F I N A N C I A L H I G H L I G H T S
In thousands except per share, as adjusted for 2 for 1 split on 9/5/00, production and price data
2000
1999
1998
1997
1996
Income Statement Data
Oil and gas production revenues
Gains on sales and other
Total operating revenues
Net income (loss)
$ 188,407
7,259
$ 195,666
$ 55,620
$ 73,387
1,527
$ 74,914
$ 82
$ 71,413
8,096
$ 79,509
$ (8,797)
$ 76,603
15,282
$ 91,885
$ 23,109
$ 57,207
2,777
$ 59,984
$ 10,326
Basic earnings (loss) per share
$ 2.00
$ 0.00
$
(.40)
$ 1.09
$ .59
Cash dividends per share
$ .10
$ .10
$ .10
$ .10
$ .08
Basic weighted average common
shares outstanding
27,781
22,198
21,874
21,240
17,518
Balance Sheet Data
Working capital
Total assets
Long-term debt
Stockholders’ equity
Average Net Daily Production
Oil (Barrels)
Gas (Mcf)
MCFE (6:1)
Average Sales Price
Oil (per Bbl)
Gas (per Mcf)
U.S. Reserves
Oil (Barrels)
Gas (Mcf)
MCFE (6:1)
Stockholders’ Equity
(In thousands of dollars)
300,000 >
250,000 >
200,000 >
150,000 >
100,000 >
50,000 >
0 >
$ 40,639
321,895
22,000
250,136
6,551
104,769
144,075
$ 13,440
230,438
13,000
188,772
3,790
62,478
85,218
$ 9,785
184,497
19,398
134,742
3,493
69,698
90,656
$ 9,618
212,135
22,607
147,932
$ 13,926
144,271
43,589
75,160
3,254
62,739
82,266
3,240
42,522
61,962
$ 23.53
$ 3.44
$ 16.56
$ 2.21
$ 12.98
$ 2.16
$ 18.87
$ 2.33
$ 18.64
$ 2.23
20,950
225,975
351,673
18,900
207,642
321,042
8,614
132,605
184,289
11,493
196,230
265,188
10,691
127,057
191,203
Production
(Daily MCFE)
180,000 >
150,000 >
120,000 >
90,000 >
60,000 >
30,000 >
0 >
96
97
98
99
00
96
97
98
99
00
01
Budget
1
T O O U R S H A R E H O L D E R S
Our mission has not changed. We
must build value by adding value.
Net income for the year 2000 was a
record $55.6 million or $2.00 per
share. Earnings before interest, taxes,
depreciation, impairment and explo-
ration were $138.3 million or $4.98
per share. Production increased 70%
in 2000 to 52.7 BCFE. Oil and gas
reserves grew by 10% to 352 BCFE
and we replaced 168% of our
reserves. Our capital expenditures
budget has increased 24% in 2001
to $155 million. Production is
forecast to grow to 56-58 BCFE.
Production Replacement %
1997–1999 Average
2000
Oil
Gas
Oil
Gas
375% >
300% >
225% >
150% >
75% >
0 >
The gas bubble has burst. Oil prices have recovered. St. Mary
had record production, earnings and cash flow in 2000. This is
the best of times. But markets react and adjust. Our challenge
is to grow and succeed in both good times and bad. We must
add value at every phase of the business through creativity,
technical competence, focus and attention to detail. We also
must have the vision to identify and respond appropriately to
new growth opportunities.
Net income for the year 2000 was a record $55.6 million
or $2.00 per share compared to $82,000 or $.00 per share for
the prior year. Earnings before interest, taxes, depreciation,
impairment and exploration were $138.3 million or $4.98 per
share, up 309% and 228%, respectively, from 1999. These
results reflect a 70% increase in production to 52.7 BCFE resulting
from outstanding drilling and acquisition results in 1999 as well
as a 51% increase in average price to $3.57 per MCFE.
Oil and gas reserves grew by 10% to 352 BCFE. We
replaced 168% of our production in 2000. This is below our
long-term goal of 200%. We faced a daunting challenge as our
production was up 70%, which moved our growth target up
substantially in one year. Although our production increased
818% in the Gulf Coast/Gulf of Mexico region, our reserve
additions in that region were quite modest for several reasons.
We spent most of the year building our technical capability as
we grew our Lafayette office from three people to 18 people.
In addition, in that same region we converted 8.3 BCFE of
undeveloped and behind the pipe reserves to a proved producing
category which did not add new reserves. However, we now
have the technical capability to exploit the large acreage and
seismic positions obtained in the King Ranch acquisition and
the 2001 budget for this region is the largest of our core areas.
As oil and gas prices rise, we are seeing record rig utilization,
cost increases and more expensive acquisition costs. Obviously,
Reserves Per Share
(MCFE/Share)
Working Capital & Other Assets
Less Long Term Liabilities
($/Share)
15.00 >
12.00 >
9.00 >
6.00 >
3.00 >
0 >
< 5.00
< 4.00
< 3.00
< 2.00
< 1.00
< 0.00
St. Mary
Peer Group
98
99
00
Peer Group is 125 companies included in Arthur Andersen Global E&P Trends 2000
2
(cid:1)
(cid:1)
• Production is forecast to grow to 56-58 BCFE, up from 52.7
BCFE in 2000. Based on a NYMEX strip price of $5.46 per
MCFE we would realize approximately $4.73 per MCFE, after
hedges. Assuming this price deck, lease operating expenses,
including taxes, are forecast at $.80 – $.85 / MCFE and G&A is
forecast at $.28 – $.30 / MCFE. Based on these assumptions
discretionary cash flow is forecast at $6.00-$6.50 / share.
• Of the $155 million budget, 39% is allocated for acquisitions,
24% for exploration and development in the Gulf Coast and
Gulf of Mexico, 17% in the Mid-Continent, 12% in the Williston
and Permian and 7% in the ArkLaTex region. The more
important planned exploitation activity includes four wells at
Northeast Mayfield in Oklahoma; ten Granite Wash wells in
Oklahoma; eight Red River/Mission Canyon wells in the
Williston Basin; 15 wells in East Texas primarily at the Box
Church and Trinidad fields; and three wells at the Constitution
field. In addition, we have 4-5 wells planned at our largest
value property, Judge Digby, which would include both
exploitation as well as exploration ideas.
• In addition to Judge Digby, we have a large potential well
planned at Matagorda 701. We are also evaluating several coal
bed methane and other unconventional gas resources.
• We will continue to control operations for approximately
two-thirds of our capital expenditures and dominate our core
areas with our technical expertise.
Our mission has not changed. We must build value by adding
value. This means we must add value at every phase of the
business from geo-science, to engineering, to administration,
to finance. We must outperform three quarters of our competi-
tion in every basin in which we operate. We have selected
those basins where we have a competitive edge through tech-
nical skills, acreage positions and our relationships with current
and prospective partners. We have outstanding people at St.
Mary — across all disciplines and deep within the organization.
We are driven to build value per share — not simply corporate
bulk —and every incentive and reward program is geared to
that end. Our financial strength and discipline combined with
our technical expertise will allow us to succeed in good times
and bad.
March 9, 2001
Mark A. Hellerstein
Thomas E. Congdon
President and Chief Executive Officer
Chairman of the Board
3
Thomas E. Congdon
Chairman of the Board
Mark A. Hellerstein
President & Chief Executive Officer
this will have an impact on our business. We believe we have
a competitive advantage in securing drilling rigs in the Mid-Con-
tinent, Williston and at Judge Digby where we have continuous
drilling programs, long-term relationships and — surprisingly —
because we have always paid our bills on time. In other regions
where we cannot maintain continuous drilling programs we
must plan activities further in advance. We are running our
economics on all investments presuming a $3.25/Mcf and
$22.50/barrel NYMEX price. Virtually our entire planned
drilling program is economic at those prices. For acquisitions
we generally must use the higher NYMEX strip pricing to be
competitive. For economic decisions that require higher pricing
assumptions, we will hedge those prices as necessary to protect
our base rate of return. This is not a change in approach as
we have always added value through geologic and operational
ideas and not through price speculation. The difference is that
our “finding costs” for such acquisitions will be higher. This is
not of concern to us because we will maintain our internal rate
of return and return on investment standards.
We enter the year 2001 with one of the strongest balance
sheets in our history as well as record projected cash flow. We
have more prospects than ever before and a capital expenditure
budget of $155 million, an increase of 24%. As noted, we may
experience some delays in our activities due to a shortage of
drilling and workover rigs and crews as well as other services
and supplies. Here is our plan to build value in 2001:
Succeeding
A great geologic idea is only a success
in finding and
if it becomes an economic success.
developing
The cost to find and develop reserves must provide
reserves.
a positive full cycle economic return.
4
5
O P E R A T I O N S
Summary of Budgeted Expenditures By Area for 2001
Operating in mature basins becomes
routine and predictable once a
company and its staff have spent
years discovering and developing oil
and gas reserves. The more mature a
basin, the more information that is
available to assist in finding additional
reserves. Technology that is appropriate
to a specific basin can be tested
and perfected in order to improve
economics. Land positions are built
and refined over years of exploration
and development. St. Mary is focused
in five core areas headed by exploration
professionals who have lived and
worked in their respective areas
for over 20 years. Year after year,
Mid-Continent
Gulf Coast/GOM
ArkLaTex
Williston
Permian
Other
Acquisitions
(Millions)
$ 27.0
$ 37.5
$ 11.0
$ 12.0
$ 6.0
$ 1.5
$ 60.0
St. Mary focuses its exploration, development and acquisition
activities in five core areas in the United States; the Mid-
Continent region, onshore Gulf Coast and offshore Gulf of
Mexico, the ArkLaTex region, the Williston Basin and the
Permian Basin. In each of these areas St. Mary has built a
balanced portfolio of proved reserves, development drilling
opportunities and higher-risk higher-potential exploration
projects. The Company believes that its extensive leasehold
position is a strategic asset. Since 1990 St. Mary has expanded
its technical and operating staff and increased its drilling,
production and operating capabilities. Senior technical managers,
each with over 20 years of professional experience, head up
regional technical offices located near the core areas and are
supported by centralized administration in the Company’s
Denver office. St. Mary has knowledgeable and experienced
professionals at every level of the organization. St. Mary
believes that its long standing presence, its established network
St. Mary’s exploration professionals
Reserve Growth (MMCFE)
produce economic
results for the Company
and its shareholders.
360,000 >
300,000 >
240,000 >
180,000 >
120,000 >
60,000 >
0 >
96
97
98
99
00
Price Adjustment
OK Sales
S. Horseshoe
Ronald D. Boone
Executive Vice President and
Chief Operating Officer
6
(cid:1)
(cid:1)
(cid:1)
of local industry relationships and its extensive acreage
St. Mary is going into 2001 with the largest prospect
holdings in its core operating areas provide a significant
inventory in its history. The Company’s 2001 capital expenditures
competitive advantage.
budget is $155 million which includes $95 million for exploration
Detailed geologic studies developed over years of operating
and development and $60 million for property acquisitions. The
in mature basins combined with state of the art technology
exploration and development budget is a 32% increase over
produces consistent and predictable results. Past success and
the $71.7 million spent in 2000. St. Mary will operate approxi-
failures add to the knowledge necessary to reduce risk and
mately 65% of its capital expenditures budget in 2001. In
improve economics. Use of technology can be expensive but
addition to the overhead reimbursement, operating allows
will improve economics if the proper technology is used in the
St. Mary to control geologic and operational decisions.
Growth in Technical Staff
M I D - C O N T I N E N T R E G I O N
60 >
50 >
40 >
30 >
20 >
10 >
0 >
96
97
98
99
00
P E R C E N TA G E O F T O TA L R E S E R V E S — 3 4 %
P R O V E D D E V E L O P E D R E S E R V E S — 8 4 %
P R O V E D R E S E R V E S — 1 2 0 . 6 B C F E
G A S / O I L M I X — 9 1 % – 9 %
C A P I TA L E X P E N D I T U R E S — 1 7 %
St. Mary has operated in the Mid-Continent region for over
25 years. The region is operated out of the Company’s Tulsa,
Oklahoma office which has grown to 30 employees. Year
after year the region has been able to produce consistent and
predictable results. The knowledge and the geologic information
gained by a staff that has spent the majority of its professional
career in the region provides the foundation to generate new
appropriate area. The cost of technology can destroy economics
prospects each and every year. In addition St. Mary’s experience
if it is used in an inappropriate manner. St. Mary’s many years
in the area allows the Company to benefit from state of the art
of experience and attention to detail maximizes the effectiveness
technology to drill and complete wells in the tight sand reservoirs
of the technologies that apply to each of its core areas.
prevalent in the Mid-Continent region. The many years in
A major challenge for the industry and St. Mary is to hire,
the region has allowed St. Mary to accumulate interests in
develop and retain a quality technical staff. St. Mary has quality
more than 265,000 gross acres which is the source of
professionals in each of the technical disciplines and has been
continuing opportunities.
able to grow its staff in each of its regional offices each year.
During 2000 St. Mary spent $29.2 million in the Mid-
St. Mary’s incentive programs are structured to reward economic
Continent region on exploration and development. The Company
performance and are an integral reason for the low turnover
participated in 63 wells with a completion success rate of 79%.
rate St. Mary has experienced with its technical staff.
Two geologic plays made great progress in 2000. Northeast
Production increased 70% in 2000 to a total of 52.7 BCFE,
Mayfield and the Constitution field each had significant new
or an average daily production of 144,100 mcfe per day. Net
discoveries. In NE Mayfield the Stone 1-19 was completed
proved reserves at December 31, 2000 increased 10% to 352
at 6,900 MCFE per day, the Benton 1X-21 was completed at
BCFE with a reserve base of 64% natural gas and 36% oil.
1,500 MCFE per day and the Caroline 1-25 was completed at
40.6 BCFE were added through acquisitions and 47.9 BCFE
7,500 MCFE per day. Three Yegua sands were encountered
from drilling activities. Reserve revisions from higher year end
in the Constitution field where the Apache Gas Unit #1 was
2000 pricing were offset by negative performance. During
completed at 3,700 MCFE per day.
2000 St. Mary participated in 124 gross wells with an 82%
success rate and 79 recompletions with an 80% success rate.
7
On December 28, 2000 St. Mary completed a $32 million
G U L F C O A S T & G U L F O F M E X I C O
acquisition of oil and gas properties located primarily in the
Anadarko Basin. The properties currently produce an estimated
8,500 MCFE per day and include additional development and
P E R C E N TA G E O F T O TA L R E S E R V E S — 1 5 %
exploitation opportunities.
The 2001 Mid-Continent capital program totals $27 million.
P R O V E D D E V E L O P E D R E S E R V E S — 8 2 %
22% of the program has been allocated to 8 wells to be drilled
to the higher potential deeper Morrow and Springer formations
P R O V E D R E S E R V E S — 5 3 . 1 B C F E
G A S / O I L M I X — 8 7 % – 1 3 %
C A P I TA L E X P E N D I T U R E S — 2 4 %
including 4 wells in NE Mayfield. Ten wells, which represent
St. Mary was founded in the early 1900s with the purchase of
21% of the 2001 budget, are planned to be drilled to the
24,900 acres of fee lands in St. Mary Parish, Louisiana on the
Granite Wash formation. Three wells are budgeted in the
shoreline of the Gulf of Mexico. The fee lands continue to be a
Constitution field (11% of the capital program) and will test
valuable asset with revenue from the lands totaling $7.2 million
multiple Yegua sand objectives.
in 2000. As the Company grows, revenue from its fee lands
Over 70% of the Mid-Continent capital program will be
represents a smaller portion of the Company’s revenue each
operated by St. Mary in 2001. The Company has committed to
year. St. Mary’s Gulf Coast and Gulf of Mexico region grew
use 3-4 drilling rigs in the region continually during the year.
significantly as a result of its 1999 acquisition of King Ranch
Keeping the rigs committed to St. Mary prospects will minimize
Energy. 40% of the Company’s 2000 production was from its
any delays or disruptions from the tight rig environment that
Gulf region. St. Mary’s regional office in Lafayette, Louisiana
currently exists in the region. St. Mary will also use additional
grew to a staff of 18 and the region accounted for 21% of the
rigs, as needed, to drill the 32 operated wells planned for 2001.
Company’s capital expenditures in 2000.
The Judge Digby field located onshore in Pointe Coupe
Parish, Louisiana is St. Mary’s largest value field. The Company’s
working interest in the field ranges from 11.5% to 20%
depending on the formation being drilled. During 2000 the
Parlange #2 was deepened to a depth of 21,350 feet and was
completed at a rate of 10,000 Mcf per day. The Parlange #11
drilled to a depth of 23,480 feet produced at a rate of 92,000
Mcf per day which is the highest rate ever recorded for onshore
Louisiana. At year end 2000 the Parlange #11 was producing at a
rate of 55,000 Mcf per day. During late 2000 the J. Wuertelle #1
was drilled to a total depth of 22,200 feet and was completed
in 2001 at a rate of 25,000 Mcf per day. St. Mary is currently
participating in the drilling of the Parlange #12 which is
scheduled to be drilled to 23,100 feet and test the C-4 and C-5
sands which have never been tested at a structurally favorable
position in the field. The Parlange #10 was producing 40,000
Mcf per day when the well was shut down in late November to
Systematic Development of Two Anadarko Basin Prospects
AREA OF DETAIL
BRAITHWAITE
MIDDLEBURG
1995 1996 1997 1998 1999 2000 2001
8
Gulf Coast/Gulf of Mexico
CARRIER
CENTENNIAL
JUDGE DIGBY FIELD
VERMILLION 273
MATAGORDA 701
Undeveloped Leasehold 3-D Seismic HBP Being Developed Large Target Prospects
repair a tubing leak. When the well is put back on production
to about 50% prior to drilling the wells. St. Mary is partici-
late in the first quarter of 2001, production from Judge Digby
pating in the Centennial Project, a 51 square mile 3-D seismic
should approach production facility capacity of 230,000 –
survey over the Spindletop field near Beaumont, Texas.
240,000 Mcf per day.
St. Mary and its partners have leased over 19,000 acres
Most of St. Mary’s large exploration ideas are in the Gulf
and intend to exploit a variety of formations, including the
Coast and Gulf of Mexico region. The Matagorda 701 prospect
Miocene, Frio, Hackberry, Discorbis, Vicksburg and Yegua
is located in 110 feet of federal waters, 50 miles northeast of
sands. St. Mary has a 21.25% working interest in the
Corpus Christi, Texas. Two wells to be operated by St. Mary are
Centennial project which is planned to be a multi-year
planned to be drilled in 2001 to a total depth of 11,800 feet.
exploration and development program.
The Company intends to reduce its current 80% working interest
The Gulf Coast and Gulf of Mexico region should experi-
Judge Digby Field
ence the most growth of St. Mary’s five core areas during
2001 as its capital expenditures program is budgeted at
$37.5 million, a 48% increase over the $25.3 million spent in
2000. In addition to the two wells to be drilled at Matagorda
701, six wells are planned for the Centennial program and
five wells in Judge Digby. The region will continue to evaluate
over 1,500 square miles of 3-D seismic data included in
the King Ranch Energy acquisition along with conducting
additional seismic surveys in selected areas. St. Mary continues
to encourage the development of its fee lands by facilitating
exploration interest in deeper, untested formations and
encouraging additional 3-D seismic activity.
Producing Wells
Drilling
9
A R K L A T E X
W I L L I S T O N B A S I N
P E R C E N TA G E O F T O TA L R E S E R V E S — 1 5 %
P E R C E N TA G E O F T O TA L R E S E R V E S — 2 5 %
P R O V E D R E S E R V E S — 5 1 . 7 B C F E
P R O V E D R E S E R V E S — 8 8 . 1 B C F E
G A S / O I L M I X — 8 2 % – 1 8 %
G A S / O I L M I X — 1 6 % – 8 4 %
P R O V E D D E V E L O P E D R E S E R V E S — 8 6 %
P R O V E D D E V E L O P E D R E S E R V E S — 9 6 %
C A P I TA L E X P E N D I T U R E S — 7 %
C A P I TA L E X P E N D I T U R E S — 8 %
ArkLaTex
Nance Petroleum Corporation, a wholly owned subsidiary of
St. Mary, has conducted operations in the Williston Basin in
eastern Montana and western North Dakota on behalf of St. Mary
HAYNESVILLE
since 1991. The Nance office in Billings, Montana includes a
Shreveport
BAYOU
D‘ARBONNE
MISSISSIPPI
SALT PLAY
BOX
CHURCH
Developed Fields New Exploration Area
22 person staff and is directed by geoscientists who have spent
over 25 years and their entire careers in the Williston Basin.
Exploration and development in the Williston Basin is based
on the interpretation of 3-D seismic. Nance has successfully
used 3-D seismic imaging to delineate structure and porosity
development in the Red River formation. Since 1991 Nance has
successfully completed 24 out of 25 wells it has drilled and
operated. Nance’s prospect inventory continues to grow as the
results from 3-D seismic surveys lead to additional areas to
conduct more 3-D seismic surveys. Six 3-D surveys are planned
St. Mary’s ArkLaTex office operates in southern Arkansas,
for 2001 which exceeds the number of surveys conducted in
northern Louisiana and eastern Texas and in 2000, extended its
any prior year by Nance.
operations into southern Mississippi. The region is managed by
Nance spent $12.6 million on exploration and development
St. Mary’s 14 person office in Shreveport, Louisiana. St. Mary’s
in the Williston Basin in 2000. Its only dry hole since 1991 was
ArkLaTex professionals have spent their careers in the region.
drilled early in 2000 followed by 11 successful wells, 5 of which
Since 1992 the strategy of leveraging St. Mary’s technical
were operated by Nance. The Federal 16-28X (56.25% working
expertise in an integrated acquisition and exploitation program
interest) drilled to the Duperow formation had an initial
has had major economic success developing fields such as
production rate of 640 barrels of oil per day and 450 Mcf per
Bayou D’Arbonne, Box Church and Haynesville.
day. In addition to its exploration and development efforts,
In its search for new opportunities and potential analog
Nance acquired $13.3 million of oil and gas properties in
fields, the ArkLaTex office expanded its area into southern
five niche acquisitions which added 5,475 MCFE per day of
Mississippi where the objective is to leverage its technical
production to the Company.
expertise in the Mississippi salt play.
During 2000 St. Mary spent $6.9 million in the ArkLaTex
region and participated in 37 wells with a 73% completion suc-
cess rate. The Jones #1 and the Jones #2 wells were successful
multi-lateral wells drilled in the East Bridges field, each with ini-
tial production rates exceeding 4,000 mcf per day.
The 2001 ArkLaTex capital program is $11 million which is
a 59% increase over 2000 expenditures. The ArkLaTex office
anticipates participating in 35 wells and will operate 77% of its
2001 capital expenditures budget.
10
Williston Basin (3-D Seismic Surveys)
MO NTANA
NORTH DAKOTA
1994 1995 1998 1999 2000 2001 Evaluating
East Shugart Delaware Unit waterflood project was initiated in
2000. Although an initial response from the water injection is
not anticipated until late 2001, the Company is hopeful the
East Shugart waterflood will be an analog to the successful
Parkway Delaware Unit waterflood that increased production
from 450 bopd in 1998 when the waterflood was initiated to
1,150 bopd in 2000.
The Permian Basin capital expenditures budget is $6 million.
In addition to drilling four injection wells in the East Shugart
Delaware waterflood, two Morrow tests are planned in the
Parkway field and a Queen development well is planned at the
Young North field. The HJSA toplease on 30,450 acres in Ward
County, Texas became effective on August 5, 2000 and at year
end was producing 3,250 mcfe per day. 3-D seismic data over
the 50 square mile lease will be reprocessed during the first
quarter of 2001 with exploitation drilling, based on the results
Nance’s 2001 Williston Basin exploration and development
of the 3-D seismic evaluation, anticipated throughout the year.
capital program is $12 million. Nine operated wells with working
The Company anticipates significant opportunities will develop
interests ranging from 70% to 100% are planned to be drilled.
from St. Mary’s 21.4% interest in this lease.
Rig availability is limited in the Williston Basin. Nance has
minimized the impact of the tight rig situation by committing
to keep one drilling rig utilized throughout the year. Nance will
Permian Basin
operate 85% of its Williston Basin capital budget in 2001.
P E R M I A N B A S I N
P E R C E N TA G E O F T O TA L R E S E R V E S — 1 1 %
P R O V E D D E V E L O P E D R E S E R V E S — 8 4 %
P R O V E D R E S E R V E S — 3 8 . 1 B C F E
G A S / O I L M I X — 3 4 % – 6 6 %
C A P I TA L E X P E N D I T U R E S — 4 %
In 1995 St. Mary began acquiring interests in the Permian Basin
which is located in eastern New Mexico and western Texas.
Because the Permian Basin is primarily carbonate oil reservoirs
similar to the Williston Basin, Nance Petroleum began managing
the Company’s interests in the Permian Basin in 2000. In addition
to a significant overhead savings, Nance has been able to provide
the Permian Basin exploration and development team the
technical discipline and attention to detail that has been the
foundation of its success in the Williston Basin.
St. Mary participated in drilling 9 wells in 2000 with a
67% success rate. The $1.7 million spent on exploration and
development resulted in adding reserves of 2,317 MMCFE. The
EDDY
Shugart Delaware Unit
GAINES
Parkway Delaware Unit
O
C
I
X
E
M
W
E
N
S
A
X
E
T
LOVING
Central Basin
Platform
Delaware
Basin
WARD
HJSA
Lease
11
Succeeding
The economics of properties acquired through acquisitions
in making
are protected by hedging commodity prices.
economic
Additional value is added through St. Mary’s technical expertise.
acquisitions.
12
13
A C Q U I S I T I O N S
St. Mary’s growth strategy includes the
acquisition of oil and gas properties
that will add value and opportunities
to the Company. Niche acquisitions in
the Company’s core areas are typically
based on a geologic or operational
Acquisitions are becoming a more significant part of St. Mary’s
growth strategy. The Company completed $53.5 million of
acquisitions in 2000, which added reserves of 40.6 BCFE. Over
the past three years, St. Mary has been able to close over $102
million of acquisitions which have included both niche and
company acquisitions. Niche acquisitions are primarily within
St. Mary’s core areas. In addition to earning an acceptable
return from the acquisition of producing properties, St. Mary’s
objective is to add value using its proprietary geologic concepts
and well completion techniques. With the market for acquisi-
tions being increasingly competitive, value must be added
through exploitation in order to meet St. Mary’s return on
idea that St. Mary believes will provide
investment objectives.
economic exploration and development
opportunities. In addition, St. Mary
targets private and under-valued public
companies that can be acquired for
cash and/or St. Mary stock on an
accretive basis. The Company’s strong
financial and technical capabilities,
together with a strong balance sheet
and a highly regarded stock, provide
flexibility in structuring transactions
to meet the requirements of the
company and its shareholders looking
for liquidity.
During 1999 St. Mary acquired two private companies in
exchange for St. Mary common stock. Company acquisitions
have provided St. Mary with prospect inventories, geological
and geophysical data including 3-D seismic surveys, technical
expertise and lease inventories, in addition to the oil and gas
production existing at the time a company is acquired. For a
private company a merger with St. Mary can provide liquidity,
management succession and access to capital markets. St. Mary
believes its strong balance sheet and a common stock that
consistently outperforms its peers provide a competitive
Reserves Added Through Acquisitions
(MMCFE)
120,000 >
100,000 >
80,000 >
60,000 >
40,000 >
20,000 >
0 >
96
97
98
99
00
14
advantage when dealing with private companies. St. Mary
will continue to evaluate acquiring private companies that fit
strategically with St. Mary’s operation. In addition the Company
will pursue the acquisition of under-valued public companies.
St. Mary will only make company acquisitions on a basis
that is accretive.
During 2000 St. Mary made niche acquisitions in each of
its five core areas totaling $53.5 million. In December, 2000 the
Company completed a $32.0 million acquisition of oil and gas
properties in the Mid-Continent region. $13.3 million of niche
acquisitions were made during 2000 in the Williston Basin in
five separate transactions. The balance of $8.2 million of niche
acquisitions were made in the ArkLaTex region, the Gulf Coast
and Gulf of Mexico region and the Permian Basin.
St. Mary has set aside $60 million or 39% of its 2001
capital expenditures program for property acquisitions. With its
unused borrowing base and cash flow, the Company has the
Regional Acquisitions
financial capability to make acquisitions substantially greater
than the planned amount. St. Mary’s policy of hedging up to 24
months of the acquired production from any acquisition allows
the Company to acquire properties in the current high commodity
BILLINGS
price environment. St. Mary employs the same hedging policy
in all price environments as the Company does not speculate on
commodity prices when making acquisitions. Because St. Mary
is willing to use aggressive prices to evaluate acquisitions and
hedge those prices, the Company believes it will be competitive
in 2001 in its pursuit of acquisitions.
DENVER
TULSA
SHREVEPORT
LAFAYETTE
1995 1996 1997 1999 2000
15
Succeeding
Because of its strong balance sheet, St. Mary is able to take
financial
advantage of opportunities. Financial resources are available
strategies.
to weather periods of depressed commodity prices.
16
17
F I N A N C I A L S T R A T E G I E S
St. Mary’s objective is to be ranked in the top quartile of its
All of St. Mary’s financial strategies
and goals are focused on building
peer group in all areas. To be a top performer the Company
must replace, on average, at least 200% of its annual production
and must do so economically. Over the past five years, St. Mary
has replaced 265% of its production at a finding cost of $.93
per MCFE which ranks the Company within the top quartile
value per share. Growth is only an
of its peer group.
objective if the growth increases per
share value. To build per share value
requires the Company to add value
through its technical, operational
and financial expertise. To build per
share value in good times and in
bad requires the financial discipline
to maintain the financial strength
necessary to benefit from both the
down-cycles and the up-cycles in the
volatile oil and gas industry.
18
St. Mary measures its performance by internal rate of return,
return on investment and full cycle economics calculations.
The Company’s objective is to provide its shareholders with a
minimum compounded 15% internal rate of return. Since
St. Mary went public in December, 1992 through the end of
2000, St. Mary has provided its shareholders, with dividends
and increase in per share value, an annual compounded return
in excess of 25%. Full cycle economics compare current year
cash margins with the average five year finding cost. St. Mary
consistently ranks in the top quartile in its industry when
measuring full cycle economics and in three of the last four
years has been one of the top five performers in the Howard
Weil surveys of approximately 60 top performing companies.
As a part of St. Mary’s financial strategy to grow per share
value, the Company has adopted financial strategies that will
“right” size the Company if conditions warrant. St. Mary will
periodically sell non-strategic assets if they can be sold at a
substantial premium over what St. Mary will pay for them.
Buying oil and gas properties at wholesale and selling at retail
grows per share value. St. Mary has in place a stock repurchase
plan whereby the Company will purchase its common shares
2001 Capital Program
($155 Million)
1%
12%
7%
24%
17%
39%
Mid-Continent
Gulf Coast/GOM (cid:1)
ArkLaTex
Williston/Permian
Acquisitions
Other
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
Reserve Summary
Mid-Continent Region
ArkLaTex Region
Gulf Coast and Gulf of Mexico
Williston Basin
Permian Basin
Total
OIL
(MBBLS)
1,766
1,510
1,168
12,339
4,167
20,950
GAS
(MMCF)
110,033
42,689
46,087
14,105
13,061
MMCFE
AMOUNT
120,627
51,749
53,094
88,137
38,066
PERCENT
34.3%
14.7%
15.1%
25.1%
10.8%
PV-10 VALUE
(IN THOUSANDS)
$ 496,091
189,602
248,391
134,520
85,058
PERCENT
43.0%
16.4%
21.5%
11.7%
7.4%
225,975
351,673
100.0%
$1,153,663
100.0%
Full Cycle Economics
3.0 >
2.5 >
2.0 >
1.5 >
1.0 >
.5 >
0 >
96
97
98
99
00
St. Mary
Howard, Weil, Labouisse, Friedrichs Inc.
Peer Group Mean
when they are selling at attractive levels. This plan grows per
share value. Adhering to insider “black out” periods limits the
timeframe when the share repurchase strategy can be executed.
St. Mary will evaluate opportunities in 2001 using a $3.25
per Mcf NYMEX gas price and a $22.50 per barrel NYMEX oil
price. If a higher NYMEX price strip is necessary to meet the
Company’s return on investment objectives, the higher prices
will be hedged. Property acquisitions will be evaluated using
NYMEX strip prices. St. Mary will hedge the first 24 months of
production in order to protect a base return rate.
At December 31, 2000 St. Mary had $22 million of bank
debt and $118 million available to borrow from its $140 million
borrowing base. The Company anticipates the borrowing base
will be increased when the amount is redetermined during
the second quarter of 2001. St. Mary’s policy is to limit bank
borrowing to no more than 50 percent of its available borrowing
base and to maintain a debt to capital ratio of less than 35
percent. The conservative use of debt and a strong balance
sheet allows St. Mary to react quickly to opportunities as they
become available. A strong balance sheet also provides the
financial resources to survive poor market conditions in a
cyclical industry.
St. Mary is focused on per share growth. Company policy
dictates that economics are prepared and evaluated for every
opportunity. Every financial decision is based upon whether or
not the opportunity will build shareholder value. Economic
evaluation is engrained in every St. Mary employee. The technical,
operational, administrative and financial employees work
together every day to ensure the continued economic growth
of St. Mary to ensure that St. Mary will always succeed in good
times and in bad.
19
(cid:1)
(cid:1)
B O A R D O F D I R E C T O R S
O F F I C E R S
Larry W. Bickle
Houston,Texas
Managing Director
Haddington Ventures LLC
Ronald D. Boone
Denver, Colorado
Executive Vice President and Chief Operating Officer
St. Mary Land & Exploration Company
Thomas E. Congdon
Denver, Colorado
Chairman
St. Mary Land & Exploration Company
David C. Dudley
Denver, Colorado
Operating Manager
Dudley & Associates, LLC
William J. Gardiner
Houston,Texas
Chief Financial Officer
King Ranch Inc.
Mark A. Hellerstein
Denver, Colorado
President and Chief Executive Officer
St. Mary Land & Exploration Company
Jack Hunt
Houston,Texas
President
King Ranch Inc.
Robert L. Nance
Billings, Montana
President
Nance Petroleum Corporation
R. James Nicholson
Washington, D.C.
Chairman and Chief Executive Officer
Nicholson Enterprises, Inc.
Arend J. Sandbulte
Duluth, Minnesota
Director and Retired Chairman
Minnesota Power
John M. Seidl
San Francisco, California
Chairman
MyHomeKey.com, Inc.
20
Thomas E. Congdon
Chairman
Mark A. Hellerstein
President and Chief Executive Officer
Ronald D. Boone
Executive Vice President and Chief Operating Officer
Robert T. Hanley
Vice President– Business Development
W. David Hart
Vice President – Geology, ArkLaTex
George M. Hearne IV
Vice President – General Manager, ArkLaTex
Charles M. Jones
Vice President – General Manager, Gulf Coast
Richard C. Norris
Vice President – Finance,Treasurer and Secretary
Milam Randolph Pharo
Vice President – Land and Legal, Assistant Secretary
Julian C. Pope
Vice President – Mid-Continent, Land and Administration
Michael H. Rosenzweig
Vice President – Engineering, ArkLaTex
Kevin E. Willson
Vice President – Mid-Continent, Drilling and Production
Douglas W. York
Vice President – Acquisitions and Reservoir Engineering
Garry A. Wilkening
Vice President – Administration and Controller
Linda A. Ditsworth
Assistant Vice President – Land and Assistant Secretary
David J. Whitcomb
Assistant Vice President – Gas Marketing
Darla Dorgan
Landman and Assistant Secretary
Patricia Flanigan
Administrative Assistant and Assistant Secretary
James C. Robertson
Administrative Assistant and Assistant Secretary