbed
possession as to their respective ownership share under each lease so listed in
which it is a lessee. Neither Nance nor its Affiliates have received any notice
of, and to the Knowledge of the Stockholders, there does not exist, any event of
default or event, occurrence or act which, with the giving of notice or the
lapse of time or both, would become a default under any such lease, and neither
Nance nor its Affiliates have violated any of the terms or conditions under any
such lease in any material respect. The real property under the leases referred
to in Schedule 3.12(b) is free from material physical defects. Such real
property and the fixtures, equipment, and other property attached, situated or
appurtenant thereto are in good operating condition and repair, in compliance
with all applicable Laws and are adequate and suitable for the purposes for
which they are presently being used, except for such matters which in the
aggregate would not have a material adverse effect on the business of Nance.

(c) Personal Property. Except as otherwise identified on Schedule
3.12(c) hereto, Nance has good, valid, marketable, legal and beneficial title to
all of its personal property, free and clear of all Liens. There are no
outstanding options, warrants, commitments, agreements or any other rights of
any character entitling any person or entity, other than St. Mary, to acquire
any interest in all or any part of the personal property of Nance.

3.13 Accounts and Notes Receivable. Schedule 3.13 sets forth a list as of
December 31, 1998, of all accounts and notes receivable of Nance and the
Affiliates together with:

(a) an aging schedule setting forth all such accounts receivable
(other than intercompany receivables)

(b) the identity of any asset in which Nance or an Affiliate holds a
security interest to secure payment of the underlying indebtedness;

(c) a description of the nature and amount of any lien on or
security interest in such accounts and notes receivable; and

(d) an identification of the accounts receivable on this Schedule
3.13 which have been collected in their entirety since December 31, 1998.

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Except as specifically identified on Schedule 3.13, the Stockholders believe to
the best of their Knowledge that the accounts and notes receivable itemized are
collectible in the ordinary course of Nance's and the Affiliates' businesses.

3.14 Accounts Payables and Promissory Notes. Schedule 3.14 sets forth a
list of:

(a) all accounts payable of Nance and the Affiliates as of December
31, 1998, together with an appropriate aging schedule;

(b) all long-term and short-term promissory notes, installment
contracts, loan agreements and credit agreements to which Nance or the
Affiliates is a party or to which any of their properties are subject;

(c) all indentures, mortgages, security agreements, pledges, and any
other agreements, pledges, and any other agreements of Nance and the Affiliates
relating thereto or with respect to collateral securing the same; and

(d) an identification of the accounts payable on Schedule 3.14 that
have been fully or partially paid since December 31, 1998.

3.15 Insurance and Bonds.

(a) Schedule 3.15 sets forth a list of all insurance policies and
bonds held by Nance including those covering its properties, buildings,
equipment, fixtures, employees, and operations. Such list specifies with respect
to each such policy:

(i) the insurer and agent;

(ii) the amount of coverage;

(iii) the dates of premiums or payments due thereunder; and

(b) the expiration date, as applicable.

Each such policy identified is currently in full force and effect. All insurance
premiums due according to the applicable payment schedules reflected in such
policies have been timely paid. Except as set forth on Schedule 3.15, there are
no facts or circumstances known to the Stockholders or under which any claims
for uninsured losses or damages are likely to be asserted against Nance in an

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<PAGE>

amount in excess of $10,000 nor are there any such claims pending against Nance;

(c) the insurance policies currently maintained by Nance provide
coverage believed by the Stockholders to be adequate for its properties, assets,
products and operations;

(d) Nance has not requested cancellation of any material policy of
insurance at any time during the previous two years;

(e) Nance has not sought and been denied any insurance coverage
during the two-year period prior to the Closing Date. All bonds issued to secure
performance of or payment by Nance under any material contract in progress or
yet to be completed, including those contracts identified in Schedule 3.15, are
in force and effect and are identified on Schedule 3.15. Neither Nance nor the
Stockholders have made any representations or undertaken any other act which
would give rise to a viable claim that any such existing bond is invalid or
unenforceable; there are no facts or circumstances under which the validity or
enforceability by Nance of any such existing bond could be successfully
challenged; and

(f) the transactions contemplated by this Agreement will have no
adverse effect on any such existing bond.

3.16 Bank Accounts. Schedule 3.16 sets forth a list of (i) the name of
each bank or other financial institution in which Nance or the Affiliates have
an account or safe deposit box; (ii) the names of all person authorized to draw
thereon or to have access thereto; and (iii) the names of all persons other than
the officers of Nance and the Affiliates who are authorized to incur liabilities
on behalf of Nance or the Affiliates for borrowed funds.

3.17 Compliance with Laws. To the best of Stockholders' Knowledge, Nance
and the Affiliates have complied with and are not in default under any Laws the
violation of which could have a material adverse effect on their business,
properties or assets.

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<PAGE>

any federal, state, or local court, arbitration tribunal or Governmental
Authority, which would, individually or in the aggregate, materially adversely
affect the Stockholders, the business, properties or assets of Nance or the
Affiliates, or the transactions contemplated by this Agreement or the Related
Agreements and to the Knowledge or the Stockholders there does not exist any
valid basis for any such claim, action, suit or proceeding. There are no claims,
actions, suits, proceedings or investigations pending or, to the Knowledge of
the Stockholders, threatened by or against the Stockholders, Nance or the
Affiliates with respect to this Agreement or the Related Agreements, or in
connection with the transactions contemplated hereby or thereby and the
Stockholders have no reason to believe there exists a valid basis for any such
claim, action, suit, proceeding or investigation.

3.19 Permits. Schedule 3.19 hereto sets forth a true, correct and complete
list of all Permits of any federal, state or local regulatory or Governmental
Authority relating to the business properties or assets of Nance. The Permits
constitute all permits, licenses, franchises, orders, certificates and approvals
which are required for the lawful operation of the business, properties and
assets of Nance. Further, Nance is in compliance in all material respects with
all such Permits and owns or has owned or had valid Permits to use all
properties, tangible or intangible, necessary for the conduct of its business
and the operation of its properties and assets in the manner in which they are
now conducted and operated.

3.20 Taxes.

(a) All Tax Reports required to be filed by Nance and the Affiliates
that are required to be filed on or prior to the Closing have been duly filed
and are true, complete and accurate in all material respects. All Taxes owed
with respect to the periods covered by such Tax Reports have been duly paid.
Nance and the Affiliates have complied with all applicable laws, rules and
regulations relating to the withholding and payment of Taxes and has timely
withheld and paid to the proper governmental authorities all amounts required to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor or stockholder.

(b) There are no agreements, waivers or other arrangements providing
for extension of time with respect to the assessment or collection of any Tax on
Nance or the Affiliates ; there are not any actions, suits, proceedings,
investigations or claims now pending against Nance or the Affiliates in respect
of unpaid Taxes, and there are no matters under discussion with any federal,
state, county or local Governmental Authority relating to any amount of unpaid
Taxes. Except as otherwise set forth on Schedule 3.20, the Tax Reports of Nance
and

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the Affiliates have not been audited and are not in the process of being audited
by the applicable taxing authorities, and there is no Tax deficiency
outstanding, proposed or assessed against Nance or the Affiliates, and Nance and
the Affiliates are not a party to any Tax allocation or Tax sharing agreement.

3.21 Employee Benefit Plans and Employment Agreement.

(a) Set forth on Schedule 3.21(a) is a list of each employee benefit
plan (within the meaning of Section 3(3) of ERISA), written or oral employment
or consulting agreement, severance pay plan or agreement, employee relations
policy (or practice, agreement or arrangement), agreements with respect to
leased or temporary employees, vacation plan or arrangement, sick pay plan,
stock purchase plan, stock option plan, fringe benefit plan, incentive plan,
bonus plan, cafeteria or flexible spending account plan and any deferred
compensation agreement, (or plan, program, or arrangement) covering any present
or former employee of Nance and which is, or at any time was, sponsored or
maintained by (or to which contributions are, were, or at any time were required
to have been, made by Nance. Each and every such plan, program, policy,
practice, arrangement and agreement included on the list set forth under
Schedule 3.21(a) is hereinafter referred to as an "Employee Benefit Plan".

(b) With respect to each Employee Benefit Plan, there has been
delivered to St. Mary, (i) copies of each such Employee Benefit Plan (including
all trust agreements, insurance or annuity contracts, descriptions, general
notices to employees or beneficiaries and any other material documents or
instruments relating thereto); (ii) the most recent audited (if required or
otherwise available) or unaudited financial statement with respect to each such
Employee Benefit Plan; (iii) copies of the most recent determination letters
with respect to any such Employee Benefit Plan which is an employee pension
benefit plan (as such term is defined under ERISA) intended to qualify under the
Code; and (iv) copies of the most recent actuarial reports, if any, of each such
Employee Benefit Plan.

(i) each such Employee Benefit Plan which is an employee
pension benefit plan intended to qualify under the Code so qualifies and has
received a favorable determination letter as to its qualification under the
Code, and no event has occurred that will or could be expected to give rise to
disqualification or loss of tax-exempt status of any such plan or related trust;

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(ii) Nance has complied in all material respects with all
provisions of ERISA and no act or omission by the Stockholders, Nance or any
fiduciary of any Employee Benefit Plan has occurred that will or could be
expected to give rise to liability for a breach of fiduciary responsibilities
under ERISA or to any fines or penalties under ERISA;

(iii) all insurance and annuity premiums, if any, required for
all periods up to and including the Closing have been or will be paid;

(iv) no Employee Benefit Plan provides for any post-retirement
life, medical, dental or other welfare benefits (whether or not insured) for any
current or former employee except as required under Code or ERISA or applicable
state or local Law;

(v) all contributions required to have been made by law or
under the terms of any contract, agreement or Employee Benefit Plan for all
complete and partial periods up to and including the Closing have been made or
will be made;

(vi) the transactions contemplated by this Agreement will not
be the direct or indirect cause of any amount paid or payable from such Employee
Benefit Plan being classified as an excess parachute payment under Code;

(vii) there are no matters pending before the United States
Internal Revenue Service, the United States Department of Labor or the Pension
Benefit Guaranty Corporation ("PBGC");

(viii) there have been no claims or notice of claims filed
under any fiduciary liability insurance policy covering any Employee Benefit
Plan;

(ix) to the extent applicable, each such Employee Benefit Plan
has complied with the "secondary payor" requirements of the Social Security Act;

(x) each and every such Employee Benefit Plan which is a group
health plan (as such term is defined under the Code or ERISA complies, and in
each and every case has complied, with the applicable requirements of Code,
ERISA, the applicable requirements of the Health Insurance Portability and
Accountability Act of 1996, and all other federal, state or local Laws or
ordinances requiring the provision or continuance of health or medical benefits;

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<PAGE>

(xi) each and every Employee Benefit Plan which is a cafeteria
plan or flexible spending account plan complies, and in each and every case has
complied, with the applicable requirements of the Code and all other applicable
federal, state, or local Laws or ordinances; and

(xii) each and every Employee Benefit Plan which is a
dependent care assistance program complies, and in each and every case has
complied, with the applicable requirements of the Code and all other applicable
federal, state or local Laws or ordinances.

(d) With respect to any employee benefit plan (within the meaning of
ERISA), stock purchase plan, stock option plan, fringe benefit plan, bonus plan
or any deferred compensation agreement, plan or program (whether or not any such
plan, program, or agreement is currently in effect):

(i) there are no action, suits, or claims (other than routine
claims for benefits in the ordinary course) pending or, to the Knowledge of the
Stockholders threatened, and the Stockholders have no Knowledge of any facts
which could give rise to any such actions, suits, or claims (other than routine
claims for benefits in the ordinary course), which could subject Nance to any
liability;

(ii) Nance has not engaged in a prohibited transaction, as
such term is defined in the Code which would subject Nance to any taxes,
penalties or other liabilities resulting from prohibited transactions under the
Code or under ERISA;

(iii) no event has occurred and no condition exists that could
subject Nance to any tax or penalty under the Code, or to a fine under ERISA;

(iv) Nance is not subject to (1) any liability, lien or other
encumbrance under any agreement imposing secondary liability on Nance as a
seller of the assets of a business under ERISA or the Code, (2) contingent
liability under ERISA to the PBGC or to any plan, participant, or other person
or (3) a lien or other encumbrance under ERISA; and

(e) (i) Nance is not subject to any legal, contractual, equitable,
or other obligation to continue any Employee Benefit Plan of any nature,
including, without limitation any Employee Benefit Plan or any other pension,
profit sharing, welfare, post-retirement welfare plan, or post-retirement
welfare plan, or any stock option, stock or cash award, non-qualified deferred

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<PAGE>

compensation or executive compensation plan, policy or practice (or to continue
participation in any such benefit plan, policy or practice) on or after the
Closing;

(ii) Nance may, in any manner, and without the consent of any
employee, beneficiary or other person, terminate, modify or amend any such
Employee Benefit Plan (or its participation in such Employee Benefit Plan or any
other plan, program or practice) effective as of any date on or after the
Closing; and

(iii) no representations or communications (directly or
indirectly, orally, in writing or otherwise) with respect to participation,
eligibility for benefits, vesting, benefit accrual coverage or other material
terms of any Employee Benefit Plan have been made prior to the Closing to any
employee, beneficiary or other person other than those which are in accordance
with the terms and provisions of each such Employee Benefit Plan as in effect
immediately prior to the Closing.

(f) Nance has at no time participated in a multi-employer pension
plan.

(g) With respect to each and every Employee Benefit Plan subject to
ERISA: (i) no such Employee Benefit Plan or related trust has been terminated or
partially terminated; (ii) no liability to the PBGC has been or is expected to
be incurred with respect to such Employee Benefit Plan; (iii) the PBGC has not
instituted and is not expected to institute any proceedings to terminate such
Employee Benefit Plan; (iv) there has been no reportable event (within the
meaning of ERISA); (v) there exists no condition or set of circumstances that
presents a material risk of the termination of such Employee Benefit Plan by the
PBGC; (vi) no accumulated funding deficiency (as defined under ERISA and the
Code), whether or not waived, exists with respect to such Employee Benefit Plan;
and (vii) the current value of all vested accrued benefits under each such
Employee Benefit Plan did not as of the last day of the most recently ended
fiscal year of each Employee Benefit Plan, and will not as of the Closing,
exceed the current value of the assets of each such Employee Benefit Plan
allocable to such vested accrued benefits.

3.22 Certain Employees and Salaries. Schedule 3.22 sets forth a list of
the names and salary rates of all employees of Nance whose current regular
annual salary rate is $60,000 or more, together with any bonuses paid or payable
to each such employee of Nance for the preceding or current fiscal year, and, to
the extent existing at Closing, all arrangements with respect to any bonuses or
other payments to be paid to such employees by Nance from and after the date of
Closing. Schedule 3.22 also identifies the company cars, club memberships

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<PAGE>

and other fringe benefits paid or payable in the future by Nance pursuant to
existing agreements on behalf of such employees.

3.23 Material Contracts. Schedule 3.23 lists all contracts and
arrangements, written, electronic, oral, or otherwise, of the following types to
which Nance or an Affiliates is a party or by which they are bound, or to which
any of their assets or properties is subject:

(a) any contract or arrangement of any kind with any employee,
officer or director of Nance or an Affiliate or the Stockholders or any member
of a Stockholder's family;

(b) any contract or arrangement of any nature which involves the
payment or receipt of cash or other property, any unperformed commitment, or
goods or services, having a value in excess of $10,000;

(c) any contract or arrangement pursuant to which Nance or an
Affiliate has made or will make loans or advances, or has or will have incurred
debts or become a guarantor or surety or pledged its credit on or otherwise
become responsible with respect to any undertaking of another (except for the
negotiation or collection of negotiable instruments in transactions in the
ordinary course of business);

(d) any indenture, credit agreement, loan agreement, note, mortgage,
security agreement, lease of real property (to the extent not addressed in
Section 3.14) or personal property or agreement for financing;

(e) any contract or arrangement involving a partnership, joint
venture, jointly owned corporation or other cooperative undertaking;

(f) any contract or arrangement involving any restrictions with
respect to the geographical area of operations or scope or type of business of
Nance or an Affiliate;

(g) any power of attorney or agency agreement or arrangement with
any person pursuant to which such person is granted the authority to act for or
on behalf of Nance or an Affiliate or Nance or an Affiliate is granted the
authority to act for or on behalf of any person;

(h) any contract for which the full performance thereof may extend
beyond sixty calendar days from the date of this Agreement;

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(i) any real property leases to which Nance or an Affiliate is a
party, whether as lessor or lessee, which relate to the business of Nance or an
Affiliate not listed on Schedule 3.12(b);

(j) any contract not made in the ordinary course of business which
is to be performed at or after the date of this Agreement; and

(k) any contract not specified above that is material to the
business, properties or assets of Nance or an Affiliate;

There has been delivered to St. Mary true, correct and complete copies of each
document listed on Schedule 3.23 and a written description of each oral
arrangement so listed. Except as disclosed on Schedule 3.23, all such contracts
and arrangements, if canceled at any time by the other party, would not have a
material adverse effect on the business, properties or assets of Nance or an
Affiliate. There have been delivered to St. Mary accurate copies of each form
which has been used in the business of Nance or an Affiliate and is in effect
with respect to any third party at the time of Closing. Except as set forth on
Schedule 3.23 hereto, each contract between Nance or an Affiliate and any third
party is valid and in full force and effect and constitutes the legal, valid and
binding obligation of Nance or an Affiliate and the other parties thereto,
enforceable against Nance or an Affiliate and the other parties thereto in
accordance with their respective terms, and, to the Knowledge of the
Stockholders, there are no existing violations or defaults by Nance or an
Affiliate (including, but not limited to, the subcontracting or delegation by
Nance or an Affiliate of duties to third parties) or by any other party thereto
and no event, act or omission has occurred which (with or without notice, lapse
of time or the happening or occurrence of any other event) would result in a
violation or default thereunder. No other party to any such contract has in
writing or otherwise asserted the right, and no basis exists for the assertion
of any enforceable right to renegotiate, cancel or terminate prior to the full
term thereof any of the terms or conditions of any such contract, nor does Nance
or an Affiliate have any Knowledge that any party to any such contract intends
not to renew any such contract upon termination of its current term. Except as
set forth on Schedule 3.23 hereto, no consent of any party to such contracts is
required for the execution, delivery or performance of this Agreement or the
Related Agreements or the consummation of the transactions contemplated hereby
or thereby.

3.24 Labor Matters. Nance has conducted, and currently is conducting its
business in full compliance with all Laws relating to employment and employment
practices, terms and conditions of employment, wages and hours, and
nondiscrimination in employment. Except as set forth on Schedule 3.24, the
relationships of Nance with its employees are good and there is, and during the

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<PAGE>

past five years there has been, no labor strike, dispute, slow-down, work
stoppage or other labor difficulty actually pending or threatened against or
involving Nance. Except as set forth on Schedule 3.24, to the Knowledge of the
Stockholders there are no facts or circumstances that could give rise to a claim
for wrongful termination or discrimination on any basis. Except as set forth on
Schedule 3.24, none of the employees of Nance is covered by any collective
bargaining agreement, no collective bargaining agreement is currently being
negotiated and, to the Knowledge of the Stockholders, no attempt is currently
being made or during the past three years has been made to organize any
employees of Nance to form or enter a labor union or similar organization.

3.25 Environmental Matters. Except as set forth in Schedule 3.25:

(a) Nance and the Affiliates are currently in compliance in all
material respects with all applicable Environmental Laws, have cured any past
violations or alleged violations of Environmental Laws to the satisfaction of
Governmental Authorities, are not currently in receipt of any notice of
violation, are not currently in receipt of any notice of any potential liability
for cleanup of Hazardous Materials and are not now subject to any investigation
or information request by a Governmental Authority concerning Hazardous
Materials or any Environmental Laws. To the Knowledge of the Stockholders, Nance
and the Affiliates hold and are in compliance with all governmental permits,
licenses, and authorizations necessary to operate those aspects of their
businesses that relate to siting, wetlands, coastal zone management, air
emission, discharges to surface or ground water, discharges to any sewer or
septic system, noise emissions, solid waste disposal or the generation, use,
transportation or other management of Hazardous Materials. Neither Nance nor an
Affiliate has ever generated, manufactured, refined, recycled, discharged,
emitted, released, buried, processed, produced, reclaimed, stored, treated,
transported, or disposed of any Hazardous Materials except in compliance with
all applicable Laws, including applicable Permit requirements;

(b) No assets of Nance or an Affiliate are subject to any Lien in
favor of any person as a result of any Hazardous Material or response thereto;

(c) To the Knowledge of the Stockholders, all facilities where any
person has treated, stored, disposed of, reclaimed, or recycled any Hazardous
Material on behalf of Nance or an Affiliate are in compliance with Environmental
Laws.

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3.26 Necessary Property.

(a) To the extent not otherwise listed on a schedule to this
Agreement, the assets of Nance, whether tangible or intangible, which are
required for the operation by Nance of its businesses now conducted are listed
on Schedule 3.26(a).

(b) Nance has consummated each act or deed, if any, necessary to
transfer, pursuant to the exchange of shares provided for by this Agreement,
beneficial ownership of the assets described on Schedule 3.26(a) as well as the
assets listed on any other schedule attached hereto to St. Mary, and Nance
represents that St. Mary will not have any liability or obligation relating to
the transfer of such assets.

3.27 Minute Books and Charter Documents. All corporate records and books
(including stock transfer ledgers) of Nance and Quanterra Corporation have been
made available to St. Mary for its review.

3.28 Broker's Fees. No agent, broker or other person is or may be entitled
to a commission or finder's fee in connection with the transactions contemplated
by this Agreement, or is or may be entitled to make any claim against Nance or
against St. Mary as a result of any actions by the Stockholders or Nance. The
Stockholders shall indemnify St. Mary against any claim for any such commission
or finder's fee made by any agent, broker or other person as a result of any
actions by the Stockholders or Nance.

3.29 Investment Representation. Each of the Stockholders acknowledges that
the issuance to him or her by St. Mary of the shares of St. Mary Stock
constituting the Consideration pursuant to this Agreement has not been
registered under the 1933 Act or any state securities Law, and that such St.
Mary Stock may not be sold or transferred other than pursuant to an effective
registration statement under the 1933 Act or pursuant to an available exemption
from such registration, and further acknowledges that the certificates
representing the St. Mary Stock will bear a restrictive legend to the foregoing
effect. Each Stockholder is acquiring the St. Mary Stock for investment purposes
only, for his or her own account (and not for the account(s) of others) and not
with a view to the distribution thereof. Each Stockholder confirms that (i) he
or she is familiar with the business of St. Mary and has had the opportunity to
ask questions of appropriate executive officers of St. Mary (and that he or she
has received responses thereto to his or her satisfaction) and to obtain such
information about the business and financial condition of St. Mary as he or she
has reasonably requested, and (ii) he or she has such knowledge and

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<PAGE>

experience in financial and business matters that he or she is capable of
evaluating and accepting the merits and risks of an investment in St. Mary
Stock.

3.30 Questionable Payments. Neither Nance nor an Affiliate nor any
executive employee, agent, or representative of Nance or an Affiliate (including
the Stockholders) has made, directly or indirectly, any (a) bribes, kickbacks or
illegal payments, (b) payments that were falsely recorded on the books and
records of Nance or an Affiliate, or (c) payments to governmental officials for
improper purposes.

3.31 Tax Reports. Schedule 3.31 contains true and correct copies of the
Tax Reports filed by either Nance or its Affiliates for the past three tax years
including tax year 1998.

3.32 Joint Operating Agreements. Neither Nance nor an Affiliate has
entered into any joint operating agreement regarding any of the leases or wells
affected by this Agreement that contains terms or conditions which impose duties
or obligations on Nance or any Affiliate beyond those customarily contained or
created by joint operating agreements executed in the ordinary course of
conducting an oil and gas business.

3.33 Affiliates. The Stockholders represent and warrant to St. Mary with
respect to Panterra and the Panterra Financials, and with respect to Quanterra
Partnership, the matters set forth in Section 3.08 and Section 3.09 to the same
extent as those representations and warranties by the Stockholders apply to
Nance. Quanterra Partnership is a limited partnership organized and in good
standing under the laws of the State of Montana of which Quanterra Corporation
is the sole general partner and as such holds a one percent partnership interest
and Nance holds a forty-nine and one-half percent limited partner interest.

3.34 No Misstatements or Omissions. No representation or warranty made in
this Agreement or on any Schedule hereto by the Stockholders is false or
misleading as to any material fact or omits to state a material fact required to
make any of such information not misleading in any material respect. In
addition, all other information made available by Nance to St. Mary, whether in
oral, written, or any other form, is true and correct to the Knowledge of the
Stockholders, and such information is not false or misleading as to any material
fact. To the Knowledge of the Stockholders, the foregoing representations,
warranties, schedules and information constitute full disclosure of all material
facts with respect to the business, assets and liabilities of Nance and the
Affiliates.

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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF ST. MARY

St. Mary represents and warrants to the Stockholders as follows:

4.01 Organization; Good Standing. St. Mary is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware with all requisite corporate power and authority and legal right to
own, operate and lease its properties and assets and to carry on its business as
now being conducted and to enter into this Agreement and perform its obligations
hereunder, and is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction where the conduct of its business or
the ownership of its property requires such qualification.

4.02 Authority. St. Mary has the corporate power and authority to execute,
deliver, and perform its obligations under this Agreement and the Related
Agreements to which it is a party and to consummate the transactions
contemplated hereby and thereby, and has taken all necessary corporate action to
authorize the execution, delivery and performance of this Agreement. St. Mary
has the power and authority to deliver the Consideration, and all necessary
corporate action to authorize the delivery of the Consideration has been taken.

4.03 Due Execution and Enforceability. This Agreement is a valid and
binding obligation of St. Mary, enforceable in accordance with its terms, except
as limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application referring to or affecting enforcement of
creditors' rights and general principles of equity.

4.04 No Restrictions Against Performance. Neither the execution, delivery,
authorization or performance of this Agreement, nor the consummation of the
transactions contemplated hereby will, with or without the giving of notice or
the passage of time, or both, violate any provisions of, conflict with, result
in a breach of, constitute a default under, or result in the creation or
imposition of any Lien or adverse condition under (i) the Certificate of
Incorporation or By-Laws of St. Mary; (ii) any federal, state or local Law,
which is applicable to St. Mary; (iii) any contract, indenture, instrument,
agreement, mortgage, lease, right or other obligation or restriction to which
St. Mary is a party or by which it is bound; or (iv) any order, judgment, writ,
injunction, decree, license, franchise, permit or other authorization of any
Governmental Authority by which St. Mary is bound.

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<PAGE>

and all of the shares of St. Mary Stock, when issued in accordance with the
terms of this Agreement are or will be, duly and validly authorized and issued
and outstanding, fully paid and nonassessable. None of the outstanding shares of
St. Mary Stock to be issued pursuant to this Agreement will be issued in
violation of any preemptive rights of the current or past holders of St. Mary
Stock. Except as disclosed on Schedule 4.05 hereto, as of the date of this
Agreement, there are no other equity securities of St. Mary outstanding and no
outstanding options, warrants, rights, calls, commitments, conversion rights,
rights of exchange, plans or other agreements of any character provided for the
purchase, issuance or sale of any shares of the capital stock of St. Mary, other
than as contemplated by this Agreement.

4.06 SEC Filings; Financial Statements of St. Mary. St. Mary has timely
filed and made available to the Stockholders all SEC Documents required to be
filed by St. Mary during calendar year 1998 and since December 31, 1998 . The
SEC Documents (i) at the time filed, complied in all material respects with the
applicable requirements of the Securities Laws and other applicable Laws, and
(ii) did not, at the time they were filed (or, if amended, or superseded by a
filing prior to the date of this Agreement, then on the date of such filing),
contain any untrue statement of a material fact or omit to state a material fact
required to be stated in the SEC Documents or necessary in order to make the
statements in the SEC Documents in light of the circumstances under which they
were made, not misleading. Each of the St. Mary financial statements (including,
in each case, any related notes) contained in the SEC Documents complied as to
form in all material respects with the applicable published rules and
regulations of the SEC with respect thereto, was prepared in accordance with
GAAP (except to the extent required by changes in GAAP, as may be indicated in
the notes to such financial statements or, in the case of unaudited interim
statements, as permitted by Form 10-Q under the 1934 Act, as amended), and
fairly presented in all material respects the consolidated financial positions
of St. Mary and its subsidiaries as at the respective dates and the consolidated
results of operations and cash flows of the periods indicated, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be material
in amount or effect.

4.07 Materially Adverse Change of Condition. St. Mary has no Knowledge of
any material adverse change in the condition of or title to its assets which
have occurred subsequent to December 31, 1998, except depletion through normal
production within authorized allowables, ordinary changes and rates of
production, and depreciation of equipment through ordinary wear and tear.

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4.08 Third-Party and Governmental Consents. Except as set forth on
Schedule 4.08 hereto, and those customarily obtained after Closing, no approval,
consent, waiver, order or authorization of, or registration, qualification,
declaration or filings with, or notice to, any Governmental Authority or other
third party is required on the part of St. Mary in connection with the execution
of this Agreement, the Related Agreements, or the consummation of the
transactions contemplated hereby or thereby. All of the consents and approvals
set forth on Schedule 4.08 have been obtained.

4.09 Litigation. There are no claims, actions, suits, proceedings or
investigations pending or, to the Knowledge of St. Mary, threatened, by or
against St. Mary with respect to this Agreement or the Related Agreements, or in
connection with the transactions contemplated hereby or thereby and St. Mary has
no reason to believe there exists a valid basis for any such claim, action,
suit, proceeding, or investigation.

4.10 Broker's Fees. No agent, broker or other person is or may be entitled
to a commission or finder's fee in connection with the transactions contemplated
by this Agreement, or is or may be entitled to make any claim against the
Stockholders or Nance or against St. Mary or any of its subsidiaries or
affiliates as a result of any actions by St. Mary. St. Mary shall indemnify the
Stockholders against any claim for any such commission or finder's fee made by
any agent, broker or other person as a result of any actions by St. Mary.

4.11 No Misstatements or Omissions. No representation or warranty made in
this Agreement by St. Mary is false or misleading as to any material fact or
omits to state a material fact required to make any of such information not
misleading in any material respect. In addition, all other information made
available by St. Mary to the Stockholders, whether in oral, written or any other
form, is true and correct to the Knowledge of St. Mary, and such information is
not false or misleading as to any material fact. To the knowledge of St. Mary,
the foregoing representations, warranties and information, together with the SEC
Documents, constitute full disclosure of all material facts with respect to the
business, assets and liabilities of St. Mary.

ARTICLE 5
DELIVERIES

5.01 Deliveries by the Stockholders. At the Closing, in addition to any
other documents required to be delivered under the terms of this Agreement, the
Stockholders shall deliver the following:

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(a) A certificate of the Stockholders dated the Closing, certifying
that any consents and approvals referred to in Section 3.11, which are
obtainable prior to the Closing, have been obtained, together with copies of
such consents and approvals.

(b) Copies of the Articles of Incorporation of Nance certified as of
a recent date by the Secretary of State of Montana.

(c) Copies of the By-Laws of Nance including all amendments thereto,
certified by the Secretary or an Assistant Secretary of Nance.

(d) A Certificate dated not earlier than seven calendar days prior
to Closing of the Secretary of State of Montana as to the valid existence of
Nance.

(e) Certificates of authority dated during 1999 of the Secretary of
State of each of the states in which Nance is qualified to do business, as to
the due qualification or license of Nance as a foreign corporation in such
state.

(f) The opinion of Crowley, Haughey, Hanson, Toole & Dietrich, PLLP,
counsel to Nance and the Stockholders, substantially in the form of Exhibit
5.01(f) hereto.

(g) Evidence in form and substance satisfactory to St. Mary of the
resignation of all of the directors of Nance other than Robert L. Nance.

(h) The Stockholders shall deliver to St. Mary Uniform Commercial
Code financing statement searches for the State of Montana and any other state
in which Nance or the Affiliates do business, dated within 15 calendar days
prior to the date of the Closing, showing that there are no security interests,
judgments, taxes, other liens or encumbrances outstanding against Nance or the
Affiliates or their assets, or against the Stockholders.

5.02 Deliveries by St. Mary. At the Closing, in addition to any other
documents required to be delivered under the terms of this Agreement, St. Mary
shall have delivered or will deliver the following:

(a) A certificate of the President or a Vice President of St. Mary,
dated the Closing Date, certifying that any consents and approvals referred to
in Section 4.08 have been obtained, together with copies of such consents and
approvals.

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<PAGE>

(b) A copy of the Certificate of Incorporation of St. Mary,
certified as of a recent date by the Secretary of State of Delaware.

(c) A copy of the By-Laws of St. Mary, including all amendments
thereto, certified by the Secretary or an Assistant Secretary of St. Mary.

(d) A Certificate, dated as of a recent date of the Secretary of
State of the State of Delaware as to the valid existence and good standing of
St. Mary.

(e) Resolutions adopted by the Board of Directors of St. Mary
authorizing this Agreement and the Related Agreements and the transactions
contemplated hereby, certified by the Secretary or an Assistant Secretary of St.
Mary.

(f) The opinion of the law firm Ballard Spahr Andrews & Ingersoll,
LLP, counsel to St. Mary, substantially in the form of Exhibit 5.02(f) hereto.

ARTICLE 6
RELATED AGREEMENTS

6.01 Related Agreements. The obligation of the Stockholders to exchange
the Nance Stock for the St. Mary Stock is subject to the execution and delivery
of the following Related Agreements at the Closing:

(a) Severance Agreements with Terry Holzwarth, Gary Evertz, Brian
Cebull, Amy Cebull, Mike Bryant and Robert T. Hanley in the form of Exhibit 6(a)
hereto. In addition, separate and apart from such Severance Agreements, St. Mary
agrees that should any Nance employee be terminated or leave the employment of
St. Mary or Nance, in determining what, if any, payments will be offered to the
former employee, due regard will be given to the individual's duration of
employment with Nance. Nothing in the preceding sentence shall alter or amend
St. Mary's policies with regard to payments to employees who no longer remain in
the employment of St. Mary, and St. Mary will continue to make its determination
regarding these types of payments on a case-by-case basis taking into account
all considerations it deems appropriate in making these types of decisions
consistent with St. Mary's past practices. In addition, St. Mary will take into
consideration any Nance employee's years of service with Nance with regard to
participation in any St. Mary employee benefit plan with the exception of the
pension plan;

(b) An employment agreement with Robert L. Nance in the form of
Exhibit 6(b) hereto;

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<PAGE>

(d) An Agreement with respect to the 401(k) Retirement Plan of Nance
in the form of Exhibit 6(d) hereto.

ARTICLE 7
INDEMNIFICATION

7.01 Survival of Representations, Warranties and Covenants. Without
affecting the validity or applicability of the indemnification provisions set
forth in Sections 7.02 and 7.03 of this Agreement, the representations,
warranties, and covenants of the Stockholders and St. Mary contained in this
Agreement shall survive the Closing and remain in full force and effect until
one year after the Closing except that such representations and warranties shall
remain in full force and effect until two years after the Closing with respect
to any breach thereof resulting in or otherwise involving a claim by a third
party against St. Mary, Nance or an Affiliate (a "Third Party Claim").

7.02 Indemnification by and on Behalf of the Stockholders. Subject to the
provisions of Section 7.05, the Stockholders jointly and severally agree to
defend, indemnify and hold St. Mary harmless from and against any and all
losses, liabilities, damages, costs or expenses (including reasonable attorneys'
fees, penalties, and interest) payable to or for the benefit of, or asserted by,
any party, resulting from, arising out of, or incurred as a result of:

(a) the breach of any representation and/or warranty made by the
Stockholders herein; or (b) any claim, whether made before or after the date of
this Agreement, or any litigation, proceeding or governmental investigation,
whether commenced before or after the date of this Agreement, arising out of the
businesses of Nance or the Affiliates prior to the Closing, or otherwise arising
out of any act or occurrence prior to, or any condition or facts existing as of,
Closing, regardless of whether or not referred to on a Schedule to this
Agreement or otherwise disclosed or known to St. Mary as of Closing. No claim by
St. Mary for indemnification by the Stockholders shall be made after one year
has elapsed following the Closing except that a claim for indemnification may be
made by St. Mary with respect to a Third Party Claim until two years has elapsed
following the Closing.

The indemnification obligation of the Stockholders set forth above shall
be limited to those amounts attributable solely to Nance with respect to
interests or activities of it, including those realized with respect to an
interest of Nance in any

29
<PAGE>

property partially owned by it or realized with respect to any partnership
interest of Nance (including its interest in an Affiliate), but shall not apply
with respect to an ownership interest or partnership interest (even if in an
Affiliate) of others.

7.03 Indemnification by St. Mary. Subject to the provisions of Section
7.05, St. Mary agrees to defend, indemnify and hold the Stockholders harmless
from and against any and all losses, liabilities, damages, costs, or expenses
(including reasonable attorneys' fees, penalties and interest) payable to or for
the benefit of, or asserted by, any party, resulting from, arising out of, or
incurred as a result of the breach of any representation and warranty made by
St. Mary herein or in accordance herewith. No claim by the Stockholders for
indemnification by St. Mary shall be made after one year has elapsed following
the Closing except that a claim for indemnification may be made by the
Stockholders with respect to a Third Party Claim until two years has elapsed
following the Closing.

7.04 Notice of Claims. The Stockholders and St. Mary shall give prompt
written notice to each other of any claim by any party which might give rise to
a claim by the Stockholders or St. Mary against the other based upon the
indemnity provisions contained herein, stating the nature and basis of the claim
and the actual or estimated amount thereof; provided, however, that failure to
give such notice will not affect the obligation of the indemnifying party to
provide indemnification in accordance with the provisions of this Article 7
unless, and only to the extent that, such indemnifying party is actually
prejudiced thereby. In the event that any action, suit or proceeding is brought
by a third party against the Stockholders or St. Mary with respect to which the
other party may have liability under the indemnification provisions contained
herein, the indemnifying party shall have the right, at its sole cost and
expense, to defend such action in the name or on behalf of the indemnified party
and, in connection with any such action, suit or proceeding, the parties hereto
agree to render to each other such assistance as may reasonably be required in
order to ensure the proper and adequate defense of any such action, suit or
proceeding; provided further, however, that an indemnified party shall have the
right to retain its own counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate because of actual or
potential differing interests between such indemnified party and any other party
represented by such counsel. Neither party hereto shall make any settlement of
any claim which might give rise to liability of the other party under the
indemnification provisions contained herein without the written consent of such
other party, which consent such other party covenants shall not be unreasonably
withheld.

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<PAGE>

7.05 Limitation of Liability. Notwithstanding the provisions of this
Article 7, neither the Stockholders collectively nor St. Mary shall have any
liability to the other with respect to any matter which liability does not
exceed $150,000 as to any single liability or $250,000 as to liabilities in the
aggregate irrespective of their single size except that such limitations shall
not apply to any Third Party Claim. In the event of any liability of the
Stockholders for indemnification, St. Mary may elect to cause such liability to
be satisfied in part or in whole by reducing pro rata the St. Mary Stock issued
to the Stockholders by the number of shares (rounded to the nearest whole
number) equal to the amount of the Stockholders' liability based on the
published closing price for a share of St. Mary Stock on the day such liability
is quantified, and the certificates of St. Mary Stock issued to the Stockholders
shall bear a legend to that effect.

ARTICLE 8
SHARE RESTRICTIONS

8.01 Restricted Shares. The Stockholders hereby agree that during the
period beginning on the Closing and, subject to Section 8.05, ending on the date
which is three years after the date hereof, the Stockholders will not sell,
assign, transfer, pledge, hypothecate, encumber or otherwise dispose of
("Transfer") any shares of St. Mary Stock received as part of the Consideration
(the "Restricted Shares"), other than in accordance with the terms of this
Article 8 or as otherwise agreed by St. Mary in writing in its sole discretion,
and any such purported Transfer shall be void, except that the Stockholders may
make a Permitted Transfer (as hereinafter defined), if and only if the
transferee in such Permitted Transfer ("Permitted Transferee") executes and
delivers a written agreement to the effect that the Restricted Shares
transferred to such Permitted Transferee shall be bound by the terms of this
Article 8 as if such Permitted Transferee were an original party hereto.

8.02 Permitted Transfer. For purposes of this Article 8, a "Permitted
Transfer" of Restricted Shares by any Stockholder is (i) any bona fide gift of
such Restricted Shares by the Stockholder, including a charitable gift, (ii) any
transfer of such Restricted Shares by the Stockholder to a trustee for the
benefit of the Stockholder or the Stockholder's ancestors, descendants or
spouse, or (iii) any transfer of such Restricted Shares by a Stockholder to the
Stockholder's executors, administrators or legal representatives, heirs or
devisees pursuant to the laws of descent and distribution.

8.03 Restrictive Legends; Stop Orders. The certificate or certificates
representing Restricted Shares issued to the Stockholders or any Permitted
Transferee shall bear an appropriate legend referring to the restrictions on
Transfer contained in this Article 8 (together with the legends referred to in

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<PAGE>

Section 3.29 and Section 7.05 hereof) shall be endorsed with substantially the
following legend in addition to any other legend which may appear on such
certificate or certificates:

THE SALE, ASSIGNMENT, TRANSFER, PLEDGE, HYPOTECATION, ENCUMBRANCE OR OTHER
DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO THE TERMS AND CONDITIONS OF A STOCK EXCHANGE AGREEMENT DATED JUNE 1,
1999, BETWEEN ST. MARY LAND & EXPLORATION COMPANY AND ROBERT L. NANCE AND
OTHER INDIVIDUALS. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY
WRITTEN REQUEST MADE BY THE HOLDER OF THIS CERTIFICATE TO THE SECRETARY OF
ST. MARY LAND & EXPLORATION COMPANY.

To assure compliance with the terms of this Agreement, St. Mary shall also be
permitted to deliver appropriate "stop transfer" instructions covering
certificates representing Restricted Shares to any transfer agent or registrar
of the shares of St. Mary Stock.

8.04 Termination of Restrictions. Any provision of this Agreement to the
contrary notwithstanding, the restrictions on Transfer contained in this Article
8 shall expire as follows: (i) with respect to twenty percent of the original
number of Restricted Shares, one year after the date hereof, and (ii) with
respect to the remaining Restricted Shares, three years after the date hereof.
The restrictions contained herein shall expire with respect to the Restricted
Shares held by the Stockholders in proportion to his respective ownership of
shares of St. Mary Stock on the date hereof.

8.05 Removal of Legends. Whenever the restrictions imposed by this Article
8 shall terminate by reason of the passage of time and the Restricted Shares are
transferable pursuant to Rule 144(k) under the Securities Act or other available
exemption from the registration requirements of the Securities Act, each holder
of Restricted Shares shall be entitled to receive from St. Mary, without cost or
expense, a new certificate representing such Restricted Shares not bearing the
legends set forth in Section 8.03 and Section 3.29 upon receipt of an opinion of
counsel reasonably satisfactory to St. Mary that such restrictions have
terminated in accordance with their terms and that such Restricted Shares are
transferable without registration under the Securities Act pursuant to Rule
144(k) under the Securities Act or other available exemption from the
registration requirements of the Securities Act.

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<PAGE>

8.06 Voting Rights. The holder or holders of Restricted Shares shall
retain the full right to vote or to execute and deliver a proxy to vote
Restricted Shares on any matter submitted to holders of St. Mary Stock.

ARTICLE 9
GENERAL PROVISIONS

9.01 Continuance of Nance. Subject to a major change of circumstance such
as a change of control of St. Mary, after Closing, St. Mary will conduct its
business affairs in the areas where Nance has historically been involved as well
as any additional areas deemed appropriate by St. Mary using the Nance entity in
name as a wholly owned subsidiary of St. Mary, and Robert L. Nance will become
an employee charged with the responsibility of running the day-to-day affairs of
Nance as its President and Chief Executive Officer. During the time that Robert
L. Nance retains the title of President and Chief Executive Officer of Nance,
St. Mary agrees that the principal office of Nance will remain in Billings,
Montana.

9.02 Net Profit Interest Pools. It is understood and agreed that the
current employees of Nance will not participate in the employee net profits
interest pool of St. Mary for the calendar year 1999. Eligible Nance employees
will be offered participation in such pool during the calendar year 2000 and
thereafter. During calendar year 1999, the current Nance employees will maintain
their compensation plans in existence as of January 1, 1999 for the 1999
calendar year and will maintain their customary participation therein.

9.03 Expenses. Except as otherwise expressly provided herein, each party
to this Agreement shall pay its or his own expenses (including, without
limitation, the fees and expenses of its or his agents, representatives,
counsel, and accountants) incurred in connection with the negotiation, drafting,
execution, delivery and performance of this Agreement and the Related Agreements
and the transactions contemplated hereby and thereby.

9.04 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Stockholders and St. Mary and their respective
heirs, personal representatives, successors, representatives and assigns.

9.05 Waiver. No provision of this Agreement shall be deemed waived by
course of conduct, including the act of closing, unless such waiver is made in
writing signed by all then existing or surviving parties hereto, stating that it
is intended specifically to modify this Agreement, nor shall any course of
conduct

33
<PAGE>

operate or be construed as a waiver of any subsequent breach of this Agreement,
whether of a similar or dissimilar nature.

9.06 Entire Agreement. This Agreement (together with the Schedules and
Exhibits hereto) supersedes any other agreement, whether written or oral, that
may have been made or entered into by St. Mary or by the Stockholders (or by any
director, officer, employee, agent, or other representative of such parties)
relating to the matters contemplated hereby. This Agreement (together with the
Schedules and Exhibits hereto) constitutes the entire agreement between the
parties and there are no agreements or commitments except as expressly set forth
herein. To the extent there exists any conflict between this Agreement and any
of the Related Agreements, this Agreement shall control.

9.07 Further Assurances. Each of the parties hereto agrees to execute all
further documents and instruments and to take or to cause to be taken all
reasonable actions which are necessary or appropriate to complete the
transactions contemplated by this Agreement.

9.08 Notices. All notices, demands, requests, and other communications
hereunder shall be in writing and shall be deemed to have been duly given and
shall be effective upon receipt if delivered by hand, or sent by certified or
registered United States mail, postage prepaid and return receipt requested, or
by prepaid overnight express service or facsimile transmission (with receipt
confirmed). Notices shall be sent to the parties to the following addresses (or
at such other addresses for a party as shall be specified by like notice;
provided that such notice shall be effective only upon receipt thereof):

If to the Stockholders:

Robert L. Nance
550 N. 31st Street, Suite 500
Billings, MT 59101
Telephone: 406-245-6248
Facsimile: 406-245-9106

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<PAGE>

with a copy (which shall not constitute notice) to:

Myles J. Thomas
Crowley Haughey Hanson Toole & Dietrich
490 North 31st Street, Suite 500
Billings, Montana 59103
Telephone: 406-252-3441
Facsimile: 406-259-4159

If to St. Mary:

St. Mary Land & Exploration Company
1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
Telephone: 303-861-8140
Facsimile: 303-863-1040
Attention: Milam Randolph Pharo

9.09 Amendments, Supplements, Etc. This Agreement may be amended or
modified only by a written instrument executed by all parties hereto which
states specifically that it is intended to amend or modify this Agreement.

9.10 Severability. In the event that any provision contained in this
Agreement shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision hereof and this Agreement shall be construed as if such
invalid, illegal or unenforceable provisions had never been contained herein
and, in lieu of each such illegal, invalid or unenforceable provision, there
shall be added automatically as a part of this Agreement a provision as similar
in terms to such illegal, invalid or unenforceable provision as may be possible
but still be legal, valid and enforceable.

9.11 Governing Law. This Agreement and its interpretation shall be
governed by the laws of the State of Colorado.

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<PAGE>

9.12 Counterpart Execution. This Agreement may be executed in counterparts
and each counterpart shall constitute a binding agreement as if the parties had
executed a single document. The parties agree that such counterpart execution
may be evidenced by a facsimile transmission of the execution page for each such
party, and such facsimile execution shall constitute a binding execution by such
party. At or after Closing, the parties agree that a sufficient number of
original counterpart executions will be obtained and affixed to this Agreement
so that each party will have an originally executed Agreement.

/s/ Robert L. Nance /s/ Penni W. Nance
- ------------------------------ ---------------------------------
Robert L. Nance Penni W. Nance

/s/ Amy Nance Cebull /s/ Amy Nance Cebull
- ------------------------------ ---------------------------------
Amy Nance Cebull Amy Nance Cebull, Trustee of the
Clay Richard Cebull Trust

/s/ Robert Scott Nance /s/ Brian R. Cebull
- ------------------------------ ---------------------------------
Robert Scott Nance Brian R. Cebull

/s/ Robert L. Nance
- ------------------------------
By: Robert L. Nance
His Attorney-in-Fact

ST. MARY LAND & EXPLORATION COMPANY

By: /s/ Mark A. Hellerstein
--------------------------
Mark A. Hellerstein
President

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<PAGE>

LIST OF SCHEDULES

_____ Schedule 1.01(4) - Consideration - Shares of St. Mary Stock used as
Consideration

_____ Schedule 2.02 - Exchange of Shares - Certificates for St. Mary Stock
used as Consideration

_____ Schedule 3.01 - Ownership of Shares - Ownership of Nance Stock by
Stockholders

_____ Schedule 3.04 - Organization Existence - Jurisdictions where Nance
is qualified to do business; names and addresses of registered
agents in such jurisdictions; and names under which Nance has
conducted or purported to conduct business since date of
incorporation

_____ Schedule 3.06 - Subsidiaries - List, if any, of Nance subsidiaries,
ownership in any corporation, partnership, liability company, joint
venture, or other enterprise or entity

_____ Schedule 3.10 - No Adverse Effects or Changes - Nance

_____ Schedule 3.10(e) - List, if any, of any disposition of
any material assets, properties or rights, or canceled
or terminated, or agreed to cancel or terminate any
debts or claims other accounts receivable write-offs and
writedowns in the ordinary course of business (since
December 31, 1998)

_____ Schedule 3.10(h) - List, if any, of any accrual or
arrangement for or payment of any bonus or special
compensation or severance or termination pay to any
present or former officer, director, or executive
employee (since December 31, 1998)

_____ Schedule 3.11 - Third Party and Governmental Consents - List, if
any, of the Third Party and Governmental Consents required on the
part of Stockholders, Nance, or its Affiliates

_____ Schedule 3.12 - Real and Personal Property

37
<PAGE>

_____ Schedule 3.12(a) - Real Property - List of all real
property other than properties acquired for development
of or exploration for oil and gas resources, owned,
leased or subject to a contract by Nance (written or
oral). Owned Real Property needs a description of the
nature and amount of any liens, mortgages, and
encumbrances affecting such property. List, if any, of
any building, premises and equipment (owned or leased by
Nance) that are not in good condition and repair.

_____ Schedule 3.12(b) - Oil and Gas Leases and Wells List of
oil and gas leases in which Nance or its Affiliate is a
party

_____ Schedule 3.12(c) - Personal Property - List, if any, of
any outstanding options, warrants, commitments,
agreements or any other right against any of the
personal property (other than St. Mary)

_____ Schedule 3.13 - Accounts and Notes Receivable - List of Nance's and
its Affiliate's accounts and notes receivables as of December 31,
1998

_____ Aging report setting forth all accounts receivables
(other than intercompany receivables)

_____ Identify any asset holding a security interest to secure
payment of the underlying indebtedness

_____ Description of the nature and amount of any lien on or
security interest in such accounts and notes receivable

_____ Identify accounts receivable on Schedule 3.13 which have
been collected in their entirety since December 31,
1998.

_____ Schedule 3.14 - Accounts Payables and Promissory Notes - Nance and
its Affiliate. List of:

_____ Accounts payable as of December 31, 1998 with
Appropriate aging report

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<PAGE>

_____ Long-term and short-term promissory notes, installment
contracts, loan agreements, and credit agreements

_____ Indentures, mortgages, security agreements, pledges,
etc.

_____ Identify accounts payable on Schedule 3.13 which have
been fully or partially paid since December 31, 1998.

_____ Schedule 3.15 - Bonds and Insurance

_____ List of all insurance policies and bonds. List should
include (i) insurer and agent; (ii) amount of coverage;
(iii) premium dates; and (iv) expiration dates, if any.

_____ List, if any, of any facts or circumstances under which
claims for uninsured losses or damages are likely to be
Asserted against Nance in excess of $10,000 or pending
claims against Nance

_____ Schedule 3.16 - Bank Accounts - List of (i) names of banks or
financial institutions where Nance or the Affiliates has banks
Accounts and safety deposit boxes (ii) names of persons authorized
to draw on account or access the safety deposit box; and (iii) names
of persons other than officers who are authorized to incur
Liabilities for borrowed funds

_____ Schedule 3.19 - Permits - List of all federal, state or local
regulatory or governmental authority permits relating to the
business properties or assets of Nance

_____ Schedule 3.20 - Taxes - List, if any, of audited Tax reports of
Nance

_____ Schedule 3.21 - Employee Benefit Plans and Employment Agreement

_____ Schedule 3.21(a) - List of every Employee Benefit Plan

_____ Copies of such Employee Benefit Plan

_____ Copy of the most recent audit or unaudited
financial statement with regard to each
Employee Benefit Plan

39
<PAGE>

_____ Copies of most recent determination letters
to any Employee Benefit Plan which is an
employee pension benefit plan

_____ Copies of most recent actuarial reports,
if any, of each such Employee Benefit Plan

_____ Schedule 3.22 - Certain Employees and Salaries - List of names and
salary rates of all employees of Nance whose current regular annual
salary rate is $60,000 or more. List also identifies company cars,
club memberships, and other fringe benefits

_____ Schedule 3.23 - Material Contracts - List of all contracts and
Arrangements written, electronic, oral or otherwise. Copies of all
Contracts listed.

_____ Schedule 3.24 - Labor Matters - List, if any, of any labor strike,
dispute, slow-down, work stoppage, or other labor difficulty in the
Last 5 years

_____ Schedule 3.25 - Environmental Matters

_____ Schedule 3.26 - Necessary Property - Assets of Nance not otherwise
Listed on a schedule, whether tangible or intangible which are
required for the operation by Nance of its businesses

_____ Schedule 3.31 - Tax Reports - Copies of tax reports filed by Nance
or its Affiliates for the past two years including 1998

_____ Schedule 4.05 - Capital Stock of St. Mary - List, if any, of
outstanding equity securities, options, warrants, rights, call,
Commitments, conversion rights, rights of exchange, plans or other
Agreements of any character provided for the purchase, issuance or
sale of any shares of capital stock of St. Mary (other than
Contemplated in this Agreement)

_____ Schedule 4.08 - Third Party and Governmental Consents - List, if
Any, of the Third Party and Governmental Consents required on the
part of St. Mary

_____ Exhibit 5.01(f) - Form opinion letter from Quanterra counsel

40
<PAGE>

_____ Exhibit 5.02(g) - Form opinion letter from St. Mary counsel

_____ Exhibit 6(a) - Form Severance Agreement

_____ Exhibit 6(b) - Form Employment Agreement

_____ Exhibit 6(c) - form Stock Option Plan Participation Agreement

_____ Exhibit 6(d) - Form 401(k) Retirement Plan of Nance

41
<PAGE>

DELIVERIES BY ST. MARY

_____ 1. A certificate from the President or a Vice President dated the
date of Closing, certifying that any third party or
governmental consents and approvals have been obtained,
together with copies of such consents and approvals.

_____ 2. A copy of STML&EC Certificate of Incorporation (recent date)
from Secretary of State of Delaware.

_____ 3. A copy of the By-Laws of St. Mary, including all amendments
thereto certified by the Secretary or an Assistant Secretary
of St. Mary.

_____ 4. A Certificate of Good Standing for STML&E (recent date) from
Secretary of State of Delaware

_____ 5. STML&EC Resolutions adopted by the Board of Directors of
Authorizing transaction

_____ 6. Opinion letter from Ballard Spahr Andrews & Ingersoll, LLP

42
<PAGE>

CONDITIONS BY NANCE PETROLEUM CORPORATION

_____ 1. A Stockholders certificate (dated as of Closing) regarding
Consents and approvals, together with copies of such consents
And approvals

_____ 2. Certified Articles of Incorporation (recent date) from
Secretary of State of Montana.

_____ 3. By-Laws including all amendments thereto certified by the
Secretary or an Assistant Secretary

_____ 4. Certificate from the Montana Secretary of State (dated within
seven calendar days prior to Closing) as to the valid
existence of Nance.

_____ 5. Certificates of Authority dated during 1999 from the Secretary
of State of each of the states in which Nance is qualified to
do business

_____ 6. Opinion letter from Crowley, Haughey, Hanson, Toole &
Dietrich, PLLP

_____ 7. Evidence of resignation of all of the directors of Nance other
than Robert L. Nance.

_____ 8. Uniform Commercial Code financing statement searches for the
State of Montana and any other state in which Nance or its
Affiliates do business (dated within 15 calendar days prior to
the date of the Closing)

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<PAGE>

ADDITIONAL AGREEMENTS NEEDED FOR CLOSING

_____ Severance Agreements

_____ Terry Holzwarth

_____ Gary Evertz

_____ Brian Cebull

_____ Amy Cebull

_____ Mike Bryant

_____ Robert T. Hanley

_____ Employment agreement with Robert L. Nance

_____ Stock Option Plan Participation Agreement with Amy Cebull

_____ An Agreement with respect to the 401(k) Retirement Plan of Nance

<PAGE>
EXHIBIT 10.28

PURCHASE AND SALE AGREEMENT

This Purchase and Sale Agreement ("Agreement") made this 1st day of June,
1999, is by and between ST. MARY LAND & EXPLORATION COMPANY, a Delaware
corporation ("St. Mary") and ROBERT T. HANLEY ("Hanley"), acting in his capacity
as a limited partner in Quanterra Alpha Limited Partnership. Hanley owns a 49.5%
limited partnership interest in Quanterra Alpha Limited Partnership, a Montana
limited partnership ("Quanterra Partnership").

WHEREAS, St. Mary desires to acquire all of the limited partnership
interest of Hanley in the Quanterra Partnership in exchange for shares of the
common stock, par value of $0.01 per share, of St. Mary ("St. Mary Stock") as
hereinafter provided, and Hanley desires to effect such exchange.

ARTICLE 1
DEFINITIONS; HEADINGS

(1) "Closing" has the meaning ascribed to such term in Section 2.02.

(2) "Code" means the Internal Revenue Code of 1986, as amended.

(3) "Consideration" means those shares of St. Mary Stock set forth
on Schedule 1.01(3) which have been calculated in accordance with the
methodology set forth in that certain letter dated March 2, 1999, from St.
Mary to Robert L. Nance, as amended by oral understanding which provides
for the use of a five year NYMEX strip pricing run as opposed to the two
year NYMEX price strip stated in the letter. This letter provides that the
number of shares of St. Mary Stock that Hanley shall receive is based on a
proportionate net asset value comparison of St. Mary with Hanley's
interest in

<PAGE>

Quanterra Partnership. This comparison is expressed by using a formula
wherein X (the number of shares of St. Mary Stock that Hanley is to
receive) is the numerator of a fraction and the number of shares of St.
Mary Stock issued and outstanding is the denominator of the fraction, and
such fraction equals a fraction in which the numerator is the net asset
value of Hanley's interest in Quanterra Partnership and the denominator is
the net asset value of St. Mary. Net asset value has been determined in
accordance with the above referenced letter subject to the referenced
amended hydrocarbon pricing.

(4) "Environmental Laws" mean all federal, state and local rules and
regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without
limitation, laws and regulations relating to Releases or threatened
Releases of Hazardous Materials, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials.

(5) "GAAP" means generally accepted accounting principles
consistently applied.

(6) "Governmental Authority" means any federal, state, or local
court, arbitration tribunal or governmental department, board, commission,
bureau, agency, authority or instrumentality.

(7) "Hazardous Materials" mean (a) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is friable,
urea-formaldehyde foam insulation, and transformers or other equipment
that contain dielectric fluid containing polychlorinated biphenyls (PCBs);
(b) any chemicals, materials or substances which are now defined as or
included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous wastes," "restricted hazardous
wastes," "toxic substances," "toxic pollutants," or words of similar
import, under any Environmental Law; (c) naturally occurring radioactive
material (NORM); and (d) any other chemical, material, substance or waste,
exposure to which is prohibited, limited or regulated by any Governmental
Authority in a jurisdiction in which Quanterra Partnership operates.

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(8) "Knowledge" as used (i) with respect to St. Mary shall mean
those facts that are actually known or should reasonably have been or
become known in the ordinary course of business by the officers of St.
Mary, taking into account the scope and nature of such officers'
responsibilities, and (ii) with respect to Hanley shall mean facts that
are actually known to Hanley in the ordinary course of business, taking
into account the scope and nature of Hanley's involvement in the operation
of Quanterra Partnership.

(9) "Laws" mean all (i) federal, state, or local or foreign laws,
rules and regulations, (ii) orders, (iii) Permits, and (iv) agreements
with federal, state, local, or foreign regulatory authorities to which
Hanley, Quanterra Partnership, or St. Mary, as the case may be, is a party
or by which any of them or their property is bound.

(10) "Liens" mean all liens, liabilities, claims, security
interests, mortgages, pledges, agreements, obligations, restrictions, or
other encumbrances of any nature whatsoever, whether absolute, legal,
equitable, accrued, contingent or otherwise, including, without
limitation, any rights of first refusal.

(11) "1933 Act" means the Securities Act of 1933, as amended.

(12) "1934 Act" means the Securities Exchange Act of 1934, as
amended.

(13) "Quanterra Partnership Financial Statements" mean the unaudited
financial statements of Quanterra Partnership for each of its past two
fiscal years, December 31, 1997 and December 31, 1998.

(14) "NASDAQ" means National Association of Securities Dealers
Automated Quotations System.

(15) "Permits" mean all permits, licenses, franchises, orders,
certificates and approvals.

(16) "Quanterra Partnership" means Quanterra Alpha Limited
Partnership of which Quanterra Energy Corporation is the

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general partner and Nance Petroleum Corporation and Robert T. Hanley are
the limited partners.

(17) "Release" means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping,
or disposing into the environment.

(18) "SEC" means the United States Securities and Exchange
Commission.

(19) "SEC Documents" mean all registration statements, proxy
statements, periodic reports and schedules filed by St.
Mary with the SEC under the Securities Laws.

(20) "Securities Laws" mean the 1933 Act, the 1934 Act, the
Investment Company of Act of 1940, as amended, the Trust Indenture Act of
1939, as amended, and the rules and regulations of the SEC promulgated
thereunder.

(21) "Taxes" mean any taxes or other governmental charges or
assessments of whatever kind or nature imposed by the United States, by
any other nation or by any state, county, municipality or governmental
subdivision, including without limitation, any income, franchise or any
other similar taxes based on or measured by income or otherwise, any sales
or use taxes, property, employment and employer withholdings,
unemployment, social security, occupational, customs, excise or other
taxes, together with any interest or penalties relating thereto.

(22) "Tax Reports" mean all returns or reports required to be filed
relating to the federal and state income tax filings of Quanterra
Partnership.

1.03 Titles; Headings. All titles and headings appearing in this Agreement
are for identification only and are not to be used for interpretive purposes.

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ARTICLE 2
ACQUISITION; CLOSING

2.01 Acquisition of Hanley Partnership Interest in Quanterra Partnership.
Subject to the terms and conditions herein stated, Hanley agrees to assign,
transfer and deliver to St. Mary or in accordance with St. Mary's directions to
a subsidiary of St. Mary at Closing, and St. Mary agrees to acquire from Hanley
at Closing, all of his limited partnership interest in Quanterra Partnership.
These interests shall be assigned to St. Mary or in accordance with St. Mary's
directions to a subsidiary of St. Mary using the form of assignment attached
hereto as Schedule 2.01. At Closing, Hanley shall execute and deliver this
assignment of his entire limited partnership interest in Quanterra Partnership
in exchange for certificates of St. Mary Stock issued in the name of Hanley in
the amount of the Consideration.

2.02 Closing. The closing of the transaction provided for herein (the
"Closing") shall take place at the offices of Nance Petroleum Corporation on
June 1, 1999, at 10:00 a.m., local time.

ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF HANLEY

Hanley represents and warrants to St. Mary as follows:

3.01 Ownership of Limited Partnership Interest in Quanterra Partnership.
Hanley is the lawful owner, beneficially and of record, of a limited partnership
interest representing 49.5% of Quanterra Partnership and such interest is free
and clear of all Liens.

3.02 Hanley's Due Execution, Enforceability Against Hanley. This Agreement
has been duly executed and delivered by Hanley and is a valid and binding
obligation of him, enforceable in accordance with its terms, except as limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other laws
of general application referring to or affecting enforcement of creditors'
rights and general principles of equity. The execution, delivery and performance
of this Agreement by Hanley will not violate or conflict with any agreement,
instrument, judgment or decree to which Hanley is a party or is subject.

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3.03 Hanley's Capacity. Hanley has full legal right, power, authority and
capacity to execute, deliver and perform his obligations under this Agreement to
consummate the transactions contemplated hereunder.

3.04 Organization Existence. Quanterra Partnership is a limited
partnership duly organized and validly existing under the laws of Montana with
all requisite power and authority to own, operate and lease its properties and
assets and to carry on its business as is now being conducted. Quanterra
Partnership is duly qualified to do business and is in good standing in each
jurisdiction where the conduct of its business or the ownership of its property
requires such qualification. The jurisdictions in which Quanterra Partnership is
qualified to do business, and the names and addresses of Quanterra Partnership's
registered agent in such jurisdictions, are set forth on Schedule 3.04 hereto.
Schedule 3.04 hereto sets forth all names under which Quanterra Partnership has
conducted or purported to conduct business since the date of its inception.

3.05 No Restrictions Against Performance. Neither the execution, delivery
nor performance of this Agreement, nor the consummation of the transactions
contemplated in this Agreement will, with or without the giving of notice or the
passage of time, or both, violate any provisions of, conflict with, result in a
breach of, constitute a default under, or result in the creation or imposition
of any Lien or adverse condition under:

(a) the Limited Partnership Agreement of Quanterra Partnership;

(b) any Law which is applicable to Quanterra Partnership or any of
its properties or assets;

(c) any contract, indenture, instrument, agreement, mortgage, lease,
right, or other obligation or restriction to which Quanterra Partnership is a
party or by which Quanterra Partnership or any of its properties or assets is or
may be bound; or

(d) any order, judgment, writ, injunction, decree, license,
franchise, permit or other authorization of any Governmental Authority by which
either Quanterra Partnership or any of its properties or assets is or may be
bound or by which Hanley is or may be bound.

3.06 Historical Financial Information. The Quanterra Partnership Financial
Statements, true and complete copies of which have been previously delivered to
St. Mary present fairly the financial position, assets and liabilities of
Quanterra Partnership as of the dates thereof and the revenues, expenses,
results of

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operations and cash flows of Quanterra Partnership for the periods covered
thereby, on a tax basis with adjustments made in accordance with GAAP so that
the net asset value of Quanterra Partnership can be determined and reasonably
compared with the net asset value of St. Mary. The Quanterra Partnership
Financial Statements are in accordance with the books and records of Quanterra
Partnership and do not reflect any transactions which are not bona fide
transactions. The books and records of Quanterra Partnership have been
maintained in accordance with applicable laws, rules and regulations, and in the
ordinary course of business. To the best of Hanley's Knowledge, the accounts and
notes receivable of Quanterra Partnership reflected in the Quanterra Partnership
Financial Statements are valid, existing and genuine and represent sales
actually made or services actually delivered by Quanterra Partnership in bona
fide transactions in the ordinary course of business consistent with past
practice and there is no material right of setoff or counterclaim or threat
thereof that would jeopardize the collectability of such accounts and notes
receivable at the aggregate recorded amounts thereof. Hanley has no Knowledge of
any material difference that would arise if the Quanterra Partnership Financial
Statements were prepared in accordance with GAAP as opposed to being prepared on
a tax basis with the GAAP-type adjustments that have been made.

3.07 No Undisclosed Liabilities. To the best of Hanley's Knowledge, no
basis exists on the date hereof for assertions against Quanterra Partnership of
any material claim or liability of any nature other than (i) those which have
been disclosed in the Quanterra Partnership Financial Statements, or (ii) have
been incurred in the ordinary course of the business of Quanterra Partnership
since December 31, 1998 and which do not constitute a breach of the
representation and warranty set forth in Section 3.08. For purposes of this
Section 3.07, a claim or liability shall be deemed to be "material" if it
involves an amount in excess of $25,000, individually or in the aggregate, as
the context requires.

3.08 No Adverse Effects or Changes. Since December 31, 1998, Hanley is not
aware of any event involving Quanterra Partnership that has had a material
adverse effect on its business or its assets. Except as listed on Schedule 3.08,
since December 31, 1998, Quanterra Partnership has not:

(a) made any existing unsatisfied capital call on Hanley;

(b) borrowed or agreed to borrow any funds, guaranteed the repayment
of any indebtedness or incurred any other contingent financial obligations,
except borrowings incurred in the ordinary course of its business in accordance
with its past practices;

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<PAGE>

(c) satisfied any obligation or liability (absolute or contingent),
other than obligations and liabilities incurred in the ordinary course of its
business in accordance with its past practices;

(d) declared or made, or agreed to declare or make, any payments or
distributions of cash or any other assets of any kind whatsoever in respect of
its capital accounts;

(e) except as set forth on Schedule 3.08(e), sold, transferred or
otherwise disposed of, or agreed to sell transfer or otherwise dispose of, any
material assets, properties or rights, except inventory and equipment in the
ordinary course of its business in accordance with its past practices, or
canceled or otherwise terminated, or agreed to cancel or otherwise terminate,
any debts or claims other than accounts receivable write-offs and writedowns in
the ordinary course of its business in accordance with its past practices;

(g) made or permitted any amendment or termination of any material
contract, agreement, Permit or license to which it is a party or by which it or
any of its properties are bound;

(h) except as set forth on Schedule 3.08(h), made, directly or
indirectly, any accrual or arrangement for or payment of any bonuses or special
compensation of any kind or any severance or termination pay to any present or
former partner or employee;

(i) incurred, or become subject to, any uninsured claim or liability
for any material damages for any negligence or other tort or breach of contract;

(j) made any capital expenditures (or commitments therefor) which in
the aggregate exceed $25,000;

(k) suffered any damages, destruction or casualty losses in excess
of $10,000 as to any single occurrence or $25,000 in the aggregate;

(l) entered into any other material transaction other than in the
ordinary course of its business in accordance with its past practices; or

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<PAGE>

(m) suffered any material adverse change in condition of or title to
any of its assets except depletion through normal production within authorized
allowables, ordinary changes in rates of production, and depreciation of
equipment through ordinary wear and tear.

3.09 Third-Party and Governmental Consents. Except as set forth in
Schedule 3.09 hereto, no approval, consent, waiver, order or authorization of,
or registration, qualification, declaration, or filing with, or notice to, any
Governmental Authority or other third party is required on the part of Hanley or
Quanterra Partnership in connection with the execution and delivery of this
Agreement by Hanley or the consummation of the transactions contemplated hereby.
All of the consents and approvals set forth on Schedule 3.09 have been obtained.

3.10 Real and Personal Property

(a) Oil and Gas Leases and Wells in Which Quanterra Partnership is a
Party. Schedule 3.10(a) sets forth a true, correct and complete list of all oil
and gas leases and wells in which Quanterra Partnership is a party, whether as
lessor, lessee, or the owner of any non-cost bearing interest. The interests of
Quanterra Partnership in all leases listed on such Schedule are valid and
subsisting and in full force and effect, and all rentals and other payments now
due have been paid. Quanterra Partnership enjoys and is in peaceful and
undisturbed possession as to its respective ownership share under each lease so
listed in which it is a lessee. Quanterra Partnership has not received any
notice of, and to the Knowledge of the Hanley, there does not exist, any event
of default or event, occurrence or act which, with the giving of notice or the
lapse of time or both, would become a default under any such lease, and
Quanterra Partnership has not violated any of the terms or conditions under any
such lease in any material respect. The real property under the leases referred
to in Schedule 3.10(a) is free from material physical defects. Such real
property and the fixtures, equipment, and other property attached, situated or
appurtenant thereto are in good operating condition and repair, in compliance
with all applicable Laws and are adequate and suitable for the purposes for
which they are presently being used, except for such matters which in the
aggregate would not have a material adverse effect on the business of Quanterra
Partnership.

(b) Personal Property. Except as otherwise identified on Schedule
3.10(b) hereto, Quanterra Partnership has good, valid, marketable, legal and
beneficial title to all of its personal property, free and clear of all Liens.
There are no outstanding options, warrants, commitments, agreements or any other
rights of any character entitling any person or entity, other than St. Mary, to

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<PAGE>

acquire any interest in all or any part of the personal property of Quanterra
Partnership.

3.11 Accounts and Notes Receivable. Schedule 3.11 sets forth a list as of
December 31, 1998, of all accounts and notes receivable of Quanterra Partnership
together with:

(a) an aging schedule setting forth all such accounts receivable
(other than intercompany receivables)

(b) the identity of any asset in which Quanterra Partnership holds a
security interest to secure payment of the underlying indebtedness;

(c) a description of the nature and amount of any lien on or
security interest in such accounts and notes receivable; and

(d) an identification of the accounts receivable on this Schedule
3.11 which have been collected in their entirety since December 31, 1998.

Except as specifically identified on Schedule 3.11, Hanley believes to the best
of his Knowledge that the accounts and notes receivable itemized are collectible
in the ordinary course of Quanterra Partnership's businesses.

3.12 Accounts Payables and Promissory Notes. Schedule 3.12 sets forth a
list of:

(a) all accounts payable of Quanterra Partnership as of December 31,
1998, together with an appropriate aging schedule;

(b) all long-term and short-term promissory notes, installment
contracts, loan agreements and credit agreements to which Quanterra Partnership
is a party or to which any of its properties are subject;

(c) all indentures, mortgages, security agreements, pledges, and any
other agreements, pledges, and any other agreements of Quanterra Partnership
relating thereto or with respect to collateral securing the same; and

(d) an identification of the accounts payable on Schedule 3.12 that
have been fully or partially paid since December 31, 1998.

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3.13 Insurance and Bonds.

(a) Schedule 3.13 sets forth a list of all insurance policies and
bonds held by Quanterra Partnership including those covering its properties,
buildings, equipment, fixtures, employees, and operations. Such list specifies
with respect to each such policy:

(i) the insurer and agent;

(ii) the amount of coverage;

(iii) the dates of premiums or payments due thereunder; and

(b) the expiration date, as applicable.

Each such policy identified is currently in full force and effect. All insurance
premiums due according to the applicable payment schedules reflected in such
policies have been timely paid. Except as set forth on Schedule 3.13, Hanley has
no Knowledge of any facts or circumstances under which any claims for uninsured
losses or damages are likely to be asserted against Quanterra Partnership in an
amount in excess of $10,000 nor are there any such claims pending against
Quanterra Partnership;

(c) Hanley believes the insurance policies currently maintained by
Quanterra Partnership provide coverage adequate for its properties, assets,
products and operations;

(d) Quanterra Partnership has not requested cancellation of any
material policy of insurance at any time during the previous two years;

(e) Quanterra Partnership has not sought and been denied any
insurance coverage during the two-year period prior to Closing. All bonds issued
to secure performance of or payment by Quanterra Partnership under any material
contract in progress or yet to be completed, including those contracts
identified in Schedule 3.13, are in force and effect and are identified on
Schedule 3.13. Neither Quanterra Partnership nor Hanley have made any
representations or undertaken any other act which would give rise to a viable
claim that any such existing bond is invalid or unenforceable. There are no
facts or circumstances under which the validity or enforceability by Quanterra
Partnership of any such existing bond could be successfully challenged; and

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<PAGE>

(f) the transactions contemplated by this Agreement will have no
adverse effect on any such existing bond.

3.14 Bank Accounts. Schedule 3.14 sets forth a list of (i) the name of
each bank or other financial institution in which Quanterra Partnership has an
account or safe deposit box; (ii) the names of all person authorized to draw
thereon or to have access thereto; and (iii) the names of all persons other than
the partners of Quanterra Partnership who are authorized to incur liabilities on
behalf of Quanterra Partnership for borrowed funds.

3.15 Compliance with Laws. To the best of Hanley's Knowledge, Quanterra
Partnership has complied with and is not in default under any Laws the violation
of which could have a material adverse effect on its business, properties or
assets.

3.16 Litigation. There is no judicial or administrative claim, action,
suit or proceeding pending or, to the Knowledge of Hanley, threatened against or
relating to Hanley, Quanterra Partnership or the partners of Quanterra
Partnership, the business, properties or assets of Quanterra Partnership or the
transactions contemplated by this Agreement, including, but not limited to,
actions or proceedings alleging any violation of any Environmental Law, before
any federal, state, or local court, arbitration tribunal or Governmental
Authority, which would, individually or in the aggregate, materially adversely
affect Hanley, the business, properties or assets of Quanterra Partnership, or
the transactions contemplated by this Agreement and to the Knowledge of Hanley
there does not exist any valid basis for any such claim, action, suit or
proceeding. There are no claims, actions, suits, proceedings or investigations
pending or, to the Knowledge of Hanley, threatened by or against Hanley or
Quanterra Partnership with respect to this Agreement, or in connection with the
transactions contemplated hereby and Hanley has no reason to believe there
exists a valid basis for any such claim, action, suit, proceeding or
investigation.

3.17 Permits. Schedule 3.17 hereto sets forth a true, correct and complete
list of all Permits of any federal, state or local regulatory or Governmental
Authority relating to the business properties or assets of Quanterra
Partnership. The Permits constitute all permits, licenses, franchises, orders,
certificates and approvals which are required for the lawful operation of the
business, properties and assets of Quanterra Partnership. Further, Quanterra
Partnership is in compliance in all material respects with all such Permits and
owns or has owned or had valid Permits to use all properties, tangible or
intangible, necessary for the conduct of its business and the operation

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of its properties and assets in the manner in which they are now conducted and
operated.

3.18 Taxes.

(a) All Tax Reports required to be filed by Hanley or Quanterra
Partnership that are required to be filed on or prior to the Closing have been
duly filed and are true, complete and accurate in all material respects. All
Taxes owed with respect to the periods covered by such Tax Reports have been
duly paid. Hanley and Quanterra Partnership have complied with all applicable
laws, rules and regulations relating to the withholding and payment of Taxes and
have timely withheld and paid to the proper governmental authorities all amounts
required to have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor or partner.

(b) There are no agreements, waivers or other arrangements providing
for extension of time with respect to the assessment or collection of any Tax on
Hanley or Quanterra Partnership. There are not any actions, suits, proceedings,
investigations or claims now pending against Hanley or Quanterra Partnership in
respect of unpaid Taxes, and there are no matters under discussion with any
federal, state, county or local Governmental Authority relating to any amount of
unpaid Taxes. Except as otherwise set forth on Schedule 3.18, the Tax Reports of
Hanley or Quanterra Partnership have not been audited and are not in the process
of being audited by the applicable taxing authorities, and there is no Tax
deficiency outstanding, proposed or assessed against Hanley or Quanterra
Partnership, and neither Hanley nor Quanterra Partnership is a party to any Tax
allocation or Tax sharing agreement.

3.19 Employee Benefit Plans and Employment Agreement. Quanterra
Partnership has not entered into any employee benefit plan within the meaning of
Section 3(3) of ERISA or any written or oral employment or consulting agreement,
severance pay plan or agreement, employee relations policy (or practice,
agreement, or arrangement), agreements with respect to leased or temporary
employees, vacation plan or arrangement, sick pay plan, stock purchase plan,
stock option plan, fringe benefit plan, incentive plan, bonus plan, cafeteria or
flexible spending accounting plan or any deferred compensation agreement with
any present or former employee of Quanterra Partnership. Further, there are
currently no employees of Quanterra Partnership.

3.20 Material Contracts. Quanterra Partnership has made available all
contracts and arrangements, written, electronic, oral, or otherwise to which

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Quanterra Partnership is a party or by which it is bound, or to which any of its
assets or properties is subject.

3.21 Environmental Matters. Except as set forth in Schedule 3.21:

(a) Quanterra Partnership is currently in compliance in all material
respects with all applicable Environmental Laws, has cured any past violations
or alleged violations of Environmental Laws to the satisfaction of Governmental
Authorities, is not currently in receipt of any notice of violation, is not
currently in receipt of any notice of any potential liability for cleanup of
Hazardous Materials and is not now subject to any investigation or information
request by a Governmental Authority concerning Hazardous Materials or any
Environmental Laws. To the Knowledge of Hanley, Quanterra Partnership holds and
is in compliance with all governmental permits, licenses, and authorizations
necessary to operate those aspects of its business that relate to siting,
wetlands, coastal zone management, air emission, discharges to surface or ground
water, discharges to any sewer or septic system, noise emissions, solid waste
disposal or the generation, use, transportation or other management of Hazardous
Materials. Quanterra Partnership has never generated, manufactured, refined,
recycled, discharged, emitted, released, buried, processed, produced, reclaimed,
stored, treated, transported, or disposed of any Hazardous Materials except in
compliance with all applicable Laws, including applicable Permit requirements;

(b) No assets of Quanterra Partnership are subject to any Lien in
favor of any person as a result of any Hazardous Material or response thereto;

(c) To the Knowledge of Hanley, all facilities where any person has
treated, stored, disposed of, reclaimed, or recycled any Hazardous Material on
behalf of Quanterra Partnership are in compliance with Environmental Laws.

3.22 Broker's Fees. No agent, broker or other person is or may be entitled
to a commission or finder's fee in connection with the transactions contemplated
by this Agreement, or is or may be entitled to make any claim against Quanterra
Partnership or against St. Mary as a result of any actions by Hanley or
Quanterra Partnership. Hanley shall indemnify St. Mary against any claim for any
such commission or finder's fee made by any agent, broker or other person as a
result of any actions by Hanley or Quanterra Partnership.

3.23 Investment Representation. Hanley acknowledges that the issuance to
him by St. Mary of the shares of St. Mary Stock constituting the Consideration
pursuant to this Agreement has not been registered under the 1933 Act or any
state securities law, and that such St. Mary Stock may not be sold or
transferred

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other than pursuant to an effective registration statement under the 1933 Act or
pursuant to an available exemption from such registration, and further
acknowledges that the certificates representing the St. Mary Stock will bear a
restrictive legend to the foregoing effect. Hanley is acquiring the St. Mary
Stock for investment purposes only, for his own account (and not for the
account(s) of others) and not with a view to the distribution thereof. Hanley
confirms that (i) he is familiar with the business of St. Mary and has had the
opportunity to ask questions of appropriate executive officers of St. Mary (and
that he has received responses thereto to his satisfaction) and to obtain such
information about the business and financial condition of St. Mary as he has
reasonably requested, and (ii) he has such knowledge and experience in financial
and business matters that he is capable of evaluating and accepting the merits
and risks of an investment in St. Mary Stock.

3.24 Questionable Payments. Neither Hanley nor Quanterra Partnership has
made, directly or indirectly, any (a) bribes, kickbacks or illegal payments, (b)
payments that were falsely recorded on the books and records of Quanterra
Partnership, or (c) payments to governmental officials for improper purposes.

3.25 Tax Reports. Schedule 3.25 contains true and correct copies of the
Tax Reports filed by Quanterra Partnership for the past two tax years including
tax year 1998.

3.26 Joint Operating Agreements. Quanterra Partnership has not entered
into any joint operating agreement regarding any of the leases or wells affected
by this Agreement that contains terms or conditions which impose duties or
obligations on Quanterra Partnership beyond those customarily contained or
created by joint operating agreements executed in the ordinary course of
conducting an oil and gas business.

3.27 No Misstatements or Omissions. No representation or warranty made in
this Agreement or on any Schedule hereto by Hanley is false or misleading as to
any material fact or omits to state a material fact required to make any of such
information not misleading in any material respect. In addition, all other
information made available by Quanterra Partnership to St. Mary, whether in
oral, written, or any other form, is true and correct to the Knowledge of
Hanley, and such information is not false or misleading as to any material fact.
To the Knowledge of Hanley, the foregoing representations, warranties, schedules
and information constitute full disclosure of all material facts with respect to
the business, assets and liabilities of Quanterra Partnership.

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<PAGE>

ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF ST. MARY

St. Mary represents and warrants to Hanley as follows:

4.02 Authority. St. Mary has the corporate power and authority to execute,
deliver, and perform its obligations under this Agreement to which it is a party
and to consummate the transactions contemplated hereby, and has taken all
necessary corporate action to authorize the execution, delivery and performance
of this Agreement. St. Mary has the power and authority to deliver the
Consideration, and all necessary corporate action to authorize the delivery of
the Consideration has been taken.

4.05 Capital Stock of St. Mary. The authorized capital stock of St. Mary
consists of 50,000,000 shares of common stock of which 10,827,067 are issued

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and outstanding. All of the issued and outstanding shares of St. Mary Stock are,
and all of the shares of St. Mary Stock, when issued in accordance with the
terms of this Agreement are or will be, duly and validly authorized and issued
and outstanding, fully paid and nonassessable. None of the outstanding shares of
St. Mary Stock to be issued pursuant to this Agreement will be issued in
violation of any preemptive rights of the current or past holders of St. Mary
Stock. Except as disclosed on Schedule 4.05 hereto, as of the date of this
Agreement, there are no other equity securities of St. Mary outstanding and no
outstanding options, warrants, rights, calls, commitments, conversion rights,
rights of exchange, plans or other agreements of any character provided for the
purchase, issuance or sale of any shares of the capital stock of St. Mary, other
than as contemplated by this Agreement.

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rates of production, and depreciation of equipment through ordinary wear and
tear.

4.08 Third-Party and Governmental Consents. Except as set forth on
Schedule 4.08 hereto, and those customarily obtained after Closing, no approval,
consent, waiver, order or authorization of, or registration, qualification,
declaration or filings with, or notice to, any Governmental Authority or other
third party is required on the part of St. Mary in connection with the execution
of this Agreement, or the consummation of the transactions contemplated hereby
or thereby. All of the consents and approvals set forth on Schedule 4.08 have
been obtained.

4.09 Litigation. There are no claims, actions, suits, proceedings or
investigations pending or, to the Knowledge of St. Mary, threatened, by or
against St. Mary with respect to this Agreement, or in connection with the
transactions contemplated hereby and St. Mary has no reason to believe there
exists a valid basis for any such claim, action, suit, proceeding, or
investigation.

4.10 Broker's Fees. No agent, broker or other person is or may be entitled
to a commission or finder's fee in connection with the transactions contemplated
by this Agreement, or is or may be entitled to make any claim against Hanley or
Quanterra Partnership or against St. Mary or any of its subsidiaries or
affiliates as a result of any actions by St. Mary. St. Mary shall indemnify
Hanley against any claim for any such commission or finder's fee made by any
agent, broker or other person as a result of any actions by St. Mary.

4.11 No Misstatements or Omissions. No representation or warranty made in
this Agreement by St. Mary is false or misleading as to any material fact or
omits to state a material fact required to make any of such information not
misleading in any material respect. In addition, all other information made
available by St. Mary to Hanley, whether in oral, written or any other form, is
true and correct to the Knowledge of St. Mary, and such information is not false
or misleading as to any material fact. To the knowledge of St. Mary, the
foregoing representations, warranties and information, together with the SEC
Documents, constitute full disclosure of all material facts with respect to the
business, assets and liabilities of St. Mary.

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<PAGE>

ARTICLE 5
DELIVERIES

5.01 Deliveries by Hanley. At the Closing, in addition to any other
documents required to be delivered under the terms of this Agreement, Hanley
shall deliver the following:

(a) A certificate of Hanley dated as of Closing, certifying that any
consents and approvals referred to in Section 3.09, which are obtainable prior
to Closing, have been obtained, together with copies of such consents and
approvals.

(b) A copy of the Quanterra Partnership Limited Partnership
Agreement and Limited Partnership Certificate.

(c) If available, a certificate dated not earlier than seven
calendar days prior to Closing of the Secretary of State of Montana as to the
valid existence of Quanterra Partnership.

(d) If available, certificates of authority dated during 1999 of the
Secretary of State of each of the states in which Quanterra Partnership is
qualified to do business, as to the due qualification or license of Quanterra
Partnership as a foreign limited partnership in such state.

(e) The opinion of Crowley, Haughey, Hanson, Toole & Dietrich, PLLP,
counsel to Quanterra Partnership and Hanley, substantially in the form of
Exhibit 5.01(e) hereto.

(f) Hanley shall deliver to St. Mary Uniform Commercial Code
financing statement searches for the State of Montana and any other state in
which Quanterra Partnership does business, dated within 15 calendar days prior
to the date of Closing, showing that there are no security interests, judgments,
taxes, other liens or encumbrances outstanding against Quanterra Partnership or
its assets, or against Hanley.

(a) A certificate of the President or a Vice President of St. Mary,
dated as of Closing, certifying that any consents and approvals referred to in

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<PAGE>

Section 4.08 have been obtained, together with copies of such consents and
approvals.

(b) A copy of the Certificate of Incorporation of St. Mary,
certified as of a recent date by the Secretary of State of Delaware.

(c) A copy of the By-Laws of St. Mary, including all amendments
thereto, certified by the Secretary or an Assistant Secretary of St. Mary.

(d) A Certificate, dated as of a recent date of the Secretary of
State of Delaware as to the valid existence and good standing of St. Mary.

(e) Resolutions adopted by the Board of Directors of St. Mary
authorizing this Agreement and the transactions contemplated hereby, certified
by the Secretary or an Assistant Secretary of St. Mary.

(f) The opinion of the law firm Ballard Spahr Andrews & Ingersoll,
LLP, counsel to St. Mary, substantially in the form of Exhibit 5.02(f) hereto.

ARTICLE 6
INDEMNIFICATION

6.01 Survival of Representations, Warranties and Covenants. Without
affecting the validity or applicability of the indemnification provisions set
forth in Sections 6.02 and 6.03 of this Agreement, the representations,
warranties, and covenants of Hanley and St. Mary contained in this Agreement
shall survive the Closing and remain in full force and effect until one year
after the Closing except that such representations and warranties shall remain
in full force and effect until two years after the Closing with respect to any
breach thereof resulting in or otherwise involving a claim by a third party
against St. Mary, Hanley, or Quanterra Partnership (a "Third Party Claim").

6.02 Indemnification By and On Behalf of Hanley. Subject to the provisions
of Section 6.05, Hanley agrees to defend, indemnify and hold St. Mary harmless
from and against any and all losses, liabilities, damages, costs or expenses
(including reasonable attorneys' fees, penalties, and interest) payable to or
for the benefit of, or asserted by, any party, resulting from, arising out of,
or incurred as a result of:

(a) the breach of any representation and/or warranty made by Hanley
herein; or (b) any claim, whether made before or after the date of this
Agreement, or any litigation, proceeding or governmental investigation, whether

20
<PAGE>

commenced before or after the date of this Agreement, arising out of the
businesses of Quanterra Partnership prior to the Closing, or otherwise arising
out of any act or occurrence prior to, or any condition or facts existing as of,
Closing, regardless of whether or not referred to on a Schedule to this
Agreement or otherwise disclosed or known to St. Mary as of Closing. No claim by
St. Mary for indemnification by Hanley shall be made after one year has elapsed
following the Closing except that a claim for indemnification may be made by St.
Mary with respect to a Third Party Claim until two years has elapsed following
the Closing.

The indemnification obligation of Hanley set forth above shall be limited
to 49.5% of any amounts attributable to Quanterra Partnership with respect to
interests or activities of it.

6.03 Indemnification by St. Mary. Subject to the provisions of Section
6.05, St. Mary agrees to defend, indemnify and hold Hanley harmless from and
against any and all losses, liabilities, damages, costs, or expenses (including
reasonable attorneys' fees, penalties and interest) payable to or for the
benefit of, or asserted by, any party, resulting from, arising out of, or
incurred as a result of the breach of any representation and/or warranty made by
St. Mary herein or in accordance herewith. No claim by Hanley for
indemnification by St. Mary shall be made after one year has elapsed following
the Closing except that a claim for indemnification may be made by Hanley with
respect to a Third Party Claim until two years has elapsed following the
Closing.

6.04 Notice of Claims. Hanley and St. Mary shall give prompt written
notice to each other of any claim by any party which might give rise to a claim
by Hanley or St. Mary against the other based upon the indemnity provisions
contained herein, stating the nature and basis of the claim and the actual or
estimated amount thereof; provided, however, that failure to give such notice
will not affect the obligation of the indemnifying party to provide
indemnification in accordance with the provisions of this Article 6 unless, and
only to the extent that, such indemnifying party is actually prejudiced thereby.
In the event that any action, suit or proceeding is brought by a third party
against Hanley or St. Mary with respect to which the other party may have
liability under the indemnification provisions contained herein, the
indemnifying party shall have the right, at its sole cost and expense, to defend
such action in the name or on behalf of the indemnified party and, in connection
with any such action, suit or proceeding, the parties hereto agree to render to
each other such assistance as may reasonably be required in order to ensure the
proper and adequate defense of any such action, suit or proceeding; provided
further, however, that an indemnified party shall have the right to retain its
own counsel, with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the

21
<PAGE>

counsel retained by the indemnifying party would be inappropriate because of
actual or potential differing interests between such indemnified party and any
other party represented by such counsel. Neither party hereto shall make any
settlement of any claim which might give rise to liability of the other party
under the indemnification provisions contained herein without the written
consent of such other party, which consent such other party covenants shall not
be unreasonably withheld.

6.05 Limitation of Liability. Notwithstanding the provisions of this
Article 6, neither Hanley nor St. Mary shall have any liability to the other
with respect to any matter which liability does not exceed $50,000 as to any
single liability or $100,000 as to liabilities in the aggregate irrespective of
their single size except that such limitations shall not apply to any Third
Party Claim. In the event of any liability of Hanley for indemnification, St.
Mary may elect to cause such liability to be satisfied in part or in whole by
reducing the St. Mary Stock issued to Hanley by the number of shares (rounded to
the nearest whole number) equal to the amount of Hanley's liability based on the
published closing price for a share of St. Mary Stock on the day such liability
is quantified, and the certificates of St. Mary Stock issued to Hanley shall
bear a legend to that effect.

ARTICLE 7
SHARE RESTRICTIONS

7.01 Restricted Shares. Hanley hereby agrees that during the period
beginning on the Closing and, subject to Section 7.05, ending on the date which
is three years after the date hereof, Hanley will not sell, assign, transfer,
pledge, hypothecate, encumber or otherwise dispose of ("Transfer") any shares of
St. Mary Stock received as part of the Consideration (the "Restricted Shares"),
other than in accordance with the terms of this Article 7 or as otherwise agreed
by St. Mary in writing in its sole discretion, and any such purported Transfer
shall be void, except that Hanley may make a Permitted Transfer (as hereinafter
defined), if and only if the transferee in such Permitted Transfer ("Permitted
Transferee") executes and delivers a written agreement to the effect that the
Restricted Shares transferred to such Permitted Transferee shall be bound by the
terms of this Article 7 as if such Permitted Transferee were an original party
hereto.

7.02 Permitted Transfer. For purposes of this Article 7, a "Permitted
Transfer" of Restricted Shares by Hanley is (i) any bona fide gift of such
Restricted Shares by Hanley, including a charitable gift, (ii) any transfer of
such Restricted Shares by Hanley to a trustee for the benefit of Hanley or the
Hanley's ancestors, descendants or spouse, or (iii) any transfer of such
Restricted Shares

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<PAGE>

by Hanley to the Hanley's executors, administrators or legal representatives,
heirs or devisees pursuant to the laws of descent and distribution.

7.03 Restrictive Legends; Stop Orders. The certificate or certificates
representing Restricted Shares issued to Hanley or any Permitted Transferee
shall bear an appropriate legend referring to the restrictions on Transfer
contained in this Article 7 (together with the legends referred to in Section
3.23 and Section 6.05 hereof) shall be endorsed with substantially the following
legend in addition to any other legend which may appear on such certificate or
certificates:

THE SALE, ASSIGNMENT, TRANSFER, PLEDGE, HYPOTECATION, ENCUMBRANCE OR OTHER
DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO THE TERMS AND CONDITIONS OF A PURCHASE AND SALE AGREEMENT DATED JUNE 1,
1999, BETWEEN ST. MARY LAND & EXPLORATION COMPANY AND ROBERT T. HANLEY.
COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST
MADE BY THE HOLDER OF THIS CERTIFICATE TO THE SECRETARY OF ST. MARY LAND &
EXPLORATION COMPANY.

7.04 Termination of Restrictions. Any provision of this Agreement to the
contrary notwithstanding, the restrictions on Transfer contained in this Article
7 shall expire three years after the date hereof. The restrictions contained
herein shall expire with respect to the Restricted Shares held by Hanley in
proportion to his respective ownership of shares of St. Mary Stock on the date
hereof.

7.05 Removal of Legends. Whenever the restrictions imposed by this Article
7 shall terminate by reason of the passage of time and the Restricted Shares are
transferable pursuant to Rule 144(k) under the Securities Act or other available
exemption from the registration requirements of the Securities Act, each holder
of Restricted Shares shall be entitled to receive from St. Mary, without cost or
expense, a new certificate representing such Restricted Shares not bearing the
legends set forth in Section 7.03 and Section 3.23 upon receipt of an opinion of
counsel reasonably satisfactory to St. Mary that such restrictions have
terminated in accordance with their terms and that such Restricted Shares

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<PAGE>

are transferable without registration under the Securities Act pursuant to Rule
144(k) under the Securities Act or other available exemption from the
registration requirements of the Securities Act.

7.06 Voting Rights. The holder or holders of Restricted Shares shall
retain the full right to vote or to execute and deliver a proxy to vote
Restricted Shares on any matter submitted to holders of St. Mary Stock.

ARTICLE 8
GENERAL PROVISIONS

8.01 Expenses. Except as otherwise expressly provided herein, each party
to this Agreement shall pay its or his own expenses (including, without
limitation, the fees and expenses of its or his agents, representatives,
counsel, and accountants) incurred in connection with the negotiation, drafting,
execution, delivery and performance of this Agreement and the transactions
contemplated hereby.

8.02 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of Hanley and St. Mary and their respective heirs, personal
representatives, successors, representatives and assigns.

8.03 Waiver. No provision of this Agreement shall be deemed waived by
course of conduct, including the act of closing, unless such waiver is made in
writing signed by all then existing or surviving parties hereto, stating that it
is intended specifically to modify this Agreement, nor shall any course of
conduct operate or be construed as a waiver of any subsequent breach of this
Agreement, whether of a similar or dissimilar nature.

8.04 Entire Agreement. This Agreement (together with the Schedules and
Exhibits hereto) supersedes any other agreement, whether written or oral, that
may have been made or entered into by St. Mary or by Hanley relating to the
matters contemplated hereby. This Agreement (together with the Schedules and
Exhibits hereto) constitutes the entire agreement between the parties and there
are no agreements or commitments except as expressly set forth herein.

8.05 Further Assurances. Each of the parties hereto agrees to execute all
further documents and instruments and to take or to cause to be taken all
reasonable actions which are necessary or appropriate to complete the
transactions contemplated by this Agreement.

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<PAGE>

8.06 Notices. All notices, demands, requests, and other communications
hereunder shall be in writing and shall be deemed to have been duly given and
shall be effective upon receipt if delivered by hand, or sent by certified or
registered United States mail, postage prepaid and return receipt requested, or
by prepaid overnight express service or facsimile transmission (with receipt
confirmed). Notices shall be sent to the parties to the following addresses (or
at such other addresses for a party as shall be specified by like notice;
provided that such notice shall be effective only upon receipt thereof):

If to Hanley:

Robert T. Hanley
550 N. 31st Street, Suite 500
Billings, MT 59101
Telephone: 406-245-6248
Facsimile: 406-245-9106

with a copy (which shall not constitute notice) to:

Myles J. Thomas
Crowley Haughey Hanson Toole & Dietrich
490 North 31st Street, Suite 500
Billings, Montana 59103
Telephone: 406-252-3441
Facsimile: 406-259-4159

If to St. Mary:

St. Mary Land & Exploration Company
1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
Telephone: 303-861-8140
Facsimile: 303-863-1040
Attention: Milam Randolph Pharo

8.07 Amendments, Supplements, Etc. This Agreement may be amended or
modified only by a written instrument executed by all parties hereto which
states specifically that it is intended to amend or modify this Agreement.

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<PAGE>

provision hereof and this Agreement shall be construed as if such invalid,
illegal or unenforceable provisions had never been contained herein and, in lieu
of each such illegal, invalid or unenforceable provision, there shall be added
automatically as a part of this Agreement a provision as similar in terms to
such illegal, invalid or unenforceable provision as may be possible but still be
legal, valid and enforceable.

8.09 Governing Law. This Agreement and its interpretation shall be
governed by the laws of the State of Colorado.

8.10. Counterpart Execution. This Agreement may be executed in
counterparts and each counterpart shall constitute a binding agreement as if the
parties had executed a single document. The parties agree that such counterpart
execution may be evidenced by a facsimile transmission of the execution page for
each such party, and such facsimile execution shall constitute a binding
execution by such party. At or after Closing, the parties agree that a
sufficient number of original counterpart executions will be obtained and
affixed to this Agreement so that each party will have an originally executed
Agreement.

/s/ Robert T. Hanley
----------------------------------------
Robert T. Hanley

ST. MARY LAND & EXPLORATION COMPANY

By: /s/ Mark A. Hellerstein
-------------------------------------
Mark A. Hellerstein, President

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<PAGE>

LIST OF SCHEDULES

______ Schedule 1.01(3) - Consideration - Shares of St. Mary Stock used as
Consideration

_____ Schedule 2.01 - Acquisition of Hanley Partnership Interest in
Quanterra Partnership - Assignment from Hanley to St. Mary

_____ Schedule 3.04 - Organization Existence - Jurisdictions where
Quanterra Partnership is qualified to do business; names and
addresses of registered agents in such jurisdictions; and names
under which Quanterra Partnership has conducted or purported to
conduct business since date of incorporation

_____ Schedule 3.08 - No Adverse Effects or Changes - Quanterra
Partnership

_____ Schedule 3.08(e) - List, if any, of any disposition of
any material assets, properties or rights, or canceled
or terminated, or agreed to cancel or terminate any
debts or claims other accounts receivable write-offs and
writedowns in the ordinary course of business (since
December 31, 1998)

_____ Schedule 3.08(h) - List, if any, of any accrual or
arrangement for or payment of any bonus or special
compensation or severance or termination pay to any
present or former officer, director, or executive
employee (since December 31, 1998)

_____ Schedule 3.09 - Third Party and Governmental Consents - List, if
any, of the Third Party and Governmental Consents required on the
part of Hanley or Panterra Partnership

_____ Schedule 3.10 - Real and Personal Property

_____ Schedule 3.10(a) - Oil and Gas Leases and Wells List of
oil and gas leases in which Quanterra Partnership is a
party

_____ Schedule 3.10(b) - Personal Property - List, if any, of
any outstanding options, warrants, commitments,

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<PAGE>

agreements or any other right against any of the
personal property (other than St. Mary)

_____ Schedule 3.11 - Accounts and Notes Receivable - List of Quanterra
Partnership's accounts and notes receivables as of December 31, 1998

_____ Aging report setting forth all accounts receivables
(other than intercompany receivables)

_____ Identify any asset holding a security interest to secure
payment of the underlying indebtedness

_____ Description of the nature and amount of any lien on or
security interest in such accounts and notes receivable

_____ Identify accounts receivable on Schedule 3.13 which have
been collected in their entirety since December 31,
1998.

_____ Schedule 3.12 - Accounts Payables and Promissory Notes Quanterra
Partnership. List of:

_____ Accounts payable as of December 31, 1998 with
appropriate aging report

_____ Long-term and short-term promissory notes, installment
contracts, loan agreements, and credit agreements

_____ Indentures, mortgages, security agreements, pledges,
etc.

_____ Identify accounts payable on Schedule 3.13 which have
been fully or partially paid since December 31, 1998.

_____ Schedule 3.13 - Bonds and Insurance

_____ List of all insurance policies and bonds. List should
include (i) insurer and agent; (ii) amount of coverage;
(iii) premium dates; and (iv) expiration dates, if any.

28
<PAGE>

_____ List, if any, of any facts or circumstances under which
claims for uninsured losses or damages are likely to be
asserted against Quanterra Partnership in excess of
$10,000 or pending claims against Quanterra Partnership

_____ Schedule 3.14 - Bank Accounts - List of (i) names of banks or
financial institutions where Quanterra Partnership has banks
accounts and safety deposit boxes (ii) names of persons authorized
to draw on account or access the safety deposit box; and (iii) names
of persons other than officers who are authorized to incur
liabilities for borrowed funds

_____ Schedule 3.17 - Permits - List of all federal, state or local
regulatory or governmental authority permits

_____ Schedule 3.18 - Taxes - List, if any, of audited Tax reports

_____ Schedule 3.21 - Environmental Matters

_____ Schedule 3.25 - Tax Reports - Copies of tax reports filed by
Quanterra Partnership for the past two years including 1998

_____ Schedule 4.05 - Capital Stock of St. Mary - List, if any, of
outstanding equity securities, options, warrants, rights, call,
commitments, conversion rights, rights of exchange, plans or other
agreements of any character provided for the purchase, issuance or
sale of any shares of capital stock of St. Mary (other than
contemplated in this Agreement)

_____ Schedule 4.08 - Third Party and Governmental Consents - List, if
any, of the Third Party and Governmental Consents required on the
part of St. Mary

_____ Exhibit 5.01(e) - Form opinion letter from Quanterra Partnership and
Hanley counsel

_____ Exhibit 5.02(g) - Form opinion letter from St. Mary counsel

29
<PAGE>

DELIVERIES BY ST. MARY

_____ 2. A copy of STML&EC Certificate of Incorporation (recent date)
from Secretary of State of Delaware.

_____ 3. A copy of the By-Laws of St. Mary, including all amendments
thereto certified by the Secretary or an Assistant Secretary
of St. Mary.

_____ 4. A Certificate of Good Standing for STML&E (recent date) from
Secretary of State of Delaware

_____ 5. STML&EC Resolutions adopted by the Board of Directors of
authorizing transaction

_____ 6. Opinion letter from Ballard Spahr Andrews & Ingersoll, LLP

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<PAGE>

CONDITIONS BY QUANTERRA PARTNERSHIP

_____ 1. A certificate (dated as of Closing) regarding consents and
approvals, together with copies of such consents and approvals

_____ 2. Copy of Panterra Partnership Limited Partnership Agreement

_____ 3. Certificate from the Montana Secretary of State (dated within
seven calendar days prior to Closing) as to the valid
existence of Quanterra Partnership.

_____ 4. Certificates of Authority dated during 1999 from the Secretary
of State of each of the states in which Quanterra Partnership
is qualified to do business

_____ 5. Opinion letter from Crowley, Haughey, Hanson, Toole &
Dietrich, PLLP

_____ 6. Uniform Commercial Code financing statement searches for the
State of Montana and any other state in which Quanterra
Partnership or the Affiliate do business (dated within 15
calendar days prior to the date of the Closing)

<PAGE>
EXHIBIT 10.29

STOCK EXCHANGE AGREEMENT

This Stock Exchange Agreement (the "Agreement") dated the 1st day of June,
1999, is by and between ST. MARY LAND & EXPLORATION COMPANY, a Delaware
corporation ("St. Mary"), and ROBERT L. NANCE and ROBERT T. HANLEY, all of whom
are together referred to herein as the "Stockholders" and who own all of the
capital stock of QUANTERRA ENERGY CORPORATION, a Montana corporation
("Quanterra").

WHEREAS, St. Mary desires to acquire all of the capital stock of Quanterra
from the Stockholders in exchange for shares of the common stock, par value of
$0.01 per share, of St. Mary ("St. Mary Stock") as hereinafter provided, and the
Stockholders desire to effect such exchange; and

ARTICLE 1
DEFINITIONS; HEADINGS

(1) "Affiliate" means Quanterra Alpha Limited Partnership as
subsequently defined.

(2) "Closing" has the meaning ascribed to such term in Section 2.03.

(3) "Code" means the Internal Revenue Code of 1986, as amended.

<PAGE>

(4) "Consideration" means those shares of St. Mary Stock set forth
on Schedule 1.01(4) which have been calculated in accordance with the
methodology set forth in that certain letter dated March 2, 1999, from St.
Mary to Robert L. Nance, as amended by oral understanding which provides
for the use of a five year NYMEX strip pricing run as opposed to the two
year NYMEX price strip stated in the letter. This letter provides that the
number of shares of St. Mary Stock that the Shareholders shall receive is
based on a proportionate net asset value comparison of St. Mary with
Quanterra. This comparison is expressed by using a formula wherein X (the
number of shares of St. Mary Stock that the Stockholders are to receive)
is the numerator of a fraction and the number of shares of St. Mary Stock
issued and outstanding is the denominator of the fraction, and such
fraction equals a fraction in which the numerator is the net asset value
of Quanterra and the denominator is the net asset value of St. Mary. Net
asset value has been determined in accordance with the above referenced
letter subject to the referenced amended hydrocarbon pricing.

(6) "GAAP" means generally accepted accounting principles
consistently applied.

(7) "Governmental Authority" means any federal, state, or local
court, arbitration tribunal or governmental department, board, commission,
bureau, agency, authority or instrumentality.

(8) "Hazardous Materials" mean (a) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is friable,
urea-formaldehyde foam insulation, and transformers or other equipment
that contain dielectric fluid containing polychlorinated biphenyls (PCBs);
(b) any chemicals, materials or substances which are now defined as or
included in the definition of

2
<PAGE>

"hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes," "toxic
substances," "toxic pollutants," or words of similar import, under any
Environmental Law; (c) naturally occurring radioactive material (NORM);
and (d) any other chemical, material, substance or waste, exposure to
which is prohibited, limited or regulated by any Governmental Authority in
a jurisdiction in which Quanterra operates.

(9) "Knowledge" as used (i) with respect to St. Mary shall mean
those facts that are actually known or should reasonably have been or
become known in the ordinary course of business by the officers of St.
Mary, taking into account the scope and nature of such officers'
responsibilities, and (ii) with respect to the Stockholders shall mean
facts that are actually known or should reasonably have been or become
known to either of the Stockholders in the ordinary course of business,
taking into account the scope and nature of the Stockholders' involvement
in the operation of Quanterra or Quanterra Partnership.

(10) "Laws" mean all (i) federal, state, or local or foreign laws,
rules and regulations, (ii) orders, (iii) Permits, and (iv) agreements
with federal, state, local, or foreign regulatory authorities to which the
Stockholders, Quanterra, Quanterra Partnership, or St. Mary, as the case
may be, is a party or by which any of them or their property is bound.

(11) "Liens" mean all liens, liabilities, claims, security
interests, mortgages, pledges, agreements, obligations, restrictions, or
other encumbrances of any nature whatsoever, whether absolute, legal,
equitable, accrued, contingent or otherwise, including, without
limitation, any rights of first refusal.

(12) "1933 Act" means the Securities Act of 1933, as amended.

(13) "1934 Act" means the Securities Exchange Act of 1934, as
amended.

(14) "Quanterra Financial Statements" mean the unaudited financial
statements of Quanterra for each of its past two fiscal years, December
31, 1997, and December 31, 1998.

3
<PAGE>

(15) "Quanterra Stock" means all of the issued and outstanding
shares of all common stock of Quanterra.

(16) "NASDAQ" means National Association of Securities Dealers
Automated Quotations System.

(17) "Permits" mean all permits, licenses, franchises, orders,
certificates and approvals.

(18) "Quanterra Partnership" means Quanterra Alpha Limited
Partnership for which Quanterra Corporation, Nance Petroleum Corporation
and Robert T. Hanley are the partners.

(19) "Release" means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping,
or disposing into the environment.

(20) "SEC" means the United States Securities and Exchange
Commission.

(21) "SEC Documents" mean all registration statements, proxy
statements, periodic reports and schedules filed by St. Mary with the SEC
under the Securities Laws.

(22) "Securities Laws" mean the 1933 Act, the 1934 Act, the
Investment Company of Act of 1940, as amended, the Trust Indenture Act of
1939, as amended, and the rules and regulations of the SEC promulgated
thereunder.

(23) "Taxes" mean any taxes or other governmental charges or
assessments of whatever kind or nature imposed by the United States, by
any other nation or by any state, county, municipality or governmental
subdivision, including without limitation, any income, franchise or any
other similar taxes based on or measured by income or otherwise, any sales
or use taxes, property, employment and employer withholdings,
unemployment, social security, occupational, customs, excise or other
taxes, together with any interest or penalties relating thereto.

(24) "Tax Reports" mean all returns or reports required to be filed
relating to the federal and state income tax filings of Quanterra and its
Affiliate.

4
<PAGE>

1.03 Titles; Headings. All titles and headings appearing in this Agreement
are for identification only and are not to be used for interpretive purposes.

ARTICLE 2
EXCHANGE OF STOCK; CLOSING

2.01 Acquisition of Quanterra Stock. Subject to the terms and conditions
herein stated, the Stockholders agree to assign, transfer and deliver to St.
Mary at Closing, and St. Mary agrees to acquire from the Stockholders at
Closing, all of the issued and outstanding Quanterra Stock. The certificates
representing the Quanterra Stock shall be duly endorsed in blank by the
Stockholders. The Stockholders agree to cure any deficiencies with respect to
the endorsement of the certificates representing the Quanterra Stock.

2.02 Exchange of Shares. At Closing, the Stockholders shall surrender the
certificate or certificates representing all the issued and outstanding
Quanterra Stock in exchange for certificates of St. Mary Stock issued in the
name of the Stockholders in the amount of the Consideration. The Stockholders
shall receive their certificates for the St. Mary Stock issued as the
Consideration as set forth on Schedule 2.02 attached hereto.

2.03 Closing. The closing of the transaction provided for herein (the
"Closing") shall take place at the offices of Nance Petroleum Corporation in
Billings, Montana, on June 1, 1999, at 10:00 a.m., local time.

ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDERS

The Stockholders represent and warrant to St. Mary as follows:

3.01 Ownership of Shares. The Stockholders are the lawful sole owners,
beneficially and of record, of all of the issued and outstanding shares of

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Quanterra Stock and such stock is free and clear of all Liens. The ownership of
Quanterra Stock by the Stockholders is as set forth in Schedule 3.01 hereto.

3.04 Organization Existence. Quanterra is a corporation duly organized and
validly existing under the laws of Montana with all requisite corporate power
and authority to own, operate and lease its properties and assets and to carry
on its business as now being conducted. Quanterra is duly qualified to do
business and is in good standing in each jurisdiction where the conduct of its
business or the ownership of its property requires such qualification. The
jurisdictions in which Quanterra is qualified to do business, and the names and
addresses of Quanterra's registered agents in such jurisdictions, are set forth
on Schedule 3.04 hereto. Schedule 3.04 hereto sets forth all names under which
Quanterra has conducted or purported to conduct business since the date of its
incorporation.

3.05 Capital Stock. Quanterra has an authorized capitalization consisting
solely of 50,000 shares of common stock no par value of which 2,000 shares are
issued and outstanding. Other than the Quanterra Stock, there is no class or
series of equity of Quanterra authorized, issued or outstanding. All such
outstanding shares of Quanterra Stock have been duly authorized and validly
issued and are fully paid and nonassessable. There are no outstanding options,
warrants, rights, calls, commitments, conversions rights, rights of exchange,
plans or other agreements of any character providing for the purchase, issuance
or sale of any shares of any equity security of Quanterra, including any
Quanterra Stock, other than as contemplated by this Agreement.

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<PAGE>

3.06 Subsidiaries. Except as set forth in Schedule 3.06 hereto, Quanterra
does not have any subsidiaries or hold any equity or ownership interest of any
kind, whether beneficially or of record, in any corporation, partnership,
liability company, joint venture, or other enterprise or entity of any nature
whatsoever.

3.07 No Restrictions Against Performance. Neither the execution, delivery
nor performance of this Agreement, nor the consummation of the transactions
contemplated in this Agreement will, with or without the giving of notice or the
passage of time, or both, violate any provisions of, conflict with, result in a
breach of, constitute a default under, or result in the creation or imposition
of any Lien or adverse condition under:

(a) the Articles of Incorporation and By-Laws of Quanterra;

(b) any Law which is applicable to Quanterra or its Affiliate or any
of their properties or assets;

(c) any contract, indenture, instrument, agreement, mortgage, lease,
right, or other obligation or restriction to which Quanterra or its Affiliate is
a party or by which Quanterra or its Affiliate or any of their properties or
assets is or may be bound; or

(d) any order, judgment, writ, injunction, decree, license,
franchise, permit or other authorization of any Governmental Authority by which
either Quanterra or its Affiliate or any of their properties or assets is or may
be bound or by which the Stockholders may be bound.

3.08 Historical Financial Information. The Quanterra Financial Statements,
true and complete copies of which have been previously delivered to St. Mary
present fairly the financial position, assets and liabilities of Quanterra as of
the dates thereof and the revenues, expenses, results of operations and cash
flows of Quanterra for the periods covered thereby, on a tax basis with
adjustments made in accordance with GAAP so that the net asset value of
Quanterra can be determined and reasonably compared with the net asset value of
St. Mary. The Quanterra Financial Statements are in accordance with the books
and records of Quanterra and do not reflect any transactions which are not bona
fide transactions. The books and records of Quanterra have been maintained in
accordance with applicable laws, rules and regulations, and in the ordinary
course of business. To the best of Stockholders' Knowledge, the accounts and
notes receivable of Quanterra reflected in the Quanterra Financial Statements
are valid, existing and genuine and represent sales actually made or services
actually delivered by Quanterra in bona fide transactions in the ordinary

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course of business consistent with past practice and there is no material right
of setoff or counterclaim or threat thereof that would jeopardize the
collectability of such accounts and notes receivable at the aggregate recorded
amounts thereof. The Stockholders have no Knowledge of any material difference
that would arise if the Quanterra Financial Statements were prepared in
accordance with GAAP as opposed to being prepared on a tax basis with the
GAAP-type adjustments that have been made.

3.09 No Undisclosed Liabilities. To the best of Stockholders' Knowledge,
no basis exists on the date hereof for assertions against Quanterra of any
material claim or liability of any nature other than (i) those which have been
disclosed in the Quanterra Financial Statements, or (ii) have been incurred in
the ordinary course of the business of Quanterra since December 31, 1998 and
which do not constitute a breach of the representation and warranty set forth in
Section 3.10. For purposes of this Section 3.09, a claim or liability shall be
deemed to be "material" if it involves an amount in excess of $5,000,
individually or in the aggregate, as the context requires.

3.10 No Adverse Effects or Changes. Since December 31, 1998, Stockholders
are not aware of any event involving either Quanterra or its Affiliate that has
had a material adverse effect on their businesses or their assets. Except as
listed on Schedule 3.10, since December 31, 1998, neither Quanterra nor its
Affiliate has:

(a) made any change in its authorized capital, outstanding
securities or in the capital accounts of Quanterra Partnership;

(c) satisfied any obligation or liability (absolute or contingent),
other than obligations and liabilities incurred in the ordinary course of its
business in accordance with its past practices;

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(g) made or permitted any amendment or termination of any material
contract, agreement, permit or license to which it is a party or by which it or
any of its properties are bound;

(i) incurred, or become subject to, any uninsured claim or liability
for any material damages for any negligence or other tort or breach of contract;

(j) made any capital expenditures (or commitments therefor) which in
the aggregate exceed $25,000;

(k) suffered any damages, destruction or casualty losses in excess
of $5,000 as to any single occurrence or $25,000 in the aggregate;

(l) entered into any other material transaction other than in the
ordinary course of its business in accordance with its past practices; or

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<PAGE>

Governmental Authority or other third party is required on the part of the
Stockholders, Quanterra or its Affiliate in connection with the execution and
delivery of this Agreement by the Stockholders or the consummation of the
transactions contemplated hereby. All of the consents and approvals set forth on
Schedule 3.11 have been obtained.

3.12 Real and Personal Property

(a) Oil and Gas Leases and Wells. Schedule 3.12(a) sets forth a
true, correct and complete list of all oil and gas leases and wells in which
either Quanterra or its Affiliate is a party, whether as lessor, lessee, or the
owner of any non-cost bearing interest. The interests of either Quanterra or its
Affiliate in all leases listed on such Schedule are valid and subsisting and in
full force and effect, and all rentals and other payments now due have been
paid. Quanterra and its Affiliate enjoy and are in peaceful and undisturbed
possession as to their respective ownership share under each lease so listed in
which it is a lessee. Neither Quanterra nor its Affiliate have received any
notice of, and to the Knowledge of the Stockholders, there does not exist, any
event of default or event, occurrence or act which, with the giving of notice or
the lapse of time or both, would become a default under any such lease, and
neither Quanterra nor its Affiliate have violated any of the terms or conditions
under any such lease in any material respect. The real property under the leases
referred to in Schedule 3.12(a) is free from material physical defects. Such
real property and the fixtures, equipment, and other property attached, situated
or appurtenant thereto are in good operating condition and repair, in compliance
with all applicable Laws and are adequate and suitable for the purposes for
which they are presently being used, except for such matters which in the
aggregate would not have a material adverse effect on the business of Quanterra
or its Affiliate.

(b) Personal Property. Except as otherwise identified on Schedule
3.12(b) hereto, Quanterra has good, valid, marketable, legal and beneficial
title to all of its personal property, free and clear of all Liens. There are no
outstanding options, warrants, commitments, agreements or any other rights of
any character entitling any person or entity, other than St. Mary, to acquire
any interest in all or any part of the personal property of Quanterra.

3.13 Accounts and Notes Receivable. Schedule 3.13 sets forth a list as of
December 31, 1998, of all accounts and notes receivable of Quanterra and its
Affiliate together with:

(a) an aging schedule setting forth all such accounts receivable
(other than intercompany receivables)

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(b) the identity of any asset in which Quanterra or its Affiliate
holds a security interest to secure payment of the underlying indebtedness;

(c) a description of the nature and amount of any lien on or
security interest in such accounts and notes receivable; and

(d) an identification of the accounts receivable on this Schedule
3.13 which have been collected in their entirety since December 31, 1998.

3.14 Accounts Payables and Promissory Notes. Schedule 3.14 sets forth a
list of:

(a) all accounts payable of Quanterra and its Affiliate as of
December 31, 1998, together with an appropriate aging schedule;

(b) all long-term and short-term promissory notes, installment
contracts, loan agreements and credit agreements to which Quanterra or its
Affiliate is a party or to which any of their properties are subject;

(c) all indentures, mortgages, security agreements, pledges, and any
other agreements, pledges, and any other agreements of Quanterra and its
Affiliate relating thereto or with respect to collateral securing the same; and

(d) an identification of the accounts payable on Schedule 3.14 that
have been fully or partially paid since December 31, 1998.

3.15 Insurance and Bonds.

(a) Schedule 3.15 sets forth a list of all insurance policies and
bonds held by Quanterra including those covering its properties, buildings,
equipment, fixtures, employees, and operations. Such list specifies with respect
to each such policy:

(i) the insurer and agent;

(ii) the amount of coverage;

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<PAGE>

(iii) the dates of premiums or payments due thereunder; and

(b) the expiration date, as applicable.

(c) the insurance policies currently maintained by Quanterra provide
coverage believed by the Stockholders to be adequate for its properties, assets,
products and operations;

(d) Quanterra has not requested cancellation of any material policy
of insurance at any time during the previous two years;

(e) Quanterra has not sought and been denied any insurance coverage
during the two-year period prior to the Closing Date. All bonds issued to secure
performance of or payment by Quanterra under any material contract in progress
or yet to be completed, including those contracts identified in Schedule 3.15,
are in force and effect and are identified on Schedule 3.15. Neither Quanterra
nor the Stockholders have made any representations or undertaken any other act
which would give rise to a viable claim that any such existing bond is invalid
or unenforceable; there are no facts or circumstances under which the validity
or enforceability by Quanterra of any such existing bond could be successfully
challenged; and

(f) the transactions contemplated by this Agreement will have no
adverse effect on any such existing bond.

3.16 Bank Accounts. Schedule 3.16 sets forth a list of (i) the name of
each bank or other financial institution in which Quanterra or its Affiliate
have an account or safe deposit box; (ii) the names of all person authorized to
draw thereon or to have access thereto; and (iii) the names of all persons other
than the officers of Quanterra and its Affiliate who are authorized to incur
liabilities on behalf of Quanterra or its Affiliate for borrowed funds.

3.17 Compliance with Laws. To the best of Stockholders' Knowledge,
Quanterra and its Affiliate have complied with and are not in default under any

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Laws the violation of which could have a material adverse effect on their
business, properties or assets.

3.18 Litigation. There is no judicial or administrative claim, action,
suit or proceeding pending or, to the Knowledge of the Stockholders, threatened
against or relating to the Stockholders, Quanterra, its Affiliate or the
officers or directors of Quanterra or its Affiliate in their capacities as
officers or directors, the business, properties or assets of Quanterra or its
Affiliate or the transactions contemplated by this Agreement, including, but not
limited to, actions or proceedings alleging any violation of any Environmental
Law, before any federal, state, or local court, arbitration tribunal or
Governmental Authority, which would, individually or in the aggregate,
materially adversely affect the Stockholders, the business, properties or assets
of Quanterra or its Affiliate, or the transactions contemplated by this
Agreement and, to the Knowledge of the Stockholders, there does not exist any
valid basis for any such claim, action, suit or proceeding. There are no claims,
actions, suits, proceedings or investigations pending or, to the Knowledge of
the Stockholders, threatened by or against the Stockholders, Quanterra or its
Affiliate with respect to this Agreement, or in connection with the transactions
contemplated hereby and the Stockholders have no reason to believe there exists
a valid basis for any such claim, action, suit, proceeding or investigation.

3.19 Permits. Schedule 3.19 hereto sets forth a true, correct and complete
list of all Permits of any federal, state or local regulatory or Governmental
Authority relating to the business properties or assets of Quanterra and its
Affiliate. The Permits constitute all permits, licenses, franchises, orders,
certificates and approvals which are required for the lawful operation of the
business, properties and assets of Quanterra and its Affiliate. Further,
Quanterra or its Affiliate are in compliance in all material respects with all
such Permits and own or have owned or had valid Permits to use all properties,
tangible or intangible, necessary for the conduct of its business and the
operation of its properties and assets in the manner in which they are now
conducted and operated.

3.20 Taxes.

(a) All Tax Reports required to be filed by Quanterra and its
Affiliate that are required to be filed on or prior to the Closing have been
duly filed and are true, complete and accurate in all material respects. All
Taxes owed with respect to the periods covered by such Tax Reports have been
duly paid. Quanterra and its Affiliate have complied with all applicable laws,
rules and regulations relating to the withholding and payment of Taxes and has
timely

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withheld and paid to the proper governmental authorities all amounts required to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor or stockholder.

(b) There are no agreements, waivers or other arrangements providing
for extension of time with respect to the assessment or collection of any Tax on
Quanterra or its Affiliate. There are not any actions, suits, proceedings,
investigations or claims now pending against Quanterra or its Affiliate in
respect of unpaid Taxes, and there are no matters under discussion with any
federal, state, county or local Governmental Authority relating to any amount of
unpaid Taxes. Except as otherwise set forth on Schedule 3.20, the Tax Reports of
Quanterra and its Affiliate have not been audited and are not in the process of
being audited by the applicable taxing authorities, and there is no Tax
deficiency outstanding, proposed or assessed against Quanterra or its Affiliate,
and Quanterra and its Affiliate are not a party to any Tax allocation or Tax
sharing agreement.

(c) Since its formation, Quanterra has elected and the Stockholders
have consented for Quanterra to be treated as an S Corporation (within the
meaning of Code Section 1361(a)) for federal income tax purposes. For all
periods since commencing operations, Quanterra has qualified to be treated as an
S Corporation for federal income tax purposes. Quanterra has also elected, and
its Stockholders have consented, to be treated as an S Corporation for state
income tax purposes for all years since its formation. Quanterra has filed all
reports consistent with and necessary to maintain its S Corporation status for
federal and state income tax purposes. Neither Quanterra nor Stockholders have
revoked the S Corporation stature of Quanterra and neither Quanterra nor its
Stockholders have done anything to cause a termination of such federal or state
tax purposes.

3.21 Employee Benefit Plans and Employment Agreements. Quanterra for
itself and its Affiliate has not entered into any employee benefit plan within
the meaning of Section 3(3) of ERISA or any written or oral employment or
consulting agreement, severance pay plan or agreement, employee relations policy
(or practice, agreement, or arrangement), agreements with respect to leased or
temporary employees, vacation plan or arrangement, sick pay plan, stock purchase
plan, stock option plan, fringe benefit plan, incentive plan, bonus plan,
cafeteria or flexible spending accounting plan or any deferred compensation
agreement with any present or former employee of Quanterra or its Affiliate.
Further, there are currently no employees of either Quanterra or its Affiliate.

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3.22 Material Contracts. Quanterra had made available all contracts and
arrangements, written, electronic, oral, or otherwise to which Quanterra or its
Affiliate is a party or by which they are bound, or to which any of their assets
or properties is subject.

3.23 Labor Matters. Quanterra has conducted, and currently is conducting
its and its Affiliate business in full compliance with all Laws relating to
employment and employment practices, terms and conditions of employment, wages
and hours, and nondiscrimination in employment.

3.24 Environmental Matters. Except as set forth in Schedule 3.24:

(a) Quanterra and its Affiliate are currently in compliance in all
material respects with all applicable Environmental Laws, have cured any past
violations or alleged violations of Environmental Laws to the satisfaction of
Governmental Authorities, are not currently in receipt of any notice of
violation, are not currently in receipt of any notice of any potential liability
for cleanup of Hazardous Materials and are not now subject to any investigation
or information request by a Governmental Authority concerning Hazardous
Materials or any Environmental Laws. To the Knowledge of the Stockholders,
Quanterra and its Affiliate hold and are in compliance with all governmental
permits, licenses, and authorizations necessary to operate those aspects of
their businesses that relate to siting, wetlands, coastal zone management, air
emission, discharges to surface or ground water, discharges to any sewer or
septic system, noise emissions, solid waste disposal or the generation, use,
transportation or other management of Hazardous Materials. Neither Quanterra nor
its Affiliate has ever generated, manufactured, refined, recycled, discharged,
emitted, released, buried, processed, produced, reclaimed, stored, treated,
transported, or disposed of any Hazardous Materials except in compliance with
all applicable Laws, including applicable Permit requirements;

(b) No assets of Quanterra or its Affiliate are subject to any Lien
in favor of any person as a result of any Hazardous Material or response
thereto;

(c) To the Knowledge of the Stockholders, all facilities where any
person has treated, stored, disposed of, reclaimed, or recycled any Hazardous
Material on behalf of Quanterra or its Affiliate are in compliance with
Environmental Laws.

3.25 Minute Books and Charter Documents. All corporate records and books
(including stock transfer ledgers) of Quanterra have been made available to St.
Mary for its review.

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3.26 Broker's Fees. No agent, broker or other person is or may be entitled
to a commission or finder's fee in connection with the transactions contemplated
by this Agreement, or is or may be entitled to make any claim against Quanterra
or against St. Mary as a result of any actions by the Stockholders or Quanterra.
The Stockholders shall indemnify St. Mary against any claim for any such
commission or finder's fee made by any agent, broker or other person as a result
of any actions by the Stockholders or Quanterra.

3.27 Investment Representation. Each of the Stockholders acknowledges that
the issuance to him by St. Mary of the shares of St. Mary Stock constituting the
Consideration pursuant to this Agreement has not been registered under the 1933
Act or any state securities law, and that such St. Mary Stock may not be sold or
transferred other than pursuant to an effective registration statement under the
1933 Act or pursuant to an available exemption from such registration, and
further acknowledges that the certificates representing the St. Mary Stock will
bear a restrictive legend to the foregoing effect. Each Stockholder is acquiring
the St. Mary Stock for investment purposes only, for his own account (and not
for the account(s) of others) and not with a view to the distribution thereof.
Each Stockholder confirms that (i) he is familiar with the business of St. Mary
and has had the opportunity to ask questions of appropriate executive officers
of St. Mary (and that he has received responses thereto to his satisfaction) and
to obtain such information about the business and financial condition of St.
Mary as he has reasonably requested, and (ii) he has such knowledge and
experience in financial and business matters that he is capable of evaluating
and accepting the merits and risks of an investment in St. Mary Stock.

3.28 Questionable Payments. Neither Quanterra nor its Affiliate nor any
executive employee, agent, or representative of Quanterra or its Affiliate
(including the Stockholders) has made, directly or indirectly, any (a) bribes,
kickbacks or illegal payments, (b) payments that were falsely recorded on the
books and records of Quanterra or its Affiliate, or (c) payments to governmental
officials for improper purposes.

3.29 Tax Reports. Schedule 3.29 contains true and correct copies of the
Tax Reports filed by either Quanterra or its Affiliate for the past two tax
years including tax year 1998.

3.30 Joint Operating Agreements. Neither Quanterra nor its Affiliate has
entered into any joint operating agreement regarding any of the leases or wells
affected by this Agreement that contains terms or conditions which impose duties
or obligations on Quanterra or its Affiliate beyond those customarily contained
or

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<PAGE>

created by joint operating agreements executed in the ordinary course of
conducting an oil and gas business.

3.31 Affiliate. The Stockholders represent and warrant to St. Mary with
respect to Quanterra Partnership the matters set forth in Section 3.08 and
Section 3.09 to the same extent as those representations and warranties by the
Stockholders apply to Quanterra. Quanterra Partnership is a limited partnership
organized and in good standing under the laws of the State of Montana for which
Quanterra is the sole general partner and as such holds a one percent
partnership interest in Quanterra Partnership.

3.32 No Misstatements or Omissions. No representation or warranty made in
this Agreement or on any Schedule hereto by the Stockholders is false or
misleading as to any material fact or omits to state a material fact required to
make any of such information not misleading in any material respect. In
addition, all other information made available by Quanterra to St. Mary, whether
in oral, written, or any other form, is true and correct to the Knowledge of the
Stockholders, and such information is not false or misleading as to any material
fact. To the Knowledge of the Stockholders, the foregoing representations,
warranties, schedules and information constitute full disclosure of all material
facts with respect to the business, assets and liabilities of Quanterra and its
Affiliate.

ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF ST. MARY

St. Mary represents and warrants to the Stockholders as follows:

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<PAGE>

performance of this Agreement. St. Mary has the power and authority to deliver
the Consideration, and all necessary corporate action to authorize the delivery
of the Consideration has been taken.

4.04 No Restrictions Against Performance. Neither the execution, delivery,
authorization or performance of this Agreement, nor the consummation of the
transactions contemplated hereby will, with or without the giving of notice or
the passage of time, or both, violate any provisions of, conflict with, result
in a breach of, constitute a default under, or result in the creation or
imposition of any Lien or adverse condition under (i) the Certificate of
Incorporation or By-Laws of St. Mary; (ii) any federal, state or local law,
which is applicable to St. Mary; (iii) any contract, indenture, instrument,
agreement, mortgage, lease, right or other obligation or restriction to which
St. Mary is a party or by which it is bound; or (iv) any order, judgment, writ,
injunction, decree, license, franchise, permit or other authorization of any
Governmental Authority by which St. Mary is bound.

4.05 Capital Stock of St. Mary. The authorized capital stock of St. Mary
consists of 50,000,000 shares of common stock of which 10,827,067 are issued and
outstanding. All of the issued and outstanding shares of St. Mary Stock are, and
all of the shares of St. Mary Stock, when issued in accordance with the terms of
this Agreement are or will be, duly and validly authorized and issued and
outstanding, fully paid and nonassessable. None of the outstanding shares of St.
Mary Stock to be issued pursuant to this Agreement will be issued in violation
of any preemptive rights of the current or past holders of St. Mary Stock.
Except as disclosed on Schedule 4.05 hereto, as of the date of this Agreement,
there are no other equity securities of St. Mary outstanding and no outstanding
options, warrants, rights, calls, commitments, conversion rights, rights of
exchange, plans or other agreements of any character provided for the purchase,
issuance or sale of any shares of the capital stock of St. Mary, other than as
contemplated by this Agreement.

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<PAGE>

(ii) did not, at the time they were filed (or, if amended, or superseded by a
filing prior to the date of this Agreement, then on the date of such filing),
contain any untrue statement of a material fact or omit to state a material fact
required to be stated in the SEC Documents or necessary in order to make the
statements in the SEC Documents in light of the circumstances under which they
were made, not misleading. Each of the St. Mary financial statements (including,
in each case, any related notes) contained in the SEC Documents complied as to
form in all material respects with the applicable published rules and
regulations of the SEC with respect thereto, was prepared in accordance with
GAAP (except to the extent required by changes in GAAP, as may be indicated in
the notes to such financial statements or, in the case of unaudited interim
statements, as permitted by Form 10-Q under the 1934 Act, as amended), and
fairly presented in all material respects the consolidated financial positions
of St. Mary and its subsidiaries as at the respective dates and the consolidated
results of operations and cash flows of the periods indicated, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be material
in amount or effect.

4.08 Third-Party and Governmental Consents. Except as set forth on
Schedule 4.08 hereto, and those customarily obtained after Closing, no approval,
consent, waiver, order or authorization of, or registration, qualification,
declaration or filings with, or notice to, any Governmental Authority or other
third party is required on the part of St. Mary in connection with the execution
of this Agreement, or the consummation of the transactions contemplated hereby.
All of the consents and approvals set forth on Schedule 4.08 have been obtained.

4.09 Litigation. There are no claims, actions, suits, proceedings or
investigations pending or, to the Knowledge of St. Mary, threatened, by or
against St. Mary with respect to this Agreement, or in connection with the
transactions contemplated hereby and St. Mary has no reason to believe there
exists a valid basis for any such claim, action, suit, proceeding, or
investigation.

4.10 Broker's Fees. No agent, broker or other person is or may be entitled
to a commission or finder's fee in connection with the transactions

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<PAGE>

contemplated by this Agreement, or is or may be entitled to make any claim
against the Stockholders or Quanterra or against St. Mary or any of its
subsidiaries or affiliates as a result of any actions by St. Mary. St. Mary
shall indemnify the Stockholders against any claim for any such commission or
finder's fee made by any agent, broker or other person as a result of any
actions by St. Mary.

ARTICLE 5
DELIVERIES

5.01 Deliveries by the Stockholders. At the Closing, in addition to any
other documents required to be delivered under the terms of this Agreement, the
Stockholders shall deliver the following:

(b) Copies of the Articles of Incorporation of Quanterra certified
as of a recent date by the Secretary of State of Montana.

(c) Copies of the By-Laws of Quanterra including all amendments
thereto, certified by the Secretary or an Assistant Secretary of Quanterra.

(d) A Certificate dated not earlier than seven calendar days prior
to Closing of the Secretary of State of Montana as to the valid existence of
Quanterra.

(e) Certificates of authority dated during 1999 of the Secretary of
State of each of the states in which Quanterra is qualified to do business, as
to

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the due qualification or license of Quanterra as a foreign corporation in such
state.

(f) The opinion of Crowley, Haughey, Hanson, Toole & Dietrich, PLLP,
counsel to Quanterra and the Stockholders, substantially in the form of Exhibit
5.01(f) hereto.

(g) Evidence in form and substance satisfactory to St. Mary of the
resignation of all of the directors of Quanterra.

(h) The Stockholders shall deliver to St. Mary Uniform Commercial
Code financing statement searches for the State of Montana and any other state
in which Quanterra or the Affiliate do business, dated within 15 calendar days
prior to the date of the Closing, showing that there are no security interests,
judgments, taxes, other liens or encumbrances outstanding against Quanterra or
its Affiliate or their assets, or against the Stockholders.

(b) A copy of the Certificate of Incorporation of St. Mary,
certified as of a recent date by the Secretary of State of Delaware.

(c) A copy of the By-Laws of St. Mary, including all amendments
thereto, certified by the Secretary or an Assistant Secretary of St. Mary.

(d) A Certificate, dated as of a recent date of the Secretary of
State of the State of Delaware as to the valid existence and good standing of
St. Mary.

(e) Resolutions adopted by the Board of Directors of St. Mary
authorizing this Agreement and the transactions contemplated hereby, certified
by the Secretary or an Assistant Secretary of St. Mary.

(f) The opinion of the law firm Ballard Spahr Andrews & Ingersoll,
LLP, counsel to St. Mary, substantially in the form of Exhibit 5.02(f) hereto.

21
<PAGE>

ARTICLE 6
INDEMNIFICATION

6.01 Survival of Representations, Warranties and Covenants. Without
affecting the validity or applicability of the indemnification provisions set
forth in Sections 6.02 and 6.03 of this Agreement, the representations,
warranties, and covenants of the Stockholders and St. Mary contained in this
Agreement shall survive the Closing and remain in full force and effect until
one year after the Closing except that such representations and warranties shall
remain in full force and effect until two years after the Closing with respect
to any breach thereof resulting in or otherwise involving a claim by a third
party against St. Mary, Quanterra or its Affiliate (a "Third Party Claim").

6.02 Indemnification by and on Behalf of the Stockholders. Subject to the
provisions of Section 6.05, the Stockholders jointly and severally agree to
defend, indemnify and hold St. Mary harmless from and against any and all
losses, liabilities, damages, costs or expenses (including reasonable attorneys'
fees, penalties, and interest) payable to or for the benefit of, or asserted by,
any party, resulting from, arising out of, or incurred as a result of:

(a) the breach of any representation and/or warranty made by the
Stockholders herein; or (b) any claim, whether made before or after the date of
this Agreement, or any litigation, proceeding or governmental investigation,
whether commenced before or after the date of this Agreement, arising out of the
businesses of Quanterra or its Affiliate prior to the Closing, or otherwise
arising out of any act or occurrence prior to, or any condition or facts
existing as of, Closing, regardless of whether or not referred to on a Schedule
to this Agreement or otherwise disclosed or known to St. Mary as of Closing. No
claim by St. Mary for indemnification by the Stockholders shall be made after
one year has elapsed following the Closing except that a claim for
indemnification may be made by St. Mary with respect to a Third Party Claim
until two years has elapsed following the Closing.

The indemnification obligation of the Stockholders set forth above shall
be limited to those amounts attributable solely to Quanterra with respect to
interests or activities of it, including those realized with respect to an
interest of Quanterra in any property partially owned by it or realized with
respect to any partnership interest of Quanterra (including its interest in
Quanterra Partnership), and shall not apply with respect to an ownership
interest or partnership interest (even if in Quanterra Partnership) of others.

22
<PAGE>

6.03 Indemnification by St. Mary. Subject to the provisions of Section
6.05, St. Mary agrees to defend, indemnify and hold the Stockholders harmless
from and against any and all losses, liabilities, damages, costs, or expenses
(including reasonable attorneys' fees, penalties and interest) payable to or for
the benefit of, or asserted by, any party, resulting from, arising out of, or
incurred as a result of the breach of any representation and warranty made by
St. Mary herein or in accordance herewith. No claim by the Stockholders for
indemnification by St. Mary shall be made after one year has elapsed following
the Closing except that a claim for indemnification may be made by the
Stockholders with respect to a Third Party Claim until two years has elapsed
following the Closing.

6.04 Notice of Claims. The Stockholders and St. Mary shall give prompt
written notice to each other of any claim by any party which might give rise to
a claim by the Stockholders or St. Mary against the other based upon the
indemnity provisions contained herein, stating the nature and basis of the claim
and the actual or estimated amount thereof; provided, however, that failure to
give such notice will not affect the obligation of the indemnifying party to
provide indemnification in accordance with the provisions of this Article 6
unless, and only to the extent that, such indemnifying party is actually
prejudiced thereby. In the event that any action, suit or proceeding is brought
by a third party against the Stockholders or St. Mary with respect to which the
other party may have liability under the indemnification provisions contained
herein, the indemnifying party shall have the right, at its sole cost and
expense, to defend such action in the name or on behalf of the indemnified party
and, in connection with any such action, suit or proceeding, the parties hereto
agree to render to each other such assistance as may reasonably be required in
order to ensure the proper and adequate defense of any such action, suit or
proceeding; provided further, however, that an indemnified party shall have the
right to retain its own counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate because of actual or
potential differing interests between such indemnified party and any other party
represented by such counsel. Neither party hereto shall make any settlement of
any claim which might give rise to liability of the other party under the
indemnification provisions contained herein without the written consent of such
other party, which consent such other party covenants shall not be unreasonably
withheld.

6.05 Limitation of Liability. Notwithstanding the provisions of this
Article 6, neither the Stockholders collectively nor St. Mary shall have any
liability to the other with respect to any matter which liability does not
exceed $5,000 as to any single liability or $10,000 as to liabilities in the
aggregate irrespective of their

23
<PAGE>

single size except that such limitations shall not apply to any Third Party
Claim. In the event of any liability of the Stockholders for indemnification,
St. Mary may elect to cause such liability to be satisfied in part or in whole
by reducing pro rata the St. Mary Stock issued to the Stockholders by the number
of shares (rounded to the nearest whole number) equal to the amount of the
Stockholders' liability based on the published closing price for a share of St.
Mary Stock on the day such liability is quantified, and the certificates of St.
Mary Stock issued to the Stockholders shall bear a legend to that effect.

ARTICLE 7
SHARE RESTRICTIONS

7.01 Restricted Shares. The Stockholders hereby agree that during the
period beginning on the Closing and, subject to Section 7.05, ending on the date
which is three years after the date hereof, the Stockholders will not sell,
assign, transfer, pledge, hypothecate, encumber or otherwise dispose of
("Transfer") any shares of St. Mary Stock received as part of the Consideration
(the "Restricted Shares"), other than in accordance with the terms of this
Article 7 or as otherwise agreed by St. Mary in writing in its sole discretion,
and any such purported Transfer shall be void, except that the Stockholders may
make a Permitted Transfer (as hereinafter defined), if and only if the
transferee in such Permitted Transfer ("Permitted Transferee") executes and
delivers a written agreement to the effect that the Restricted Shares
transferred to such Permitted Transferee shall be bound by the terms of this
Article 7 as if such Permitted Transferee were an original party hereto.

7.02 Permitted Transfer. For purposes of this Article 7, a "Permitted
Transfer" of Restricted Shares by any Stockholder is (i) any bona fide gift of
such Restricted Shares by the Stockholder, including a charitable gift, (ii) any
transfer of such Restricted Shares by the Stockholder to a trustee for the
benefit of the Stockholder or the Stockholder's ancestors, descendants or
spouse, or (iii) any transfer of such Restricted Shares by a Stockholder to the
Stockholder's executors, administrators or legal representatives, heirs or
devisees pursuant to the laws of descent and distribution.

7.03 Restrictive Legends; Stop Orders. The certificate or certificates
representing Restricted Shares issued to the Stockholders or any Permitted
Transferee shall bear an appropriate legend referring to the restrictions on
Transfer contained in this Article 7 (together with the legends referred to in
Section 3.23 and Section 7.05 hereof) shall be endorsed with substantially the

24
<PAGE>

following legend in addition to any other legend which may appear on such
certificate or certificates:

THE SALE, ASSIGNMENT, TRANSFER, PLEDGE, HYPOTECATION, ENCUMBRANCE OR OTHER
DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO THE TERMS AND CONDITIONS OF A STOCK EXCHANGE AGREEMENT DATED JUNE 1,
1999, BETWEEN ST. MARY LAND & EXPLORATION COMPANY AND ROBERT L. NANCE AND
ROBERT T. HANLEY. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY
WRITTEN REQUEST MADE BY THE HOLDER OF THIS CERTIFICATE TO THE SECRETARY OF
ST. MARY LAND & EXPLORATION COMPANY.

7.04 Termination of Restrictions. Any provision of this Agreement to the
contrary notwithstanding, the restrictions on Transfer contained in this Article
7 shall expire three years after the date hereof. The restrictions contained
herein shall expire with respect to the Restricted Shares held by the
Stockholders in proportion to his respective ownership of shares of St. Mary
Stock on the date hereof.

25
<PAGE>

ARTICLE 8
GENERAL PROVISIONS

8.02 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Stockholders and St. Mary and their respective
heirs, personal representatives, successors, representatives and assigns.

8.04 Entire Agreement. This Agreement (together with the Schedules and
Exhibits hereto) supersedes any other agreement, whether written or oral, that
may have been made or entered into by St. Mary or by the Stockholders (or by any
director, officer, employee, agent, or other representative of such parties)
relating to the matters contemplated hereby. This Agreement (together with the
Schedules and Exhibits hereto) constitutes the entire agreement between the
parties and there are no agreements or commitments except as expressly set forth
herein.

8.06 Notices. All notices, demands, requests, and other communications
hereunder shall be in writing and shall be deemed to have been duly given and

26
<PAGE>

shall be effective upon receipt if delivered by hand, or sent by certified or
registered United States mail, postage prepaid and return receipt requested, or
by prepaid overnight express service or facsimile transmission (with receipt
confirmed). Notices shall be sent to the parties to the following addresses (or
at such other addresses for a party as shall be specified by like notice;
provided that such notice shall be effective only upon receipt thereof):

If to the Stockholders:

Robert L. Nance
550 N. 31st Street, Suite 500
Billings, MT 59101
Telephone: 406-245-6248
Facsimile: 406-245-9106

Robert T. Hanley
550 N. 31st Street, Suite 500
Billings, MT 59101
Telephone: 406-245-6248
Facsimile: 406-245-9106

with a copy (which shall not constitute notice) to:

Myles J. Thomas
Crowley Haughey Hanson Toole & Dietrich
490 North 31st Street, Suite 500
Billings, Montana 59103
Telephone: 406-252-3441
Facsimile: 406-259-4159

If to St. Mary:

St. Mary Land & Exploration Company
1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
Telephone: 303-861-8140
Facsimile: 303-863-1040
Attention: Milam Randolph Pharo

27
<PAGE>

8.08 Severability. In the event that any provision contained in this
Agreement shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision hereof and this Agreement shall be construed as if such
invalid, illegal or unenforceable provisions had never been contained herein
and, in lieu of each such illegal, invalid or unenforceable provision, there
shall be added automatically as a part of this Agreement a provision as similar
in terms to such illegal, invalid or unenforceable provision as may be possible
but still be legal, valid and enforceable.

8.09 Governing Law. This Agreement and its interpretation shall be
governed by the laws of the State of Colorado.

/s/ Robert L. Nance
-----------------------------------
Robert L. Nance

/s/ Robert T. Hanley
-----------------------------------
Robert T. Hanley

ST. MARY LAND & EXPLORATION COMPANY

By: /s/ Mark A. Hellerstein
--------------------------------
Mark A. Hellerstein
President

28
<PAGE>

LIST OF SCHEDULES

Schedule 1.01(4) - Consideration - Shares of St. Mary Stock used as
Consideration

Schedule 2.02 - Exchange of Shares - Certificates for St. Mary Stock used as
Consideration

Schedule 3.01 - Ownership of Shares - Ownership of Quanterra Stock by
Stockholders

Schedule 3.04 - Organization Existence - Jurisdictions where Quanterra is
qualified to do business; names and addresses of registered agents in such
jurisdictions; and names under which Quanterra has conducted or purported to
conduct business since date of incorporation

Schedule 3.06 - Subsidiaries - List of Quanterra subsidiaries, ownership in any
corporation, partnership, liability company, joint venture, or other enterprise
or entity

Schedule 3.10 - No Adverse Effects or Changes - Quanterra or Affiliate

Schedule 3.10(e) - List, if any, of any disposition of any material
assets, properties or rights, or canceled or terminated, or agreed to
cancel or terminate any debts or claims other accounts receivable
write-offs and writedowns in the ordinary course of business (since
December 31, 1998)

Schedule 3.10(h) - List, if any, of any accrual or arrangement for or
payment of any bonus or special compensation or severance or termination
pay to any present or former officer, director, or executive employee
(since December 31, 1998)

Schedule 3.11 - Third Party and Governmental Consents - List, if any, of the
Third Party and Governmental Consents required on the part of Stockholders,
Quanterra, or its Affiliates

Schedule 3.12 - Real and Personal Property

29
<PAGE>

Schedule 3.12(a) - Oil and Gas Leases and Wells List of oil and gas leases
in which Quanterra or its Affiliate is a party

Schedule 3.12(b) - Personal Property - List, if any, of any outstanding
options, warrants, commitments, agreements or any other right against any
of the personal property (other than St. Mary)

Schedule 3.13 - Accounts and Notes Receivable - List of Quanterra's and its
Affiliate's accounts and notes receivables as of December 31, 1998

Aging report setting forth all accounts receivables (other than
intercompany receivables)

Identify any asset holding a security interest to secure payment of the
underlying indebtedness

Description of the nature and amount of any lien on or security interest
in such accounts and notes receivable

Identify accounts receivable on Schedule 3.13 which have been collected in
their entirety since December 31, 1998.

Schedule 3.14 - Accounts Payables and Promissory Notes Quanterra and its
Affiliate. List of:

Accounts payable as of December 31, 1998 with appropriate aging report

Long-term and short-term promissory notes, installment contracts, loan
agreements, and credit agreements

Indentures, mortgages, security agreements, pledges, etc.

Identify accounts payable on Schedule 3.13 which have been fully or
partially paid since December 31, 1998.

30
<PAGE>

Schedule 3.15 - Bonds and Insurance

List of all insurance policies and bonds. List should include (i) insurer
and agent; (ii) amount of coverage; (iii) premium dates; and (iv)
expiration dates, if any.

List, if any, of any facts or circumstances under which claims for
uninsured losses or damages are likely to be asserted against Quanterra in
excess of $10,000 or pending claims against Quanterra

Schedule 3.16 - Bank Accounts - List of (i) names of banks or financial
institutions where Quanterra or its Affiliate has banks accounts and safety
deposit boxes (ii) names of persons authorized to draw on account or access the
safety deposit box; and (iii) names of persons other than officers who are
authorized to incur liabilities for borrowed funds

Schedule 3.19 - Permits - List of all federal, state or local regulatory or
governmental authority permits

Schedule 3.20 - Taxes - List, if any, of audited Tax reports

Schedule 3.24 - Environmental Matters

Schedule 3.29 - Tax Reports - Copies of tax reports filed by Quanterra or its
Affilate for the past two years including 1998

Schedule 4.05 - Capital Stock of St. Mary - List, if any, of outstanding equity
securities, options, warrants, rights, call, commitments, conversion rights,
rights of exchange, plans or other agreements of any character provided for the
purchase, issuance or sale of any shares of capital stock of St. Mary (other
than contemplated in this Agreement)

Schedule 4.08 - Third Party and Governmental Consents - List, if any, of the
Third Party and Governmental Consents required on the part of St. Mary

Exhibit 5.01(f) - Form opinion letter from Quanterra counsel

Exhibit 5.02(g) - Form opinion letter from St. Mary counsel

31
<PAGE>

DELIVERIES BY ST. MARY

1. A certificate from the President or a Vice President dated the date of
Closing, certifying that any third party or governmental consents and
approvals have been obtained, together with copies of such consents and
approvals.

2. A copy of STML&EC Certificate of Incorporation (recent date) from
Secretary of State of Delaware.

3. A copy of the By-Laws of St. Mary, including all amendments thereto
certified by the Secretary or an Assistant Secretary of St. Mary.

4. A Certificate of Good Standing for STML&E (recent date) from Secretary of
State of Delaware

5. STML&EC Resolutions adopted by the Board of Directors of authorizing
transaction

6. Opinion letter from Ballard Spahr Andrews & Ingersoll, LLP

32
<PAGE>

CONDITIONS BY QUANTERRA ENERGY CORPORATION

1. A Stockholders certificate (dated as of Closing) regarding consents and
approvals, together with copies of such consents and approvals

2. Certified Articles of Incorporation (recent date) from Secretary of State
of Montana.

3. By-Laws including all amendments thereto certified by the Secretary or an
Assistant Secretary

4. Certificate from the Montana Secretary of State (dated within seven
calendar days prior to Closing) as to the valid existence of Quanterra.

5. Certificates of Authority dated during 1999 from the Secretary of State of
each of the states in which Quanterra is qualified to do business

6. Opinion letter from Crowley, Haughey, Hanson, Toole & Dietrich, PLLP

7. Evidence of resignation of all of the directors of Quanterra.

8. Uniform Commercial Code financing statement searches for the State of
Montana and any other state in which Quanterra or the Affiliate do
business (dated within 15 calendar days prior to the date of the Closing)

<PAGE>

EXHIBIT 10.30

LOAN AND STOCK PURCHASE AGREEMENT

among

RESOURCE CAPITAL FUND L.P.

and

ST. MARY LAND & EXPLORATION COMPANY

and

ST. MARY MINERALS INC.

Dated June 25, 1999
<PAGE>

TABLE OF CONTENTS

Page
----

1. DEFINITIONS..............................................................2

2. SALE AND TRANSFER; CLOSING6
2.1 Loan Portion and Security Interest.................................6
2.2 Summo Shares.......................................................6
2.3 Purchase Price.....................................................6
2.4 Closing............................................................6
2.5 Closing Obligations................................................6

3. REPRESENTATIONS AND WARRANTIES OF SELLER.................................7
3.1 Organization and Good Standing.....................................7
3.2 Corporate Power and Authority......................................7
3.3 Enforceability.....................................................7
3.4 No Conflict........................................................8
3.5 Certain Proceedings................................................8
3.6 Regulatory Approvals...............................................8
3.7 No Commissions.....................................................8
3.8 Recitals...........................................................9
3.9 Amendment of Loan Documents; Other Security Interests..............9
3.10 Ownership of the Loan Documents and Summo Shares...................9
3.11 Loan Agreements Free of Default; No Defenses to Collection.........9
3.12 Transferability of Summo Shares....................................9

4. REPRESENTATIONS AND WARRANTIES OF BUYER..................................9
4.1 Good Standing......................................................9
4.2 Authority; Enforceability..........................................9
4.3 No Conflict; Consents.............................................10
4.4 Certain Proceedings...............................................10
4.5 Brokers or Finders................................................10

5. COVENANTS OF SELLERS PRIOR TO CLOSING DATE..............................10
5.1 Delivery of Documents; Access to Records..........................10
5.2 Notification......................................................10
5.3 Best Efforts......................................................11

6. COVENANTS OF BUYER PRIOR TO CLOSING DATE................................11
6.1 Best Efforts......................................................11

7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE.....................11
7.1 Accuracy of Representations.......................................11
7.2 Sellers' Performance..............................................11
7.3 Amended and Restated Credit Agreement.............................12
<PAGE>

Page
----

8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE....................12
8.1 Accuracy of Representations.......................................12
8.2 Buyer's Performance...............................................12
8.3 Amended and Restated Credit Agreement.............................12

9. TERMINATION.............................................................12
9.1 Termination Events................................................12
9.2 Effect of Termination.............................................13

10. FURTHER AGREEMENTS OF SELLERS AND BUYER.................................13
10.1 Agreement Regarding Share or Loan Sales...........................13
10.2 Lenders Agreement.................................................14

11. GENERAL PROVISIONS......................................................14
11.1 Expenses..........................................................14
11.2 Notices...........................................................14
11.3 Jurisdiction; Service of Process..................................15
11.4 Further Assurances................................................16
11.5 Waiver............................................................16
11.6 Entire Agreement and Modification.................................16
11.7 Assignments, Successors, and No Third-party Rights................16
11.8 Severability......................................................17
11.9 Section Headings, Construction....................................17
11.10 Time of Essence...................................................17
11.11 Governing Law.....................................................17
11.12 Counterparts......................................................17
<PAGE>

LOAN AND STOCK PURCHASE AGREEMENT

This Loan and Stock Purchase Agreement ("Agreement") is made as of June
25, 1999, by and among Resource Capital Fund L.P., a Cayman Islands limited
partnership ("Buyer"), St. Mary Land and Exploration Company, a Delaware
corporation ("St. Mary"), and St. Mary Minerals Inc., a Colorado corporation
("St. Mary Minerals," with St. Mary and St. Mary Minerals sometimes referred to
together as "Sellers").

RECITALS

A. Sellers made a series of loans (the "Loans") to Summo USA Corporation, a
Colorado corporation ("Summo USA") and Summo Minerals Corporation, a British
Columbia corporation ("Summo") (collectively, the "Borrowers"), on a joint and
several liability basis. The Loans are evidenced by various Promissory Notes of
the Borrowers payable to the order of Sellers and executed between October 1,
1997 and January 1, 1999 (collectively, the "Notes"). A schedule of the Notes is
attached hereto as Exhibit 1. The Notes were issued pursuant to a series of
credit agreements between Sellers and Borrowers executed between May 15, 1997
and January 25, 1999 (collectively, the "Loan Agreements"). A schedule of the
Loan Agreements is attached hereto as Exhibit 2.

B. The total principal amount and unpaid interest outstanding on the Notes as of
April 30, 1999 is US$3,459,101.

C. Pursuant to the Loan Agreements, Borrowers caused to be assigned and
delivered to Sellers certain collateral security documents executed by Summo,
Summo USA and the Borrowers, including a Pledge and Security Agreement of Summo
USA and Lisbon Valley Mining Co. LLC, a Utah limited liability company ("Lisbon
Valley"), a Deed of Trust, Assignment of Rents and Security Agreement of Lisbon
Valley and related Uniform Commercial Code ("UCC") Financing Statements
(collectively, the "Security Documents"). A schedule of the Security Documents,
including recording and filing information, is attached hereto as Exhibit 3.

D. The Notes, the Loan Agreements and the Security Documents collectively are
referred to herein as the "Loan Documents."

E. By this Agreement Sellers and Buyer wish to evidence their agreement whereby:
(a) Sellers will sell, assign and transfer to Buyer a US$ 2,059,101 portion of
their collective rights in the Loan Agreements and Notes (the "Loan Portion");
(b) Sellers will sell, assign and transfer to Buyer an undivided interest in the
Security Documents (the "Security Interest") such that the interests of the
Buyer and Sellers under the Loan Documents are secured pari passu by the
Security Documents; (c) Buyer will purchase and acquire the Loan Portion from
Sellers; and (d) Buyer will purchase and acquire the Security Interest from
Sellers.

F. By this Agreement St. Mary and Buyer also wish to evidence their agreement
whereby: (a) St. Mary will sell, assign and transfer to Buyer the Summo Shares
and (b) Buyer will purchase and acquire the Summo Shares from St. Mary.
<PAGE>

G. The aggregate consideration to St. Mary for the Loan Portion and the Summo
Shares, in addition to the Purchase Price set forth in Section 2.3 of this
Agreement, includes the Warrant to be received from Summo pursuant to the
Warrant Agreement, which Warrant has a fair market value of $512,569. Based upon
the foregoing, the Loan Portion has a fair market value of $1,237,572 and the
Summo Shares have an aggregate fair market value of $1,340,098.

AGREEMENT

The parties hereto, intending to be legally bound, agree as follows:

1. DEFINITIONS

For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:

"Agreement" --as defined in the Recitals of this Agreement.

"Amended and Restated Credit Agreement" -- the Amended and Restated Credit
Agreement dated as of June 25, 1999 among Borrowers, St. Mary Minerals and the
Buyer.

"Assignment" --as defined in Section 2.5 of this Agreement.

"Best Efforts" --the efforts that a prudent Person desirous of achieving a
result would use in similar circumstances to ensure that such result is achieved
as expeditiously as possible.

"Borrowers" --as defined in the Recitals of this Agreement.

"Breach" --a "Breach" of a representation, warranty, covenant, obligation,
or other provision of this Agreement or any instrument delivered pursuant to
this Agreement will be deemed to have occurred if there is or has been (a) any
inaccuracy in or breach of, or any failure to perform or comply with, such
representation, warranty, covenant, obligation, or other provision, or (b) any
claim (by any Person) or other occurrence or circumstance that is or was
inconsistent with such representation, warranty, covenant, obligation, or other
provision, and the term "Breach" means any such inaccuracy, breach, failure,
claim, occurrence, or circumstance.

"Buyer" --as defined in the first paragraph of this Agreement.

"Closing" --as defined in Section 2.4.

"Closing Date" --the date and time as of which the Closing actually takes
place.

"Consent" --any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).

"Contemplated Transactions" --all of the transactions contemplated by this
Agreement, including:

(a) the sale of the Loan Portion and Security Interest by Sellers to
Buyer;
<PAGE>

(b) St. Mary's sale of the Summo Shares to Buyer;

(d) Buyer's acquisition and ownership of the Loan Portion, Security
Interest and Summo Shares.

"Damages" --as defined in Section 10.2.

"Encumbrance" --any charge, claim, community property interest, condition,
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income, or exercise of any other attribute of ownership.

"Governmental Authorization" --any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.

"Governmental Body" --any:

(a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature;

(b) federal, state, local, municipal, foreign, or other government;

(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or entity and
any court or other tribunal);

(d) multi-national organization or body; or

(e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority or
power of any nature.

"Knowledge" --an individual will be deemed to have "Knowledge" of a
particular fact or other matter if:

(a) such individual is actually aware of such fact or other matter;
or

(b) a prudent individual could be expected to discover or otherwise
become aware of such fact or other matter in the course of conducting a
reasonably comprehensive investigation concerning the existence of such fact or
other matter.

A Person (other than an individual) will be deemed to have "Knowledge" of a
particular fact or other matter if any individual who is serving, or who has at
any time served, as a director, officer, partner,
<PAGE>

executor, or trustee of such Person (or in any similar capacity) has, or at any
time had, Knowledge of such fact or other matter.

"Legal Requirement" --any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.

"Lisbon Valley" --as defined in the Recitals of this Agreement.

"Loan Agreements" --as defined in the Recitals of this Agreement.

"Loan Documents" --as defined in the Recitals of this Agreement.

"Loan Portion" --as defined in the Recitals of this Agreement.

"Loans" --as defined in the Recitals of this Agreement.

"Order" --any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.

"Organizational Documents" --(a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement and
any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person; and (e) any amendment
to any of the foregoing.

"Person" --any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.

"Proceeding" --any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.

"Purchase Price" --as defined in Section 2.3 of this Agreement.

"Representative" --with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants and financial advisors.

"Securities Act" --the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.

"Security Documents" --as defined in the Recitals of this Agreement.

"Security Interest" --as defined in the Recitals of this Agreement.
<PAGE>

"Sellers" --as defined in the first paragraph of this Agreement.

"Sellers' Closing Documents" --as defined in Section 2.5 of this
Agreement.

"St. Mary" --as defined in the first paragraph of this Agreement.

"St. Mary Minerals" --as defined in the first paragraph of this Agreement.

"Summo" --as defined in the Recitals of this Agreement.

"Summo Share Certificates" --as defined in Section 2.5 of this Agreement.

"Summo Shares" --fifty percent of St. Mary's holdings of fully paid,
nonassessable, freely transferrable Summo common stock, but in no event less
than 4,962,046 shares of such stock as identified on Schedule 1 hereto.

"Summo USA" --as defined in the Recitals of this Agreement.

"Threatened" --a claim, Proceeding, dispute, action, or other matter will
be deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in writing), or
if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken, or otherwise
pursued in the future.

"UCC Form 3 Assignment" --as defined in Section 2.5 of this Agreement.

2. SALE AND TRANSFER; CLOSING

2.1 Loan Portion and Security Interest

Subject to the terms and conditions of this Agreement, at the Closing,
Sellers will sell and transfer the Loan Portion and Security Interest to Buyer,
and Buyer will purchase the Loan Portion and Security Interest from Sellers.

2.2 Summo Shares

Subject to the terms and conditions of this Agreement, at the Closing, St.
Mary will sell and transfer the Summo Shares to Buyer, and Buyer will purchase
the Summo Shares from St. Mary.

2.3 Purchase Price

The purchase price (the "Purchase Price") for the Loan Portion, Security
Interest and Summo Shares, collectively, will be US $2,059,101 (Two Million,
Fifty-Nine Thousand, One Hundred and One Dollars).

2.4 Closing
<PAGE>

The purchase and sale of the Loan Portion, Security Interest and Summo
Shares (the "Closing") provided for in this Agreement will take place at the
offices of Buyer's counsel at 4700 Republic Plaza Building, Denver, Colorado, at
10:00 a.m. (local time) on June 25, 1999. Subject to the provisions of Section
9, failure to consummate the purchase and sale provided for in this Agreement on
the date and time and at the place determined pursuant to this Section 2.4 will
not result in the termination of this Agreement and will not relieve any party
of any obligation under this Agreement.

2.5 Closing Obligations

At the Closing:

(a) Sellers will deliver to Buyer the following (the "Sellers'
Closing Documents"):

(i) an assignment of the Loan Portion and Security Interest in
substantially the same form as Exhibit 4 attached hereto, duly executed by
Sellers, transferring the Loan Portion and Security Interest from Sellers to
Buyer (the "Assignment");

(ii) a UCC Form 3 assignment of the UCC Financing Statements
associated with the Security Interest from Sellers to Buyer (the "UCC Form 3
Assignment"); and

(iii) certificates representing the Summo Shares, duly
endorsed by St. Mary (or accompanied by duly executed stock powers), with
signatures guaranteed by a commercial bank or by a member firm of the New York
Stock Exchange, for transfer to Buyer (the "Summo Share Certificates").

(b) Buyer will deliver to Sellers a bank cashier's or certified
check payable to the order of Sellers and in the amount of US$ 2,059,101.

3. REPRESENTATIONS AND WARRANTIES OF SELLER

Sellers jointly and severally represent and warrant to the Buyer the
following as of the date hereof (except as specified otherwise) and as of the
Closing Date:

3.1 Organization and Good Standing

St. Mary is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware. St. Mary Minerals is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Colorado.

3.2 Corporate Power and Authority

Sellers and the individuals executing this Agreement on Sellers' behalf
have the power and authority to enter into and perform this Agreement and to
consummate the Contemplated Transactions. The execution and delivery of this
Agreement, the consummation of the Contemplated
<PAGE>

Transactions, and the performance by Sellers of all of their obligations under
this Agreement have been duly authorized and approved by each of Sellers.

3.3 Enforceability

This Agreement constitutes the legal, valid, and binding obligation of
each of Sellers, enforceable against each of Sellers in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
reorganization, moratorium, fraudulent transfer or other similar laws affecting
creditors' rights generally or by principles governing the availability of
equitable remedies. Upon the execution and delivery by Sellers of the Assignment
and the UCC Form 3 Assignment and upon execution and by St. Mary of the Summo
Share Certificates, the Assignment, the UCC Form 3 Assignment and Summo Share
Certificates will constitute legal, valid and binding obligations of the
respective Sellers, enforceable against Sellers in accordance with their
respective terms, except as such enforceability may be limited by applicable
bankruptcy, reorganization, moratorium, fraudulent transfer or other similar
laws affecting creditors' rights generally or by principles governing the
availability of equitable remedies.

3.4 No Conflict

Neither the execution and delivery of this Agreement nor the consummation
or performance of any of the Contemplated Transactions will, directly or
indirectly:

(a) contravene, conflict with, or result in a violation of Sellers'
Organizational Documents;

(b) contravene, conflict with, or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
Contemplated Transactions or to exercise any remedy or obtain any relief under,
any Legal Requirement or any Order to which either of the Sellers may be
subject;

(c) to the knowledge of either Seller, cause Buyer to become subject
to, or to become liable for the payment of, any tax by reason of its execution
and delivery of this Agreement; or

(d) result in the imposition or creation of any Encumbrance upon or
with respect to the Loan Portion, Security Interest or Summo Shares.

Sellers are not nor will be required to give any notice to or obtain any Consent
from any Person in connection with the execution and delivery of this Agreement
or the consummation or performance of any of the Contemplated Transactions.

3.5 Certain Proceedings

There is no pending Proceeding that has been commenced against either of
Sellers and that challenges, or may have the effect of preventing, delaying,
making illegal, or otherwise interfering with, this Agreement or any of the
Contemplated Transactions. To Sellers' Knowledge, no such Proceeding has been
Threatened.
<PAGE>

3.6 Regulatory Approvals

No Governmental Authorization is required to be given, filed or obtained
by either of Sellers in connection with the execution, delivery and performance
by Sellers of this Agreement or the Contemplated Transactions.

3.7 No Commissions

Sellers and their agents have incurred no obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this Agreement.

3.8 Recitals

The Recitals A. through C. above are true and correct.

3.9 Amendment of Loan Documents; Other Security Interests

The Loan Documents have not been modified or amended in any respect since
June 11, 1999, and Sellers hold no other property as security for repayment of
the Notes except (a) as described in the Loan Documents and (b) Sellers' rights
under applicable law to funds in the Borrower's accounts at either of Seller's.

3.10 Ownership of the Loan Documents and Summo Shares

Sellers are the legal and beneficial owners of the Loan Documents and St.
Mary is the legal and beneficial owner of the Summo Shares, and the Loan
Documents and Summo Shares are free from Encumbrances or other interests by
third parties. Prior to consummation of the Contemplated Transactions, St. Mary
owns, in total, 9,924,093 shares of fully paid, nonassessable, freely
transferrable Summo common stock.

3.11 Loan Agreements Free of Default; No Defenses to Collection

The Loan Agreements are free of defaults by Sellers and the Notes are not
subject to any defenses against collection available to Borrowers arising from
actions of Sellers.

3.12 Transferability of Summo Shares

Upon receipt by Buyer, the Summo Shares will be freely transferable on the
Toronto Stock Exchange, without holding period requirements, transfer volume
limitations or other restrictions.

4. REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer represents and warrants to Sellers as follows:

4.1 Good Standing
<PAGE>

Buyer is a limited partnership validly existing and in good standing under
the laws of the Cayman Islands.

4.2 Authority; Enforceability

This Agreement constitutes the legal, valid, and binding obligation of
Buyer, enforceable against Buyer in accordance with its terms. Buyer and the
individuals executing this Agreement on Buyer's behalf have the absolute and
unrestricted right, power, and authority to execute and deliver this Agreement.

4.3 No Conflict; Consents

Neither the execution and delivery of this Agreement by Buyer nor the
consummation or performance of any of the Contemplated Transactions by Buyer
will give any Person the right to prevent, delay, or otherwise interfere with
any of the Contemplated Transactions pursuant to any Legal Requirement or Order
to which Buyer may be subject. Buyer is not and will not be required to obtain
any Consent from any Person in connection with the execution and delivery of
this Agreement or the consummation or performance of any of the Contemplated
Transactions.

4.4 Certain Proceedings

There is no pending Proceeding that has been commenced against Buyer and
that challenges, or may have the effect of preventing, delaying, making illegal,
or otherwise interfering with, this Agreement or any of the Contemplated
Transactions. To Buyer's Knowledge, no such Proceeding has been Threatened.

4.5 Brokers or Finders

Buyer and its officers and agents have incurred no obligation or
liability, contingent or otherwise, for brokerage or finders' fees or agents'
commissions or other similar payment in connection with this Agreement and will
indemnify and hold Sellers harmless from any such payment alleged to be due by
or through Buyer as a result of the action of Buyer or its officers or agents.

5. COVENANTS OF SELLERS PRIOR TO CLOSING DATE

5.1 Delivery of Documents; Access to Records

Promptly after the date of this Agreement, Sellers shall deliver to Buyer
true and correct copies of all of the Loan Documents. Up until the Closing Date,
Sellers shall provide, at reasonable times during regular business hours, access
to Buyer and its Agents to other records of Sellers pertaining to the Loan
Documents.

5.2 Notification

Between the date of this Agreement and the Closing Date, Sellers will
promptly notify Buyer in writing if either of Sellers becomes aware of any fact
or condition that causes or constitutes a
<PAGE>

Breach of any of Sellers' representations and warranties as of the date of this
Agreement, or if either of Sellers becomes aware of the occurrence after the
date of this Agreement of any fact or condition that would (except as expressly
contemplated by this Agreement) cause or constitute a Breach of any such
representation or warranty had such representation or warranty been made as of
the time of occurrence or discovery of such fact or condition. During the same
period, Sellers will promptly notify Buyer of the occurrence of any Breach of
any covenant of Sellers in this Section 5 or of the occurrence of any event that
may make the satisfaction of the conditions in Section 7 impossible or unlikely.

5.3 Best Efforts

Between the date of this Agreement and the Closing Date, Sellers will use
their Best Efforts to cause the conditions in Sections 7 and 8 to be satisfied.

6. COVENANTS OF BUYER PRIOR TO CLOSING DATE

6.1 Best Efforts

Between the date of this Agreement and the Closing Date, Buyer will use
its Best Efforts to cause the conditions in Sections 7 and 8 to be satisfied.

7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE

Buyer's obligation to purchase the Loan Portion, Security Interest and
Summo Shares and to take the other actions required to be taken by Buyer at the
Closing is subject to the satisfaction, at or prior to the Closing, of each of
the following conditions (any of which may be waived by Buyer, in whole or in
part):

7.1 Accuracy of Representations

All of Sellers' representations and warranties in this Agreement
(considered collectively), and each of these representations and warranties
(considered individually), must have been accurate in all material respects as
of the date of this Agreement, and must be accurate in all material respects as
of the Closing Date as if made on the Closing Date.

7.2 Sellers' Performance

(a) All of the covenants and obligations that Sellers are required
to perform or to comply with pursuant to this Agreement at or prior to the
Closing (considered collectively), and each of these covenants and obligations
(considered individually), must have been duly performed and complied with in
all material respects.

(b) Each of Sellers' Closing Documents must have been delivered, and
each of the other covenants and obligations in Section 5 must have been
performed and complied with in all respects.

7.3 Amended and Restated Credit Agreement
<PAGE>

The Borrowers shall have executed the Amended and Restated Credit
Agreement and all conditions precedent set forth in Article 5 thereof shall have
been satisfied or waived by St. Mary Minerals and the Buyer.

8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE

Sellers' obligation to sell the Loan Portion, Security Interest and Summo
Shares and to take the other actions required to be taken by Sellers at the
Closing is subject to the satisfaction, at or prior to the Closing, of each of
the following conditions (any of which may be waived by Sellers, in whole or in
part):

8.1 Accuracy of Representations

All of Buyer's representations and warranties in this Agreement
(considered collectively), and each of these representations and warranties
(considered individually), must have been accurate in all material respects as
of the date of this Agreement and must be accurate in all material respects as
of the Closing Date as if made on the Closing Date.

8.2 Buyer's Performance

(a) All of the covenants and obligations that Buyer is required to
perform or to comply with pursuant to this Agreement at or prior to the Closing
must have been performed and complied with in all material respects.

(b) The Purchase Price must have been delivered to Sellers.

8.3 Amended and Restated Credit Agreement

9. TERMINATION

9.1 Termination Events

This Agreement may, by notice given prior to or at the Closing, be
terminated:

(a) by either Buyer or Sellers (acting jointly) if a material Breach
of any provision of this Agreement has been committed by the other party and
such Breach has not been waived;

(b) (i) by Buyer if any of the conditions in Section 7 has not been
satisfied as of the Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Buyer to comply with its
obligations under this Agreement) and Buyer has not waived such condition on or
before the Closing Date; or (ii) by Sellers, if any of the conditions in Section
8 has not been satisfied of the Closing Date or if satisfaction of such a
condition is or becomes
<PAGE>

impossible (other than through the failure of Sellers to comply with its
obligations under this Agreement) and Sellers have not waived such condition on
or before the Closing Date;

(d) by either Buyer or Sellers (acting jointly) if the Closing has
not occurred (other than through the failure of any party seeking to terminate
this Agreement to comply fully with its obligations under this Agreement) on or
before July 15, 1999, or such later date as the parties may agree upon.

9.2 Effect of Termination

Each party's right of termination under Section 9.1 is in addition to any
other rights it may have under this Agreement or otherwise, and the exercise of
a right of termination will not be an election of remedies. If this Agreement is
terminated pursuant to Section 9.1, all further obligations of the parties under
this Agreement will terminate; provided, however, that if this Agreement is
terminated by a party because of the Breach of the Agreement by the other party
or because one or more of the conditions to the terminating party's obligations
under this Agreement is not satisfied as a result of the other party's failure
to comply with its obligations under this Agreement, the terminating party's
right to pursue all legal remedies will survive such termination unimpaired.

10. FURTHER AGREEMENTS OF SELLERS AND BUYER

10.1 Agreement Regarding Share or Loan Sales

In the event that either Buyer or Sellers plans to sell all or any portion
of its interest in (a) the Loan, (b) the Summo Shares, (c) any other shares of
capital stock of Summo or (d) the Warrants (as defined in the Warrant Agreement
of June 25, 1999 among Summo, St. Mary Minerals and Buyer), it shall first give
written notice to that effect to the other party indicating the interest to be
sold and the purchase price and terms which it expects to obtain. The other
party shall thereafter have the right for a period of ten days to sell an
equivalent portion of its interest in the Loan, Shares or Warrant (as the case
may be) at the same price and on the same terms as the sale to be made by the
selling party. If the purchaser of the interest of the selling party is not
willing to purchase equivalent portions of the interests of both parties, each
may sell a portion of the interest to be purchased by the purchaser determined
by multiplying such interest by a fraction the numerator of which is the
equivalent portion of such party and the denominator of which is the equivalent
portions of both parties.

10.2 Lenders Agreement

Notwithstanding the provisions of Article 11 of the Amended and Restated
Credit Agreement, the following acts of the Lenders under the Credit Agreement
shall require the unanimous approval of Buyer and St. Mary Minerals:

(a) Any change in the provisions of Section 3.2, 3.3 and 3.4 of the
Amended and Restated Credit Agreement relating to the payment of the principal
of and the interest on the Loans;
<PAGE>

(b) The application of Section 4.3 of the Amended and Restated
Credit Agreement with respect to the subordination of liens;

(d) The exercise or non-exercise of remedies upon any Event of
Default.

In the event of any failure of Buyer and St. Mary Minerals to agree upon
any matter set forth above, which failure continues for sixty days after such
agreement is first sought, either Buyer or St. Mary Minerals (the "Noticing
Party") may give notice to the other (the "Recipient Party") of the price and
terms upon which it is willing to sell its Percentage of the Loans after which
the Recipient Party shall have 15 days in which, by notice to the Noticing
Party, to elect either to purchase such Percentage of the Loans at such price
and upon such terms or to elect to sell its Percentage of the Loans at the same
price, adjusted for the difference between the Percentage of the Recipient Party
and that of the Noticing Party, and upon the same terms. If such notice is not
given within such period by the Recipient party, it shall be deemed to have
elected to sell its Percentage of the Loans.

11. GENERAL PROVISIONS

11.1 Expenses

Except as otherwise expressly provided in this Agreement, neither party to
this Agreement will bear the expenses of the other party incurred in connection
with the preparation, execution and performance of this Agreement and the
Contemplated Transactions, including all fees and expenses of agents,
representatives, counsel and accountants; subject, however, to any rights of any
party that may arise from a breach of this Agreement by another party.

11.2 Notices

All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by telecopier
(with written confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):

Sellers: St. Mary Land and Exploration Company
St. Mary Minerals, Inc.
1776 Lincoln Street
Denver, Colorado 80203
Attention: Mark A. Hellerstein
Facsimile No.: (303) 861-0934

with a copy to: Ballard, Spahr, Andrews & Ingersoll, LLP
1225 Seventeenth Street, Suite 2300
Denver, Colorado 80202
<PAGE>

Attention: Roger C. Cohen
Facsimile No.: (303) 296-3956

Buyer: Resource Capital Fund L.P.
2150 Republic Plaza Building
370 Seventeenth Street
Denver, Colorado 80202
Attention: James T. McCelements
Facsimile: (303) 607-0150

with a copy to: Davis, Graham & Stubbs
4700 Republic Plaza
370 Seventeenth Street
Denver, Colorado 80202
Attention: Brian T. Dolan
Facsimile No.: (303) 893-1379

11.3 Jurisdiction; Service of Process

Any action or proceeding seeking to enforce any provision of, or based on
any right arising out of, this Agreement may be brought against any of the
parties in the courts of the State of Colorado, County of Denver, or, if it has
or can acquire jurisdiction, in the United States District Court for the
Colorado District of Denver, and each of the parties consents to the
jurisdiction of such courts (and of the appropriate appellate courts) in any
such action or proceeding and waives any objection to venue laid therein.
Process in any action or proceeding referred to in the preceding sentence may be
served on any party anywhere in the world.

11.4 Further Assurances

The parties agree (a) to furnish upon request to each other such further
information, (b) to execute and deliver to each other such other documents, and
(c) to do such other acts and things, all as the other party may reasonably
request for the purpose of carrying out the intent of this Agreement and the
documents referred to in this Agreement.

11.5 Waiver

The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by any party in
exercising any right, power, or privilege under this Agreement or the documents
referred to in this Agreement will operate as a waiver of such right, power, or
privilege, and no single or partial exercise of any such right, power, or
privilege will preclude any other or further exercise of such right, power, or
privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed
<PAGE>

to be a waiver of any obligation of such party or of the right of the party
giving such notice or demand to take further action without notice or demand as
provided in this Agreement or the documents referred to in this Agreement.

11.6 Entire Agreement and Modification

This Agreement supersedes all prior agreements between the parties with
respect to its subject matter (including the Letter of Intent between Buyer and
St. Mary Minerals dated May 1, 1999) and constitutes (along with the documents
referred to in this Agreement) a complete and exclusive statement of the terms
of the agreement between the parties with respect to its subject matter. This
Agreement may not be amended except by a written agreement executed by the party
to be charged with the amendment.

11.7 Assignments, Successors, and No Third-party Rights

Neither party may assign any of its rights under this Agreement without
the prior consent of the other parties, which will not be unreasonably withheld,
except that Buyer may assign any of its rights under this Agreement to any
affiliate of Buyer. Subject to the preceding sentence, this Agreement will apply
to, be binding in all respects upon, and inure to the benefit of the successors
and permitted assigns of the parties. Nothing expressed or referred to in this
Agreement will be construed to give any Person other than the parties to this
Agreement any legal or equitable right, remedy or claim under or with respect to
this Agreement or any provision of this Agreement. This Agreement and all of its
provisions and conditions are for the sole and exclusive benefit of the parties
to this Agreement and their successors and assigns.

11.8 Severability

If any provision of this Agreement is held invalid or unenforceable by any
court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.

11.9 Section Headings, Construction

The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement. All words used in this Agreement will be construed to be of such
gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms.

11.10 Time of Essence

With regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.

11.11 Governing Law
<PAGE>

This Agreement will be governed by, and construed in accordance with, the
laws of the State of Colorado without regard to conflicts of laws principles.

11.12 Counterparts

This Agreement may be executed in one or more counterparts, each of which
will be deemed to be an original copy of this Agreement and all of which, when
taken together, will be deemed to constitute one and the same agreement.

[Balance of page intentionally left blank]
<PAGE>

IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.

- -------------------------------------------------------------------------------

RESOURCE CAPITAL FUND LP ST. MARY LAND &
By Resource Capital Associates LLC, EXPLORATION COMPANY
General Partner

By: /s/ JAMES T. McCLEMENTS By: /s/ MARK A. HELLERSTEIN
--------------------------------- -----------------------------------
Name: James T. McClements Name: Mark A. Hellerstein
Title: Managing Director Title: President and Chief
Executive Officer

ST. MARY MINERALS INC.

By: /s/ MARK A. HELLERSTEIN
-----------------------------------
Name: Mark A. Hellerstein
Title: President and Chief
Executive Officer

- --------------------------------------------------------------------------------

<PAGE>
EXHIBIT 10.31

AMENDED AND RESTATED

CREDIT AGREEMENT

Among

SUMMO USA CORPORATION

and

SUMMO MINERALS CORPORATION

as Borrowers

THE LENDERS

executing this Credit Agreement as a Lender

and

RESOURCE CAPITAL FUND L.P.

as Agent

Dated as of June 25, 1999
<PAGE>

CREDIT AGREEMENT

Table of Contents

Page
----

ARTICLE 1 CERTAIN DEFINITIONS AND ACCOUNTING PRINCIPLES...................2
1.1 Certain Defined Terms..........................................2
1.2 Accounting Principles.........................................10
1.3 Currency Conversions..........................................10

ARTICLE 2 COMMITMENTS, USE OF PROCEEDS,FEES..............................11
2.1 Commitment....................................................11
2.2 Use of Proceeds...............................................11
2.3 Fees ........................................................11

ARTICLE 3 PROCEDURE AND PAYMENT..........................................12
3.1 Advance Procedure.............................................12
3.2 Principal and Interest Payments Generally.....................12
3.3 Interest......................................................12
3.4 Repayment of the Loans........................................14
3.5 Application of Prepayments....................................14
3.6 Increased Costs and Reduction in Return.......................14
3.7 Payments and Computations.....................................15
3.8 Payment on Non-Business Days..................................15
3.9 Taxes ........................................................15
3.10 Authorized Representatives....................................17

ARTICLE 4 COLLATERAL SECURITY............................................17
4.1 Right of Set-off..............................................17
4.2 Lisbon Valley Additional Collateral...........................18
4.3 Subordination of Liens........................................18

ARTICLE 5 CONDITIONS PRECEDENT...........................................19
5.1 Conditions Precedent to the Initial Advance...................19
5.2 Conditions Precedent to All Advances..........................21

ARTICLE 6 REPRESENTATIONS AND WARRANTIES.................................22
6.1 Representations and Warranties of Borrowers...................22

ARTICLE 7 AFFIRMATIVE COVENANTS OF BORROWERS.............................27
7.1 Compliance with Laws, Etc.....................................27
7.2 Reporting Requirements........................................27
<PAGE>

7.3 Inspection....................................................29
7.4 Maintenance of Insurance......................................29
7.5 Keeping of Records and Books of Account.......................29
7.6 Preservation of Existence, Etc................................29
7.7 Conduct of Business...........................................30
7.8 Notice of Default.............................................30
7.9 Defense of Title..............................................30
7.10 Operations....................................................30
7.11 Maintenance of the Lisbon Valley Properties...................30
7.12 Payment of Project Expenses...................................30

ARTICLE 8 NEGATIVE COVENANTS OF BORROWERS................................31
8.1 Indebtedness..................................................31
8.2 Liens, Etc....................................................31
8.3 Assumptions, Guarantees, Etc. of Indebtedness of Other
Persons.................................................33
8.4 Investments in Other Persons..................................33
8.5 Mergers, Changes in Capital Structures, Etc...................33
8.6 Sale of Project Assets........................................33
8.7 Restrictive and Inconsistent Agreements.......................34
8.8 Grant of Royalties............................................34
8.9 Limitation on Issuance of Shares..............................34
8.10 Summo Dividends...............................................34

ARTICLE 9 THE WARRANT AGREEMENT..........................................34
9.1 Issuance of Warrant Agreement and Warrants....................34

ARTICLE 10 EVENTS OF DEFAULT..............................................35
10.1 Events of Default.............................................35
10.2 Remedies Upon Event of Default................................37

ARTICLE 11 THE AGENT......................................................38
11.1 Actions.......................................................38
11.2 Reliance......................................................39
11.3 Exculpation...................................................39
11.4 Consultation With Counsel, etc................................39

11.5 Successors....................................................40
11.6 Credit Decisions..............................................40
11.7 Copies, etc...................................................40

ARTICLE 12 MISCELLANEOUS..................................................41
12.1 Lenders' Representation on Summo Board of Directors...........41
12.2 Amendments, Etc...............................................41
12.3 Notices, Etc..................................................41
<PAGE>

12.4 No Waiver; Remedies...........................................42
12.5 Costs, Expenses and Taxes.....................................42
12.6 Indemnification...............................................43
12.7 Binding Effect; Assignment....................................43
12.8 GOVERNING LAW.................................................43
12.9 Submission to Jurisdiction....................................44
12.10 Waiver of Jury Trial..........................................44
12.11 Execution in Counterparts.....................................44
12.12 Inconsistent Provisions.......................................44
12.13 Termination of Agreement......................................44
12.14 Entire Agreement..............................................45
12.15 Invalidity, etc...............................................45
<PAGE>

SCHEDULES

Schedule 1.1(a) Lisbon Valley Properties
Schedule 1.1(b) Material Agreements
Schedule 1.1(c) Work Program and Budget
Schedule 3.10 Authorized Representative
Schedule 5.1(b)(ii) Required Summo Board of Directors Membership
Schedule 6.1(a) Borrowers' and Lisbon Valley's Subsidiaries
Schedule 6.1(e) Litigation
Schedule 6.1(h) Disclosure Schedule
Schedule 6.1(i) Existing Liens and Burdens on Production
Schedule 6.1(j) Capital Structure
Schedule 6.1(m) Environmental Disclosures
Schedule 6.1(n) Indebtedness
Schedule 6.1(q) Project Permits
Schedule 7.4 Insurance

EXHIBITS

Exhibit A Form of Request for Advance
Exhibit B Form of Note
Exhibit C-1 Form of Summo's Omnibus Certificate
Exhibit C-2 Form of Summo (USA)'s Omnibus Certificate
Exhibit C-3 Form of Lisbon Valley's Omnibus Certificate
Exhibit D-1 Form of Opinion of Borrowers' and Lisbon Valley's Counsel
Exhibit D-2 Form of Security Opinion
Exhibit E Form of Warrant Agreement
Exhibit F-1 Form of Summo's Pledge and Security Agreement
Exhibit F-2 Form of Summo (USA)'s Pledge and Security Agreement
Exhibit G Form of Amendment to Deed of Trust
Exhibit H Form of Amendment to Pledge and Security Agreement
<PAGE>

AMENDED AND RESTATED
CREDIT AGREEMENT

This AMENDED AND RESTATED CREDIT AGREEMENT dated as of June 25, 1999, is
by and among SUMMO USA CORPORATION, a corporation organized and existing under
the laws of Colorado ("Summo USA"), SUMMO MINERALS CORPORATION, a corporation
organized and existing under the laws of British Columbia ("Summo," with Summo
(USA) and Summo referred to as "Borrowers"), the Persons identified on the
signature pages hereof as lenders (each a "Lender" and together the "Lenders")
and RESOURCE CAPITAL FUND L.P., a Cayman Islands limited partnership (in such
capacity, together with its successors and permitted assigns in such capacity,
the "Agent").

Recitals

A. Loans evidenced by an Amended and Restated Convertible Promissory Note
effective as of January 1, 1999 (the "Existing Credit Agreement") have been
extended by St. Mary Minerals Inc. and St. Mary Land & Exploration Company to
the Borrowers on a joint and several liability basis and remain outstanding. The
loans are currently held by the Lenders as follows: St. Mary Minerals, Inc., in
the amount of US$1,400,000, and Resource Capital Fund L.P., in the amount of
US$2,059,101.

B. The Lenders and the Borrowers desire hereby to amend, restate and
replace the Existing Credit Agreement to provide for loans by Resource Capital
Fund L.P. pursuant hereto to the Borrowers of up to an additional US$1,940,899,
and in various other particulars as provided herein.

Agreement

NOW, THEREFORE, in consideration of the following mutual covenants and
agreements, the Borrowers, the Lenders and the Agent hereby amend, modify,
supersede and completely restate the Existing Credit Agreement to read as
follows:

ARTICLE 1

CERTAIN DEFINITIONS AND ACCOUNTING PRINCIPLES

1.1 Certain Defined Terms. As used in this Agreement and unless otherwise
expressly indicated, the following terms shall have the following meanings:
<PAGE>

"Advance" means an advance of the Loans by RCF to the Borrowers as
provided in Section 3.1.

"Advance Period" means the period from the Effective Date until the first
to occur of (a) December 31, 2000 and (b) any Date of Default pursuant to
Section 10.2 hereunder.

"Affiliate" means any Person directly or indirectly controlling or
controlled by or under common control with another Person, provided that, for
purposes of this definition, "control," as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities or by contract or otherwise.

"Agent's Account" means for the account of the Agent, at Morgan Guaranty
Trust Company, ABA # 031-100-238, 345 Park Avenue, 7th Floor, New York, New
York, Account No. 400-18-158.

"Agent's Fee" has the meaning specified in Section 2.3(b) hereof.

"Agreement" means this Amended and Restated Credit Agreement, as it may be
amended, supplemented, or otherwise modified in accordance with its terms and in
effect from time to time.

"Amendment to Deed of Trust" means the Amendment to Deed of Trust from
Lisbon Valley substantially in the form of Exhibit G hereto.

"Amendment to Pledge and Security Agreement" means the Amendment to Pledge
and Security Agreement in the form of Exhibit H hereto.

"Amount Outstanding" means the total aggregate principal amount of Loans
outstanding on the date of determination (which shall be a Business Day).

"Applicable Margin" means, with respect to the rate of interest payable by
the Borrowers on the Loans, two and one-half percent (2-1/2%) per annum.

"Authorized Representatives" has the meaning specified in Section 3.10.

"Borrowers" means Summo (USA) and Summo, on a joint and several liability
basis.

"Borrowers' Account" means a demand deposit account established by the
Borrowers at Norwest Bank Colorado, N.A., Account Number 1018025004, into which
all Advances will be deposited.
<PAGE>

"Breakage Costs" means all actual costs and losses which the Lenders may
incur (other than lost profits) as a result of payment of the Principal Amount
of any Loan other than at the end of an Interest Period, as referenced in
Section 3.3(c).

"Business Day" means a day of the year on which banks in Denver, Colorado,
and New York, New York are open for business.

"Canadian Dollars" and the symbol "C$" each mean lawful money of Canada.

"Capitalized Lease Liabilities" means all monetary obligations of the
Borrowers under any leasing or similar arrangement which, in accordance with
GAAP, would be classified as capitalized leases, and, for purposes of this
Agreement and each other Loan Document, the amount of such obligations shall be
the capitalized amount thereof, determined in accordance with GAAP, and the
stated maturity thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty.

"Collateral" means all properties, rights and interests subject to any of
the Security Documents.

"Contingent Liability" means any agreement, undertaking or arrangement by
which any Person guarantees, endorses or otherwise becomes or is contingently
liable upon (by direct or indirect agreement, contingent or otherwise, to
provide funds for payment, to supply funds to, or otherwise to invest in, a
debtor, or otherwise to assure a creditor against loss) the indebtedness,
obligation or any other liability of any other Person (other than by
endorsements of instruments in the course of collection), or guarantees the
payment of dividends or other distributions upon the shares of any other Person.
The amount of any Person's obligation under any Contingent Liability shall
(subject to any limitation set forth therein) be deemed to be the outstanding
principal amount (or maximum principal amount, if larger) of the debt,
obligation or other liability guaranteed thereby, less the value of any bonds,
letters of credit or cash collateral of such Person securing such contingent
liability.

"Credit Documents" means this Agreement, the Note, the Requests for
Advance, and each of the Security Documents, and all modifications and
extensions of such Instruments in accordance with their terms.

"Date of Default" shall have the meaning specified in Section 10.2(a).

"Default" means any Event of Default or any condition or event which,
after notice or lapse of time or both, would constitute an Event of Default.

"Default Rate" shall mean an annual rate of interest on the Loans, which
shall apply at any time that amounts payable hereunder or under the other Credit
Documents by the Borrowers, including principal, interest, fees and reimbursable
expenses, are due and payable
<PAGE>

but unpaid, which rate of interest shall equal the sum of the LIBOR Rate plus
the Applicable Margin plus four percent (4%).

"Effective Date" means June 25, 1999.

"Environmental Laws" means national, state and local laws or regulations,
codes, orders, decrees, judgments or injunctions issued, promulgated, approved
or entered thereunder relating to pollution or protection of the environment,
including, without limitation, laws relating to emissions, discharges, releases
or threatened releases of pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substances or wastes into the environment (including, without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata) or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants, contaminants,
chemicals or industrial, toxic or hazardous substances or wastes.

"Establishment Fee" has the meaning specified in Section 2.3(a).

"Event of Default" has the meaning set forth in Section 10.1.

"Existing Loans" means the loans evidenced by the Existing Credit
Agreement, being in the aggregate amount (Principal Amount and accrued interest)
of US$3,459,101.

"Existing Pledge and Security Agreement" means the Pledge and Security
Agreement dated November 23, 1998, made by Summo (USA) and Lisbon Valley in
favor of St. Mary.

"Fees" means the Agent's Fee and the Establishment Fee.

"GAAP" means generally accepted accounting principles in the United States
and Canada, as applicable to the Borrowers and Lisbon Valley.

"Governmental Acts" has the meaning set forth in Section 3.6.

"Governmental Authority" means the federal governments of the United
States and Canada and the provincial, state, territorial, county, city and
political subdivisions in which any property of the Borrowers and Lisbon Valley
is located or which exercises valid jurisdiction over any such property, or in
which the Borrowers or Lisbon Valley conducts business or is otherwise present,
and any agency, department, commission, board, bureau or instrumentality of any
of them which exercises valid jurisdiction over the Borrowers or Lisbon Valley.

"Governmental Requirement" means any law, statute, code, ordinance, order,
rule, regulation, judgment, decree, injunction, franchise, permit, certificate,
license, authorization or other direction or requirement (including, without
limitation, Environmental Laws, energy regulations and occupational, safety and
health standards or controls) of any Governmental Authority.
<PAGE>

"Indebtedness" means, for any Person, without duplication:

(a) all obligations of such Person for borrowed money including (i)
in the case of such obligations, all notes payable and drafts accepted
representing extensions of credit; and (ii) in the case of the Borrowers, the
Borrower's Obligations and all obligations evidenced by bonds, debentures,
notes, or other similar Instruments on which interest charges are customarily
paid;

(b) all obligations, contingent or otherwise, relative to the face
amount of all letters of credit, whether or not drawn, and bankers' acceptances
issued for the account of such Person;

(c) all obligations of such Person as lessee under leases which have
been or should be, in accordance with GAAP, recorded as Capitalized Lease
Liabilities;

(d) all other items which, in accordance with GAAP, would be
included as liabilities on the liability side of the balance sheet of such
Person as of the date at which Indebtedness is to be determined;

(e) whether or not so included as liabilities in accordance with
GAAP, all obligations of such Person to pay the deferred purchase price of
property or services, and indebtedness (excluding prepaid interest thereon)
secured by a Lien on property owned or being purchased by such Person (including
indebtedness arising under conditional sales or other title retention
agreements), whether or not such indebtedness shall have been assumed by such
Person or is limited in recourse; and

(f) all Contingent Liabilities of such Person in respect of any of
the foregoing.

"Initial Advance" means the first Advance of a Loan made by RCF to the
Borrowers under this Agreement.

"Instrument" means any contract, agreement, indenture, mortgage, document
or writing (whether formal agreement, letter or otherwise) under which any
obligation is evidenced, assumed or undertaken, or any Lien (or right or
interest therein) is granted or perfected.

"Interest Period" has the meaning set forth in Section 3.3(b).

"Lenders" means RCF and St. Mary and their respective permitted successors
and assigns.
<PAGE>

"LIBOR Rate" means, relative to any Interest Period, the rate of interest
equal to the average (rounded upwards, if necessary, to the nearest 1/16 of 1%)
of the rates per annum quoted by the Reuter Monitor Money Rates Service at which
United States Dollar deposits in immediately available funds are offered in the
London interbank market as at or about 11:00 a.m., London time, two Business
Days prior to the beginning of such Interest Period for delivery on the first
day of such Interest Period.

"Lien" means, as to any Person, any mortgage, lien, pledge, charge,
security interest or other encumbrance in or on, or any interest or title of any
vendor, lessor, lender or other secured party to, or of such Person under any
conditional sale or other title retention agreement or capital lease with
respect to, any property or asset owned or held by such Person, or the signing
or filing of a financing statement which names such Person as debtor, or the
signing of any security agreement authorizing any other party as the secured
party thereunder to file any financing statement. A Person shall be deemed to be
the owner of any assets that it has placed in trust for the benefit of the
holders of its indebtedness, which indebtedness is deemed to be extinguished
under GAAP but for which such Person remains legally liable, and such trust
shall be deemed to be a Lien.

"Lisbon Valley" means Lisbon Valley Mining Co. LLC., a limited liability
company organized under the laws of Utah, of which Summo and Summo(USA) are the
sole members.

"Lisbon Valley Feasibility Study" means the feasibility study by Robert &
Schaefer Company of Salt Lake City, Utah, dated June 18, 1996 and updated
October 23, 1996, pertaining to the development of the Lisbon Valley Properties.

"Lisbon Valley Properties" means the unpatented mining claims, state and
fee leases and fee lands held by Lisbon Valley in San Juan County, Utah, which
are identified in Schedule 1.1(a) hereto, together with all extensions and
renewals of such rights and interests and any additional rights and interests
acquired by the Borrowers, Lisbon Valley, or any Affiliate of any such Person in
such rights and interests or lands subject thereto.

"Loans" means the existing Loans and the additional amounts Advanced by
RCF to the Borrowers pursuant hereto.

"Losses" shall have the meaning specified in Section 12.6.

"Market Price" means on a specified date, the weighted average price per
Share at which the Shares have traded: (a) on The Toronto Stock Exchange; (b) if
the Shares are not listed on The Toronto Stock Exchange, on the stock exchange
on which the Shares are listed with the highest volume of the trading in the
calendar month preceding such determination; or (c) if the Shares are not
listed, on the over-the-counter market; during the 20 consecutive trading days
(on each of which at least 500 Shares are traded in board lots) ending the third
trading day before such date, and the weighted average price shall be determined
by dividing
<PAGE>

the aggregate sale price of all Shares sold in board lots on the exchange or
market, as the case may be, during the 20 consecutive trading days by the number
of Shares sold.

"Material Agreements" means the contracts, agreements, leases and other
binding commitments and undertakings of the Borrowers and Lisbon Valley, the
performance or breach of which could have a Material Adverse Effect on the
Borrowers or Lisbon Valley, respectively, which Instruments are identified in
Schedule 1.1(b) hereto.

"Material Adverse Effect" means, with respect to any Person, an effect,
resulting from any occurrence of whatever nature (including any adverse
determination in any litigation, arbitration, or governmental investigation or
proceeding), which is materially adverse to:

(a) the consolidated business, assets, revenues, financial
condition, operations or prospects of such Person;

(b) the ability of such Person to make any payment or perform any
other material obligation required under any material agreement (including, with
respect to the Borrowers, this Agreement or any of the Credit Documents); or

(c) in the case of the Borrowers and Lisbon Valley, involves a
liability or obligation (other than contractual commitments entered into by
either of the Borrowers or Lisbon Valley as contemplated by the Work Program and
Budget or otherwise in the ordinary course of business which are not in default)
of US$50,000 or more.

"Maturity Date" means the date on which the Loans are payable in full by
the Borrowers, being the first to occur of (a) any date on which the Lenders
accelerate the due date of any of the Loans by reason of an Event of Default
pursuant to Section 10.2, and (b) the Scheduled Maturity Date.

"Maximum Credit Amount" means Five Million Four Hundred Thousand United
States Dollars (US$5,400,000).

"month" means a calendar month.

"Note" and "Notes" means the Replacement Promissory Notes of the Borrowers
to each Lender substantially in the form of Exhibit B hereto.

"Obligations" means all obligations of the Borrowers with respect to the
repayment or performance of all obligations (monetary or otherwise) of the
Borrowers arising under or in connection with this Agreement, and each other
Transaction Document.

"Other Taxes" shall have the meaning specified in Section 3.9(b).
<PAGE>

"Permitted Liens" means the Liens identified in Schedule 6.1(i) and the
Liens permitted by clauses (i) through (xi) of Section 8.2.

"Percentage" shall be a percentage amount for each Lender, being an amount
determined at any time by dividing the Principal Amount of Loans made by such
Lender by the Principal Amount of all Loans hereunder.

"Person" means an individual, partnership, corporation (including a
business trust), joint venture limited liability company or other entity, or a
foreign state or political subdivision thereof or any agency of such state or
subdivision.

"Pledge Agreements" means the Summo Pledge and Security Agreement and the
Summo (USA) Pledge and Security Agreement.

"Principal Amount" means, as of any date, the outstanding principal amount
of the Loans.

"Project" means the development and operation of an open pit copper mine
and associated solvent extraction-electrowinning facilities on the Lisbon Valley
Properties and surrounding areas in accordance with the Lisbon Valley
Feasibility Study Work Program and Budget.

"Project Assets" means all properties, assets or other rights, whether now
owned or hereafter acquired by or for the benefit of Lisbon Valley, the
Borrowers or any Affiliate thereof, which are used or intended for use in or
forming part of the Project.

"Project Permits" shall have the meaning specified in Section 6.1(r).

"RCF" means Resource Capital Fund L.P., a Cayman Islands limited
partnership, in its capacity as a Lender hereunder.

"Repayment Event" means a sale or other disposition by the Borrowers or
Lisbon Valley to any Person other than a direct or indirect wholly-owned
Subsidiary of the Borrowers or Lisbon Valley of any interest in the Lisbon
Valley Properties and the Project in excess of 5%. For purposes hereof, a joint
venture, partnership, limited liability company, joint operating agreement or
any other cooperative agreement with a Person other than a wholly-owned
Subsidiary of the Borrowers or Lisbon Valley shall constitute a sale or other
disposition.

"Request for Advance" means the irrevocable request by the Borrowers for
an Advance in the form set forth in Exhibit A hereto, signed by an Authorized
Representative of the Borrowers.

"Scheduled Maturity Date" means July 1, 2004.
<PAGE>

"Security Documents" means the Existing Pledge and Security Agreement, the
Amendment to Pledge and Security Agreement, the Amendment to Deed of Trust, the
Pledge Agreements, all modifications and amendments thereof, and all financing
statements or other Instruments filed or required to be filed or notices given
or required to be given in order to perfect the Liens created by any of the
foregoing.

"Shares" mean the no par value common shares of capital stock of Summo.

"St. Mary" means St. Mary Minerals Inc., a Colorado corporation, a Lender
hereunder.

"Subsidiary" means any corporation, association or other business entity
more than 50% of each class of equity or voting securities of which is owned,
directly or indirectly, by either of the Borrowers.

"Summo's Pledge and Security Agreement" means the Pledge and Security
Agreement executed by Summo substantially in the form of Exhibit F-1 hereto.

"Summo (USA)'s Pledge and Security Agreement" means the Pledge and
Security Agreement executed by Summo (USA) substantially in the form of Exhibit
F-2 hereto.

"Taxes" shall have the meaning specified in Section 3.9.

"Transaction Documents" means the Credit Documents and the Warrant
Agreement, together with all other Instruments executed by the Agent, either of
the Lenders, either of the Borrowers or Lisbon Valley in connection therewith.

"United States Dollars" and the symbol "US$" each mean lawful money of the
United States of America.

"Warrants" shall have the meaning specified in the Warrant Agreement.

"Warrant Agreement" means the Warrant Agreement appended hereto as Exhibit
E.

"Work Program and Budget" means the program for work on and holding, care
and maintenance costs associated with the Lisbon Valley Properties and other
properties of the Borrowers and other activities, and the budget therefor agreed
upon by the Agent and the Borrowers, a copy of which is appended hereto as
Schedule 1.1(c).

"year" means a calendar year.

1.2 Accounting Principles. All accounting terms not otherwise defined
herein shall be construed, all financial computations required under this
Agreement and any other
<PAGE>

Transaction Document shall be made and shall be prepared, in accordance with
GAAP applied on a basis consistent with the financial statements referred to in
Section 6.1(f) except as specifically provided herein.

1.3 Currency Conversions. For purposes of application of the provisions of
this Agreement and the other Credit Documents, United States Dollar, Canadian
Dollar and any other relevant currency amounts will be converted by the Agent,
by reference to the rate of exchange quoted by Bloomberg as the 12:30-13:30 New
York Composite Opening Spot Rate for the relevant currencies on such day.

ARTICLE 2

COMMITMENTS, USE OF PROCEEDS, FEES

2.1 Commitments. Subject to all of the terms and conditions of this
Agreement, RCF agrees to make Advances of Loans to the Borrowers from time to
time during the Advance Period on a joint and several liability basis as
provided in Section 3.1, provided, however, that the aggregated Principal Amount
of Existing Loans and Loans Advanced hereunder shall not exceed the Maximum
Credit Amount.

2.2 Use of Proceeds. The Borrowers will utilize the proceeds of the Loans
exclusively as follows:

(a) to fund holding and other costs of the Lisbon Valley Properties
as outlined in the Work Program and Budget;

(b) to fund costs and expenses of Summo associated with copper
property identification, evaluation and acquisition in North and South America
as outlined in the Work Program and Budget or as otherwise approved by the
Agent; and

(c) to fund general working capital requirements of the Borrowers
contemplated by the Work Program and Budget or as otherwise approved by the
Agent.

2.3 Fees.

(a) Establishment Fee. The Borrowers agree to pay to the Lenders a
fee (the "Establishment Fee") at such time as the Borrowers have satisfied (or
the Agent has waived, in its sole discretion) all of the conditions precedent
set forth in Sections 5.1 and 5.2 hereof in the amount of Eighty Thousand United
States Dollars (US$80,000). The Establishment Fee will be payable on the first
to occur of (i) the third Business Day after the Agent's notice to the Borrowers
that all conditions to the Initial Advance have been satisfied or waived, or
(ii) the date of the Initial Advance. The Establishment Fee (which will be
<PAGE>

shared by the Lenders 74.07% to RCF and 25.93% to St. Mary) is not refundable to
the Borrowers, in whole or in part, under any circumstances.

(b) Agent's Fee. The Borrowers will pay the Agent an annual fee in
the amount of US$10,000 (the "Agent's Fee"). The Agent's Fee will be payable by
the Borrowers commencing July 1, 2000 and on each July 1 thereafter while any of
the Borrowers' Obligations remain outstanding. The Agent's Fee will be retained
by the Agent and not distributed to the Lenders. No portion of the Agent's Fee
is refundable to the Borrowers under any circumstances.

(c) Fee Payments. Payments of the Fees shall be made in United
States Dollars by wire transfer to the Agent's Account or, if payment is being
made on the date of the Initial Advance, at the Borrowers' election by written
notice to the Agent, deducted from the Initial Advance.

ARTICLE 3

PROCEDURE AND PAYMENT

3.1 Advance Procedure. Not less than two Business Days prior to the
desired date of the Advance of a Loan, the Borrowers will jointly submit a
Request for Advance to the Agent. Requests for Advance will be submitted
approximately quarterly and will pertain to expected unfunded cash requirements
of the Borrowers during the following three months which are included in Section
2.2. Each Request for Advance, which will be effective only upon actual receipt
by the Agent, will specify the Business Day on which the Advance is requested to
be made. Advances, which shall be made solely by RCF, shall be in the minimum
amount of US$200,000. No Advances will be made by St. Mary. Each Advance will be
made by deposit of the funds Advanced into the Borrowers' Account.

3.2 Principal and Interest Payments Generally. All principal and interest
payments due hereunder shall be made in immediately available funds in United
States Dollars to the Agent at the Agent's Account or at another account
designated by the Lenders, except that to the extent permitted by applicable law
and the rules and regulations of The Toronto Stock Exchange, interest payments
which are not overdue may, at the Borrowers' election, be made by delivery of
Shares in accordance with Section 3.3(d).

3.3 Interest.

(a) General. The Borrowers shall pay interest on the outstanding
Principal Amount of the Loans calculated on a 360-day year basis at the LIBOR
Rate plus the Applicable Margin or at the Default Rate, whichever is applicable.
Interest payable shall be calculated daily and compounded monthly. Interest
shall be payable semi-annually in arrears on the first Business Day of July and
January, commencing January, 2000 with respect to the
<PAGE>

preceding six month period, except that interest accruing while an Event of
Default is outstanding and interest accruing at the Default Rate shall be
payable on demand. The Borrowers shall pay to St. Mary at closing accrued
interest on the $1,400,000 Principal Amount of the St. Mary Loan hereunder, at
the interest rate provided in the Existing Credit Agreement, for the period May
1, 1999 through June 25, 1999.

(b) Interest Periods. The interest period for each Advance
("Interest Period") shall be 30 days, or such longer period of days as may be
requested by the Borrowers and agreed to by the Agent in its sole discretion, on
a 360-day year basis. No Interest Period for a Loan shall end after the
Scheduled Maturity Date.

(c) Indemnification. The Borrowers shall indemnify the Lenders
against any direct loss or expense (not including lost profits on re-employment
of capital) which the Lenders may sustain or incur as a result of the failure by
the Borrowers to pay when due the Principal Amount of the Loans. A certificate
or other notice of the Lenders submitted to the Borrowers setting forth the
amounts necessary to indemnify the Lenders in respect of such loss or expense,
shall constitute evidence of the accuracy of the information contained therein
in the absence of error and, absent notice from the Borrowers of such error,
shall be conclusive and binding for all purposes.

(d) Payment of Interest by Delivery of Shares. The Borrowers may, to
the extent permitted by applicable law and the rules and regulations of The
Toronto Stock Exchange, elect to pay any interest due hereunder which does not
constitute interest which accrued while an Event of Default is outstanding (i)
by giving notice to the Lenders not less than five Business Days prior to the
due date of such interest payment, or not less than five Business Days prior to
the date selected by the Borrowers for any voluntary prepayment of interest
which is specified in such notice, which notice shall set forth the undertaking
of the Borrowers to pay such interest by delivery of Shares, and (ii) by
delivery to the Lenders on such scheduled or specified voluntary interest
payment date a number of Shares determined by (y) dividing the interest payment
due or to be made (converted to Canadian Dollars in accordance with Section 1.3)
by (z) a Canadian Dollar amount reflecting the maximum discount to the Market
Price of the Shares permitted by applicable law and the Toronto Stock Exchange
(or other applicable exchanges) determined as of the date of such notice by the
Borrowers. The Shares so delivered shall be duly issued and nonassessable; shall
be evidenced by original certificates issued by Summo reflecting each of the
Lenders as the owner thereof, without legend or other notice of restriction on
transfer rights; shall be free of Liens or other claims of right or interest by
third Persons therein; and, shall be freely tradeable by the Lenders on The
Toronto Stock Exchange. Any notice by the Borrowers to pay accrued interest by
delivery of Shares to the Lenders shall be irrevocable. The Share certificates
issued by Summo to RCF and St. Mary, respectively, shall each be for a number of
Shares, determined as provided above, such that the number of Shares so issued
to the Lenders is in the same proportion as they would have shared a cash
payment of interest.
<PAGE>

(e) Interest Act (Canada). For purposes of any required disclosure
pursuant to the Interest Act (Canada), the yearly rate of interest to which any
rate of interest calculated on the basis of a year of 360 days is equivalent may
be determined by multiplying the applicable rate by a fraction, the numerator of
which is the number of days to the same calendar date in the next calendar year
(or 365 days if the calculation is made as of February 29) and the denominator
of which is 360.

3.4 Repayment of the Loans.

(a) Principal Repayment Generally. The Borrowers agree to repay the
Principal Amount of the Loans in full not later than the Maturity Date.

(b) Voluntary Prepayment. Upon not less than 30 days' prior notice
to the Agent, the Borrowers may prepay all or any part of (subject to the
minimum payment amount specified below) the Principal Amount of the Loans at the
end of any Interest Period applicable to the Loans. Upon the giving of notice of
prepayment, which shall be irrevocable, the prepayment, together with all
interest accrued through the prepayment date, shall be due and payable on the
date set forth therein, which date must be a Business Day. Any such voluntary
prepayment of the Loans shall be in the minimum Principal Amount of US$500,000.
Amounts so repaid cannot be reborrowed.

(c) Mandatory Prepayment. The Borrowers will prepay the Loans
together with accrued interest thereon, Breakage Costs and unpaid fees (i) in
full upon acceleration of the due date thereof by the Lender pursuant to Section
10.2, (ii) in full upon the occurrence of a Repayment Event, unless the Lenders,
in their sole discretion elect in writing to waive such payment, (iii) if Summo
pays a cash dividend to its shareholders, in an amount equal to the amount of
such cash dividend, payable when such dividend is paid; and (iv) upon any
exercise of the Warrants (with the mandatory prepayment to be in the amount
received by Summo by reason of such Warrant exercise). If a Warrant is exercised
by a Lender, notwithstanding any other provision hereof to the contrary the
proceeds to Summo from the exercise of the Warrant shall first be applied to
Loan Principal Amount and other amounts due such Lender hereunder, and only
after all of the Borrowers' Obligations to such Lender have been paid in full
shall any such proceeds be applied to the Borrowers' Obligations to the other
Lender.

3.5 Application of Prepayments. All prepayments made by the Borrowers
pursuant to Section 3.4 shall be accompanied by payment of the Lenders' Breakage
Costs, if any, and shall be applied first to accrued and unpaid interest on the
Loans so prepaid as of the end of the most recent Interest Period, then to any
other amounts then payable by the Borrowers hereunder including Breakage Costs
and fees, then to the Principal Amount of the Loans.

3.6 Increased Costs and Reduction in Return. If due to (a) the
introduction of, or any change (including, without limitation, any change by way
of imposition or increase of reserve requirements) in, or in the interpretation
of, any law or regulation or (b) the
<PAGE>

compliance by the Lenders with any guideline or request from any central bank or
other governmental agency having jurisdiction over the Lenders (whether or not
having the force of law) collectively referred to as "Governmental Acts," there
shall be any increase in the cost or reduction in return to the Lenders of
agreeing to make or making, funding or maintaining the Loans (other than
increases in taxation of income or franchise or similar fees, which are not
subject to this Section 3.6), then the Borrowers shall from time to time, upon
demand by the Lenders, (which demand shall specify the amount and nature of the
increased cost or decreased return) pay to the Lenders additional amounts
sufficient to indemnify them against such increased costs or reduction in
return; provided that the Lenders agree to use reasonable efforts to mitigate
the increased cost or reduction in return to the greatest extent practicable. A
certificate as to the nature and amount of such increased cost or reduced
return, submitted to the Borrowers by the Lenders, shall be conclusive absent
demonstration by the Borrowers of error.

3.7 Payments and Computations. Except as provided in Sections 2.3(b) and
3.3(d), payments by the Borrowers pursuant to this Agreement or any other Credit
Document, whether in respect of Principal Amount, interest or otherwise shall be
made by the Borrowers to the Lenders by delivery of United States Dollars in
immediately available funds to the Agent's Account, or such other account
designated from time to time by notice to the Borrowers from the Lenders. All
such payments shall be made, without set off, deduction or counterclaim, not
later than on the date when due. Any payments received hereunder after the time
and date specified in this Section shall be deemed to have been received by the
Lenders on the next following Business Day. All interest and fees shall be
computed on the basis of the actual number of days (including the first day but
excluding the last day) occurring during the period for which such interest or
fee is payable over a year comprised of 360 days.

3.8 Payment on Non-Business Days. Whenever any payments to be made
hereunder shall be stated to be due on a day which is not a Business Day, such
payment may be made on the next succeeding Business Day, and such extension of
time shall in such case be included in the computation of payment of interest or
fees, as the case may be, unless such next succeeding Business Day is after the
end of the Interest Period, in which case the payment will be made on the next
preceding Business Day and such payment shall not reflect the actual payment
date in the computation of interest or fees due and payable.

3.9 Taxes.

(a) General. Any and all payments by the Borrowers hereunder or
under any of the Credit Documents shall be made free and clear of and without
deduction for any and all present or future taxes, levies, duties, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto
(excluding taxes imposed on the Lenders' income and franchise taxes imposed on
the Lenders) imposed by the jurisdiction under the laws of which any Lender is
organized, or Canada or any other jurisdiction under the laws of which any
Lender is otherwise subject to tax, or any political subdivision thereof (all
such non-excluded
<PAGE>

taxes, levies, duties, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes"). If the Borrowers shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder to the Lenders, (i) the sum payable shall be increased as may be
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 3.9) the Lenders
receive an amount equal to the sum they would have received had no such
deductions been made, (ii) the Borrowers shall make such deductions and (iii)
the Borrowers shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law. The foregoing
obligation of the Borrowers will apply with respect to any assignee of the
Lenders; provided, however, that the obligations of the Borrowers hereunder
shall not be increased by reason of any assignment hereof by any Lender.

(b) Other Taxes. In addition, the Borrowers agree to pay any present
or future stamp, sales, use or documentary taxes or any other excise or property
taxes, charges, duties or similar levies which arise from any payment made
hereunder or from the execution, delivery or registration of, or otherwise with
respect to, this Agreement, any of the Transaction Documents, or any Instrument
contemplated thereby (hereinafter referred to as "Other Taxes").

(c) Tax Indemnity. The Borrowers hereby indemnify the Lenders and
the Agent for the full amount of Taxes and Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts
payable under this Section 3.9) paid by the Lenders or the Agent and any
liability (including penalties, interest and expenses) arising therefrom or with
respect thereto.

(d) Payment of Taxes. Within 30 days after the date of any payment
of Taxes or Other Taxes withheld by the Borrowers in respect of any payment to
the Lenders, the Borrowers will furnish to the Lenders a form of evidence of
payment thereto acceptable to the Lenders in their sole discretion.

(e) Survival. Without prejudice to the survival of any other
agreement hereunder, the agreements and obligations contained in this Section
3.9 shall survive the payment in full of the Loans and interest hereunder.

(f) Further Assurances. After receipt from the Borrowers of each
payment made pursuant to this Section 3.9, the Lender shall, if reasonably
requested by the Borrowers and at the Borrowers' cost and expense, submit and
pursue any necessary applications to obtain any refund, credit, allowance,
remission or deduction from income otherwise determined or tax otherwise
payable, to which any such Lender may be entitled from the taxation authorities
of any relevant taxing jurisdictions in respect of any payment of Taxes or Other
Taxes referred to in this Section 3.9. If any such refund shall be received or
due payment of tax reduced by reason of such refund, credit, allowance,
remission or deduction, the Lenders shall, to the extent that they can do so
without prejudice to their ability to retain the amount of such refund, credit,
allowance, remission or deduction, promptly notify the
<PAGE>

Borrowers thereof and account to them for an amount equal to the refund received
or credit, allowance, remission or deduction given. If the Borrowers are
required to make any payments pursuant to this Section 3.9, the Lenders shall
endeavor to limit the incidence of the Taxes or the Other Taxes in question by
causing amounts outstanding hereunder to be administered by or payable to a
Subsidiary or Affiliate of a Lender so long as the same can be done in a manner
which is not disadvantageous to the Lender and provided that such procedures
shall be reasonably practicable, each as determined by the Lenders in their sole
discretion, but acting in good faith.

3.10 Authorized Representatives. Appended hereto as Schedule 3.10 are the
names, titles and specimen signatures of officers or employees of each of the
Borrowers who are authorized to submit Requests for Advances ("Authorized
Representatives") and otherwise to act on behalf of the Borrowers with respect
to this Agreement and the other Credit Documents. The Borrowers may modify
Schedule 3.10 from time to time by submission of a revised version of Schedule
3.10 to the Agent, bearing a date and original specimen signatures, which
revision will be effective only upon receipt by the Agent.

ARTICLE 4

COLLATERAL SECURITY

4.1 Right of Set-off.

(a) Upon the occurrence and during the continuance of any Event of
Default, the Agent and the Lenders are hereby authorized at any time and from
time to time, without notice to the Borrowers (any such notice being expressly
waived by the Borrowers), to set off and apply any and all deposits (general or
special, time or demand, provisional or final, at any time held and other
indebtedness at any time owing by the Lenders to or for the credit or the
account of either of the Borrowers against any and all of the Obligations of the
Borrowers hereunder or under any other Transaction Document now or hereafter
existing, although such Obligations of the Borrowers may be contingent and
unmatured. The Lenders agree promptly to notify the Borrowers after any such
set-off and application, provided that the failure to give such notice shall not
affect the validity of such set-off and application. The rights of the Lenders
under this Section 4.1 are in addition to other rights and remedies (including,
without limitation, other rights of set-off) which the Lender may have.

(b) In the event any Lender shall obtain from a Borrower payment of
any principal of or interest on any Loan owing to it or payment of any other
amount under this Agreement or any other Credit Document through the exercise of
any right of set-off, banker's lien or counterclaim or similar right or
otherwise (other than from Agent as provided herein), such Lender shall cause
such amount to be shared by all Lenders in accordance with their respective
Percentages.
<PAGE>

(c) The Borrowers hereby consent to the arrangements described in
clause (b) above and agree that any Lender so purchasing such a participation or
other interest may exercise all rights of set-off, banker's lien, counterclaim
or similar rights with respect to such participation as fully as if such Lender
were a direct holder of Loans or other amounts (as the case may be) owing to
such Lender in the amount of such participation.

(d) Nothing contained herein shall require any Lender to exercise
any such right or shall affect the right of any Lender to exercise, and retain
the benefits of exercising, any such right with respect to any other
indebtedness or obligation of any of the Borrowers.

4.2 Lisbon Valley Additional Collateral. The Borrowers and the Lenders
intend that the Security Documents cover and extend to all right, title and
interest of Lisbon Valley, and of all Affiliates of the Borrowers, in and to the
Lisbon Valley Properties, all tangible personal property of such Persons located
thereon or associated therewith, all intangible personal property of such
Persons associated therewith, and all production and proceeds therefrom. The
Borrowers agree to do all acts necessary, and to cause Lisbon Valley and all
other Affiliates of the Borrowers having interests therein to take all actions
necessary, to create and perfect first and prior enforceable Liens in all such
real and personal property, subject only the Section 4.3 below.

4.3 Subordination of Liens. The Lenders agree to subordinate their Liens
on any property which is subject to any Security Documents pursuant to a written
subordination agreement on terms reasonably acceptable to the Lenders: (a) to
Liens in favor of a third Person or Persons providing senior debt, secured
project financing for the construction and operation of a commercial copper mine
and production facility on the Lisbon Valley Properties pursuant to a budget and
plan approved by the Lenders in their reasonable discretion; and (b) to Liens in
favor of a third Person or Persons providing working capital for the operation
of the Lisbon Valley Properties and Project as required by any such approved
plan and budget, provided that the terms of such financing are acceptable to the
Lenders, and provided further that the Lenders receive Liens in all collateral
security received by such Persons extending such financing from the Borrowers
and Lisbon Valley, subordinated and second only to the first and prior Liens in
favor of such Persons to secure the senior debt extended by such Persons. The
foregoing undertaking by Lenders to subordinate is limited to senior, secured
debt provided by such Persons and does not apply to any other financing provided
by such Persons.

ARTICLE 5

CONDITIONS PRECEDENT

5.1 Conditions Precedent to the Initial Advance. The obligations of RCF to
make the Initial Advance are subject to satisfaction (or waiver by RCF in its
sole discretion) of the following conditions precedent.
<PAGE>

(a) The Agent or its counsel shall have received the following on or
before the date of the Initial Advance, with each Instrument dated on or no more
than five days prior to such date (or as otherwise agreed by the Agent), and in
form and substance as shall be satisfactory to the Lender:

(i) this Agreement, duly executed by the Borrowers;

(ii) the Security Documents, each duly executed by the
Borrowers and Lisbon Valley, together with any financing statements or other
instruments for filing, amendments thereto, notices or other Instruments
determined by the Agent to be necessary or desirable to perfect the Liens
established pursuant to the Security Documents;

(iii) the shares of capital stock of Summo (USA) and Nord
Resources Corp. pledged by Summo pursuant to the Summo Pledge and Security
Agreement, together with undated and blank stock transfers therefor duly
executed by Summo, and the certificates of interest in Lisbon Valley pledged by
each of Summo and Summo (USA) pursuant to the Pledge Agreements together with
undated and blank transfer or assignment instruments therefor duly executed by
Summo and Summo (USA), respectively;

(iv) the Warrant Agreement, and the Warrants, each duly
executed by Summo;

(v) an Omnibus Certificate for Summo, duly executed by an
Authorized Representative thereof, substantially in the form of Exhibit C-1
hereto;

(vi) an Omnibus Certificate for Summo (USA), duly executed by
an Authorized Representative thereof, substantially in the form of Exhibit C-2
hereto;

(vii) an Omnibus Certificate for Lisbon Valley, duly executed
by an Authorized Representative thereof, substantially in the form of Exhibit
C-3;

(viii) a certificate from the British Columbia Registrar of
Companies confirming the organization and good standing of Summo in the Province
of British Columbia;

(ix) a certificate from the Colorado Secretary of State
confirming the due qualification of Summo to do business in the State of
Colorado;

(x) a certificate from the Colorado Secretary of State
confirming the organization and good standing of Summo (USA) in the State of
Colorado;

(xi) a certificate from the Utah Secretary of State confirming
the organization and good standing of Lisbon Valley in the State of Utah;
<PAGE>

(xii) an Opinion of Borrowers' and Lisbon Valley's Counsel
substantially in the form of Exhibit D-1 hereto;

(xiii) the Security Opinion, substantially in the form of
Exhibit D-2 hereto;

(xiv) certificates of issuing insurance companies, confirming
compliance by the Borrowers with the insurance requirements set forth in Section
7.4;

(xv) accurate and complete copies of the financial statements
referred to in Section 6.1(f);

(xvi) evidence reasonably satisfactory to the Agent that the
Warrant Agreement has been entered into, and that the Warrants have been or may
be issued by Summo pursuant to approval by the Board of Directors of Summo and
in accordance with applicable British Columbia (and as applicable, Ontario)
provincial law and the rules and regulations of The Toronto Stock Exchange;

(xvii) evidence of an amendment to the Lisbon Valley Operating
Agreement, confirming that Summo and Summo (USA) are the sole members thereof
and modifying Section 9 thereof to permit disposition and transfer of the
pledged interests in Lisbon Valley upon foreclosure, in form acceptable to the
Agent; and

(xviii) such other approvals, opinions or documents as the
Agent may reasonably request.

(b) The following shall be completed as of the date of the Initial
Advance by RCF:

(i) the Agent shall have approved Lisbon Valley's title to the
Lisbon Valley Properties and the Liens established by each Security Document
shall be in full force and effect as valid, enforceable first priority Liens on
the Collateral, except for Permitted Liens; and

(ii) the Board of Directors of Summo shall consist of the
individuals specified in Schedule 5.1(b)(ii).

5.2 Conditions Precedent to All Advances. The obligation of RCF to make
each Advance of a Loan hereunder (including the Initial Advance) is subject to
the satisfaction (or waiver by the Agent in its sole discretion) of each of the
following conditions precedent:
<PAGE>

(a) the Borrowers and Lisbon Valley shall have performed and
complied with all agreements and conditions herein required to be performed and
complied with on or prior to the date of such Advance;

(b) the Agent shall have received a Request for Advance, duly
executed by the Borrowers with respect to such Advance;

(c) on the date of such Advance, the Agent shall have received such
other approvals, opinions or documents as the Agent may reasonably request;

(d) on the date of such Advance, the Agent shall have satisfied
itself of the absence of a Material Adverse Effect with respect to the Borrowers
and Lisbon Valley;

(e) there shall exist no Default or Event of Default;

(f) all representations and warranties made by the Borrowers herein
shall be true and correct on the date of such Advance, except for (i) such
changes therein as shall be acceptable to the Agent or (ii) such changes therein
as do not have a Material Adverse Effect on the Borrowers or Lisbon Valley; and

(g) all Governmental Requirements and all material approvals and
consents (including, without limitation, all Project Permits) of Governmental
Authorities or other Persons, if any, required in connection with the operation
of the Project, the Advance of the Loans and the performance by the Borrowers
and Lisbon Valley of their obligations under the Credit Documents, and for the
Lenders' realization of their rights thereunder shall have been obtained and
complied with by the Borrowers and Lisbon Valley in all material respects and
remain in effect.

ARTICLE 6

REPRESENTATIONS AND WARRANTIES

6.1 Representations and Warranties of Borrowers. The Borrowers jointly and
severally represent and warrant as follows:

(a) Organization, Qualification and Subsidiaries. Summo is a
corporation duly incorporated, validly existing and in good standing under the
laws of the Province of British Columbia and has all requisite corporate power
and authority to enter into this Agreement and the Transaction Documents and to
carry out the transactions contemplated hereby and thereby. Summo USA is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Colorado and has all requisite corporate power and
authority to enter into this Agreement and the Credit Documents and to carry out
the transactions contemplated hereby and thereby. Lisbon Valley is a limited
liability
<PAGE>

company duly established, validly existing and in good standing under the laws
of the State of Utah and has all requisite power and authority to enter into the
Amendment to Deed of Trust and the other Security Documents to which it is a
party. Each of the Borrowers and Lisbon Valley is duly qualified to do business
as a foreign corporation in each jurisdiction where the nature of its business
or properties requires such qualification. Except as disclosed in Schedule
6.1(a), the Borrowers and Lisbon Valley have no Subsidiaries.

(b) Authorization; No Conflict. The execution, delivery and
performance by the Borrowers of this Agreement and of the other Transaction
Documents have been duly authorized by all necessary corporate action on the
part of the Borrowers and do not and will not (i) require any consent or
approval of the stockholders of the Borrowers; (ii) contravene the Borrowers'
respective articles of incorporation, charter or bylaws; (iii) violate any
provision of any law, rule, regulation (including stock exchange rules and
regulations of The Toronto Stock Exchange), order, writ, judgment, injunction,
decree, determination or award presently in effect having applicability to the
Borrowers; (iv) result in a breach of or constitute a default under or require
the consent of any party pursuant to any indenture or loan or credit agreement
or any other agreement, lease or instrument to which either of the Borrowers is
a party or by which either Borrower or its properties may be bound or affected;
or (v) result in, or require, the creation or imposition of any Lien (other than
Liens arising under the Security Documents) upon or with respect to any of the
properties now owned by the Borrowers; and, to the best knowledge of the
Borrowers, the Borrowers are not in default in any material respect under any
such law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award or any such indenture, agreement, lease or instrument.
The execution, delivery and performance by Lisbon Valley of the Amendment of
Deed of Trust and the other Security Documents to which it is a party have been
duly authorized by all necessary corporate action on the part of Lisbon Valley
and do not and will not (i) require any consent or approval of the Members of
Lisbon Valley; (ii) contravene Lisbon Valley's organizational documents, order,
writ, judgment, injunction, decree, determination or award presently in effect
having applicability to Lisbon Valley; (iv) result in a breach of or constitute
a default under or require the consent of any party pursuant to any indenture or
loan or credit agreement or any other agreement, lease or instrument to which
Lisbon Valley is a party or by which it or its properties may be bound or
affected; or (v) result in or require the creation or imposition of any Lien on
any property of Lisbon Valley except Liens contemplated thereby.

(c) Governmental and Other Consents. No authorization or approval or
other action by, and no notice to or filing with, any Governmental Authority or
with The Toronto Stock Exchange is required (i) for the due execution and
delivery of, and due performance of the financial and other obligations of the
Borrowers or Lisbon Valley, respectively, under any Transaction Document, (ii)
for the due performance of all other obligations of the Borrowers and Lisbon
Valley, respectively, under any Transaction Document (other than registrations
or filings to perfect the liens created by the Security Documents) except (iii)
as specifically set out in this Agreement, (iv) such authorizations, approvals
or other actions as have been obtained or notices or filings as have been made,
and
<PAGE>

(v) the filing of the documentation with The Toronto Stock Exchange contemplated
in its letter dated May 21, 1999 to counsel for Summo, a copy of which has been
provided to the Agent.

(d) Binding Obligations. This Agreement is, and the other
Transaction Documents when delivered hereunder will be, the legal, valid and
binding obligations of the Borrowers and Lisbon Valley, respectively,
enforceable against the Borrowers and Lisbon Valley, respectively, in accordance
with their respective terms (except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws or equitable principles
affecting enforcement of creditors' rights generally at the time in effect).

(e) Litigation. Except as indicated in Schedule 6.1(e) hereto, there
is no action, proceeding or investigation pending or threatened in writing
against or involving the Borrowers, Lisbon Valley, the Lisbon Valley Properties
or the Project which alleges the violation of any laws, or which questions the
validity of this Agreement, or any other Transaction Documents, Project Permits
or Material Agreements or any action taken or to be taken pursuant to this
Agreement, or any of the Transaction Documents or which questions the nature or
extent of Lisbon Valley's title to the Lisbon Valley Properties or assets
related thereto, which involves any Material Agreement, or which might result,
either in any case or in the aggregate, in any Material Adverse Effect on the
business, operations, condition (financial or otherwise), aggregate properties
or aggregate assets of the Borrowers or Lisbon Valley or in any material
liability on the part of the Borrowers or Lisbon Valley.

(f) Financial Statements; No Material Adverse Change. The
consolidated balance sheet of Summo as of December 31, 1998, and the related
consolidated statements of income and retained earnings of Summo for the period
then ended, audited by PriceWaterhouse Coopers LLP, and the unaudited
consolidated balance sheet of Summo as of March 31, 1999, and the related
unaudited consolidated statement of income and retained earnings of Summo for
the three-month period then ended, copies of which have been furnished to the
Agent, fairly present the financial condition of the Borrowers and Lisbon Valley
as at such dates and the results of the operations of the Borrowers and Lisbon
Valley for the period ended on such dates, all in accordance with GAAP
consistently applied (except that the unaudited balance sheet and statement of
income for Summo may not comply with GAAP in that it does not contain full note
disclosures as required by GAAP). Neither the Borrowers nor Lisbon Valley has on
the date hereof any material Contingent Liability or liability for taxes,
long-term leases or unusual forward or long-term commitments which are not
reflected in such financial statements. Since March 31, 1999, except as
previously disclosed in writing to the Agent, neither the business, operations
or prospects of the Borrowers nor Lisbon Valley, nor any of their respective
properties or assets, have been affected by any occurrence or development
(whether or not insured against) which would result, either in any case or in
the aggregate, in a Material Adverse Effect on the Borrowers or Lisbon Valley.
<PAGE>

(g) Other Agreements. Neither the Borrowers nor Lisbon Valley are a
party to any indenture, loan or credit agreement or any lease or other agreement
or instrument (other than the Material Agreements) or subject to any charter or
other corporate or limited liability company restriction which would, upon a
default thereunder or otherwise, result in a Material Adverse Effect on any of
the Borrowers or Lisbon Valley, or materially impair the ability of the
Borrowers or Lisbon Valley to carry out their respective Obligations under this
Agreement, or any of the other Transaction Documents or the ability of Lisbon
Valley to carry out its obligations under the Amendment to Deed of Trust and the
other Security documents to which it is a party.

(h) Information Accurate. Except as disclosed in Schedule 6.1(h)
hereto, none of the information delivered to the Lenders or the Agent by the
Borrowers contains any material misstatement of fact or omits to state a
material fact, and all projections contained in any such information, exhibits
or reports, were based on information which when delivered was, to the best
knowledge of the Borrowers, true and correct, and to the best knowledge of the
Borrowers all calculations contained in such projections were accurate, and such
projections presented the Borrowers' then-current estimate of their future
business, operations and affairs and, since the date of the delivery of such
projections, to the best knowledge of the Borrowers, there has been no material
change in the assumptions underlying such projections, or the basis therefor or
the accuracy thereof.

(i) Title to Borrowers' Properties and the Lisbon Valley Properties;
Liens.

(i) With respect to those properties owned by the Borrowers
which are subject to any Security Documents and with respect to the Lisbon
Valley Properties, the Borrowers or Lisbon Valley, respectively, are in
possession of and own exclusively interests in such properties as disclosed in
Schedule 6.1(i), free and clear of all royalties, production payments or other
burdens on production and all material defects of title or Liens (except
royalties, production payments, other burdens on production, title defects and
Liens disclosed in Schedule 6.1(i) hereto or permitted by Section 8.2 hereto).

(ii) With respect to the Lisbon Valley Properties held under
leases, licenses or other contracts: (A) Lisbon Valley is in exclusive
possession of such properties; (B) Lisbon Valley has not received any notice of,
and has no knowledge of any default of any of the terms or provisions of such
leases or contracts; (C) no provision of any such lease prohibits or would be
breached by the Borrowers' performance of their obligations under this Agreement
and the other Transaction Documents or Lisbon Valley's performance of its
obligations under the Amendment to Deed of Trust or other Security Documents to
which it is a party; (D) to the best of the Borrowers' and Lisbon Valley's
knowledge and belief, such leases and contracts are valid and are in good
standing; and (E) to the best of the Borrowers' and Lisbon Valley's knowledge
and belief, the properties covered thereby are free and clear of all defects of
title or Liens, except for those specifically disclosed in Schedule 6.1(i) or
permitted by Section 8.2 hereto or in such leases or contracts.
<PAGE>

(iii) The Borrowers have delivered or will make available to
the Agent all information concerning title to the properties in the Borrowers'
or Lisbon Valley's possession or control, or to which the Borrowers or Lisbon
Valley has access, which any Lender requests.

(j) Capital Structure. The Borrowers, Lisbon Valley, and the
Subsidiaries, respectively, have the number of authorized, issued and
outstanding shares and shares reserved for issuance and other ownership or
equity interests specified in Schedule 6.1(j). All shares of stock and other
shares or interests identified in such Schedule were duly and validly issued and
are non-assessable. Except for the securities contemplated by the Warrant
Agreement, and except as indicated in Schedule 6.1(j), the Borrowers, Lisbon
Valley and the other Subsidiaries have no outstanding warrants or other
obligations to issue additional shares or other equity interests, including any
stock or securities convertible into or exercisable or exchangeable for any
shares of its capital stock or any rights or options to purchase any of the
foregoing, or to convert any existing Indebtedness to equity interests in such
Persons.

(k) Material Agreements; Absence of Default. All of the Borrowers'
and Lisbon Valley's Material Agreements are identified in Schedule 1.1(b)
hereto. All of the Borrowers' Sales Contracts in effect on the Effective Date
are identified in Schedule 1.1(d) hereto. The Borrowers and Lisbon Valley are
not in default under any of the Material Agreements and have not received any
notice of an asserted default thereunder from any other Person that is a party
to any such agreement.

(l) Taxes and Other Payments. The Borrowers and Lisbon Valley have
each filed all tax returns (including all property tax returns and other similar
tax returns applicable to the Lisbon Valley Properties) and reports required by
law to have been filed by any of them and each has paid all taxes and
governmental charges thereby shown to be owing and all claims for sums due for
labor, material, supplies, personal property and services of every kind and
character provided with respect to, or used in connection with their respective
properties and no claim for the same exists except as permitted hereunder,
except any such taxes, charges or amounts which are being diligently contested
in good faith by appropriate proceedings and for which adequate reserves in
accordance with GAAP have been set aside on the books of the Borrowers or Lisbon
Valley.

(m) Environmental Laws. Except as set forth in Schedule 6.1(m)
hereto:

(i) all facilities and property of the Borrowers and Lisbon
Valley, including the Lisbon Valley Properties, have been, and continue to be,
owned, operated, leased or utilized by the Borrowers and Lisbon Valley in
material compliance with all applicable laws, including Environmental Laws; and
<PAGE>

(ii) there have been no past, and there are no pending or
threatened claims, complaints, notices or requests for information received by
the Borrowers or Lisbon Valley with respect to any alleged violation of any law,
including Environmental Laws.

(n) Borrowers' and Lisbon Valley's Indebtedness. Except as disclosed
in Schedule 6.1(n) hereto or specifically identified in the consolidated
financial statements of Summo identified in Section 6.1(f), the Borrowers and
Lisbon Valley have no existing Indebtedness which is not in the ordinary course
of business.

(o) Compliance with Laws, Etc. The Borrowers and Lisbon Valley,
respectively, are in material compliance with all laws, regulations and rules of
federal, provincial, territorial or local Governmental Authorities applicable to
each of them or to the Lisbon Valley Properties. Summo is in material compliance
with all rules and regulations of The Toronto Stock Exchange, including in
particular, all requirements for public disclosure of information concerning
Summo, Summo (USA) and Lisbon Valley, its properties, business and prospects,
and for issuance of the securities contemplated by the Warrant Agreement.

(p) Work Program and Budget. The Work Program and Budget has been
prepared in accordance with prudent mining practices, has been diligently
reviewed by the Borrowers and Lisbon Valley, and the Borrowers and Lisbon Valley
are not aware of any facts or state of affairs which would materially hinder or
prevent the Borrowers and Lisbon Valley from operating the Project in accordance
with the Work Program and Budget.

(q) Project Permits. Except for permits, approvals and consents
which are to be obtained from time to time by Lisbon Valley in the ordinary
course of business and the absence or delay of which will not materially
interfere with the operation of the Lisbon Valley Properties in accordance with
the Work Program and Budget, all permits, approvals and consents of Governmental
Authorities which are necessary to develop and operate the Lisbon Valley
Properties in accordance with the Work Program and Budget (the "Project
Permits") are identified in Schedule 6.1(q) hereto. All Project Permits (as so
identified in Schedule 6.1(q)) have been obtained by Lisbon Valley and are in
full force and effect, free of material defaults by Lisbon Valley, except as
specified in Schedule 6.1(q).

ARTICLE 7

AFFIRMATIVE COVENANTS OF BORROWERS

So long as any Loans shall remain unpaid, or any other Obligation of the
Borrowers shall not have been fully performed or waived by the Agent, the
Borrowers shall, unless the Agent otherwise consents in writing (which consent
the Agent may grant or withhold in its sole discretion), perform all covenants
in this Article 7.
<PAGE>

7.1 Compliance with Laws, Etc. The Borrowers shall comply, and shall cause
Lisbon Valley to comply, in all material respects with all applicable laws,
rules, regulations and orders, such compliance to include, without limitation,
paying before the same become delinquent all taxes, assessments, and
governmental charges imposed upon their respective property, except to the
extent contested in good faith and adequately reserved for in accordance with
GAAP.

7.2 Reporting Requirements. The Borrowers shall deliver, and shall cause
Lisbon Valley to deliver, to each of the Lenders the reports, information and
certificates (each in form reasonably acceptable to the Lenders) set forth
below:

(a) Monthly Reports. No later than the 15th day of each month, a
report concerning their operations and activities and operations of the Project
during the preceding month, including cost information and statistics and a
comparison of actual expenditures contrasted with projected expenditures as
budgeted in the Work Program and Budget, in form and substance reasonably
acceptable to the Lenders.

(b) Quarterly Financial Information and Certificate. As soon as
available and in any event within 60 days after the end of each quarter of each
year, (i) a balance sheet of the Borrowers, as of the end of such quarter and
statements of income and retained earnings of the Borrowers for such quarter and
for the period commencing at the end of the previous year and ending with the
end of such quarter, (ii) a report of any material changes in the forecast
budget for such quarter, and (iii) a certificate certified by the chief
financial officer of the Borrowers confirming compliance by the Borrowers with
the other covenants herein and in the Credit Documents.

(c) Annual Financial Information. As soon as available and in any
event within 140 days after the end of each year, a consolidated balance sheet
of Summo as of the end of such year and consolidated statements of income, cash
flow and retained earnings of Summo for such year (in each case setting out
separately for Lisbon Valley a balance sheet and statement of income and
retained earnings), audited by PriceWaterhouse Coopers, or other chartered
public accountants acceptable to the Lenders.

(d) Environmental Matters, Project Permits. Promptly after the
filing or receiving thereof, copies of all notices which either of the Borrowers
or Lisbon Valley receives from any Governmental Authority alleging its
noncompliance with Environmental Laws or Project Permits and any replies of the
Borrowers or Lisbon Valley in response thereto.

(e) Litigation. Promptly after initiation thereof, notice of any
litigation by or against either of the Borrowers, Lisbon Valley or the Lisbon
Valley Properties.

(f) Securities Law and Exchange Filings and Notices. Promptly after
the filing thereof, all reports, notices or other filings by Summo with Canadian
provincial or
<PAGE>

other Governmental Authorities in respect of securities matters, and all such
filings with and notices from The Toronto Stock Exchange or any other exchange
on which shares of Summo are traded; provided, however, that if any such filings
are made in a manner so as to preserve the confidentiality of the contents
thereof, Summo will notify the Lenders that such a filing has been made, but
need not provide a copy or disclose the contents thereof to the Lenders until
the information therein is provided to Summo's shareholders.

(g) Other Information. Such other information respecting the
condition or operations, financial or otherwise, of the Borrowers, Lisbon
Valley, the Lisbon Valley Properties, the Project or the Borrowers' properties
or activities as any Lender may from time to time reasonably request.

7.3 Inspection. At any reasonable time during normal business hours and
from time to time, on reasonable notice, the Borrowers shall permit, and shall
cause Lisbon Valley to permit either Lender or the Agent, or their respective
agents or representatives acting reasonably to examine and make copies of and
abstracts from the records and books of account of, and visit the properties of,
the Borrowers and Lisbon Valley and to discuss the affairs, finances and
accounts of the Borrowers and Lisbon Valley with any of their respective
officers, directors, employees or agents. Neither the Borrowers nor Lisbon
Valley will be responsible for injuries to or damages suffered by agents or
representatives of the Lenders or the Agent while visiting the properties of the
Borrowers or Lisbon Valley unless such injuries or damage are caused or
contributed to by the gross negligence or willful misconduct of the Borrowers or
Lisbon Valley or their employees or agents.

7.4 Maintenance of Insurance. The Borrowers shall maintain and will cause
Lisbon Valley to maintain (with respect to the Lisbon Valley Properties, and the
Borrowers will maintain with respect to the Borrowers' assets and business
generally, insurance with responsible and reputable insurance companies or
associations in covering liabilities, property damage or loss and other risks in
at least the amounts set forth in Schedule 7.4. All such insurance shall name
the Lenders as loss payee or additional insured, as appropriate, and shall
contain an endorsement providing that such insurance cannot be terminated
without at least ten days' prior notice to the Agent.

7.5 Keeping of Records and Books of Account. The Borrowers shall keep, and
shall cause Lisbon Valley to keep, adequate records and books of account, in
which accurate and complete entries shall be made, reflecting all financial
transactions of the Borrowers and Lisbon Valley.

7.6 Preservation of Existence, Etc. The Borrowers shall each preserve and
maintain, and shall cause Lisbon Valley and the other Subsidiaries to preserve
and maintain, their respective corporate limited liability company or other
existence, rights, franchises and privileges in the jurisdiction of their
incorporation or formation, and will qualify and remain qualified as a foreign
corporation or other entity in each jurisdiction in which such qualification is
necessary or desirable in view of their business and operations or the
<PAGE>

ownership of their properties. The Borrowers will comply, and shall cause Lisbon
Valley to comply, with all requirements of applicable law and all rules,
regulations and requirements of stock exchanges on which their respective
capital stock is traded concerning disclosure of matters relevant to the
Borrowers and Lisbon Valley and their properties, and will timely file full and
complete reports concerning their business and operations as required by such
laws, rules, regulations and requirements.

7.7 Conduct of Business. The Borrowers shall engage, and shall cause
Lisbon Valley to engage, solely in the business of developing and operating the
Lisbon Valley Properties and the Project, and other prospective copper mineral
properties, and in activities incident thereto, in accordance with generally
accepted industry practices.

7.8 Notice of Default. The Borrowers shall furnish to the Lenders as soon
as possible and in any event within five Business Days after the occurrence of
each Event of Default or Default continuing on the date of such statement, a
statement of the president or chief financial officer of the Borrowers, as
applicable, setting forth the details of such Event of Default or Default, and
the action which the Borrowers propose to take with respect thereto.

7.9 Defense of Title. The Borrowers shall defend, or cause Lisbon Valley
to defend, at their expense, title to the Lisbon Valley Properties, as such
title is represented and warranted in Section 6.1(i), and the Liens in favor of
the Agent under the Security Documents and maintain and preserve such Liens as
first Liens upon the properties and interests subject to the Security Documents,
subject only to Permitted Liens.

7.10 Operations. The Borrowers agree to use, and to cause Lisbon Valley to
use, all commercially reasonable efforts to maintain, develop and operate their
respective properties, including the Lisbon Valley Properties in particular, in
accordance with the Work Program and Budget and prudent mining industry
practices.

7.11 Maintenance of the Lisbon Valley Properties. The Borrowers agree to
cause Lisbon Valley to maintain its property rights and interests in the Lisbon
Valley Properties in full force and effect, and to do all acts reasonably
determined by the Lenders to be necessary to preserve such rights and interests,
including, by way of example and not limitation, payment and performance of all
terms of leases and licenses pertaining to such rights and interests; provided,
however, that Lisbon Valley may, in the ordinary course of business, upon not
less than thirty (30) days' prior written notice to the Agent, abandon or
relinquish interests which the Borrowers do not believe warrant further
maintenance expenditures and which are unnecessary for the Project.

7.12 Payment of Project Expenses. The Borrowers will pay, or cause Lisbon
Valley to pay, all costs and expenses associated with the Project, including in
particular amounts due for labor, services and material, promptly as the same
became due and, upon request of the Agent, provide the Agent with evidence of
such payment.
<PAGE>

ARTICLE 8

NEGATIVE COVENANTS OF BORROWERS

8.1 Indebtedness. The Borrowers shall not, and shall not permit Lisbon
Valley to, directly or indirectly, create, incur, assume or suffer to exist, any
Indebtedness except (a) Indebtedness hereunder; (b) Indebtedness secured by
Liens permitted by Section 8.2; (c) Indebtedness existing on the date hereof
disclosed to the Agent; (d) unsecured or other account trade payables; (e)
Indebtedness incurred in the ordinary course of business contemplated by the
Work Program and Budget; (f) Indebtedness consisting of purchase or leasehold
obligations associated with the Project contemplated by the Development Plan;
(g) Indebtedness constituting financing for the Project, which is acceptable to
the Lender as provided in Section 4.3; and (h) Indebtedness of Lisbon Valley to
either of the Borrowers which is subordinated, on terms acceptable to the
Lenders, to Borrowers' Obligations.

8.2 Liens, Etc. The Borrowers shall not, and shall not permit Lisbon
Valley to, directly or indirectly, create, incur, assume or suffer to exist any
Lien, upon or with respect to any portion of the Lisbon Valley Properties,
Material Agreements, the Project or other assets of the Borrowers or Lisbon
Valley, now owned or hereafter acquired, or assign or otherwise convey any right
to receive the production, proceeds or income therefrom, except:

(a) Liens for taxes, assessments or governmental charges or levies
if the same shall not at the time be delinquent or thereafter can be paid
without penalty, or are being contested in good faith and by appropriate
proceedings;

(b) Liens imposed by law, such as carriers, warehousemen and
mechanics' liens and other similar liens arising in the ordinary course of
business associated with amounts not yet due and payable, or which are being
disputed in good faith by the Borrowers;

(c) Liens of purchase money mortgages and other security interests
on equipment acquired, leased or held by the Borrowers (including equipment held
by the Borrowers as lessee under leveraged leases) in the ordinary course of
business to secure the purchase price of or rental payments with respect to such
equipment or to secure indebtedness incurred solely for the purpose of financing
the acquisition (including acquisition as lessee under leveraged leases),
construction or improvement of any such equipment to be subject to such
mortgages or security interests, or mortgages or other
<PAGE>

security interests existing on any such equipment at the time of such
acquisition, or extensions, renewals or replacements of any of the foregoing for
the same or a lesser amount, provided that no such mortgage or other security
interest shall extend to or cover any equipment other than the equipment being
acquired, constructed or improved, and no such extension, renewal or replacement
shall extend to or cover any property not theretofore subject to the mortgage or
security interest being extended, renewed or replaced;

(d) Liens outstanding on the date hereof and described in Schedule
6.1(i) hereto;

(e) Liens arising under the Security Documents;

(f) the Lien or any right of distress reserved in or exercisable
under any lease for rent and for compliance with the terms of such lease,
provided there is no rent in arrears under such lease;

(g) cash or governmental obligations deposited in the ordinary
course of business in connection with contracts, bids, tenders or to secure
workmen's compensation, unemployment insurance, surety or appeal bonds, costs of
litigation, when required by law, public and statutory obligations, Liens or
claims incidental to current construction, mechanics', warehousemen's, carriers'
and other similar Liens;

(h) Liens given in the ordinary course of business to a public
utility or any municipality or governmental or other public authority when
required by such utility or municipality or governmental or other authority in
connection with the operations of the Borrowers;

(i) zoning restrictions, easements, rights-of-way and servitudes
which in the opinion of the Agent (in its sole discretion) will not in the
aggregate materially impair the use of the Lisbon Valley Properties by the
Borrowers and Lisbon Valley for the Project;

(j) title defects or irregularities which in the opinion of the
Agent (in its sole discretion) are of a minor nature and in the aggregate will
not materially impair the use of the Lisbon Valley Properties for the Project;

(k) all rights reserved to or vested in any governmental body by the
terms of any lease, license, franchise, grant or permit held by the Borrowers or
Lisbon Valley or by any statutory provision to terminate any such lease,
license, franchise, grant or permit or to require annual or then periodic
payments as a condition of the continuance thereof or to distrain against or to
obtain a lien on any property or assets of the Borrowers or Lisbon Valley in the
event of failure to make such annual or other periodic payments; and

(l) Liens securing third-party financing for the Project as
contemplated and permitted by Section 4.3.
<PAGE>

8.3 Assumptions, Guarantees, Etc. of Indebtedness of Other Persons. The
Borrowers shall not, and shall not permit Lisbon Valley to, directly or
indirectly, assume, guarantee, endorse or otherwise become directly or
contingently liable (including, without limitation, liable by way of agreement,
contingent or otherwise, to purchase, to provide funds for payment, to supply
funds to or otherwise invest in the debtor or otherwise to assure the creditor
against loss) in connection with any Indebtedness of any other Person, except
guarantees by endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business, or in respect of
provision of labor or materials for the Project or in connection with bonds,
letters of credit or other security posted by the Borrowers or Lisbon Valley in
the ordinary course of business in connection with the Project.

8.4 Investments in Other Persons. The Borrowers shall not, and shall not
permit Lisbon Valley to, directly or indirectly, (i) make any loan (other than
approved capital expenditures and exploration expenses) to any Person utilizing
the Loan proceeds except for loans by the Borrowers to Lisbon Valley as
permitted by Section 8.1(h), or (ii) purchase or otherwise acquire the capital
stock, assets, or obligations of, or any interest in, any Person (other than
readily marketable direct obligations of the United States of America or Canada
and certificates of time deposit issued by commercial banks of recognized
standing operating in the United States of America or Canada or other investment
grade instruments reasonably approved by the Agent).

8.5 Mergers, Changes in Capital Structures, Etc.

The Borrowers shall not, and shall not permit Lisbon Valley to, directly
or indirectly, merge or consolidate with any Person, or sell, assign, lease or
otherwise dispose of (whether in one transaction or in a series of transactions)
all or substantially all of its assets (whether now owned or hereafter acquired)
to any Person, or acquire (whether in one transaction or in any series of
transactions) all or substantially all of the assets of any Person. The
Borrowers will not establish, or enter into, and shall not permit Lisbon Valley
to establish or enter into, agreements or other arrangements which obligate the
Borrowers or Lisbon Valley to establish, any capital structure which consists of
equity interests in the Borrowers or Lisbon Valley.

8.6 Sale of Project Assets. The Borrowers shall not, and shall not permit
Lisbon Valley to, directly or indirectly, sell, transfer, assign or otherwise
dispose of any of its assets or properties related to the Project, except for
sales of mineral production and other properties and assets related to the
Project for full, fair and reasonable consideration in the ordinary course of
business.

8.7 Restrictive and Inconsistent Agreements. The Borrowers will not, and
shall not permit Lisbon Valley to, enter into any agreement or undertaking or
incur or suffer any obligation prohibiting or inconsistent with the performance
by the Borrowers of the Obligations or the Material Agreements or the compliance
by Lisbon Valley with the
<PAGE>

Amendment to Deed of Trust, the other Security Documents to which it is a party,
or this Agreement.

8.8 Grant of Royalties. The Borrowers shall not, and shall not permit
Lisbon Valley to, grant, sell, transfer or assign any royalty interests or other
burdens on or measured by production or proceeds from the sale of production
from the Project without the prior written consent of the Lenders; provided,
however, that the foregoing covenant shall not prohibit an amendment to the
existing Brinton-Knowles royalty payable with respect to production from a
portion of the Lisbon Valley Properties.

8.9 Limitation on Issuance of Shares. Prior to December 31, 1999 Summo
shall not issue any Shares for a consideration of less than C$0.12 per Share;
provided, however, that the foregoing limitation shall not apply to any issuance
of Shares in the circumstances described in clauses (1) through (6) of Section
11(d) of the Warrant Agreement.

8.10 Summo Dividends. Summo will not declare or pay any dividends
consisting of cash or property on or with respect to the Shares or any other
equity interests in Summo while any of the Obligations remain outstanding,
provided that the foregoing shall not prohibit Summo from declaring and
distributing dividends in the form of additional Shares or from declaring and
implementing stock splits.

ARTICLE 9

THE WARRANT AGREEMENT

9.1 Issuance of Warrant Agreement and Warrants. Concurrently with the
execution hereof Summo will execute and deliver the Warrant Agreement and the
Warrant in favor of the Lenders as provided therein. It is expressly agreed by
Summo and the Lenders that the rights and obligations of Summo and the Lenders
under the Warrant Agreement are granted in consideration hereof, and that such
rights and obligations are independent of and enforceable without regard to any
rights, obligations, claims or disputes between the Borrowers and the Lenders
with respect to any of the Loans or other Obligations of the Borrowers hereunder
or under any of the Credit Documents.

ARTICLE 10

EVENTS OF DEFAULT

10.1 Events of Default. Each of the following events shall be an "Event of
Default" hereunder:
<PAGE>

(a) Nonpayment. The Borrowers shall fail to pay any principal when
due hereunder (whether at stated maturity or by prepayment or otherwise), or
shall fail to pay interest hereunder when due.

(b) Specific Defaults. The Borrowers shall fail to observe or
perform any of their covenants contained in Article 8 of this Agreement.

(c) Other Defaults. The Borrowers or Lisbon Valley shall fail to
observe or perform any of their covenants contained in this Agreement or in any
other Transaction Document, other than the covenants referred to in paragraphs
(a) and (b) above, and the Borrowers or Lisbon Valley has not remedied such
default within ten Business Days after notice of default has been given by the
Agent to the Borrowers or Lisbon Valley, as the case may be.

(d) Representation or Warranty. Any representations or warranty made
by the Borrowers (or any of their officers) under or in connection with this
Agreement or the other Transaction Documents or made by Lisbon Valley in the
Amendment to Deed of Trust or the other Security Agreements to which it is a
party shall prove to have been incorrect in any material respect when made.

(e) Cross-Default. A default shall occur under any of the
Transaction Documents or under any Material Agreement, or under any agreement
pertaining to Indebtedness permitted by Section 8.1, or the Borrowers or Lisbon
Valley shall fail to pay any Indebtedness in excess of US$50,000 in principal
amount (but excluding Indebtedness included in the Obligations), or any interest
or premium thereon, when due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise, and allowing for any applicable
grace period) and such failure to pay is not being contested by the Borrowers or
Lisbon Valley in good faith; or any other default under any agreement or
instrument relating to any such Indebtedness or any other event, shall occur and
shall continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such default or event is to
accelerate, or to permit the acceleration of, the maturity of such Indebtedness,
unless such default or event shall be waived by the holders or trustees for such
Indebtedness; or any such Indebtedness shall be declared to be due and payable,
or required to be prepaid (other than by a regularly scheduled required
prepayment), prior to the stated maturity thereof.

(f) Insolvency. Either of the Borrowers or Lisbon Valley shall
generally not pay its debts as such debts become due, or shall admit in writing
its inability to pay its debts generally, or shall make a general assignment for
the benefit of creditors; or any proceeding shall be instituted by or against
the Borrowers or Lisbon Valley seeking to adjudicate any of them a bankrupt or
insolvent, or seeking a liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of any of such Persons or its
debts under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors, or seeking the entry of any order for relief or the
appointment of a receiver,
<PAGE>

trustee, or other similar official for any of such Persons or for any
substantial part of its property and, if instituted against the Borrowers or
Lisbon Valley shall remain undismissed for a period of 60 days; or the Borrowers
or Lisbon Valley shall take any action to authorize any of the actions set forth
in this paragraph (f).

(g) Judgments. A final judgment or order for the payment of money in
excess of US$50,000 shall be rendered against the Borrowers or Lisbon Valley and
either (i) enforcement proceedings shall have been commenced by any creditor
upon such judgment or order or (ii) a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect for
any period of ten consecutive days.

(h) Security Interest. Any Security Documents after delivery thereof
shall for any reason, except to the extent permitted by the terms thereof or
caused by the Lenders or the Agent, cease to create a valid and perfected first
priority security interest in any of the Collateral purported to be covered
thereby, or the Borrowers or Lisbon Valley shall so state in writing.

(i) Condemnation. Any material portion of the Lisbon Valley
Properties is taken by power of expropriation or eminent domain or sold under
threat of such taking.

(j) Regulatory Action. Any Governmental Authority shall take or
attempt to take any action with respect to the Borrowers, Lisbon Valley or the
Project or any other Collateral subject to the Security Documents which would
have a Material Adverse Effect on the Borrowers or Lisbon Valley or the
Borrowers' ability to repay the Loans or to meet their other Obligations in a
timely manner, or on Lisbon Valley or Lisbon Valley's ability to perform its
obligations under the Amendment to Deed of Trust or other Security Documents to
which it is a party unless such action is set aside, dismissed or withdrawn
within ninety (90) days of its institution or such action is being contested in
good faith and its effect is stayed during such contest.

(k) Cessation of Project Operations. The Project shall be abandoned
or terminated, or operations of the Project shall be terminated or reduced
materially from the levels of operations and production provided for in the Work
Program and Budget.

(l) Change of Control. Summo (USA) shall cease to be a direct
wholly-owned Subsidiary of Summo or Lisbon Valley shall cease to be a direct or
indirect wholly-owned subsidiary of the Borrowers.

(m) Summo Stock Exchange Listing. Summo shall fail to be listed and
its Shares available for trading on The Toronto Stock Exchange.

(n) Material Adverse Change. A change shall occur in the status,
business or prospects of either of the Borrowers or Lisbon Valley which has a
Material Adverse Effect on any of such Persons.
<PAGE>

10.2 Remedies Upon Event of Default.

(a) Upon the occurrence of an Event of Default specified in Section
10.1(f) of this Agreement or, in the case of any other Event of Default, upon
notice by any Lender to the Borrowers of such Lender's election to declare the
Borrowers in default, the obligations of such Lender hereunder including, if RCF
is the Lender giving such notice, RCF's obligation to Advance Loans, shall
terminate. The date on which such notice is sent or, in the case of an Event of
Default specified in Section 10.1(f) of this Agreement, the date of such Event
of Default, shall be the "Date of Default."

(b) Upon the Date of Default, upon notice thereof from any Lender to
the Borrowers in all cases other than the occurrence of an Event of Default as
specified in Section 10.1(f), the Loans, all interest thereon, Breakage Costs,
and all other amounts owed by the Borrowers hereunder shall be immediately due
and payable in full. In the case of an Event of Default specified in Section
10.1(f), no notice from a Lender shall be required, and all amounts owed by the
Borrowers hereunder shall be immediately due and payable on the Date of Default,
without notice from the Lenders. No such acceleration of the due date of the
Loans and other amounts due hereunder shall reduce the rights of the Lenders or
the obligations of Lisbon Valley under the Amendment to Deed of Trust or the
other Security Documents to which Lisbon Valley is a party.

(c) Upon the occurrence of an Event of Default, all of the remedies
provided to the Agent and the Lenders in all of the Security Documents shall
immediately become available to the Agent and the Lenders.

(d) Except as expressly provided above in this Section 10.2,
presentment, demand, protest and all other notices of any kind are hereby
expressly waived.

ARTICLE 11

THE AGENT

11.1 Actions. Each Lender appoints and authorizes the Agent to act on
behalf of such Lender under this Agreement and each other Credit Document and,
in the absence of other written instructions from the Lenders, received from
time to time by the Agent (with respect to which the Agent agree that it will,
subject to the last paragraph of this Section, comply in good faith except as
otherwise advised by counsel to the effect that any such compliance might
subject the Agent to any liability of whatsoever nature), to exercise such
powers hereunder and thereunder as are specifically delegated to or required of
the Agent by the terms hereof and thereof, together with such powers as may be
reasonably incidental thereto.
<PAGE>

Each Lender agrees (which agreement shall survive any termination of this
Agreement) to indemnify the Agent, pro rata according to such Lender's
Percentage, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever which may at any time be imposed on, incurred
by, or asserted against the Agent in any way relating to or arising out of this
Agreement or any other Credit Document, including the reimbursement of the Agent
for all out-of-pocket expenses (including reasonable attorneys' fees and
expenses on a full indemnity basis) incurred by the Agent hereunder or
thereunder or in connection herewith or therewith or in enforcing the
Obligations of any Borrowers under this Agreement or any other Credit Document,
in all cases as to which the Agent is not reimbursed by such Borrowers;
provided, however, that no Lender shall be liable for the payment of any portion
of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements determined by a court of
competent jurisdiction in a final proceeding to have resulted from the Agent's
gross negligence or willful misconduct.

The Agent shall not be required to take any action hereunder or under any
other Credit Document, or to prosecute or defend any suit in respect of this
Agreement or any other Credit Document, unless it is indemnified to its
satisfaction by the Lenders against loss, costs, liability and expense. If any
indemnity in favor of the Agent shall become impaired, it may call for
additional indemnity and cease to do the acts indemnified against until such
additional indemnity is given.

11.2 Reliance. The Agent shall be entitled to act upon any notice,
certificate, instrument, demand, request, direction, instruction, waiver,
receipt, consent or other document or communication furnished hereunder or under
any other Credit Document which the Agent in good faith believes to be genuine,
and it shall be entitled to rely upon the due execution, validity and
effectiveness, and the truth and acceptability of any provisions contained
therein. The Agent shall have no responsibility to make any investigation into
the facts or matters stated in any notice, certificate, instrument, demand,
request, direction, instruction, waiver, receipt, consent or other document or
communication furnished to it hereunder or under any other Credit Document. Upon
request from the Agent, each party hereto shall deliver to the Agent a list of
its authorized signatories of any notice, certificate, instrument, demand,
request, direction, instruction, waiver, receipt, consent or other document or
communication furnished to the Agent hereunder or under any other Credit
Document, and the Agent shall be entitled to rely on such list until a new list
is furnished by such party to the Agent.

11.3 Exculpation. Neither the Agent nor any of its directors, officers,
employees or agents shall be liable to any Lender for any action taken or
omitted to be taken by the Agent or representative thereof under this Agreement
or any other Credit Document, or in connection herewith or therewith, except for
its own willful misconduct or gross negligence, or responsible for any recitals
or warranties herein or therein, or for the effectiveness, enforceability,
validity or due execution of this Agreement or any other Credit Document,
<PAGE>

or to make any inquiry respecting the performance by any Borrowers of its
obligations hereunder or thereunder, or the validity, genuineness, creation,
perfection or priority of the Liens and security interests created by any of the
Credit Documents, or the validity, genuineness, enforceability, existence, value
or sufficiency of any collateral security. The Agent shall be entitled to rely
upon the advice of counsel concerning legal matters and upon any notice,
consent, certificate, statement, or writing which the Agent believes to be
genuine and to have been presented by a proper Person.

11.4 Consultation With Counsel, etc. The Agent may consult with, and
obtain advice from, legal counsel, accountants, engineers and other experts, in
connection with the performance of its duties hereunder and under any other
Credit Document and the Agent shall incur no liability and shall be fully
protected in acting in good faith in accordance with the opinion and advice of
any such counsel, accountants and other experts (as to matters within such
expert's field of expertise). The Agent shall not be responsible to the Lenders
for the negligence or misconduct of any counsel, accountants, engineers and
other experts selected by the Agent without gross negligence or willful
misconduct.

11.5 Successors. The Agent may resign as such at any time upon at least
thirty (30) days' prior notice to the Borrowers and all the Lenders. If the
Agent at any time shall resign, the Lenders may appoint (subject, as long as no
Default shall have occurred and be continuing, to the prior written consent of
the Borrowers, such consent not to be unreasonably withheld or delayed) another
Lender as a successor Agent which shall thereupon become the Agent hereunder. If
no successor Agent shall have been so appointed as aforesaid, and shall have
accepted such appointment, within thirty (30) days after the retiring Agent's
giving notice of resignation, then the retiring Agent may, on behalf of the
Lenders, appoint (subject, as long as no Default shall have occurred and be
continuing, to the prior written consent of the Borrowers, such consent not to
be unreasonably withheld or delayed) a successor Agent, which shall be one of
the Lenders or a commercial banking institution having a combined capital and
surplus of at least U.S. $500,000,000 (or the equivalent thereof in another
currency). Upon the acceptance of any appointment as the Agent hereunder by the
successor Agent, such successor Agent shall be entitled to receive from the
retiring Agent, such documents of transfer and assignment as the successor Agent
may reasonably request, and shall thereupon succeed to and become vested with
all rights, powers, privileges and duties of the retiring Agent and the retiring
Agent shall be discharged from its duties and obligations under this Agreement
and each other Credit Document.

11.6 Credit Decisions. Each Lender acknowledges that it has, independently
of the Agent and each other Lender, and based on the financial and other
information referred to in Article 6 and such other documents, information and
investigations as it has deemed appropriate, made its own credit decision to
extend its Commitment. Each Lender also acknowledges that it will, independently
of the Agent and each other Lender, and based on such other documents,
information and investigations as it shall deem appropriate at any time,
continue to make its own credit decisions as to exercising or not exercising
from time
<PAGE>

to time any rights and privileges available to it under this Agreement or any
other Credit Document.

11.7 Copies, etc. The Agent shall give prompt notice to each Lender of
each notice or request required or permitted to be given to the Agent by any
Borrowers pursuant to the terms of this Agreement or any other Loan Document.
The Agent will distribute to each Lender a copy of each Instrument received for
its account and copies of all other communications received by the Agent from
any Borrowers for distribution to the Lenders by the Agent in accordance with
the terms of this Agreement or any other Credit Document.

ARTICLE 12

MISCELLANEOUS

12.1 Lenders' Representation on Summo Board of Directors. Each of the
Lenders agrees to vote its Shares and Summo shall take all requisite action,
such that the number of Directors of Summo shall be fixed at five. To the extent
permitted by applicable law, in accordance with the provisions of this Section
12.1, each of the Lenders shall be entitled to be represented on the Board of
Directors of Summo while any portion of the Obligations remains outstanding. RCF
shall be entitled to have one representative on the Board of Directors as of the
Effective Date, to have at least one representative on the Board of Directors
thereafter and to have additional representatives on the Board of Directors in
proportion to its ownership interests in Summo (considering all Shares held, and
all Shares which could be held by RCF upon exercise of the Warrant in full). St.
Mary shall be entitled to have a representative receive all materials
distributed by Summo to its Board of Directors and to attend all Summo Board of
Director meetings as of the Effective Date. After the Effective Date, upon the
written request of St. Mary, Summo agrees to use commercially reasonable efforts
to change the jurisdiction of its incorporation as soon as practicable from the
Province of British Columbia to a jurisdiction, within or without Canada, which
does not impose citizenship requirements on the makeup of corporate Boards of
Directors. Upon completion of such change, St. Mary shall be entitled to have
one representative on the Board of Directors of Summo. The representative or
representatives of the Lenders proposed for service on the Board of Directors of
Summo shall be subject to the approval of the Board of Directors of Summo, which
shall not be unreasonably withheld.

12.2 Amendments, Etc. Except as otherwise expressly provided in this
Agreement, no amendment or waiver of any provision of this Agreement, nor
consent to any departure by the Borrowers therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Lenders, and, in
the case of any amendment, by the Borrowers and the Lenders and then such waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given.
<PAGE>

12.3 Notices, Etc. All notices and other communications provided for
hereunder shall be in writing (including facsimile communication) and
transmitted by facsimile, or delivered,

if to the Borrowers,

Summo Minerals Corporation
Summo USA Corporation
1776 Lincoln Street
Suite 900
Denver, Colorado 80203
Attention: Gregory A. Hahn
Facsimile: (303) 863-1736

if to the Agent,

Resource Capital Fund L.P.
2150 Republic Plaza Building
370 Seventeenth Street
Denver, Colorado 80202
Attention: James T. McClements
Facsimile: (303) 607-0150

and if to a Lender, at the address specified on the signature pages hereof, and
as to each party, at such other address or number as shall be designated by such
party in a written notice to the other. All such notices and communications
shall be effective (a) when received, if physically delivered; and (b) upon
confirmation of transmission, if sent by facsimile on a Business Day, addressed
in each case as aforesaid, except that notices to the Lenders and the Agent
under Articles 2 or 3 shall not be effective until received by the Lenders or
the Agent.

12.4 No Waiver; Remedies. No failure on the part of the Lenders to
exercise, and no delay in exercising, any right hereunder, or under any other
Transaction Document, shall operate as a waiver thereof; nor shall any single or
partial exercise of any right hereunder, or under any other Transaction
Document, preclude any other or further exercise thereof or the exercise of any
other right. The remedies herein provided are cumulative and not exclusive of
any remedies provided by law.

12.5 Costs, Expenses and Taxes. The Borrowers jointly and severally agree
to pay on demand all reasonable costs and expenses of the Agent in connection
with the preparation, execution, delivery and administration of this Agreement,
the other Transaction Documents and the other documents to be delivered
hereunder, including, without limitation, the reasonable fees and expenses of
legal counsel and any independent consultants to the Agent and all other
out-of-pocket expenses of the Agent, and all costs and expenses, if any, of the
Lenders and the Agent in connection with the protection of the Lenders' rights
with respect
<PAGE>

to and the enforcement of this Agreement and the other Transaction Documents,
and the other documents to be delivered hereunder (whether incurred before,
during or after commencement of any bankruptcy, reorganization or insolvency
actions pertaining to either of the Borrowers). All such expenses will be
itemized in reasonable detail. In addition, the Borrowers jointly and severally
agree to pay any and all stamp, mortgage recording and other taxes, filing fees
or charges payable or determined to be payable in connection with the execution
and delivery of this Agreement and the other Transaction Documents, and the
other documents to be delivered hereunder, and agree to save the Lenders and the
Agent harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or omission to pay such taxes, filing fees or
charges.

12.6 Indemnification. The Borrowers jointly and severally agree to
indemnify the Lenders and the Agent from and against any and all liabilities,
obligations, losses (other than loss of profits), damages, penalties, actions,
judgments, suits, costs, claims, reasonable expenses or disbursements of any
kind whatsoever (collectively "Losses") which may at any time (including,
without limitation, at any time following the payment of the Obligations) be
imposed on, incurred by or asserted against any Lender or the Agent in any way
relating to or arising out of this Agreement or any other Transaction Document,
or any Instruments contemplated by or referred to herein or therein or the
transactions contemplated thereby, except with respect to Losses arising
entirely out of the bad faith, gross negligence or willful misconduct of a
Lender or the Agent.

12.7 Binding Effect; Assignment. This Agreement shall be binding upon and
inure to the benefit of the Borrowers and the Lenders and their respective
permitted successors and assigns. The Borrowers shall have no right to assign
any of their respective rights or obligations hereunder or any interest herein
or in any other Transaction Document without the prior written consent of the
Lenders. No such assignment by the Borrowers shall (a) be effective until the
assignee has executed an assumption agreement in form satisfactory to the
Lenders, or (b) relieve the assigning Person from any obligation or duty, then
existing or later arising, under this Agreement or any other Credit Document to
which the assigning Person is a party. The Lenders may assign their respective
rights and interests hereunder and under the other Credit Documents or may grant
participation interests therein or in the Credit Documents, and, to the extent
of any such assignment, such assignee shall have the same obligations, rights
and benefits with respect to the Borrowers as it would have had if it were an
original Lender hereunder.

12.8 GOVERNING LAW. THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS, EXCEPT
THE SECURITY DOCUMENTS, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF COLORADO NOT INCLUDING THE CONFLICTS OF LAW AND CHOICE
OF LAW PROVISIONS THEREOF. THE SECURITY DOCUMENTS SHALL BE GOVERNED BY THE LAWS
OF THE JURISDICTION SPECIFIED THEREIN, OR IF NONE IS SPECIFIED, BY THE LAWS OF
THE JURISDICTION IN WHICH THE COLLATERAL SUBJECT THERETO IS PRINCIPALLY LOCATED.
<PAGE>

12.9 Submission to Jurisdiction. For the purpose of assuring that the
Lenders may enforce their rights under this Agreement and the other Transaction
Documents, the Borrowers for themselves, and their respective successors and
assigns, hereby irrevocably (a) agree that any legal or equitable action, suit
or proceeding against the Borrowers arising out of or relating to this Agreement
or the other Transaction Documents or any transaction contemplated hereby or
thereby or the subject matter of any of the foregoing may be instituted in any
court in Denver, Colorado; (b) waive any objection which they may now or
hereafter have to the venue of any such action, suit or proceeding or any claim
of forum non conveniens; (c) submit themselves to the nonexclusive jurisdiction
of any such court for purposes of any such action, suit or proceeding; and (d)
waive any immunity from jurisdiction to which they might otherwise be entitled
in any such action, suit or proceeding which may be instituted in any such
court, and waive any immunity from the maintaining of an action against them to
enforce in any such court or elsewhere, any judgment for money obtained in any
such action, suit or proceeding and, to the extent permitted by applicable law,
any immunity from execution.

12.10 Waiver of Jury Trial. To the extent permitted by applicable law,
each party hereto irrevocably and unconditionally waives the right to trial by
jury in any legal or equitable action, suit or proceeding arising out of or
relating to this Agreement, or the other Transaction Documents, or any
transaction contemplated hereby or thereby or the subject matter of any of the
foregoing.

12.11 Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement. Each of the
parties to this Agreement will be entitled to rely upon delivery by facsimile
machine of an executed copy of this Agreement and acceptance of such facsimile
copy will be legally effective to create a valid and binding agreement between
the parties in accordance with the terms hereof.

12.12 Inconsistent Provisions. In the event of any conflict between this
Agreement and any of the other Credit Documents, the provisions of this
Agreement shall govern and be controlling.

12.13 Termination of Agreement. Upon payment in full of the Loans and upon
payment in full of all other amounts due hereunder and performance of all of the
Borrowers' Obligations, this Agreement will terminate. Upon such termination, at
the request and expense of the Borrowers, the Lenders or the Agent will provide
written evidence of such
<PAGE>

termination, will release the Security Documents and will do such further acts,
if any, as may be reasonably necessary to release any Liens in favor of the
Lenders or the Agent in the Collateral.

12.14 Entire Agreement. This Agreement, including all Schedules and
Exhibits hereto, and the other Transaction Documents contain the entire
agreement of the parties hereto relating to the subject matter hereof and there
are no representations, covenants or other agreements relating to the subject
matter hereof except as otherwise stated or referred to herein.

12.15 Invalidity, etc. Each of the provisions contained in this Agreement
and any Transaction Document is distinct and severable and a declaration of
invalidity, illegality or unenforceability of any such provision or part thereof
by a court of competent jurisdiction shall not affect the validity or
enforceability of any other provision of this Agreement or the Transaction
Documents. Without limiting the generality of the foregoing, if any amounts on
account of interest or fees or otherwise payable by the Borrowers to the Lenders
or the Agent hereunder exceed the maximum amount recoverable under the
applicable laws of the State of Colorado, the amounts so payable hereunder shall
be reduced to the maximum amount recoverable under the applicable laws of the
State of Colorado.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.

BORROWER BORROWER

SUMMO USA CORPORATION SUMMO MINERALS CORPORATION

By: /s/ GREGORY A. HAHN By: /s/ GREGORY A. HAHN
-------------------------- ------------------------------------
Gregory A. Hahn Gregory A. Hahn
President President

AGENT

RESOURCE CAPITAL FUND L.P.
By: Resource Capital Associates L.L.C.,
general partner

By: /s/ JAMES T. McCLEMENTS
------------------------------------
Managing Director

LENDER
<PAGE>

ST. MARY MINERALS INC.

By: /s/ MARK A. HELLERSTEIN
------------------------------------
President and Chief Executive
Officer

Commitment Amount: $1,400,000

Address for Notices:

St. Mary Minerals Inc.
1776 Lincoln Street
Suite 1100
Denver, Colorado 80203
Attention: Mark A. Hellerstein
Facsimile: (303) 861-8140

LENDER

RESOURCE CAPITAL FUND L.P.
By: Resource Capital Associates L.L.C.,
general partner

By: /s/ JAMES T. McCLEMENTS
------------------------------------
James T. McClements
Managing Director

Commitment Amount: $4,000,000

Address for Notices:

Resource Capital Fund L.P.
2150 Republic Plaza Building
370 Seventeenth Street
Denver, Colorado 80202
Attention: James C. McClements
Facsimile: (303) 607-0150

<PAGE>
EXHIBIT 10.32

REPLACEMENT PROMISSORY NOTE

US$1,400,000 June 25, 1999

FOR VALUE RECEIVED, each of the undersigned, SUMMO USA CORPORATION, a
corporation organized and existing under the laws of the State of Colorado
("Summo (USA)"), and SUMMO MINERALS CORPORATION, a corporation organized and
existing under the laws of British Columbia ("Summo," with Summo (USA) and Summo
referred to together as the "Makers"), hereby jointly and severally and
unconditionally promises to pay to the order of ST. MARY MINERALS INC., a
corporation organized and existing under the laws of Colorado ("St. Mary
Minerals"), or other holder hereof (with St. Mary Minerals and any other holder
hereof sometimes referred to herein as "Holder"), in immediately available
funds, the principal amount of One Million Four Hundred Thousand Dollars
($1,400,000) or so much thereof as may be advanced to or for the benefit of
Makers or otherwise outstanding under that certain Amended and Restated Credit
Agreement dated as of June 25, 1999 by and among RESOURCE CAPITAL FUND L.P., St.
Mary Minerals and Makers (the "Credit Agreement") as the same may hereafter be
amended, modified or supplemented.

The Makers further jointly and severally agree to pay and deliver to
Holder, when and as provided in the Credit Agreement, interest on the
outstanding principal amount hereof at the rate and at the times specified in
the Credit Agreement.

This Note is made by the Makers on a joint and several liability basis
pursuant to, and is subject to, all of the terms and conditions of the Credit
Agreement. Payment of the principal amount represented hereby and the interest
thereon shall be payable at the times and in the manner set forth in the Credit
Agreement, and in all events are due and payable not later than July 1, 2004.
Capitalized terms which are not defined herein have the meanings given thereto
in the Credit Agreement. Reference is made to the Credit Agreement and the
documents delivered in connection therewith for a statement of the prepayment
rights and obligations of the Makers, a description of the collateral in which
liens and security interests have been granted by the Makers to secure the
payment and performance of the Makers hereunder, the nature and extent of such
liens and security interests, and for a statement of the terms and conditions
under which the due date of this Note may be accelerated.

This Note represents an extension and renewal of the outstanding Principal
Amount of, and a replacement and substitution for, the Amended and Restated
Promissory Note dated January 1, 1999 made by the Makers payable to the order of
St. Mary Land & Exploration Company and St. Mary Minerals Inc. (the "Prior
Note"). The indebtedness evidenced by the Prior Note is a continuing
indebtedness and nothing contained herein shall be construed to deem paid the
Prior Note or to release or terminate any Lien or security interest given to
secure payment of the Prior Note.
<PAGE>

In addition to, and not in limitation of, the foregoing and the provisions
of the Credit Agreement, the Makers further agree, subject only to any
limitation imposed by applicable law, to pay all expenses, including reasonable
attorneys' fees and legal expenses, incurred by any Holder hereof in endeavoring
to collect any amounts due and payable hereunder which are not paid and
delivered or otherwise satisfied when due, whether by acceleration or otherwise.

The Makers, for themselves and for all endorsers hereof, hereby waive
notice, demand, presentment for payment, protest and notice of dishonor.

This Note and the rights of Makers and any Holders hereof are governed by
the laws of the State of Colorado.

IN WITNESS WHEREOF, the Makers have executed and delivered this Note as of
the date first above written.

SUMMO USA CORPORATION SUMMO MINERALS CORPORATION

By: /s/ GREGORY A. HAHN By: /s/ GREGORY A. HAHN
-------------------------------- -----------------------------
Name: Gregory A. Hahn Name: Gregory A. Hahn
------------------------------ ---------------------------
Title: President Title: President
----------------------------- --------------------------

<PAGE>
EXHIBIT 10.33

PLEDGE AND SECURITY AGREEMENT

This PLEDGE AND SECURITY AGREEMENT (the "Pledge Agreement"), dated as of
June 25, 1999, is by and between SUMMO MINERALS CORPORATION, a corporation
organized and existing under the laws of British Columbia (the "Pledgor") and
RESOURCE CAPITAL FUND L.P., a Cayman Islands limited partnership, as agent (the
"Agent") for the Lenders named in the Credit Agreement (hereinafter defined).

RECITALS

A. Pursuant to the Amended and Restated Credit Agreement (the "Credit
Agreement"), dated as of June 25, 1999, among the Pledgor, Summo USA
Corporation, a corporation organized and existing under the laws of Colorado
("Summo USA," together with Pledgor, sometimes referred to herein as the
"Borrowers"), the Lenders as defined and named therein and the Agent, the
parties agreed to modify, amend in its entirety and restate certain outstanding
credit obligations as set forth therein and to extend additional credit
thereunder. Capitalized terms not otherwise defined herein shall have the
meanings set forth in the Credit Agreement.

B. The Pledgor is willing to enter into this Pledge Agreement to secure
the due and punctual performance of the obligations of the Pledgor and Summo USA
to the Lenders under the Credit Agreement and the other Transaction Documents.
The collateral security offered hereby and all rights and remedies granted to
the Agent hereunder will be for the ratable benefit of the Lenders.

AGREEMENT

NOW, THEREFORE, the parties hereto agree as follows:

1. Pledge and Grant Security Interest.

(a) For value received and to induce the Lenders to enter into the
Credit Agreement and extend additional credit to the Borrowers, the Pledgor
hereby pledges to the Agent for the ratable benefit of the Lenders and grants as
security to the Agent for the ratable benefit of the Lenders, for all present
and future obligations and liabilities of all kinds of the Pledgor to any of the
Lenders under the Credit Agreement and the other Transaction Documents,
hereunder or otherwise, whether incurred by the Pledgor as maker, endorser,
drawer, acceptor, guarantor, accommodation party or otherwise, and whether due
or to become due, secured or unsecured, absolute or contingent, joint or
several, and howsoever or whensoever incurred by the Pledgor or acquired by any
Lender (collectively referred to as the "Obligations"), a charge and first lien
on, and security interest in, all its right, title and interest in and to the
following:
<PAGE>

(i) (A) all of (x) the issued and outstanding shares of the
capital stock of Summo USA, any other equity interest in Summo USA whether now
existing or hereafter acquired and all additional shares of capital stock of
Summo USA from time to time acquired by the Pledgor by purchase, stock dividend,
distribution or otherwise and (y) Pledgor's membership and beneficial interest
in Lisbon Valley Mining Co. LLC, a Utah limited liability company ("Lisbon
Valley"), whether now existing or hereafter acquired, all of Pledgor's share of
profits and losses of Lisbon Valley, Pledgor's right to receive distributions of
Lisbon Valley property and assets of any type and characterization, and all
additional membership, ownership or other interest in Lisbon Valley from time to
time acquired by the Pledgor by purchase, distribution or otherwise (all such
shares of stock of and interest in Summo USA and interest in Lisbon Valley
pledged hereunder being referred to collectively as the "Pledged Interest"), (B)
certificates representing any of the Pledged Interest and (C) except as
otherwise provided in Section 4 hereof, any and all dividends, cash, securities,
instruments, warrants, options and other property, proceeds and distributions
from time to time received, receivable, paid or otherwise distributed in respect
of, in substitution for, in addition to or in exchange for or evidencing any of
the Pledged Interest and all proceeds thereof; and

(ii) all of the Pledgor's Equipment, General Intangibles,
Accounts, Chattel Paper, Consumer Goods, Documents, Inventory, Instruments,
Fixtures, Goods and Proceeds, as each of such terms is defined in the Uniform
Commercial Code (the "UCC") in effect in the state where such property is
located, and all other personal property of the Pledgor, whether now existing or
hereafter acquired, which is located on, in or under, used, intended for use,
used or obtained in connection or otherwise associated with or affixed to the
Lisbon Valley Properties as defined in the Credit Agreement and further
described in Schedule 1.1(a) thereto, and all renewals or replacements thereof
or articles in substitution therefor and all proceeds or profits thereof
(collectively, the "Personalty").

(b) The Pledged Interest, the certificates therefor, all dividends,
cash, securities, instruments, warrants, options and other property, proceeds
and distributions from time to time received, receivable, paid or otherwise
distributed in respect of, in substitution for, in addition to or in exchange
for or evidencing any of the Pledged Interest and all proceeds thereof, and the
Personalty are referred to herein collectively as the "Pledged Collateral."

2. Delivery of Pledged Interest Certificates; Registry Notations.

(a) All certificates or instruments representing or evidencing the
Pledged Interest referred to in Section 1 hereof have previously been delivered
or are being delivered to and held by the Agent, for the ratable benefit of the
Lenders, concurrently with the execution of this Pledge Agreement and are in
suitable form for transfer by delivery, endorsed in blank or accompanied by duly
executed undated instruments of transfer or assignments in blank, having
attached thereto or to such certificates all requisite federal, state or
provincial stock transfer tax stamps, all in form and substance satisfactory to
the Agent.

(b) All necessary and appropriate entries, notations and written
descriptions in the books, share registry or membership registry of Summo USA
and Lisbon Valley evidencing and necessary or desirable to perfect the pledge of
the Pledged Collateral pursuant hereto have been or will be made concurrently
with the execution of this Pledge Agreement. The Pledgor
<PAGE>

shall forthwith take all other actions necessary, appropriate or desirable
pursuant to applicable law to perfect the pledge of the Pledged Collateral and
all requisite federal, state or provincial fees or taxes therefor have been
paid.

3. Representations, Warranties, Covenants and Agreements of the
Pledgor.

The Pledgor represents, warrants, covenants and agrees that:

(a) The portion of the Pledged Interest consisting of the shares in
Summo USA listed on Schedule 1 hereto constitutes all of the issued and
outstanding common stock or other equity interests in Summo USA, and the Pledged
Interest listed on Schedule 1 constitutes all of the shares of Summo USA owned
or controlled by the Pledgor. The portion of the Pledged Interest described on
Schedule 1 consisting of the membership interest in Lisbon Valley constitutes
all of the membership interest in Lisbon Valley owned or controlled by the
Pledgor.

(b) The Pledged Interest has been duly authorized and is validly
issued, fully paid and non-assessable.

(c) Except for the security interests granted hereby, the Pledgor
is, and as to Pledged Collateral acquired after the date hereof the Pledgor
shall and will be at the time of acquisition, the owner and holder of the
Pledged Collateral free from any adverse claim, security interest, encumbrance,
lien, charge, or other right, title or interest of any person other than the
Agent, except for Permitted Liens, and covenants that at all times the Pledged
Collateral will be and remain free of all such adverse claims, security
interests, or other liens or encumbrances, other than Permitted Liens.

(d) (i) The Pledgor has full power and lawful authority to enter
into this Pledge Agreement and to pledge the Pledged Collateral to the Agent and
to grant to the Agent a first and prior security interest therein as herein
provided, all of which have been duly authorized by all necessary corporate
action.

(ii) The execution and delivery and the performance hereof are
not in contravention of any charter, articles of incorporation or by-law
provision, or of any Instrument or undertaking to which the Pledgor is a party
or by which the Pledgor or its property is bound.

(iii) This Pledge Agreement constitutes the valid and legally
binding obligation of the Pledgor enforceable in accordance with its terms.

(iv) The Pledgor will defend the Pledged Collateral against
all claims and demands of all persons at any time claiming the same or any
interest therein. Any officer, agent or representative acting for or on behalf
of the Pledgor in connection with this Pledge Agreement or any aspect hereof, or
entering into or executing this Pledge Agreement on behalf of the Pledgor, has
been duly authorized to do so, and is fully empowered to act for and represent
the Pledgor in connection with this Pledge Agreement and all matters related
thereto or in connection therewith.
<PAGE>

(e) (i) Pledgor's principal place of business and chief executive
office is in Denver, Colorado. Pledgor shall not change the location of its
principal place of business or chief executive office without the prior written
consent of the Agent, not to be unreasonably withheld.

(ii) The preamble hereof states the correct legal name of the
Pledgor and the Pledgor does not conduct business under any other name. Pledgor
shall not change its corporate name, nor do business under any name other than
its current name, unless the Pledgor has delivered to the Agent written notice
of such other names at least 30 days prior to the date of first use thereof by
the Pledgor.

(f) (i) The Pledgor has not heretofore agreed to or signed any
pledge, financing statement or security agreement which covers any of the
Pledged Collateral, and no such pledge, financing statement or security
agreement is now on file in any public office and the Pledgor has not heretofore
filed or inserted any entries or notations in the books or share registry of the
Pledgor evidencing any pledge of the Pledged Collateral (other than such
financing statements, security agreements and share registry notations, if any,
of which both written notice and true and correct copies have heretofore been
given by the Pledgor to the Agent).

(ii) As long as any amount remains unpaid on any of the
Obligations or under any agreements entered into in connection with the
Obligations, except as expressly permitted by any such agreements, (A) the
Pledgor will not enter into or execute any pledge, security agreement or
financing statement covering the Pledged Collateral, other than those pledges,
security agreements and financing statements in favor of the Agent hereunder,
(B) the Pledgor shall not file or consent to the filing of any pledge, financing
statement or statements (or any documents or papers filed as such) covering the
Pledged Collateral, other than financing statements in favor of the Agent
hereunder, unless in any case the prior written consent of the Agent shall have
been obtained, and further (C) the Pledgor shall not insert, file or make any
notations in the books, share registry or membership registry of Summo USA or
Lisbon Valley evidencing any pledge of the Pledged Collateral, other than such
entries and notations in favor of the Agent hereunder.

(iii) The Pledgor authorizes the Agent to file, in its
discretion, in jurisdictions where this authorization will be given effect, a
financing statement or other instrument for filing required by any jurisdiction
applicable to the Pledged Collateral signed only by the Agent covering the
Pledged Collateral, and hereby appoints the Agent as the Pledgor's
attorney-in-fact to sign and file any such financing statements or other
instruments covering the Pledged Collateral. At the request of the Agent, the
Pledgor will join the Agent in executing such documents as the Agent may
determine from time to time to be necessary or desirable under provisions of any
applicable Uniform Commercial Code, Personal Property Security Act or other
applicable laws in effect where the Pledged Collateral is located or where the
Pledgor conducts business; without limiting the generality of the foregoing, the
Pledgor agrees to join the Agent, at the Agent's request, in executing one or
more financing statements or other instruments in form satisfactory to the
Agent, and the Pledgor will pay the costs of filing or recording the same in all
public offices at any time and from time to time whenever filing or recording of
any such financing statement is deemed by the Agent to be necessary or
desirable.
<PAGE>

(g) In the event that the Pledgor receives any promissory notes or
evidences of indebtedness of Summo USA or Lisbon Valley, the Pledgor shall hold
the same in trust as property of the Agent and forthwith assign, pledge and
deliver the same to the Agent.

4. Rights of the Agent and the Pledgor Related to Pledged
Collateral.

The Agent may from time to time following the occurrence of an Event
of Default, as defined in Section 6 hereof:

(a) Transfer any of the Pledged Collateral into the name of the
Agent or its nominee.

(b) Notify parties obligated on any of the Pledged Collateral to
make payment to the Agent of any amounts due or to become due thereunder.

(c) Enforce collection of any of the Pledged Collateral by suit or
otherwise; surrender, release or exchange all or any part thereof, or compromise
or extend or renew for any period (whether or not longer than the original
period) any obligation of any nature of any party with respect thereto; and
exercise all other rights of the Pledgor in any of the Pledged Collateral,
except as hereinafter provided with respect to income from or interest on the
Pledged Collateral and except that, prior to an Event of Default, the Pledgor
may exercise its voting and consensual rights with respect to any Pledged
Collateral constituting voting securities.

(d) Take possession or control of any proceeds of the Pledged
Collateral.

Until the occurrence of an Event of Default, the Pledgor shall have
the right to receive all income from or interest on the Pledged Collateral, and
if the Agent receives any such income or interest prior to the occurrence of an
Event of Default, the Agent shall pay the same promptly to the Pledgor, except
that in the case of securities or other property distributed by way of a
dividend or otherwise with respect to the Pledged Collateral, such securities or
other property shall be promptly delivered to the Agent to be held as Pledged
Interest or other Pledged Collateral hereunder. Upon the occurrence of an Event
of Default, the Pledgor will not demand or receive any income from or interest
on the Pledged Collateral, and if the Pledgor receives any such income or
interest without any demand by it, the same shall be held by the Pledgor in
trust for the Agent in the same medium in which received, shall not be
commingled with any assets of the Pledgor and shall be delivered to the Agent in
the form received, properly endorsed to permit collection, not later than the
next business day following the day of its receipt. The Agent may apply the net
cash received from such income or interest to payment of any of the Obligations,
provided that the Agent shall account for and pay over to the Pledgor any such
income or interest remaining after payment in full of the Obligations then
outstanding.

So long as no Event of Default shall have occurred and be
continuing, the Pledgor shall be entitled to exercise any and all voting and
other consensual rights pertaining to the Pledged Collateral or any part thereof
for any purpose not inconsistent with the terms of this Pledge and Security
Agreement or the Credit Agreement; provided, however, that the Pledgor shall not
exercise or refrain from exercising any such right if, in the Agent's judgment,
such
<PAGE>

action would have a material adverse effect on the value of the Pledged
Collateral or any part thereof; and, provided, further, that the Pledgor shall
give the Agent at least five days' written notice of the manner in which it
intends to exercise, or the reasons for refraining from exercising, any such
rights.

The Agent shall never be under any obligation to collect, attempt to
collect, protect or enforce the Pledged Collateral or any security therefor,
which the Pledgor agrees and undertakes to do at the Pledgor's expense, but the
Agent may do so in its discretion at any time after the occurrence of an Event
of Default and at such time the Agent shall have the right to take any steps by
judicial process or otherwise as it may deem proper to effect the collection of
all or any portion of the Pledged Collateral or to protect or to enforce the
Pledged Collateral or any security therefor. All expenses (including, without
limitation, reasonable attorneys' fees and expenses) incurred or paid by the
Agent in connection with or incident to any such collection or attempt to
collect the Pledged Collateral or actions to protect or enforce the Pledged
Collateral or any security therefor shall be borne by the Pledgor or reimbursed
by the Pledgor to the Agent upon demand. The proceeds received by the Agent as a
result of any such actions in collecting or enforcing or protecting the Pledged
Collateral shall be utilized by the Agent in accordance with Section 9 hereof.

In the event the Agent, after giving notice to the Pledgor thereof
and a period of five days after notifying the Pledgor within which to make
payment thereon, shall pay any taxes, assessments, interests, costs, penalties
or expenses incident to or in connection with the collection of the Pledged
Collateral or protection or enforcement of the Pledged Collateral or any
security therefor, the Pledgor, upon demand of the Agent, shall pay to the Agent
the full amount thereof with interest at a rate per annum (based on a 360-day
year for the actual number of days involved) from the date expended by the Agent
until repaid equal to the sum of two percent (2%) plus the LIBOR Rate in effect
under and defined by the Credit Agreement. So long as the Agent shall be
entitled to any such payment, this Pledge Agreement shall operate as security
therefor as fully and to the same extent as it operates as security for payment
of the other Obligations secured hereunder, and for the enforcement of such
repayment, the Agent shall have every right and remedy provided hereunder for
enforcement of payment of the Obligations. The Pledged Collateral and all rights
and remedies exercised by the Agent hereby shall be for the ratable benefit of
the Lenders.

5. Further Assurances.

The Pledgor agrees to take such actions and to execute such stock or
bond powers and such other or different writings as the Agent may reasonably
request (and irrevocably authorizes the Agent to execute such writings as the
Pledgor's agent and attorney-in-fact) further to perfect, confirm and assure the
Agent's security interest in the Pledged Collateral and to assist the Agent's
realization thereon including, without limitation, the right to receive,
indorse, and collect all instruments made payable to the Pledgor representing
any dividend, interest payment or other distribution in respect of the Pledged
Interest or any part thereof.

6. Event of Default.

The occurrence of any of the following shall constitute an "Event of
Default" hereunder:
<PAGE>

(a) Failure of the Pledgor to pay any Obligation (including any
installment of principal or interest thereon) when due and payable, whether at
maturity, by notice of intention to prepay or otherwise;

(b) Default in the timely performance by the Pledgor of any
obligation or covenant contained herein or an Event of Default under the Credit
Agreement or any other Transaction Document;

(c) Any representation or warranty made by the Pledgor herein or in
any other agreement with or instrument delivered to the Agent, or any statement
or representation made in any certificate, report or opinion delivered in
connection herewith or in connection with any such other agreement or instrument
that proves to be false or misleading in any material respect when made;

(d) The insolvency of the Pledgor, the admission by the Pledgor of
its inability to pay its debts as they become due, the commencement of any case
by or against the Pledgor under any bankruptcy or insolvency law, or the making
by the Pledgor of any assignment for the benefit of creditors; or

(e) The Pledgor shall terminate all or any material part of its
current business operations.

7. Rights and Remedies of the Agent Upon Default.

If an Event of Default shall have occurred:

(a) The Agent shall have and may exercise with reference to the
Pledged Collateral and the Obligations any and all of the rights and remedies of
a secured party under the UCC or the Personal Property Security Act (British
Columbia) ("PPSA"), as applicable, and as otherwise granted herein or under any
other applicable law or under any other agreement now or hereafter in effect
executed by the Pledgor, including, without limitation, the right and power to
sell, at public or private sale or sales, or otherwise dispose of, or otherwise
utilize the Pledged Collateral and any part or parts thereof in any manner
authorized or permitted under said UCC or PPSA after default by a debtor, and to
apply the proceeds thereof toward payment of any costs and expenses and
attorneys' fees and expenses thereby incurred by the Agent and toward payment of
the Obligations in such order or manner as the Agent may elect. Specifically and
without limiting the foregoing, the Agent shall have the right to take
possession of all or any part of the Pledged Collateral or any security thereof
and of all books, records, papers and documents of the Pledgor or in the
Pledgor's possession or control relating to the Pledged Collateral which are not
already in the Agent's possession, and for such purpose may enter upon any
premises upon which any of the Pledged Collateral or any security therefor or
any of said books, records, papers and documents are situated and remove the
same therefrom without any liability for trespass or damages thereby occasioned.
To the extent permitted by law, the Pledgor expressly waives any notice of sale
or other disposition of the Pledged Collateral and all other rights or remedies
of the Pledgor or formalities prescribed by law relative to sale or disposition
of the Pledged Collateral or exercise of any other right or remedy of the Agent
existing after default
<PAGE>

hereunder; and to the extent any such notice is required and cannot be waived,
the Pledgor agrees that if such notice is given in the manner provided in
Section 13 hereof at least ten days before the time of the sale or disposition,
such notice shall be deemed reasonable and shall fully satisfy any requirement
for giving of said notice. The Agent shall not be obligated to make any sale of
Pledged Collateral regardless of notice of sale having been given. The Agent may
adjourn any public or private sale.

(b) Upon notice by the Agent to the Pledgor, the Agent or its
nominee or nominees shall have the sole and exclusive right to exercise all
voting and consensual powers pertaining to the Pledged Collateral or any part
thereof and may exercise such powers in such manner as the Agent may elect.

(c) All dividends, payments of interest and other distributions of
every character made upon or in respect of the Pledged Interest or any part
thereof shall be deemed to be Pledged Collateral and shall be paid directly to
and shall be held by the Agent as additional Pledged Collateral pledged under
and subject to this Pledge and Security Agreement.

(d) All rights to marshaling of assets of the Pledgor, including any
such right with respect to the Pledged Collateral, are hereby waived by the
Pledgor.

(e) All recitals in any instrument of assignment or any other
instrument executed by the Agent incident to sale, lease, transfer, assignment
or other disposition, lease or utilization of the Pledged Collateral or any part
thereof hereunder shall be full proof of the matters stated therein and no other
proof shall be requisite to establish full legal propriety of the sale or other
action taken by the Agent or of any fact, condition or thing incident thereto,
and all requisites of such sale or other action or of any fact, condition or
thing incident thereto shall be presumed conclusively to have been performed or
to have occurred.

8. Special Provisions for Pledged Interest.

The Pledgor hereby acknowledges that the sale by the Agent of any of
the Pledged Interest pursuant to the terms hereof in compliance with federal and
applicable state or provincial securities laws or the securities laws of any
other applicable jurisdiction exercising valid jurisdiction over the Pledged
Interest (as now in effect or as hereafter amended, or any similar statute
hereafter adopted with similar purpose or effect, the "Securities Laws") may
require strict limitations as to the manner in which the Agent or any subsequent
transferee of the Pledged Interest may dispose of such securities. The Pledgor
understands that in order to protect the Agent's interest it may be necessary to
sell the Pledged Interest at a price less than the maximum price attainable if a
sale were delayed or were made in another manner, such as a public offering
requested under the Securities Laws. The Pledgor has no and waives any objection
to a sale in such a manner.

9. Application of Proceeds by the Agent.

In the event the Agent sells or otherwise disposes of the Pledged
Collateral in the course of exercising the remedies provided for in Section 7 or
8 hereof, any amounts held, realized or received by the Agent pursuant to the
provisions hereof, including the proceeds of the
<PAGE>

sale of any of the Pledged Collateral or any part thereof, shall be applied by
the Agent first toward the payment of any costs and expenses incurred by the
Agent and any Lender in enforcing this Pledge Agreement, in realizing on or
protecting any Pledged Collateral and in enforcing or collecting any Obligations
or any guaranty thereof, including, without limitation, the actual attorneys'
fees and expenses incurred by the Agent (all of which costs and expenses are
secured by the Pledged Collateral), all of which costs and expenses the Pledgor
agrees to pay, and then as provided in the Credit Agreement. Any amounts and any
Pledged Collateral remaining after such application and after payment to the
Agent of all of the Obligations in full shall be paid or delivered to the
Pledgor, its successor or assigns, or as a court of competent jurisdiction may
direct.

The Agent shall be deemed to have exercised reasonable care in the
custody and preservation of the Pledged Collateral in its possession if the
Pledged Collateral is accorded treatment substantially equal to that which the
Agent accords its own property, it being understood that the Agent shall not
have any responsibility for (x) ascertaining or taking action with respect to
calls, conversions, exchanges, maturities, tenders or other matters relative to
any Pledged Collateral, whether or not the Agent has or is deemed to have
knowledge of such matters or (y) taking any necessary steps to preserve rights
against any parties with respect to any Pledged Collateral.

10. Absolute Interest.

(a) All rights of the Agent hereunder, and all obligations of the
Pledgor hereunder, shall be absolute and unconditional irrespective of (i) any
lack of validity or enforceability of any provision of the Credit Agreement, any
agreement with respect to the Obligations or any other agreement or instrument
relating to any of the foregoing, (ii) any change in the time, manner or place
of payment of, or in any other term of, all or any of the Obligations, or any
other amendment or waiver of or any consent to any departure from the Credit
Agreement or any other agreement or instrument, (iii) any exchange, release or
non-perfection of any Pledged Collateral, or any release or amendment or waiver
of or any consent to or departure from any guarantee, for all or any of the
Obligations or (iv) any other circumstance which might constitute a defense
available to, or a discharge of, the Pledgor in respect of the Obligations or
this Pledge Agreement.

(b) The Agent is hereby subrogated to all of the Pledgor's
interests, rights and remedies in respect to the Pledged Collateral and all
security now or hereafter existing with respect thereto and all guaranties and
endorsements thereof and with respect thereto.

11. Termination.

This Pledge Agreement and the security interests created hereunder
shall terminate when all the Obligations have been indefeasibly paid in full and
when the Lenders have no further obligation to extend credit under the Credit
Agreement or any other agreement relating to Obligations, at which time the
Agent shall execute and deliver to the Pledgor all documents which the Pledgor
shall reasonably request to evidence termination of such security interest and
shall return physical possession of any Pledged Collateral then held by the
Agent to the Pledgor; provided, however, that all indemnities of the Pledgor
contained in this Pledge
<PAGE>

Agreement shall survive, and remain in full force and effect regardless of the
termination of the security interest of this Pledge Agreement.

12. Additional Information.

The Pledgor agrees to furnish the Agent from time to time such
additional information and copies of such documents relating to this Pledge
Agreement, the Pledged Collateral, the Obligations and the Pledgor's financial
condition as the Agent may reasonably request.

13. Notices.

Any communication, notice or demand to be given hereunder shall be
in writing (including telex and facsimile communication) and sent by facsimile
or delivered by courier,

if to the Pledgor,

Summo Minerals Corporation
1776 Lincoln Street
Suite 1100
Denver, Colorado 80203
Attention: Gregory A. Hahn
Facsimile: (303) 863-1736;

and if to the Agent,

Resource Capital Fund L.P.
2150 Republic Plaza Building
370 Seventeenth Street
Denver, Colorado 80202
Attention: James T. McClements
Facsimile: (303) 607-0150

as to each party, at such other address or numbers as shall be designated by
either party hereto to the other party in a written notice. All such notices and
communications shall be effective (a) when received, if physically delivered,
and (b) upon confirmation of transmission, if sent by telex or telecopier,
addressed in each case as aforesaid.

14. Indemnity and Expenses.

The Pledgor agrees to indemnify the Agent and each of the Lenders,
and the officers, directors, employees and agents of the Agent and each of the
Lenders (with the foregoing referred to collectively as the "Indemnified
Parties"), for, and to hold each Indemnified Party harmless against, any loss,
liability, claim judgment, settlement, compromise, obligation, damage or penalty
of any kind or nature, including the costs and expenses of the Indemnified Party
incurred in defending itself against any claim of liability in connection with
or arising out
<PAGE>

of this Pledge Agreement, unless arising from the gross negligence or willful
misconduct of such Indemnified Party.

15. No Waiver; Cumulative Rights.

No failure on the part of the Agent to exercise, and no delay in
exercising, any right, remedy or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise by the Agent of any right,
remedy or power hereunder preclude any other or future exercise of any other
right, remedy or power. Each and every right, remedy and power hereby granted to
the Agent or allowed it by law or other agreement shall be cumulative and not
exclusive of any other and may be exercised by the Agent from time to time.

16. GOVERNING LAW; CONSENT TO JURISDICTION.

THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF COLORADO INCLUDING THE CONFLICTS OF LAW PROVISIONS THEREOF, EXCEPT
TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE PLEDGE AND THE SECURITY
INTEREST HEREUNDER, OR ANY REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR
COLLATERAL, IS GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF
COLORADO. THE PLEDGOR, FOR ITSELF AND ITS SUCCESSORS AND ASSIGNS, HEREBY
IRREVOCABLY (a) AGREES THAT ANY LEGAL OR EQUITABLE ACTION, SUIT OR PROCEEDING
AGAINST THE PLEDGOR ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREBY OR THE SUBJECT MATTER HEREOF MAY BE INSTITUTED
IN ANY COURT OF APPROPRIATE JURISDICTION IN DENVER, COLORADO; (b) WAIVES ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF SUCH ACTION, SUIT
OR PROCEEDING OR ANY CLAIM OF FORUM NON CONVENIENS; (c) SUBMITS ITSELF TO THE
NON-EXCLUSIVE JURISDICTION OF ANY SUCH COURT, FOR THE PURPOSES OF SUCH ACTION,
SUIT OR PROCEEDING; (d) WAIVES ANY IMMUNITY FROM JURISDICTION TO WHICH IT MIGHT
OTHERWISE BE ENTITLED IN ANY SUCH ACTION, SUIT OR PROCEEDING WHICH MAY BE
INSTITUTED IN ANY SUCH COURT, AND WAIVES ANY IMMUNITY FROM THE MAINTAINING OF AN
ACTION AGAINST IT TO ENFORCE IN ANY SUCH COURT, ANY JUDGMENT FOR MONEY OBTAINED
IN SUCH ACTION, SUIT OR PROCEEDING AND, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, ANY IMMUNITY FROM EXECUTION; AND (e) APPOINTS THE PERSON NAMED IN THE
NOTICE SECTION HEREOF AS ITS AGENT (THE "PROCESS AGENT") TO RECEIVE ON BEHALF OF
THE PLEDGOR AND ITS PROPERTY SERVICE OF COPIES OF THE SUMMONS AND COMPLAINT AND
ANY OTHER PROCESS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. SUCH
SERVICE MAY BE MADE BY DELIVERING A COPY OF SUCH PROCESS TO THE PLEDGOR IN CARE
OF ITS PROCESS AGENT AT SUCH PROCESS AGENT'S ADDRESS SO INDICATED, AND THE
PLEDGOR HEREBY IRREVOCABLY AUTHORIZES AND DIRECTS ITS PROCESS AGENT TO ACCEPT
SUCH SERVICE ON ITS BEHALF. AS AN ALTERNATIVE METHOD OF SERVICE, EACH PARTY ALSO
IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY
<PAGE>

SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO IT AT ITS
ADDRESS REFERRED TO IN SECTION 13 HEREOF. NOTHING IN THIS SECTION 16 SHALL
AFFECT THE RIGHT OF ANY PARTY TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW.

17. JURY TRIAL.

THE PLEDGOR AND THE AGENT EACH HEREBY KNOWINGLY, VOLUNTARILY,
INTENTIONALLY, IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT TO TRIAL BY JURY
IN ANY LEGAL OR EQUITABLE ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING
TO THIS PLEDGE AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THE
SUBJECT MATTER HEREOF. THE PROVISIONS OF THIS SECTION 17 ARE A MATERIAL
INDUCEMENT FOR THE AGENT TO ENTER INTO THIS PLEDGE AGREEMENT AND THE CREDIT
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREIN AND THEREIN. THE PLEDGOR
HEREBY ACKNOWLEDGES THAT IT HAS REVIEWED THE PROVISIONS OF THIS SECTION 17 WITH
ITS INDEPENDENT COUNSEL.

18. Execution in Counterparts.

This Pledge Agreement may be executed in any number of counterparts,
each of which shall be an original, but such counterparts shall together
constitute one and the same agreement.

19. Severability.

If any one or more provisions of this Pledge Agreement should be
declared invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected, impaired or prejudiced thereby.

[ REMAINDER OF THIS PAGE INTENTIONALLY BLANK ]
<PAGE>

IN WITNESS WHEREOF, the parties have caused this Pledge Agreement to
be duly executed as of the date first above written.

PLEDGOR:

SUMMO MINERALS
CORPORATION

By: /s/ GREGORY A. HAHN
---------------------------------
Name: Gregory A. Hahn
Title: President

AGENT:

RESOURCE CAPITAL FUND L.P.

By:Resource Capital Associates L.L.C.,
general partner

By: /s/ JAMES T. McCLEMENTS
---------------------------------
James T. McClements
Managing Director
<PAGE>

SCHEDULE 1

DESCRIPTION OF PLEDGED INTEREST

Summo USA Corporation

ISSUER CLASS CERTIFICATE NUMBER OF PERCENTAGE OF
NUMBER SHARES SHARES
OUTSTANDING
OWNED BY PLEDGOR

Summo Common 1 1,000 100%
USA
Corp.

Lisbon Valley Mining Co. L.L.C.

PERCENTAGE OF MEMBERSHIP INTEREST
OWNED BY PLEDGOR

1/46
--------------------------------

<PAGE>
EXHIBIT 10.34

PLEDGE AND SECURITY AGREEMENT

This PLEDGE AND SECURITY AGREEMENT (the "Pledge Agreement"), dated as of
June 25, 1999, is by and between SUMMO USA CORPORATION, a corporation organized
and existing under the laws of Colorado (the "Pledgor") and RESOURCE CAPITAL
FUND L.P., a Cayman Islands limited partnership, as agent (the "Agent") for the
Lenders named in the Credit Agreement (hereinafter defined).

RECITALS

A. Pursuant to the Amended and Restated Credit Agreement (the
"Credit Agreement"), dated as of June 25, 1999, among the Pledgor, Summo
Minerals Corporation, a corporation organized and existing under the laws of
British Columbia ("Summo Minerals," together with Pledgor, sometimes referred to
herein as the "Borrowers"), the Lenders as defined and named therein and the
Agent, the parties agreed to modify, amend in its entirety and restate certain
outstanding credit obligations as set forth therein and to extend additional
credit thereunder. Capitalized terms not otherwise defined herein shall have the
meanings set forth in the Credit Agreement.

B. The Pledgor is willing to enter into this Pledge Agreement to
secure the due and punctual performance of the obligations of the Pledgor and
Summo Minerals to the Lenders under the Credit Agreement and the other
Transaction Documents. The collateral security offered hereby and all rights and
remedies granted to the Agent hereunder will be for the ratable benefit of the
Lenders.

AGREEMENT

NOW, THEREFORE, the parties hereto agree as follows:

1. Pledge and Grant Security Interest.

(a) For value received and to induce the Lenders to enter into the
Credit Agreement and extend additional credit to the Borrowers, the Pledgor
hereby assigns and pledges to the Agent for the ratable benefit of the Lenders
and grants as security to the Agent for the ratable benefit of the Lenders, for
all present and future obligations and liabilities of all kinds of the Pledgor
to any of the Lenders under the Credit Agreement and the other Transaction
Documents, hereunder or otherwise, whether incurred by the Pledgor as maker,
endorser, drawer, acceptor, guarantor, accommodation party or otherwise, and
whether due or to become due, secured or unsecured, absolute or contingent,
joint or several, and howsoever or whensoever incurred by the Pledgor or
acquired by any Lender (collectively referred to as the "Obligations"), a charge
and first lien on, and security interest in, all its right, title and interest
in and to the following:
<PAGE>

(i) (A) all of (x) the issued and outstanding shares of the
capitol stock of Nord Resources Corporation, a Delaware Corporation ("Nord"),
owned by or held for the benefit of the Pledgor, whether now existing or
hereafter acquired and all additional shares of capitol stock of Nord from time
to time acquired by the Pledgor by purchase, stock dividend, distribution or
otherwise and (y) Pledgor's membership and beneficial interest in Lisbon Valley
Mining Co. LLC, a Utah limited liability company ("Lisbon Valley"), whether now
existing or hereafter acquired, all of Pledgor's share of profits and losses of
Lisbon Valley, Pledgor's right to receive distributions of Lisbon Valley
property and assets of any type and characterization, and all additional
membership, ownership or other interest in Lisbon Valley from time to time
acquired by the Pledgor by purchase, distribution or otherwise (all such shares
of stock of Nord and interest in Lisbon Valley pledged hereunder being referred
to collectively as the "Pledged Interest"), (B) certificates representing any of
the Pledged Interest and (C) except as otherwise provided in Section 4 hereof,
any and all dividends, distributions, cash, securities, instruments, warrants,
options, other property and proceeds from time to time received, receivable,
paid or otherwise distributed in respect of, in substitution for, in addition to
or in exchange for or evidencing any of the Pledged Interest and all proceeds
thereof; and

(b) The Pledged Interest, the certificates therefor, all
distributions, cash, instruments, options, other property and proceeds from time
to time received, receivable, paid or otherwise distributed in respect of, in
substitution for, in addition to or in exchange for or evidencing any of the
Pledged Interest and all proceeds thereof, and the Personalty are referred to
herein collectively as the "Pledged Collateral."

2. Delivery of Pledged Interest Certificates; Registry Notations.

(a) All certificates or instruments representing or evidencing the
Pledged Interest referred to in Section 1 hereof have previously been delivered
or are being delivered to and held by the Agent, for the ratable benefit of the
Lenders, concurrently with the execution of this Pledge Agreement and are in
suitable form for transfer by delivery, accompanied by duly executed undated
instruments of transfer or assignments in blank, having attached thereto or to
such certificates all requisite federal, state or provincial transfer tax
stamps, all in form and substance satisfactory to the Agent.

(b) All necessary and appropriate entries, notations and written
descriptions in the books, share registry or membership registry of Lisbon
Valley and Nord evidencing and necessary or desirable to perfect the pledge of
the Pledged Collateral pursuant hereto have been or will be made concurrently
with the execution of this Pledge Agreement. The Pledgor shall
<PAGE>

forthwith take all other actions necessary, appropriate or desirable pursuant to
applicable law to perfect the pledge of the Pledged Collateral and all requisite
federal, state or provincial fees or taxes therefor have been paid.

3. Representations, Warranties, Covenants and Agreements of the
Pledgor.

The Pledgor represents, warrants, covenants and agrees that:

(a) The Pledged Interest consisting of the membership interest in
Lisbon Valley described on Schedule 1 hereto constitutes all of the membership
interest in Lisbon Valley owned or controlled by the Pledgor, and the Pledged
Interest consisting of the shares of Nord described on Schedule 1 hereto
constitutes all of the shares of Nord owned or controlled by the Pledgor.

(b) The Pledged Interest has been duly authorized and is validly
issued.

(iii) This Pledge Agreement constitutes the valid and legally
binding obligation of the Pledgor enforceable in accordance with its terms.

(e) (i) Pledgor's principal place of business and chief executive
office is in Denver, Colorado. Pledgor shall not change the location of its
principal place of business or
<PAGE>

chief executive office without the prior written consent of the Agent, not to be
unreasonably withheld.

(f) (i) Except for the Pledge and Security Agreement dated November
23, 1998 between Pledgor and Lisbon Valley, as Debtors, and St. Mary Minerals
Inc., as Secured Party and the financing statements incident thereto, the
Pledgor has not heretofore agreed to or signed any pledge, financing statement
or security agreement which covers any of the Pledged Collateral, and no such
pledge, financing statement or security agreement is now on file in any public
office and the Pledgor has not heretofore filed or inserted any entries or
notations in the books or membership registry of the Pledgor evidencing any
pledge of the Pledged Collateral (other than such financing statements, security
agreements and membership registry notations, if any, of which both written
notice and true and correct copies have heretofore been given by the Pledgor to
the Agent).

(ii) As long as any amount remains unpaid on any of the
Obligations or under any agreements entered into in connection with the
Obligations, except as expressly permitted by any such agreements, (A) the
Pledgor will not enter into or execute any pledge, security agreement or
financing statement covering the Pledged Collateral, other than those pledges,
security agreements and financing statements in favor of the Agent hereunder,
(B) the Pledgor shall not file or consent to the filing of any pledge, financing
statement or statements (or any documents or papers filed as such) covering the
Pledged Collateral, other than financing statements in favor of the Agent
hereunder, unless in any case the prior written consent of the Agent shall have
been obtained, and further (C) the Pledgor shall not insert, file or make any
notations in the books, share registry or membership registry of Lisbon Valley
or Nord evidencing any pledge of the Pledged Collateral, other than such entries
and notations in favor of the Agent hereunder.

(iii) The Pledgor authorizes the Agent to file, in its
discretion, in jurisdictions where this authorization will be given effect, a
financing statement or other instrument for filing required by any jurisdiction
applicable to the Pledged Collateral signed only by the Agent covering the
Pledged Collateral, and hereby appoints the Agent as the Pledgor's
attorney-in-fact to sign and file any such financing statements or other
instruments covering the Pledged Collateral. At the request of the Agent, the
Pledgor will join the Agent in executing such documents as the Agent may
determine from time to time to be necessary or desirable under provisions of any
applicable Uniform Commercial Code or other applicable laws in effect where the
Pledged Collateral is located or where the Pledgor conducts business; without
limiting the generality of the foregoing, the Pledgor agrees to join the Agent,
at the Agent's request, in executing one or more financing statements or other
instruments in form satisfactory to the Agent, and the Pledgor will pay the
costs of filing or recording the same in all public offices at any time and from
time to time whenever filing or recording of any such financing statement is
deemed by the Agent to be necessary or desirable.
<PAGE>

(g) In the event that the Pledgor receives any promissory notes or
evidences of indebtedness of Lisbon Valley or Nord, the Pledgor shall hold the
same in trust as property of the Agent and forthwith assign, pledge and deliver
the same to the Agent.

4. Rights of the Agent and the Pledgor Related to Pledged
Collateral.

The Agent may from time to time following the occurrence of an Event
of Default, as defined in Section 6 hereof:

(a) Transfer any of the Pledged Collateral into the name of the
Agent or its nominee.

(b) Notify parties obligated on any of the Pledged Collateral to
make payment to the Agent of any amounts due or to become due thereunder.

(d) Take possession or control of any proceeds of the Pledged
Collateral.

Until the occurrence of an Event of Default, the Pledgor shall have
the right to receive all income from or interest on the Pledged Collateral, and
if the Agent receives any such income or interest prior to the occurrence of an
Event of Default, the Agent shall pay the same promptly to the Pledgor, except
that in the case of securities or other property distributed by way of a
dividend or otherwise with respect to the Pledged Collateral, such securities or
other property shall be promptly delivered to the Agent to be held as Pledged
Collateral hereunder. Upon the occurrence of an Event of Default, the Pledgor
will not demand or receive any income from or interest on the Pledged
Collateral, and if the Pledgor receives any such income or interest without any
demand by it, the same shall be held by the Pledgor in trust for the Agent in
the same medium in which received, shall not be commingled with any assets of
the Pledgor and shall be delivered to the Agent in the form received, properly
endorsed to permit collection, not later than the next business day following
the day of its receipt. The Agent may apply the net cash received from such
income or interest to payment of any of the Obligations, provided that the Agent
shall account for and pay over to the Pledgor any such income or interest
remaining after payment in full of the Obligations then outstanding.

5. Further Assurances.

The Pledgor agrees to take such actions and to execute such
instruments and such other or different writings as the Agent may reasonably
request (and irrevocably authorizes the Agent to execute such writings as the
Pledgor's agent and attorney-in-fact) further to perfect, confirm and assure the
Agent's security interest in the Pledged Collateral and to assist the Agent's
realization thereon including, without limitation, the right to receive,
indorse, and collect all instruments made payable to the Pledgor representing
any dividend, interest payment or other distribution in respect of the Pledged
Interest or any part thereof.

6. Event of Default.
<PAGE>

The occurrence of any of the following shall constitute an "Event of
Default" hereunder:

(a) Failure of the Pledgor to pay any Obligation (including any
installment of principal or interest thereon) when due and payable, whether at
maturity, by notice of intention to prepay or otherwise;

(b) Default in the timely performance by the Pledgor of any
obligation or covenant contained herein or an Event of Default under the Credit
Agreement or any other Transaction Document;

(e) The Pledgor shall terminate all or any material part of its
current business operations.

7. Rights and Remedies of the Agent Upon Default.

If an Event of Default shall have occurred:

(a) The Agent shall have and may exercise with reference to the
Pledged Collateral and the Obligations any and all of the rights and remedies of
a secured party under the UCC and as otherwise granted herein or under any other
applicable law or under any other agreement now or hereafter in effect executed
by the Pledgor, including, without limitation, the right and power to sell, at
public or private sale or sales, or otherwise dispose of, or otherwise utilize
the Pledged Collateral and any part or parts thereof in any manner authorized or
permitted under said UCC after default by a debtor, and to apply the proceeds
thereof toward payment of any costs and expenses and attorneys' fees and
expenses thereby incurred by the Agent and toward payment of the Obligations in
such order or manner as the Agent may elect. Specifically and without limiting
the foregoing, the Agent shall have the right to take possession of all or any
part of the Pledged Collateral or any security thereof and of all books,
records, papers and documents of the Pledgor or in the Pledgor's possession or
control relating to the Pledged Collateral which are not already in the Agent's
possession, and for such purpose may enter upon any premises upon which any of
the Pledged Collateral or any security therefor or any of said books, records,
papers and documents are situated and remove the same therefrom without any
liability for trespass or damages thereby occasioned. To the extent permitted by
law, the Pledgor expressly waives any notice of sale or other disposition of
<PAGE>

the Pledged Collateral and all other rights or remedies of the Pledgor or
formalities prescribed by law relative to sale or disposition of the Pledged
Collateral or exercise of any other right or remedy of the Agent existing after
default hereunder; and to the extent any such notice is required and cannot be
waived, the Pledgor agrees that if such notice is given in the manner provided
in Section 13 hereof at least ten days before the time of the sale or
disposition, such notice shall be deemed reasonable and shall fully satisfy any
requirement for giving of said notice. The Agent shall not be obligated to make
any sale of Pledged Collateral regardless of notice of sale having been given.
The Agent may adjourn any public or private sale.

(d) All rights to marshaling of assets of the Pledgor, including any
such right with respect to the Pledged Collateral, are hereby waived by the
Pledgor.

8. Special Provisions for Pledged Interest.

9. Application of Proceeds by the Agent.

In the event the Agent sells or otherwise disposes of the Pledged
Collateral in the course of exercising the remedies provided for in Section 7 or
8 hereof, any amounts held,
<PAGE>

realized or received by the Agent pursuant to the provisions hereof, including
the proceeds of the sale of any of the Pledged Collateral or any part thereof,
shall be applied by the Agent first toward the payment of any costs and expenses
incurred by the Agent and any Lender in enforcing this Pledge Agreement, in
realizing on or protecting any Pledged Collateral and in enforcing or collecting
any Obligations or any guaranty thereof, including, without limitation, the
actual attorneys' fees and expenses incurred by the Agent (all of which costs
and expenses are secured by the Pledged Collateral), all of which costs and
expenses the Pledgor agrees to pay, and then as provided in the Credit
Agreement. Any amounts and any Pledged Collateral remaining after such
application and after payment to the Agent of all of the Obligations in full
shall be paid or delivered to the Pledgor, its successor or assigns, or as a
court of competent jurisdiction may direct.

10. Absolute Interest.

11. Termination.

the Pledgor; provided, however, that all indemnities of the Pledgor contained in
this Pledge Agreement shall survive, and remain in full force and effect
regardless of the termination of the security interest of this Pledge Agreement.

12. Additional Information.

13. Notices.

Any communication, notice or demand to be given hereunder shall be
in writing (including telex and facsimile communication) and sent by facsimile
or delivered by courier,

if to the Pledgor,

Summo USA Corporation
1776 Lincoln Street
Suite 1100
Denver, Colorado 80203
Attention: Gregory A. Hahn
Facsimile: (303) 863-1736;

and if to the Agent,

Resource Capital Fund L.P.
2150 Republic Plaza Building
370 Seventeenth Street
Denver, Colorado 80202
Attention: James T. McClements
Facsimile: (303) 607-0150

14. Indemnity and Expenses.

of this Pledge Agreement, unless arising from the gross negligence or willful
misconduct of such Indemnified Party.

15. No Waiver; Cumulative Rights.

16. GOVERNING LAW; CONSENT TO JURISDICTION.

17. JURY TRIAL.

18. Execution in Counterparts.

This Pledge Agreement may be executed in any number of counterparts,
each of which shall be an original, but such counterparts shall together
constitute one and the same agreement.

19. Severability.

[ REMAINDER OF THIS PAGE INTENTIONALLY BLANK ]
<PAGE>

IN WITNESS WHEREOF, the parties have caused this Pledge Agreement to
be duly executed as of the date first above written.

PLEDGOR:

SUMMO USA CORPORATION

By: /s/ GREGORY A. HAHN
-------------------------------
Name: Gregory A. Hahn
Title: President

AGENT:

RESOURCE CAPITAL FUND L.P.

By: Resource Capital Associates L.L.C.,
general partner

By: /s/ JAMES T. McCLEMENTS
-------------------------------
James T. McClements
Managing Director
<PAGE>

SCHEDULE 1

DESCRIPTION OF PLEDGED INTEREST

Lisbon Valley Mining Co. L.L.C.

PERCENTAGE OF MEMBERSHIP INTEREST
OWNED BY PLEDGOR

45/46

Nord Resources Corporation

ISSUER CLASS CERTIFICATE NUMBER OF PERCENTAGE OF
NUMBER SHARES SHARES
OUTSTANDING
OWNED BY PLEDGOR

Nord Common NU53443 1,600,000 Unknown
Resource
Corp.

<PAGE>
EXHIBIT 10.35

WARRANT AGREEMENT

This WARRANT AGREEMENT (the "Agreement"), dated as of June 25, 1999, is
among SUMMO MINERALS CORPORATION, a corporation organized under the laws of the
Province of British Columbia, Canada, (the "Company"), RESOURCE CAPITAL FUND
L.P., a Cayman Islands limited partnership ("RCF") and ST. MARY MINERALS, INC.,
a Delaware corporation ("St. Mary," and together with RCF, the "Holders").

Recitals

A. The Company and Summo USA Corporation, a wholly-owned subsidiary of the
Company, as co-borrowers ("Summo (USA)," with the Company and Summo (USA)
referred to together as "Borrowers"), RCF, as agent and as a lender, and St.
Mary, as a lender, have entered into an Amended and Restated Credit Agreement
dated as of June 25, 1999 (the "Credit Agreement"), pursuant to which the
Holders have extended credit to the Borrowers.

B. Pursuant to the Credit Agreement, as a portion of the inducement to the
Holders to extend the credit provided for therein, the Company has agreed to
issue certain warrants as provided herein (the "Warrants") permitting each of
RCF and St. Mary, each acting severally and in its sole discretion, to purchase
shares of the no par value common stock of the Company (the "Common Stock"),
with the Common Stock issuable by the Company upon exercise of the Warrants
referred to herein as the "Warrant Shares."

C. The parties intend that capitalized terms used but not defined herein
will have the meanings given to them in the Credit Agreement.

Agreement

NOW, THEREFORE, in consideration of the Holders' extension of credit to
the Borrowers pursuant to the Credit Agreement and of the covenants herein, the
parties hereto agree as follows:

SECTION 1. Warrant Certificates. The Warrants shall be evidenced by two
forms of certificate, as appended hereto as Exhibit A-1 (the "RCF Warrant
Certificate") and Exhibit A-2 (the "St. Mary Warrant Certificate") with all such
certificates collectively referred to as the "Warrant Certificates." The
Warrants shall each be in registered form only.

SECTION 2. Execution of Warrant Certificates. Warrant Certificates shall
be signed on behalf of the Company by its Chairman of the Board or its President
or a Vice President and by its Secretary or an Assistant Secretary under its
corporate seal. The seal of the Company shall be impressed on the Warrant
Certificates.

Any Warrant Certificate may be signed on behalf of the Company by any
person who, at the actual date of the execution of such Warrant Certificate,
shall be a proper officer of the Company (as provided above) to sign such
Warrant Certificate, although at the date of the execution of this Warrant
Agreement any such person was not such an officer.

1
<PAGE>

SECTION 3. Registration. The Company shall number and register the Warrant
Certificates in a register as they are issued by the Company. The Company may
deem and treat the registered holder(s) (the words "holders" or "holder" as used
herein meaning the registered holders or registered holder and any transferee of
either of the registered Holders) of the Warrant Certificates as the absolute
owner(s) thereof (notwithstanding any notation of ownership or other writing
thereon made by anyone), for all purposes, and the Company shall not be affected
by any notice to the contrary.

SECTION 4. Registration of Transfers and Exchanges. The Company shall from
time to time register the transfer of any outstanding Warrant Certificates upon
the records to be maintained by it for that purpose, upon surrender thereof
accompanied (if so required by it) by a written instrument or instruments of
transfer duly executed by the registered holder or holders thereof or by the
duly appointed legal representative thereof or by a duly authorized attorney.
Upon any such registration of transfer, a new Warrant Certificate shall be
issued to the transferee(s) and the surrendered Warrant Certificate shall be
canceled by the Company. Canceled Warrant Certificates shall thereafter be
disposed of in a manner satisfactory to the Company.

Warrant Certificates may be exchanged at the option of the holder(s)
thereof, when surrendered to the Company at its office for another Warrant
Certificate or other Warrant Certificates of like tenor and representing in the
aggregate a like number of Warrants. Warrant Certificates surrendered for
exchange shall be canceled by the Company.

SECTION 5. Issuance of Warrants. Concurrently with the execution of
this Agreement, the Company will issue the RCF Warrant and the St. Mary
Warrant and deliver them to the respective Holders.

SECTION 6. Terms of Warrants; Exercise of Warrants; Company Repurchase
Rights.

6.1 Terms of Warrants. The Warrants shall be issued on the
following terms, certain of which terms are subject to adjustment as provided in
this Agreement:

a. RCF Warrant.

Number of Shares
of Common Stock: 50,000,000*
Exercise Price: Canadian $0.12/share of
Common Stock*

Exercise Period: The date of this Agreement
through June 25, 2004**

b. St. Mary Warrant.

2
<PAGE>

Number of Shares
of Common Stock: 17,500,000*

Exercise Price: Canadian $0.12/share of
Common Stock*

Exercise Period: The date of this Agreement
through June 25, 2004**

* Subject to adjustment as provided in Section
11 below.

** Not subject to adjustment, even if amounts due
under the Credit Agreement are paid prior to the
Expiry Date.

6.2 Exercise of Warrants.

a. Exercise by Holders. Each Holder, acting severally,
may elect, in its sole discretion, to exercise its respective Warrants, in whole
or in part, at any time and from time to time during the Exercise Period for
such Warrant set forth in Section 6.1, in the manner specified in Paragraph b.
below.

b. General Provisions Regarding Exercise. To exercise
any Warrant, in whole or in part, a Holder shall deliver to the Company during
the Exercise Period for such Warrant (a) the Warrant Certificate or Certificates
for the Warrant being exercised, (b) written notice, in substantially the form
of the Subscription Notice appended hereto as Exhibit B, of such Holder's
election to exercise such Warrant, which notice shall specify the number of
shares of Common Stock to be purchased, the denominations of the share
certificate or certificates desired and the name or names in which such
certificates are to be registered and (c) payment of the Exercise Price with
respect to such shares of Common Stock. Such payment may be made, at the option
of such Holder, by cash, certified or bank cashier's check or wire transfer.
Each exercise of a Warrant shall, upon delivery of all of the foregoing to the
Company before 5:00 p.m. on June 25, 2004, be irrevocable.

Upon such surrender of Warrant Certificates, delivery of a Subscription
Notice and payment of the Exercise Price, the Company shall issue and cause to
be delivered with all reasonable dispatch to or upon the written order of the
Warrant holder and in such name or names as the holder may designate, a
certificate or certificates for the number of full Warrant Shares issuable upon
the exercise of such Warrants together with cash as provided in Section 12, if
applicable, provided, however, that if any consolidation, merger or lease or
sale of assets is proposed to be effected by the Company as described in
subsection (m) of Section 11 hereof, or a tender offer or an exchange offer for
shares of Common Stock of the Company shall be made, upon such surrender of
Warrants and payment of the Exercise Price as aforesaid, the Company shall, as
soon as possible, but in any event not later than two business days thereafter,
issue and cause to be delivered the full number of Warrant Shares issuable upon
the exercise of such Warrants in the manner described in this sentence together
with cash, if applicable, as provided in Section 12. Such certificate or
certificates shall be deemed to have been issued and any person

3
<PAGE>

so designated to be named therein shall be deemed to have become a holder of
record of such Warrant Shares as of the date of the surrender of such Warrants
and payment of the Exercise Price.

Each Warrant shall be exercisable, at the election of the holder thereof,
either in full or from time to time in part and, in the event that a certificate
evidencing Warrants is exercised in respect of fewer than all of the Warrant
Shares issuable on such exercise at any time prior to the date of expiration of
the Warrants, a new certificate evidencing the remaining Warrant or Warrants
will be issued pursuant to the provisions of this Section.

All Warrant Certificates surrendered upon exercise of Warrants shall be
canceled by the Company. Such canceled Warrant Certificates shall then be
disposed of by the Company.

SECTION 7. Payment of Taxes. The Company will pay all documentary stamp
taxes attributable to the initial issuance of Warrant Shares upon the exercise
of Warrants; provided, however, that the Company shall not be required to pay
any tax or taxes which may be payable in respect of any transfer involved in the
issue of any Warrant Certificates or any certificates for Warrant Shares in a
name other than that of the registered holder of a Warrant Certificate
surrendered upon the exercise of a Warrant, and the Company shall not be
required to issue or deliver such Warrant Certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.

SECTION 8. Mutilated or Missing Warrant Certificates. In case any of the
Warrant Certificates shall be mutilated, lost, stolen or destroyed, the Company
may in its discretion issue in exchange and substitution for and upon
cancellation of the mutilated Warrant Certificate, or in lieu of and
substitution for the Warrant Certificate lost, stolen or destroyed, a new
Warrant Certificate of like tenor and representing an equivalent number of
Warrants, but only upon receipt of evidence satisfactory to the Company of such
loss, theft or destruction of such Warrant Certificate and indemnity, if
requested, also satisfactory to them. Applicants for such substitute Warrant
Certificates shall also comply with such other reasonable regulations and pay
such other reasonable charges as the Company may prescribe.

SECTION 9. Reservation of Warrant Shares. The Company will at all times
reserve and keep available, free from preemptive rights, out of the aggregate of
its authorized but unissued Common Stock or its authorized and issued Common
Stock held in its treasury, for the purpose of enabling it to satisfy any
obligation to issue Warrant Shares upon exercise of Warrants, the maximum number
of shares of Common Stock which may then be deliverable upon the exercise of all
outstanding Warrants.

The Company or, if appointed, the transfer agent for the Common Stock (the
"Transfer Agent") and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of, any Warrant, will be
irrevocably authorized and directed at all times to reserve such number of
authorized shares as shall be required for such purpose. The Company will keep a
copy of this Agreement on file with the Transfer Agent and with every subsequent
transfer agent for any shares of the Company's capital stock issuable upon the
exercise of any Warrant. The Company will supply such Transfer Agent with duly
executed

4
<PAGE>

certificates for such purposes and will provide or otherwise make available any
cash which may be payable as provided in Section 12. The Company will furnish
such Transfer Agent a copy of all notices of adjustments and certificates
related thereto, transmitted to each holder pursuant to Section 13 hereof.

Before taking any action which would cause an adjustment pursuant to
Section 11 hereof to reduce the Exercise Price below the then par value (if any)
of the Warrant Shares, the Company will take any corporate action which may, in
the opinion of its counsel (which may be counsel employed by the Company), be
necessary in order that the Company may validly and legally issue fully paid and
nonassessable Warrant Shares at the Exercise Price as so adjusted.

The Company covenants that all Warrant Shares which are issued upon
exercise of Warrants will, upon issue, be fully paid, nonassessable, free of
preemptive rights and free from all taxes, liens, charges and security interests
with respect to the issue thereof.

SECTION 10. Stock Exchange Listing; Free Tradeability of Warrant Shares.
The Company will from time to time take all action which may be necessary so
that the Warrant Shares, immediately upon their issuance upon the exercise of
Warrants, will be listed on the Toronto Stock Exchange (or other such exchange
on which the Common Stock is traded) and, subject to any applicable statutory
hold period, tradeable without restriction by the holder thereof immediately
upon receipt.

SECTION 11. Adjustment of Exercise Price and Number of Warrant Shares
Issuable. The Exercise Price applicable to each Warrant and the number of
Warrant Shares issuable upon the exercise of each Warrant are subject to
adjustment from time to time upon the occurrence of the events enumerated in
this Section 11. For purposes of this Section 11, "Common Stock" means shares,
now or hereafter authorized, of any class of common stock of the Company and any
other stock of the Company, however designated, that has the right (subject to
any prior rights of any class or series of preferred stock) to participate in
any distribution of the assets or earnings of the Company without limit as to
per share amount.

(a) Adjustment for Change in Capital Stock.

If the Company:

(1) pays a dividend or makes a distribution on its Common Stock in
shares of its Common Stock;

(2) subdivides its outstanding shares of Common Stock into a greater
number of shares;

(3) combines its outstanding shares of Common Stock into a smaller
number of shares;

(4) makes a distribution on its Common Stock in shares of its
capital stock other than Common Stock; or

5
<PAGE>

(5) issues by reclassification of its Common Stock any shares of its
capital stock;

then, the Exercise Price in effect immediately prior to such action shall
be proportionately adjusted so that the holder of any Warrant thereafter
exercised may receive the aggregate number and kind of shares of capital
stock of the Company which it would have owned immediately following such
action if such Warrant had been exercised immediately prior to such
action.

The adjustment shall become effective immediately after the record
date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or
reclassification.

If after an adjustment a holder of a Warrant may, upon exercise of
the Warrant, receive shares of two or more classes of capital stock of the
Company, the Company shall determine the allocation of the adjusted
Exercise Price between the classes of capital stock. After such
allocation, the exercise privilege and the Exercise Price of each class of
capital stock shall thereafter be subject to adjustment on terms
comparable to those applicable to Common Stock in this Section.

Such adjustment shall be made successively whenever any event listed
above shall occur.

(b) Adjustment for Rights Issue.

If the Company distributes any rights, options or warrants to all
holders of its Common Stock entitling them for a period expiring within 60
days after the record date mentioned below to purchase shares of Common
Stock at a price per share less than the current Market Price per share on
that record date, each Exercise Price shall be adjusted in accordance with
the formula:

O + N x P
-----
E' = E x M
-------
O + N
where:

E' = the adjusted Exercise Price.

E = the current Exercise Price.

O = the number of shares of Common Stock outstanding on the record
date.

N = the number of additional shares of Common Stock offered.

P = the offering price per share of the additional shares.

6
<PAGE>

M = the current Market Price per share of Common Stock on the
record date, with "Market Price" meaning the closing price on
the last day preceding the date of adjustment on which Common
Stock traded.

The adjustment shall be made successively whenever any such rights,
options or warrants are issued and shall become effective immediately
after the record date for the determination of stockholders entitled to
receive the rights, options or warrants. If at the end of the period
during which such rights, options or warrants are exercisable, not all
rights, options or warrants shall have been exercised, the Exercise Price
shall be immediately readjusted to what it would have been if "N" in the
above formula had been the number of shares actually issued.

If the Company distributes to all holders of its Common Stock any of
its assets or debt securities or any rights or warrants to purchase debt
securities, assets or other securities of the Company, each Exercise Price
shall be adjusted in accordance with the formula:

E' = E x M - F
-----
M

where:

E' = the adjusted Exercise Price.

E = the current Exercise Price.

M = the current Market Price per share of Common Stock on the
record date mentioned below.

F = the fair market value on the record date of the assets,
securities, rights or warrants applicable to one share of
Common Stock. The Board of Directors shall determine the fair
market value.

The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the
record date for the determination of stockholders entitled to receive the
distribution.

This subsection (c) does not apply to cash dividends or cash
distributions paid out of consolidated current or retained earnings as
shown on the books of the Company prepared in accordance with generally
accepted accounting principles. Also, this subsection does not apply to
rights, options or warrants referred to in subsection (b) of this Section
11.

(d) Adjustment for Common Stock Issue.

7
<PAGE>

If the Company issues shares of Common Stock for a consideration per
share less than the current Market Price per share on the date the Company
fixes the offering price of such additional shares, each Exercise Price
shall be adjusted in accordance with the formula:

P
--
E' = E x O + M
-----
A

where:

E' = the adjusted Exercise Price.

E = the then current Exercise Price.

O = the number of shares of Common Stock outstanding immediately
prior to the issuance of such additional shares.

P = the aggregate consideration received for the issuance of
such additional shares.

M = the current Market Price per share of Common Stock on the
date the Company fixes the offering price of such additional
shares.

A = the number of shares of Common Stock outstanding immediately
after the issuance of such additional shares.

The adjustment shall be made successively whenever any such issuance
is made, and shall become effective immediately after such issuance.

This subsection (d) does not apply to:

(1) any of the transactions described in subsections (b) and (c) of
this Section 11;

(2) the exercise of Warrants, or the conversion or exchange of other
securities convertible or exchangeable for Common Stock;

(3) Common Stock issued to the Company's employees under bona fide
incentive stock option agreements entered into in accordance with the
policies of the applicable securities regulatory bodies, and approved by
the holders of Common Stock when required by law;

(4) Common Stock issued upon the exercise of rights or warrants
issued to the holders of Common Stock;

8
<PAGE>

(5) Common Stock issued to shareholders of any person which merges
into the Company in proportion to their stock holdings of such person
immediately prior to such merger, upon such merger; or

(6) Common Stock issued in a bona fide public offering in which an
investment dealer has been retained as agent or underwriter.

(e) Adjustment for Convertible Securities Issue.

If the Company issues any securities convertible into or
exchangeable for Common Stock (other than securities issued in
transactions described in subsections (b) and (c) of this Section 11) for
a consideration per share of Common Stock initially deliverable upon
conversion or exchange of such securities less than the current Market
Price per share on the date of issuance of such securities, each Exercise
Price shall be adjusted in accordance with this formula:

P
--
E' = E x O + M
-----
O + D

where:

E' = the adjusted Exercise Price.

E = the then current Exercise Price.

O = the number of shares of Common Stock outstanding immediately
prior to the issuance of such securities.

P = the aggregate consideration received for the issuance of such
securities.

M = the current Market Price per share of Common Stock on the
date of issuance of such securities.

D = the maximum number of shares of Common Stock deliverable
upon conversion or in exchange for such securities at the
initial conversion or exchange rate.

The adjustment shall be made successively whenever any such issuance
is made, and shall become effective immediately after such issuance.

If all of the Common Stock deliverable upon conversion or exchange
of such securities have not been issued when such securities are no longer
outstanding, then the Exercise Price shall promptly be readjusted to the
Exercise Price which would then be in effect had the adjustment upon the
issuance of such securities been made on the basis of the actual number of
shares of Common Stock issued upon conversion or exchange of such
securities.

This subsection (e) does not apply to:

9
<PAGE>

(1) convertible securities issued to shareholders of any person
which merges into the Company, or with a subsidiary of the Company, in
proportion to their stock holdings of such person immediately prior to
such merger, upon such merger, or

(2) convertible securities issued in a bona fide public offering in
which an investment dealer has been retained as agent or underwriter.

(f) Consideration Received.

For purposes of any computation respecting consideration received
pursuant to subsections (d) and (e) of this Section 11, the following
shall apply:

(1) in the case of the issuance of shares of Common Stock for cash,
the consideration shall be the amount of such cash, provided that in no
case shall any deduction be made for any commissions, discounts or other
expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith;

(2) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair market value thereof as
determined in good faith by the Board of Directors of the Company
(irrespective of the accounting treatment thereof), whose determination
shall be conclusive, and described in a Board resolution, a copy of which
shall be mailed to each holder; and

(3) in the case of the issuance of securities convertible into or
exchangeable for shares, the aggregate consideration received therefor
shall be deemed to be the consideration received by the Company for the
issuance of such securities plus the additional minimum consideration, if
any, to be received by the Company upon the conversion or exchange thereof
(the consideration in each case to be determined in the same manner as
provided in clauses (1) and (2) of this subsection).

(g) When De Minimis Adjustment May Be Deferred.

No adjustment in any Exercise Price need be made unless the
adjustment would require an increase or decrease of at least 1% in such
Exercise Price. Any adjustments that are not made shall be carried forward
and taken into account in any subsequent adjustment.

All calculations under this Section shall be made to the nearest
cent or to the nearest l/l00th of a share, as the case may be.

(h) When No Adjustment Required.

No adjustment need be made for a transaction referred to in
subsections (a), (b), (c), (d) or (e) of this Section 11 if Warrant
holders are to participate in the transaction on a basis and with notice
that the Board of Directors determines to be fair and appropriate

10
<PAGE>

in light of the basis and notice on which holders of Common Stock
participate in the transaction.

No adjustment need be made for rights to purchase Common Stock
pursuant to a Company plan for reinvestment of dividends or interest.

No adjustment need be made for a change in the par value of the
Common Stock.

To the extent the Warrants become convertible into cash, no
adjustment need be made thereafter as to the cash. Interest will not
accrue on the cash.

(i) Notice of Adjustment.

Whenever any Exercise Price is adjusted, the Company shall provide
the notices required by Section 13 hereof.

(j) Voluntary Reduction.

The Company from time to time may reduce any Exercise Price by any
amount for any period of time if the period is at least 20 days and if the
reduction is irrevocable during the period; provided, however, that in no
event may any Exercise Price be less than the par value of a share of
Common Stock.

Whenever any Exercise Price is reduced, the Company shall mail to
Warrant holders a notice of the reduction. The Company shall mail the
notice at least 15 days before the date the reduced Exercise Price takes
effect. The notice shall state the reduced Exercise Price and the period
it will be in effect.

A reduction of the Exercise Price does not change or adjust the
Exercise Price otherwise in effect for purposes of subsections (a), (b),
(c), (d) and (e) of this Section 11.

(k) Notice of Certain Transactions.

If:

(1) the Company takes any action that would require an adjustment in
the Exercise Price pursuant to subsections (a), (b), (c), (d), (e) or (l)
of this Section 11 and if the Company does not arrange for Warrant holders
to participate pursuant to subsection (h) of this Section 11;

(2) the Company takes any action that would require a supplemental
Warrant Agreement pursuant to subsection (m) of this Section 11; or

(3) there is a liquidation or dissolution of the Company;

then, the Company shall mail to Warrant holders a notice stating the
proposed record date for a dividend or distribution or the proposed
effective date of a subdivision,

11
<PAGE>

combination, reclassification, consolidation, merger, transfer, lease,
liquidation or dissolution. The Company shall mail the notice at least 15
days before such date. Failure to mail the notice or any defect in it
shall not affect the validity of the transaction.

(l) Reorganization of Company.

If the Company consolidates or merges with or into, or transfers or
leases all or substantially all its assets to, any person, upon
consummation of such transaction the Warrants shall automatically become
exercisable for the kind and amount of securities, cash or other assets
which the holder of a Warrant would have owned immediately after the
consolidation, merger, transfer or lease if the holder had exercised the
Warrant immediately before the effective date of the transaction.
Concurrently with the consummation of such transaction, the corporation
formed by or surviving any such consolidation or merger if other than the
Company, or the person to which such sale or conveyance shall have been
made, shall enter into a supplemental Warrant Agreement so providing and
further providing for adjustments which shall be as nearly equivalent as
may be practical to the adjustments provided for in this Section. The
successor Company shall mail to Warrant holders a notice describing the
supplemental Warrant Agreement.

If the issuer of securities deliverable upon exercise of Warrants
under the supplemental Warrant Agreement is an affiliate of the formed,
surviving, transferee or lessee corporation, that issuer shall join in the
supplemental Warrant Agreement.

If this subsection (l) applies, subsections (a), (b), (c), (d) and
(e) of this Section 11 do not apply.

(m) When Issuance or Payment May Be Deferred.

In any case in which this Section 11 shall require that an
adjustment in any Exercise Price be made effective as of a record date for
a specified event, the Company may elect to defer until the occurrence of
such event (i) issuing to the holder of any Warrant exercised after such
record date the Warrant Shares and other capital stock of the Company, if
any, issuable upon such exercise over and above the Warrant Shares and
other capital stock of the Company, if any, issuable upon such exercise on
the basis of the applicable Exercise Price and (ii) paying to such holder
any amount in cash in lieu of a fractional share pursuant to Section 12;
provided, however, that the Company shall deliver to such holder a due
bill or other appropriate instrument evidencing such holder's right to
receive such additional Warrant Shares, other capital stock and cash upon
the occurrence of the event requiring such adjustment.

(n) Adjustment in Number of Shares.

Upon each adjustment of any Exercise Price pursuant to this Section
11, each Warrant outstanding prior to the making of the adjustment in the
Exercise Price shall thereafter evidence the right to receive upon payment
of the adjusted Exercise Price that number of shares of Common Stock
(calculated to the nearest hundredth) obtained from the following formula:

12
<PAGE>

N' = N x E
--
E'

where:

N' = the adjusted number of Warrant Shares issuable upon exercise
of a Warrant by payment of the adjusted Exercise Price.

N = the number or Warrant Shares previously issuable upon
exercise of a Warrant by payment of the Exercise Price prior
to adjustment.

E' = the adjusted Exercise Price.

E = the Exercise Price prior to adjustment.

(o) Form of Warrants.

Irrespective of any adjustments in the Exercise Price or the number
or kind of shares purchasable upon the exercise of the Warrants, Warrants
theretofore or thereafter issued may continue to express the same price
and number and kind of shares as are stated in the Warrants initially
issuable pursuant to this Agreement.

(p) Limitation on Exercise Price Adjustment.

Notwithstanding the provisions of subsections 11(b), (c), (d) and
(e), in no event shall the Exercise Price be reduced by the application of
such subsections to a price less than C$0.1125, prior to the application,
if at all, of subsection 11(a).

SECTION 12. Fractional Interests. The Company shall not be required
to issue fractional Warrant Shares on the exercise of Warrants. If more
than one Warrant shall be presented for exercise in full at the same time
by the same holder, the number of full Warrant Shares which shall be
issuable upon the exercise thereof shall be computed on the basis of the
aggregate number of Warrant Shares purchasable on exercise of the Warrants
so presented. If any fraction of a Warrant Share would, except for the
provisions of this Section 12, be issuable on the exercise of any Warrants
(or specified portion thereof), the Company shall pay an amount in cash
equal to the Exercise Price on the day immediately preceding the date the
Warrant is presented for exercise, multiplied by such fraction.

SECTION 13. Notices to Warrant Holders. Upon any adjustment of the
Exercise Price pursuant to Section 11, the Company shall promptly
thereafter cause to be given to each of the registered holders of the
Warrant Certificates at its address appearing on the Warrant register a
certificate of a firm of independent public accountants of recognized
standing selected by the Board of Directors of the Company (who may be the
regular auditors of the Company) setting forth the Exercise Price after
such adjustment and

13
<PAGE>

setting forth in reasonable detail the method of calculation and the facts
upon which such calculations are based and setting forth the number of
Warrant Shares (or portion thereof) issuable after such adjustment in the
Exercise Price, upon exercise of a Warrant and payment of the adjusted
Exercise Price, which certificate shall be conclusive evidence of the
correctness of the matters set forth therein, by first-class mail, postage
prepaid. Where appropriate, such notice may be given in advance and
included as a part of the notice required to be mailed under the other
provisions of this Section 13.

In case:

(a) the Company shall authorize the issuance of rights, options or
warrants to subscribe for or purchase shares of Common Stock
or of any other subscription rights or warrants to all holders
of shares of Common Stock; or

(b) the Company shall authorize the distribution of evidences of
its indebtedness or assets (other than cash dividends or cash
distributions payable out of consolidated earnings or earned
surplus or dividends payable in shares of Common Stock or
distributions referred to in subsection (a) of Section 11
hereof) to all holders of shares of Common Stock; or

(c) of any consolidation or merger to which the Company is a
party and for which approval of any shareholders of the
Company is required, or of the conveyance or transfer of
the properties and assets of the Company substantially as
an entirety, or of any reclassification or change of Common
Stock issuable upon exercise of the Warrants (other than a
change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a
subdivision or combination), or a tender offer or exchange
offer for shares of Common Stock; or

(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or

(e) the Company proposes to take any action (other than actions of
the character described in Section 11(a)) which would require
an adjustment of the Exercise Price pursuant to Section 11;

then, the Company shall cause to be given to each of the registered
holders of the Warrant Certificates at its address appearing on the
Warrant register, at least 20 days (or 10 days in any case specified in
clauses (a) or (b) above) prior to the applicable record date hereinafter
specified, or promptly in the case of events for which there is no record
date, by first-class mail, postage prepaid, a written notice stating (i)
the date as of which the holders of record of shares of Common Stock to be
entitled to receive any such rights, options, warrants or distribution are
to be determined, or (ii) the initial expiration date set forth in any
tender offer or exchange offer for shares of Common Stock, or (iii) the
date on which any such consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up is expected to become effective or
consummated, and the date as of which it

14
<PAGE>

is expected that holders of record of shares of Common Stock shall be
entitled to exchange such shares for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up. The failure to give the
notice required by this Section 13 or any defect therein shall not affect
the legality or validity of any distribution, right, option, warrant,
consolidation, merger, conveyance, transfer, dissolution, liquidation or
winding up, or the vote upon any action.

Nothing contained in this Agreement or in any of the Warrant
Certificates shall be construed as conferring upon the holders thereof the
right to vote or to consent or to receive notice as shareholders in
respect of the meetings of shareholders or the election of Directors of
the Company or any other matter, or any rights whatsoever as shareholders
of the Company.

SECTION 14. Notices to Company. Any notice or demand authorized by
this Agreement to be given or made by the Company or by the registered
holder of any Warrant Certificate to or on the Company shall be
sufficiently given or made when and if deposited in the mail, first class
or registered, postage prepaid, addressed (until another address is filed
in writing by the Company), as follows:

SUMMO MINERALS CORPORATION
1776 Lincoln Street
Suite 900
Denver, Colorado 80203
Fax No.: 303-863-1736

In case the Company shall fail to maintain such office or agency or
shall fail to give such notice of the location or of any change in the
location thereof, presentations may be made and notices and demands may be
served at the principal office of the Transfer Agent.

SECTION 15. Supplements and Amendments. The Company and the Warrant
holders may from time to time supplement or amend this Agreement with the
approval of all holders of Warrant Certificates.

SECTION 16. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Holders shall bind
and inure to the benefit of their respective successors and assigns
hereunder.

SECTION 17. Termination. This Agreement shall terminate at 5:00
p.m., Mountain Standard Time on June 25, 2004. Notwithstanding the
foregoing, this Agreement will terminate on any earlier date if all
Warrants have been exercised.

SECTION 18. Governing Law; Jurisdiction and Venue. This Agreement
and each Warrant Certificate issued hereunder shall be deemed to be a
contract made under the internal laws of the State of Colorado and for all
purposes shall be construed in accordance with the internal laws of said
State.

15
<PAGE>

All judicial proceedings arising out of or relating to this
Agreement and each Warrant Certificate issued hereunder may be brought in
any court of competent jurisdiction in the City and County of Denver,
Colorado, and by execution and delivery of this Agreement, the Company
accepts for itself generally and unconditionally, the nonexclusive
jurisdiction of the aforesaid courts and waives any defense of forum non
convenience and irrevocably agrees to be bound by any judgment rendered
thereby in connection with this Agreement or any Warrant Certificate
issued hereunder.

SECTION 19. Transferabilitv and Nonnegotiabilitv of Warrant. The
Warrants may not be transferred or assigned in whole or in part without
compliance by the transferor and transferee with all applicable Canadian
and United States, federal, provincial and state securities laws and with
all applicable rules and policies of any stock exchange having
jurisdiction. Subject to compliance with such laws, rules and policies,
title to the Warrants may be transferred by endorsement of the Warrant
Certificate and delivery in the same manner as a negotiable instrument
transferable by endorsement and delivery.

SECTION 20. Exchange of Warrant Upon a Transfer. On surrender of the
Warrant Certificate for exchange, properly endorsed on the Assignment Form
and subject to the provisions of this Agreement with respect to compliance
with applicable securities laws and with the limitations on assignments
and transfers and contained in Section 19, the Company at its expense
shall issue to or on the order of the Holder a new Warrant Certificate of
like tenor, in the name of the Holder or as the Holder may direct, for the
number of shares issuable upon exercise hereof.

SECTION 21. Compliance with Securities Laws. Each Holder agrees that
it will not offer, sell or otherwise dispose of its Warrant or any shares
of Common Stock to be issued upon exercise hereof except under
circumstances that will not result in a violation of the Canadian or
United States federal or any provincial or state securities laws or in a
violation of any applicable rules and policies of any stock exchange
having jurisdiction. Prior to any proposed transfer of any Warrant, the
Holder thereof shall give written notice to the Company of its intention
to effect such transfer. Each such notice shall describe the manner of the
proposed transfer and, if requested by the Company, shall be accompanied
by an opinion of counsel reasonably satisfactory to the Company to the
effect that the proposed transfer may be effected without registration
under applicable laws, whereupon the Holder shall be entitled to transfer
this Warrant in accordance with the terms of its notice; provided,
however, that no such opinion of counsel shall be required for a transfer
to one or more partners of the transferor (in the case of a transferor
that is a partnership) or to an affiliated corporation (in the case of a
transferor that is a corporation).

SECTION 22. Benefits of This Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the
Company, each of the Holders and the registered holders of the Warrant
Certificates any legal or equitable right, remedy or claim under this
Agreement; but this Agreement shall be for the sole and

16
<PAGE>

exclusive benefit of the Company, each of the Holders and the registered
holders of the Warrant Certificates.

SECTION 23. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all
purposes be deemed to be an original, and all such counterparts shall
together constitute but one and the same instrument.

[ REMAINDER OF THIS PAGE INTENTIONALLY BLANK ]

17
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.

SUMMO MINERALS CORPORATION

By: /s/ GREGORY A. HAHN
---------------------------------
Name: Gregory A. Hahn
-------------------------------
Title: President
------------------------------

[Seal]

Attest:
Secretary

RESOURCE CAPITAL FUND L.P.
By: Resource Capital Associates L.L.C,
General Partner

By: /s/ JAMES T. McCLEMENTS
--------------------------------
James T. McClements
Managing Director

ST. MARY MINERALS, INC.

By: /s/ MARK A. HELLERSTEIN
--------------------------------
Name: Mark A. Hellerstein
------------------------------
Title: President
-----------------------------

18
<PAGE>

EXERCISABLE ON OR BEFORE JUNE 25, 2004

No. 1 50,000,000 Warrants

RCF Warrant Certificate

SUMMO MINERALS CORPORATION

This Warrant Certificate certifies that RESOURCE CAPITAL FUND L.P.,
or registered assigns, is the registered holder of 50,000,000 Warrants
expiring June 25, 2004 (the "Warrants") to purchase Common Stock, no par
value per share (the "Common Stock"), of Summo Minerals Corporation, a
British Columbia corporation (the "Company"). Each Warrant entitles the
holder upon exercise to receive from the Company on or before 5:00 p.m.
Mountain Standard Time on June 25, 2004, one fully paid and nonassessable
share of Common Stock (a "Warrant Share") at the initial exercise price
(the "Exercise Price") of C$0.12 payable in lawful money of Canada upon
surrender of this Warrant Certificate and payment of the Exercise Price at
the office of the Company, but only subject to the conditions set forth
herein and in the Warrant Agreement referred to herein. The Exercise Price
and number of Warrant Shares issuable upon exercise of the Warrants are
subject to adjustment upon the occurrence of certain events set forth in
the Warrant Agreement.

No Warrant may be exercised after 5:00 p.m. Mountain Standard Time
on June 25, 2004, and to the extent not exercised by such time such
Warrants shall become void.

This Warrant Certificate shall be governed and construed in
accordance with the internal laws of the State of Colorado.

All judicial proceedings arising out of or relating to this Warrant
Certificate may be brought in any court of competent jurisdiction in the
City and County of Denver, Colorado, and by execution and delivery of this
Agreement, the Company accepts for itself generally and unconditionally,
the nonexclusive jurisdiction of the aforesaid courts and waives any
defense of forum non conveniens and irrevocably agrees to be bound by any
judgment rendered thereby in connection with this Warrant Certificate.

The Warrants evidenced by this Warrant Certificate are part of a
duly authorized issue of Warrants expiring June 25, 2004 entitling the
holder on exercise to receive shares of Common Stock, and are issued or to
be issued pursuant to a Warrant Agreement dated as of June 25, 1999 (the
"Warrant Agreement"), duly executed and delivered by the Company to
Resource Capital Fund L.P. ("RCF") and St. Mary Minerals, Inc. ("St.
Mary"), which Warrant Agreement is hereby incorporated by reference in and
made a part of this instrument and is hereby referred to for a description
of the rights, limitation of rights, obligations, duties and immunities
thereunder of the Company, the Holders and the holders (the words
"holders" or "holder" meaning the registered holders or registered holder
and any transferee of the registered Holder) of the Warrants. A copy of
the

1
<PAGE>

Warrant Agreement may be obtained by the holder hereof upon written
request to the Company.

Warrants may be exercised at any time on or before 5:01 p.m.
Mountain Standard Time, June 25, 2004. The holder of Warrants evidenced by
this Warrant Certificate may exercise them by surrendering this Warrant
Certificate, with the form of election to purchase set forth hereon
properly completed and executed, together with payment of the Exercise
Price in cash at the office of the Company. In the event that upon any
exercise of Warrants evidenced hereby the number of Warrants exercised
shall be less than the total number of Warrants evidenced hereby, there
shall be issued to the holder hereof or his assignee a new Warrant
Certificate evidencing the number of Warrants not exercised. No adjustment
shall be made for any dividends on any Common Stock issuable upon exercise
of this Warrant.

The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price set forth on the face hereof may, subject to
certain conditions, be adjusted. If the Exercise Price is adjusted, the
Warrant Agreement provides that the number of shares of Common Stock
issuable upon the exercise of each Warrant shall be adjusted. No fractions
of a share of Common Stock will be issued upon the exercise of any
Warrant, but the Company will pay the cash value thereof determined as
provided in the Warrant Agreement.

Warrant Certificates, when surrendered at the office of the Company
by the registered holder thereof may be exchanged, in the manner and
subject to the limitations provided in the Warrant Agreement, but without
payment of any service charge, for another Warrant Certificate or Warrant
Certificates of like tenor evidencing in the aggregate a like number of
Warrants.

Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Company a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like
number of Warrants shall be issued to the transferee(s) in exchange for
this Warrant Certificate, subject to the limitations provided in the
Warrant Agreement, without charge except for any tax or other governmental
charge imposed in connection therewith.

The Company may deem and treat the registered holder(s) thereof as
the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the
purpose of any exercise hereof, of any distribution to the holder(s)
hereof, and for all other purposes, and the Company shall not be affected
by any notice to the contrary. Neither the Warrants nor this Warrant
Certificate entitles any holder hereof to any rights of a stockholder of
the Company.

2
<PAGE>

IN WITNESS WHEREOF, SUMMO MINERALS CORPORATION has caused this
Warrant Certificate to be signed by its President and by its Secretary,
and has caused its corporate seal to be affixed hereunto or imprinted
hereon.

Dated: June ___, 1999

SUMMO MINERALS CORPORATION

By
---------------------------------
President

By
---------------------------------
Secretary

3
<PAGE>

EXERCISABLE ON OR BEFORE JUNE 25, 2004

No. 2 17,500,000 Warrants

St. Mary Warrant Certificate

SUMMO MINERALS CORPORATION

This Warrant Certificate certifies that ST. MARY MINERALS, INC., or
registered assigns, is the registered holder of 17,500,000 Warrants
expiring June 25, 2004 (the "Warrants") to purchase of Common Stock, no
par value per share (the "Common Stock"), of Summo Minerals Corporation, a
British Columbia corporation (the "Company"). Each Warrant entitles the
holder upon exercise to receive from the Company on or before 5:00 p.m.
Mountain Standard Time on June 25, 2004, one fully paid and nonassessable
share of Common Stock (a "Warrant Share") at the initial exercise price
(the "Exercise Price") of C$0.12 payable in lawful money of Canada upon
surrender of this Warrant Certificate and payment of the Exercise Price at
the office of the Company, but only subject to the conditions set forth
herein and in the Warrant Agreement referred to herein. The Exercise Price
and number of Warrant Shares issuable upon exercise of the Warrants are
subject to adjustment upon the occurrence of certain events set forth in
the Warrant Agreement.

No Warrant may be exercised after 5:00 p.m. Mountain Standard Time
on June 25, 2004, and to the extent not exercised by such time such
Warrants shall become void.

This Warrant Certificate shall be governed and construed in
accordance with the internal laws of the State of Colorado.

1
<PAGE>

2
<PAGE>

Dated: June ___, 1999

SUMMO MINERALS CORPORATION

By
---------------------------------
President

By
---------------------------------
Secretary

2
<PAGE>

TO: SUMMO MINERALS CORPORATION

THE HOLDER HEREBY SUBSCRIBES FOR shares of Common Stock of Summo Minerals
Corporation (or such number of shares or other security or property to
which such subscription entitles the undersigned in lieu thereof under the
provision of the Warrant Agreement) at $ (Cdn.) per share of Common Stock
(or the adjusted dollar amount per share at which the undersigned is
entitled to purchase such shares under the provisions of the Warrant
Agreement) and on the other terms set out in the applicable Warrant
Certificate and Warrant Agreement and encloses herewith a certified
cheque, bank draft or money order in Canadian dollars payable to "Summo
Minerals Corporation" in payment of the aggregate subscription price
therefor.

The undersigned hereby irrevocably directs that the shares of Common Stock
be delivered, subject to the conditions set out in this certificate and
the provisions of the Warrant Agreement, and that the said shares of
Common Stock be registered as follows:

Address(es) Number of
Name(s) in Full (Include Postal Code) Shares
--------------- --------------------- ------

TOTAL:

(Please print full name in which certificate(s) are to be issued. If any
of the shares of Common Stock are to be issued to a person or persons
other than the Warrantholder, the Transfer Form must also be completed and
the Warrantholder must pay to the Company all requisite taxes or other
government charges, if any.)

[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>

DATED this day of , .

Signature of Subscriber

Name of Subscriber

Address of Subscriber

(Include Postal Code)

<PAGE>
EXHIBIT 21.1

SUBSIDIARIES
OF
ST. MARY LAND & EXPLORATION COMPANY

A. Wholly owned subsidiaries of St. Mary Land & Exploration Company, a
Delaware corporation:

1 St. Mary Minerals, Inc., a Colorado corporation
2. Parish Corporation, a Colorado corporation
3. St. Mary Operating Company, a Colorado corporation
4. Nance Petroleum Corporation, a Montana corporation
5. St. Mary Acquisition Corporation, a Colorado corporation

B. Wholly owned subsidiaries of Parish Corporation:

1. Natasha Corporation, a Colorado corporation
2. Lucy Corporation, a Colorado corporation
3. Chelsea Corporation, a Colorado corporation

C. Partnership interests held by Parish Corporation:

1. Hilltop Investment Partners, a Colorado general partnership (50%)
2. C-470 Venture, a Colorado general partnership (68.858%)
3. Parish Ventures, a Colorado general partnership (100%)

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.

/S/ ARTHUR ANDERSEN LLP

Denver, Colorado
August 17, 1999

<PAGE>

EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the
registration statement of St. Mary Land & Exploration Company and
Subsidiaries on Form S-4 of our report dated March 3, 1997, except for the
effects of adopting Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," as discussed in Note 1, as to which the date is March
19, 1998, on our audits of the financial statements of St. Mary Land &
Exploration Company and Subsidiaries for the year ended December 31, 1996,
which report is incorporated by reference in this Form S-4. We also consent
to the reference to our firm under the caption "Experts."

/s/ PricewaterhouseCoopers LLP
-----------------------------
PricewaterhouseCoopers LLP

Denver, Colorado
August 17, 1999

<PAGE>

EXHIBIT 23.3

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Registration Statement of St. Mary
Land & Exploration Company on Form S-4 of our report on King Ranch Energy,
Inc. and Subsidiaries dated March 2, 1999, appearing in this proxy and
consent statement/propextus, which is part of this Registration Statement.

We also consent to the reference to us under the heading "Experts"
in such Prospectus.

/S/ DELOITTE & TOUCHE LLP

Houston, Texas
August 18, 1999

<PAGE>

EXHIBIT 23.5

August 18, 1999

King Ranch, Inc.
1415 Louisiana, Suite 2300
Wedge International Tower
Houston, Texas 77002

Gentlemen:

We hereby consent to the filing of our opinion to you dated July 27,
1999, with the Securities and Exchange Commission as Exhibit 8.1 to the St.
Mary Land & Exploration Company Registration Statement on Form S-4, and to
the use of our name in the Joint Proxy/Consent Statement forming a part of
the Registration Statement under the caption "Legal Matters."

Very truly yours,

/s/ Locke Liddell & Sapp LLP

LOCKE LIDDELL & SAPP LLP

<PAGE>
EXHIBIT 23.6

August 13, 1999

Mr. Bill Gardiner
Chief Financial Officer
King Ranch, Inc.
1415 Louisiana, Suite 2300
Wedge International Tower
Houston, TX 77002

Dear Bill:

We hereby consent to the inclusion of our opinion as an exhibit to the Form S-4
Registration Statement under the Securities Act of 1933 of the Company and the
reference to and summary of our opinion in such Form S-4 Registration Statement.

Ernst & Young LLP

/S/ ERNST & YOUNG LLP

<PAGE>

EXHIBIT 23.7

CONSENT OF INDEPENDENT PETROLEUM ENGINEERS

The undersigned hereby consents to the incorporation by reference in
the proxy and consent statement/prospectus constituting part of the St. Mary
Land & Exploration Company registration statement on Form S-4 (Registration
No. 333-_______) of data derived from our reserve report dated January 15,
1999 relating to the oil and gas reserves of St. Mary Land & Exploration
Company at December 31, 1998. We also consent to the reference to this firm
under the caption "Experts" and elsewhere in such proxy and consent
statement/prospectus.

/S/ RYDER SCOTT COMPANY, L.P.

RYDER SCOTT COMPANY, L.P.

Denver, Colorado
August 13, 1999

<PAGE>

EXHIBIT 23.8

CONSENT OF DEUTSCHE BANK SECURITIES INC.

We hereby consent to (i) the use of our opinion letter to the Board of
Directors of St. Mary Land & Exploration Company (the "Company") included as
Annex B to the proxy and consent statement/prospectus constituting a part of
the Registration Statement on Form S-4 relating to the proposed merger of the
Company and King Ranch Energy, Inc., and (ii) the references to such opinion
in such proxy and consent statement/prospectus. In giving such consent, we do
not admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission thereunder,
nor do we hereby admit that we are experts with respect to any part of such
Registration Statement within the meaning of the term "experts" as used in
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.

DEUTSCHE BANK SECURITIES INC.

By: /S/ CLIVE R. HOLMES
--------------------------
Clive R. Holmes
Managing Director

August 12, 1999

<PAGE>

EXHIBIT 23.9

CONSENT OF NESBITT BURNS SECURITIES INC.

We hereby consent to (i) the use of our opinion letter to the Board of
Directors of King Ranch, Inc. as Annex C to the proxy and consent
statement/prospectus constituting a part of the Registration Statement on
Form S-4 relating to the proposed merger of King Ranch Energy, Inc. and St.
Mary Land & Exploration Company, and (ii) the references to such opinion in
such proxy and consent statement/prospectus. In giving such consent, we do
not admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission thereunder,
nor do we hereby admit that we are experts with respect to any part of such
Registration Statement within the meaning of the term "experts" as used in
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.

NESBITT BURNS SECURITIES INC.

By: /S/ SYLVIA K. BARNES
--------------------------
Sylvia K. Barnes
Managing Director

August 13, 1999

<PAGE>

EXHIBIT 23.10

CONSENT OF INDEPENDENT PETROLEUM AND GEOLOGICAL ENGINEERS

The undersigned hereby consents to the incorporation by reference in
the joint proxy statement/prospectus constituting part of the St. Mary Land &
Exploration Company registration statement on Form S-4 (Registration No.
333-_______) of data derived from our reserve report dated February 5, 1999
relating to the oil and gas reserves of King Ranch Energy at December 31,
1998. We also consent to the reference to this firm under the caption
"Experts" and elsewhere in such joint proxy statement/prospectus.

/s/ RYDER SCOTT COMPANY, L.P.

RYDER SCOTT COMPANY, L.P.

August 18, 1999

<PAGE>

EXHIBIT 23.11

CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS

We hereby consent to the incorporation by reference in the joint
proxy statement/prospectus constituting part of the St. Mary Land &
Exploration Company registration statement on Form S-4 (Registration No.
333-_______) of data derived from our reserve report dated April 9, 1999
relating to the oil and gas reserves of King Ranch Energy, Inc. at December
31, 1998. We also consent to the reference to our firm under the caption
"Experts" and elsewhere in such joint proxy statement/prospectus.

NETHERLAND SEWELL & ASSOCIATES, INC.

By: /s/ Frederic D. Sewell
-----------------------------------
Frederic D. Sewell

Dallas, Texas
August 17, 1999

<PAGE>

EXHIBIT 24.1

ST. MARY LAND & EXPLORATION COMPANY
POWER OF ATTORNEY

Each person whose signature appears below hereby authorizes,
constitutes and appoints Thomas E. Congdon and Mark A. Hellerstein, and each
of them, with full power to act without the other, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his own name, place and stead, in any and all
capacities, to sign a Registration Statement on Form S-4 relating to the
issuance of St. Mary Land & Exploration Company common stock in connection
with the merger of King Ranch Energy, Inc. with and into a wholly-owned
subsidiary of St. Mary Land & Exploration Company and any and all amendments
(including post-effective amendments and other amendments thereto) to such
Registration Statement and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
as he or she could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.

SIGNATURE TITLE DATE
- ----------------------- ------------------------------ ---------------

/S/ THOMAS E. CONGDON Chairman of the Board August 19, 1999
- ----------------------- and Director
Thomas E. Congdon

/S/ MARK A. HELLERSTEIN President, Chief Executive August 19, 1999
- ----------------------- Officer and Director
Mark A. Hellerstein

Executive Vice President, August __, 1999
- ----------------------- Chief Operating Officer
Ronald D. Boone and Director

/S/ RICHARD C. NORRIS Vice President - Finance, August 19,1999
- ----------------------- Secretary and Treasurer
Richard C. Norris

/S/ GARRY A. WILKENING Vice President - Administration August 19, 1999
- ----------------------- and Controller
Garry A. Wilkening

<PAGE>

/S/ LARRY W. BICKLE Director August 16, 1999
- -----------------------
Larry W. Bickle

/S/ DAVID C. DUDLEY Director August 13, 1999
- -----------------------
David C. Dudley

/S/ RICHARD C. KRAUS Director August 17, 1999
- -----------------------
Richard C. Kraus

Director August __, 1999
- -----------------------
R. James Nicholson

/S/ AREND J. SANBULTE Director August 15, 1999
- -----------------------
Arend J. Sandbulte

Director August __, 1999
- -----------------------
John M. Seidl

<PAGE>

EXHIBIT 99.1

FORM OF ST. MARY LAND & EXPLORATION COMPANY PROXY CARD

[Front]

PROXY ST. MARY LAND & EXPLORATION COMPANY PROXY

1776 Lincoln Street, Suite 1100
Denver, Colorado 80203

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS ON SEPTEMBER 30, 1999

The undersigned hereby appoints Mark A. Hellerstein and Richard C.
Norris, or either of them, with power of substitution, as proxies for the
undersigned to vote all shares of St. Mary Land & Exploration Company common
stock which the undersigned is entitled to vote at the special meeting of
stockholders to be held on September 30, 1999, and at any reconvened meeting
after any adjournment thereof, as directed on the matter referred to below
and described in the accompanying proxy statement for the meeting, and at
their discretion on any other matters that may properly be presented at the
meeting.

- To approve the issuance of a total of 2,666,252 shares of St. Mary
common stock under the merger agreement whereby St. Mary will acquire
King Ranch Energy, Inc.

FOR AGAINST ABSTAIN
[ ] [ ] [ ]

The St. Mary board of directors recommends a vote "FOR"approval of the
issuance of a total of 2,666,252 shares of St. Mary common stock under
the merger agreement.

<PAGE>

[Back]

This proxy when properly executed will be voted in the manner
directed by the undersigned stockholder.

IF THIS PROXY IS PROPERLY EXECUTED BUT NO VOTING DIRECTION IS GIVEN,
THIS PROXY WILL BE VOTED "FOR" APPROVAL OF THE ISSUANCE OF A TOTAL OF
2,666,252 SHARES OF ST. MARY COMMON STOCK UNDER THE MERGER AGREEMENT.

This proxy also confers discretionary authority to the proxies to
vote on any other matters that may properly be presented at the meeting. As
of the date of the accompanying proxy statement, St. Mary management did not
know of any other matters to be presented at the meeting. If any other
matters are properly presented at the meeting, this proxy will be voted in
accordance with the recommendations of St. Mary management.

Please sign exactly as your name appears below. When shares are held
by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by the president or other
authorized officer. If a partnership or limited liability company, please
sign in such name by an authorized person.

Please complete, date and sign this proxy card and return it
promptly in the accompanying envelope.

Dated: _____________________, 1999

Signature:
-------------------------

Signature:
-------------------------
(If held jointly)

<PAGE>

EXHIBIT 99.2

KING RANCH ENERGY, INC.

WRITTEN CONSENT

Unless otherwise indicated below, the undersigned, a holder of
record of shares of Class A Common Stock, par value $.01 per share, of King
Ranch Energy, Inc. (the "Corporation"), hereby waives notice of a meeting and
hereby consents to the following action:

(1) ADOPTION OF THE AGREEMENT AND PLAN OF MERGER, DATED AS OF
JULY 27, 1999, AMONG KING RANCH, INC., THE CORPORATION, ST.
MARY LAND & EXPLORATION COMPANY AND ST. MARY ACQUISITION
CORPORATION, AND THE TRANSACTIONS CONTEMPLATED BY SUCH
AGREEMENT AND PLAN OF MERGER

_____ FOR _____ AGAINST _____ ABSTAIN

In the absence of a denotation that you do not consent or that you
abstain being indicated above, the undersigned hereby consents to the action
listed above.

THE UNDERSIGNED UNDERSTANDS AND ACKNOWLEDGES THAT (1) EXECUTION AND
DELIVERY OF THIS CONSENT CONSTITUTES A WAIVER OF THE UNDERSIGNED'S RIGHT TO
DEMAND APPRAISAL OF SHARES OF CLASS A AND CLASS B COMMON STOCK OF THE
CORPORATION, IF ANY, HELD BY THE UNDERSIGNED, PURSUANT TO SECTION 262 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE, (2) IF THE UNDERSIGNED
PREVIOUSLY DELIVERED A DEMAND FOR APPRAISAL WITH RESPECT TO ANY SUCH SHARES,
THE EXECUTION AND DELIVERY OF THIS CONSENT CONSTITUTES A WITHDRAWAL OF SUCH
DEMAND AND (3) THE UNDERSIGNED HAS RECEIVED THE CONSENT STATEMENT AND THE
NOTICE OF DISTRIBUTION AND STOCKHOLDER FORUM OF THE CORPORATION (WITH A COPY
OF SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
ATTACHED THERETO), DATED AUGUST ___, 1999.

Shares of Class A Common Stock

Owned:_____________________

(Please sign exactly as your name appears below)

-------------------------------------------

Dated: _________