·	Quarterly production of 28.2 BCFE exceeds guidance of 26.5 – 28.0 BCFE

·	Reported expenses for lease operating, transportation, DD&A, and total general and administrative all below guidance

·	Adjusted net income of $15.2 million or $0.24 per diluted share

·	Non-cash charges and impairments result in a GAAP net loss of ($8.3 million), or ($0.13) per diluted share

St. Mary reported quarterly production of 28.2 BCFE for the second quarter of 2009, which was above the guidance range of 26.5 to 28.0 BCFE.  The primary driver for this outperformance was better than projected results from the Company’s drilling program.  Production for the same period last year was 28.6 BCFE, which included 1.3 BCFE of production from assets that were later disposed of in 2008. Sequentially, production in the second quarter of 2009 was essentially flat with the preceding quarter.

 

2

 

3

Sequentially, DD&A decreased 23% from $3.23 per MCFE in the first quarter of 2009.  The decrease in DD&A in the second quarter is largely a function of the Company’s decision to market for sale certain non-strategic natural gas properties.  These properties have a higher per unit DD&A than the Company’s average DD&A per MCFE.  Accounting rules do not permit assets held for sale to be depleted, and as a result the entity-wide DD&A per MCFE rate went down.  Additionally, property impairments recognized in prior quarters have meaningfully lowered the cost basis of the Company’s properties, which also puts downward pressure on DD&A.

 

4

 

5

 

ST. MARY LAND & EXPLORATION COMPANY
FINANCIAL HIGHLIGHTS
June 30, 2009
Production Data	For the Three Months						For the Six Months
	Ended June 30,						Ended June 30,
	2009		2008		Percent Change		2009		2008		Percent Change
Average realized sales price, before hedging:
Oil (per Bbl)	$                   53.96		$              120.20		-55%		$                    44.21		$                 106.17		-58%
Gas (per Mcf)	3.07		10.83		-72%		3.54		9.69		-63%
Average realized sales price, net of hedging:
Oil (per Bbl)	$                   56.72		$                88.40		-36%		$                    50.45		$                   82.28		-39%
Gas (per Mcf)	5.19		9.97		-48%		5.66		9.33		-39%
Production:
Oil (MMBbls)	1.6		1.6		0%		3.3		3.3		-1%
Gas (Bcf)	18.3		18.7		-2%		36.8		37.0		0%
BCFE (6:1)	28.2		28.6		-1%		56.6		56.9		-1%
Daily production:
Oil (MBbls per day)	18.1		18.1		0%		18.2		18.2		0%
Gas (MMcf per day)	201.4		205.3		-2%		203.6		203.4		0%
MMCFE per day (6:1)	310.1		313.7		-1%		312.6		312.6		0%
Margin analysis per MCFE:
Average realized sales price, before hedging	$                     5.15		$                14.01		-63%		$                      4.87		$                   12.49		-61%
Average realized sales price, net of hedging	$                     6.68		$                11.61		-42%		$                      6.62		$                   10.86		-39%
Lease operating expense	1.26		1.43		-12%		1.36		1.33		2%
Transportation	0.16		0.20		-20%		0.18		0.17		6%
Production taxes	0.33		0.95		-65%		0.33		0.84		-61%
General and administrative	0.64		0.77		-17%		0.61		0.76		-20%
Operating margin	$                     4.29		$                  8.26		-48%		$                      4.14		$                     7.76		-47%
Depletion, depreciation, amortization, and
asset retirement obligation liability accretion	$                     2.49		$                  2.67		-7%		$                      2.87		$                     2.58		11%

 

 

 

ST. MARY LAND & EXPLORATION COMPANY
FINANCIAL HIGHLIGHTS
June 30, 2009
NOTE: On January 1, 2009, the Company adopted Financial Accounting Standards Board Staff Position Accounting Principles
Board 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash
Settlement)” (“FSP APB 14-1”), which required retrospective application.  As a result, prior period balances presented have been adjusted to
reflect the period-specific effects of applying FSP APB 14-1.
Consolidated Statements of Operations
(In thousands, except per share amounts)	For the Three Months						For the Six Months
	Ended June 30,						Ended June, 30,
	2009			2008			2009			2008
				(As adjusted)						(As adjusted)
Operating revenues and other income:
Oil and gas production revenue	$	145,279		$	399,961		$	275,696		$	710,393
Realized oil and gas hedge gain (loss)		43,279			(68,396	)		98,899			(92,346	)
Gain on sale of proved properties		1,244			3,038			645			59,055
Marketed gas system and other operating revenue		15,396			22,339			29,178			41,942
Total operating revenues and other income		205,198			356,942			404,418			719,044
Operating expenses:
Oil and gas production expense		49,465			73,625			105,294			133,101
Depletion, depreciation, amortization,
and asset retirement obligation liability accretion		70,391			76,354			162,103			146,708
Exploration		19,490			17,401			33,088			31,709
Impairment of proved properties		6,043			9,566			153,092			9,566
Abandonment and impairment of unproved properties		11,631			2,056			15,533			3,064
Impairment of materials inventory		2,719			-			11,335			-
General and administrative		18,160			21,867			34,559			43,004
Bad debt expense		-			9,951			-			9,942
Change in Net Profits Plan liability		2,449			68,142			(20,842	)		81,768
Marketed gas system expense		13,609			20,213			26,992			37,958
Unrealized derivative (gain) loss		11,288			(1,186	)		13,134			5,231
Other expense		5,814			702			11,456			1,402
Total operating expenses		211,059			298,691			545,744			503,453
Income (loss) from operations		(5,861	)		58,251			(141,326	)		215,591
Nonoperating income (expense):
Interest income		105			59			127			156
Interest expense		(7,663	)		(7,243	)		(13,759	)		(13,836	)
Income (loss) before income taxes		(13,419	)		51,067			(154,958	)		201,911
Income tax benefit (expense)		5,097			(18,598	)		59,013			(74,468	)
Net income (loss)	$	(8,322	)	$	32,469		$	(95,945	)	$	127,443
Basic weighted-average common shares outstanding		62,418			61,714			62,377			62,287
Diluted weighted-average common shares outstanding		62,418			62,749			62,377			63,404
Basic net income (loss) per common share	$	(0.13	)	$	0.53		$	(1.54	)	$	2.05
Diluted net income (loss) per common share	$	(0.13	)	$	0.52		$	(1.54	)	$	2.01

 

 

 

ST. MARY LAND & EXPLORATION COMPANY
FINANCIAL HIGHLIGHTS
June 30, 2009
Consolidated Balance Sheets
(In thousands, except share amounts)	June 30,			December 31,
ASSETS	2009			2008
				(As adjusted)
Current assets:
Cash and cash equivalents	$	10,389		$	6,131
Short-term investments		-			1,002
Accounts receivable, net of allowance for doubtful accounts
of $16,941 in 2009 and $16,788 in 2008		108,384			157,690
Refundable income taxes		-			13,161
Prepaid expenses and other		14,111			22,161
Accrued derivative asset		67,143			111,649
Total current assets		200,027			311,794
Property and equipment (successful efforts method), at cost:
Land		1,371			1,350
Proved oil and gas properties		2,916,495			2,969,722
Less - accumulated depletion, depreciation, and amortization		(1,047,505	)		(947,207	)
Unproved oil and gas properties, net of impairment allowance
of $51,774 in 2009 and $42,945 in 2008		156,011			168,817
Wells in progress		38,079			90,910
Materials inventory, at lower of cost or market		37,565			40,455
Oil and gas properties held for sale less accumulated depletion,
depreciation, and amortization		48,410			1,827
Other property and equipment, net of accumulated depreciation
of $15,652 in 2009 and $13,848 in 2008		15,274			13,458
		2,165,700			2,339,332
Other noncurrent assets:
Accrued derivative asset		10,668			21,541
Restricted cash subject to Section 1031 Exchange		-			14,398
Other noncurrent assets		19,344			10,182
Total other noncurrent assets		30,012			46,121
Total Assets	$	2,395,739		$	2,697,247
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	207,342		$	254,811
Accrued derivative liability		23,583			501
Deferred income taxes		16,938			41,289
Total current liabilities		247,863			296,601
Noncurrent liabilities:
Long-term credit facility		275,000			300,000
Senior convertible notes, net of unamortized
discount of $24,763 in 2009, and $28,787 in 2008		262,737			258,713
Asset retirement obligation		85,882			108,755
Asset retirement obligation associated with oil and gas properties held for sale		9,336			238
Net Profits Plan liability		156,524			177,366
Deferred income taxes		280,144			354,328
Accrued derivative liability		54,198			27,419
Other noncurrent liabilities		12,627			11,318
Total noncurrent liabilities		1,136,448			1,238,137
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value: authorized - 200,000,000 shares;
issued: 62,622,664 shares in 2009 and 62,465,572 shares in 2008;
outstanding, net of treasury shares: 62,495,771 shares in 2009
and 62,288,585 shares in 2008		626			625
Additional paid-in capital		145,972			141,283
Treasury stock, at cost:  126,893 shares in 2009 and 176,987 shares in 2008		(1,256	)		(1,892	)
Retained earnings		858,135			957,200
Accumulated other comprehensive income		7,951			65,293
Total stockholders' equity		1,011,428			1,162,509
Total Liabilities and Stockholders' Equity	$	2,395,739		$	2,697,247

 

 

 

 

ST. MARY LAND & EXPLORATION COMPANY
FINANCIAL HIGHLIGHTS
June 30, 2009
Consolidated Statements of Cash Flows
(In thousands)	For the Three Months						For the Six Months
	Ended June 30,						Ended June 30,
	2009			2008			2009			2008
Cash flows from operating activities:				(As adjusted)						(As adjusted)
Reconciliation of net income (loss) to net cash provided
by operating activities:
Net income (loss)	$	(8,322	)	$	32,469		$	(95,945	)	$	127,443
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Gain on sale of proved properties		(1,244	)		(3,038	)		(645	)		(59,055	)
Depletion, depreciation, amortization,
and asset retirement obligation liability accretion		70,391			76,354			162,103			146,708
Exploratory dry hole expense		4,573			5,916			4,667			6,606
Impairment of proved properties		6,043			9,566			153,092			9,566
Abandonment and impairment of unproved properties		11,631			2,056			15,533			3,064
Impairment of materials inventory		2,719			-			11,335			-
Stock-based compensation expense*		3,733			3,747			7,509			7,057
Bad debt expense		-			9,942			-			9,942
Change in Net Profits Plan liability		2,449			68,142			(20,842	)		81,768
Unrealized derivative (gain) loss		11,288			(1,186	)		13,134			5,231
Loss related to hurricanes		5,027			-			7,120			-
Amortization of debt discount and deferred financing costs		3,611			2,760			5,703			4,606
Deferred income taxes		(7,758	)		5,273			(63,148	)		54,762
Other		93			(2,751	)		(736	)		876
Changes in current assets and liabilities:
Accounts receivable		5,446			(30,618	)		49,149			(71,854	)
Refundable income taxes		-			(9,854	)		13,161			(8,921	)
Prepaid expenses and other		(1,677	)		(6,234	)		(7,091	)		(6,570	)
Accounts payable and accrued expenses		8,583			19,992			(12,338	)		14,850
Excess income tax benefit from the exercise of stock options		-			(8,705	)		-			(9,565	)
Net cash provided by operating activities		116,586			173,831			241,761			316,514
Cash flows from investing activities:
Proceeds from sale of oil and gas properties		18			24,197			1,081			154,597
Capital expenditures		(82,201	)		(168,136	)		(215,826	)		(329,666	)
Acquisition of oil and gas properties		9			(9,896	)		(44	)		(62,927	)
Receipts from restricted cash		10,050			-			14,398			-
Deposits to restricted cash		-			(25,266	)		-			(25,266	)
Deposits to short-term investments		1,002			173			1,002			173
Other		-			20			-			(9,987	)
Net cash used in investing activities		(71,122	)		(178,908	)		(199,389	)		(273,076	)
Cash flows from financing activities:
Proceeds from credit facility		576,000			249,000			1,766,000			638,000
Repayment of credit facility		(600,000	)		(230,500	)		(1,791,000	)		(628,000	)
Debt issuance costs related to credit facility		(11,060	)		-			(11,060	)		-
Excess income tax benefit from the exercise of stock options		-			8,705			-			9,565
Proceeds from sale of common stock		894			10,356			1,066			10,684
Repurchase of common stock		-			-			-			(77,202	)
Dividends paid		(3,120	)		(3,076	)		(3,120	)		(3,076	)
Net cash provided by (used in) financing activities		(37,286	)		34,485			(38,114	)		(50,029	)
Net change in cash and cash equivalents		8,178			29,408			4,258			(6,591	)
Cash and cash equivalents at beginning of period		2,211			7,511			6,131			43,510
Cash and cash equivalents at end of period	$	10,389		$	36,919		$	10,389		$	36,919
* Stock-based compensation expense is a component of exploration expense and general and administrative expense on the consolidated statements of
operations. For the six months ended June 30, 2009, and 2008, approximately $2.9 million and $2.2 million, respectively of stock-based compensation
expense was included in exploration expense. For the six months ended June 30, 2009, and 2008, approximately $4.6 million and $4.9 million, respectively
of stock-based compensation expense was included in general and administrative expense. For the three months ended June, 30, 2009, and 2008,
approximately $1.3 million and $1.1 million, respectively of stock-based compensation expense was included in exploration expense. For the three months
ended June, 30, 2009 and 2008, approximately $2.4 million and $2.7 million, respectively of stock-based compensation expense was included in
general and administrative expense.

 

 

 

ST. MARY LAND & EXPLORATION COMPANY
FINANCIAL HIGHLIGHTS
June 30, 2009
Adjusted Net Income (Loss)
(In thousands, except per share data)
Reconciliation of Net Income (Loss) (GAAP)	For the Three Months						For the Six Months
to Adjusted Net Income (Non-GAAP):	Ended June 30,						Ended June 30,
	2009			2008			2009			2008
				(As adjusted)						(As adjusted)
Reported Net Income (Loss) (GAAP)	$	(8,322	)	$	32,469		$	(95,945	)	$	127,443
Adjustments:
Change in Net Profits Plan liability		2,449			68,142			(20,842	)		81,768
Unrealized derivative (gain) loss		11,288			(1,186	)		13,134			5,231
Gain on sale of proved properties		(1,244	)		(3,038	)		(645	)		(59,055	)
Loss related to hurricanes (1)		5,027			-			7,120			-
Tax adjustment at effective rate for period		(6,655	)		(23,278	)		470			(10,306	)
Adjusted Net Income (Loss), before impairment adjustments		2,543			73,109			(96,708	)		145,081
Non-cash impairments:
Impairment of proved properties		6,043			9,566			153,092			9,566
Abandonment and impairment of unproved properties		11,631			2,056			15,533			3,064
Impairment of materials inventory		2,719			-			11,335			-
Tax adjustment for impairments at effective rate for period		(7,746	)		(4,233	)		(68,535	)		(4,658	)
Adjusted Net Income, non-recurring items
& non-cash impairments (Non-GAAP) (2)	$	15,190		$	80,498		$	14,717		$	153,053
Adjusted Net Income Per Share (Non-GAAP)
Basic	$	0.24		$	1.30		$	0.24		$	2.46
Diluted	$	0.24		$	1.28		$	0.24		$	2.41
Average Number of Shares Outstanding
Basic		62,418			61,714			62,377			62,287
Diluted		62,418			62,749			62,377			63,404
(1) The loss related to hurricanes is included within line item other expense on the consolidated statements of operations.
(2) Adjusted net income is calculated as net income (loss) adjusted for significant non-cash and non-recurring items. Non-cash charges and adjustments include
change in the Net Profits Plan liability, unrealized derivative (gain) loss, impairment of proved properties, abandonment and impairment of unproved properties, and
impairment of materials inventory. Non-recurring items include gain on sale of proved properties, and loss related to hurricanes. The non-GAAP measure of
adjusted net income is presented because management believes it provides useful additional information to investors for analysis of St. Mary’s fundamental
business on a recurring basis. In addition, management believes that adjusted net income is widely used by professional research analysts and others in the
valuation, comparison, and investment recommendations of companies in the oil and gas exploration and production industry, and many investors use the
published research of industry research analysts in making investment decisions. Adjusted net income should not be considered in isolation or as a substitute for
net income, income from operations, cash provided by operating activities or other income, profitability, cash flow, or liquidity measures prepared under GAAP.
Since adjusted net income excludes some, but not all, items that affect net income and may vary among companies, the adjusted net income amounts presented
may not be comparable to similarly titled measures of other companies.

 

 

ST. MARY LAND & EXPLORATION COMPANY
FINANCIAL HIGHLIGHTS
June 30, 2009
Discretionary Cash Flow
(In thousands)
Reconciliation of Net Cash Provided by Operating Activities	For the Three Months						For the Six Months
(GAAP) to Discretionary Cash Flow (Non-GAAP):	Ended June 30,						Ended June 30,
	2009			2008			2009			2008
				(As adjusted)						(As adjusted)
Net cash provided by operating activities (GAAP)	$	116,586		$	173,831		$	241,761		$	316,514
Exploration		19,490			17,401			33,088			31,709
Less:  Exploratory dry hole expense		(4,573	)		(5,916	)		(4,667	)		(6,606	)
Less:  Stock-based compensation expense included in exploration		(1,309	)		(1,073	)		(2,864	)		(2,142	)
Other		(93	)		2,751			736			(876	)
Changes in current assets and liabilities		(12,352	)		35,419			(42,881	)		82,060
Discretionary cash flow (Non-GAAP) (3)	$	117,749		$	222,413		$	225,173		$	420,659
(3) Discretionary cash flow is computed as net income (loss) adjusted for gain on sale of proved properties, loss related to hurricanes, depletion,
depreciation, amortization, and asset retirement obligation liability accretion, exploration, impairment of proved properties, abandonment and impairment of
unproved properties, unrealized derivative loss (gain), change in Net Profits Plan liability, stock-based compensation expense, amortization of debt discount,
impairment of materials inventory, and deferred income taxes. The non-GAAP measure of discretionary cash flow is presented since management believes
that it provides useful additional information to investors for analysis of St. Mary's ability to internally generate funds for exploration, development, and
acquisitions. In addition, discretionary cash flow is widely used by professional research analysts and others in the valuation, comparison, and investment
recommendations of companies in the oil and gas exploration and production industry, and many investors use the published research of industry research
analysts in making investment decisions. Discretionary cash flow should not be considered in isolation or as a substitute for net income, income from
operations, net cash provided by operating activities or other income, profitability, cash flow, or liquidity measures prepared under GAAP. Since
discretionary cash flow excludes some, but not all items that affect net income and net cash provided by operating activities and may vary among
companies, the discretionary cash flow amounts presented may not be comparable to similarly titled measures of other companies. See the consolidated
statements of cash flows herein for more detailed cash flow information.