SM Energy Company Annual Report 2001

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FY2001 Annual Report · SM Energy Company

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Annual Report 2001

St. Mary’s financial strength and discipline combined

with our technical ex p e rtise allows us to succeed in

good times and bad, the theme of our 2000 annual

rep o rt .To succeed in a cy clical business where commodity

prices are largely beyond the control of management,

we must be able to find and develop natural gas and

crude oil reserves efficiently and economically. Locating

our technical expertise in regional offices and staffing

the offices with premier professionals in all technical

disciplines who have spent their careers in the same

geologic basins allows us to be a top performer in each

of the basins where we operate, the theme of this year’s

a n nual rep o rt . Our home office in Denver provides

capital and administra t i ve services and supports the

efforts of our regional offices whose primary focus is

on finding and developing natural gas and crude oil

re s e rve s . The effi c i e n cy created by our decentra l i zed

management structure has been an important reason

why St. Mary is continually one of the top performing

companies in its industry.

Our Mission

St. Mary Land & Exploration Company was founded in 1908 and incorporated in 1915. We ar

engaged in the exploration, development, acquisition and production of natural gas and crude

oil in five core areas in the United States.

Our mission is to build shareholder value by adding value at every phase of the business and

creating consistent growth in net asset value and cash flow per share.

St. Mary’s objective is to realize a long term return on equity in the top quartile of exploration

and production companies. A program of low to medium risk exploration, development and

niche acquisitions in each of our core areas, r e p resenting 85% or more of our budget, is

designed to provide a foundation of steady growth. The balance of our budget is allocated

to higher-risk higher-potential exploration, non-conventional exploration programs and

o p p o rtunistic acquisitions.

Operations Acquisitions Financial Strategies

St. Mary operates in five core areas managed

The acquisition of oil and gas assets and

Through consistent economic growth in

from four regional offices. The Mid-Continent,

companies is an important part of St. Mary’s

reserves and production, St. Mary’s objective

ArkLaTex, Gulf Coast/Gulf of Mexico, Williston

g rowth strategy. We largely focus our attention

is to increase its per share value in excess of

Basin, and Permian Basin are operated out of

on smaller niche acquisitions in existing core

15% per year. To achieve this objective, our

our offices in Tulsa, Oklahoma, Shreveport and

a reas where we can utilize our geologic

goal is to replace, on average, 200% of our

Lafayette, Louisiana and Billings, Montana.

knowledge of the area, our technical expertise

production and to have full cycle economics in

Each office is staffed with a full complement

and our financial flexibility. At the same time

the top quartile of our peer group. Over the

of geologists/geophysicists, engineers and

we are actively seeking larger acquisitions that

past five years we have replaced, on average,

landmen who have extensive experience in the

would allow us to expand our existing core

220% of our production and have consistently

region/basin where they work. Our Denver

areas, acquire additional geoscientists, and/or

remained in the top quartile of our peer group.

headquarters provides administrative support

gain significant interests in a new basin

From December 1992, when we first became a

and oversight for the regions.

within the U.S.

We are a dominant operator in each of

our core areas and will operate pro p e rties

representing approximately 77% of our $104

million exploration and development capital

expenditures budget in 2002. By operating

such a large percentage of our budget, we are

able to maximize the benefit of the company’s

expertise in the land, geological, and engineer-

ing disciplines. In each core area we focus

on cautious detailed land and legal work,

disciplined geological interpretations, re s e rv o i r

management, efficient completion and stimu-

lation techniques, and the application of new

technologies when warranted.

Property Acquisitions ($ millions)

public company, through December 31, 2001,

we have provided our shareholders, in dividends

and stock value, a compounded rate of

return of 17%.

Our strategy is also to maintain a strong balance

sheet by keeping our debt to capital ratio at 35%

or less. A strong balance sheet allows us to

weather cycles of low commodity prices and

be opportunistic when capital is not available

to our peers. We are willing to become

aggressive and increase our debt to capital

ratio during down cycles in order to make

strategic acquisitions.

02
(budget)

Reserves (mcfe) Per Share

In 2001 we spent $41.2 million on niche

acquisitions, which represented 22% of our

capital expenditures program. In 2002 we

are budgeting $60 million for acquisitions,

which is 37% of our budget. Over the last

five years we have completed over $171 million

of acquisitions.

Financial Highlights

In thousands except per share,as adjusted for 2 for 1 split on 9/5/00,production and price data

2001

2000

1999

1998

1997

Income Statement Data

Oil and gas production revenues

Gains on sales and other

Total operating revenues

Net income (loss)

Basic earnings (loss) per shar e

Cash dividends per basic shar e

Basic weighted average common

$ 203,973

3,496

$ 207,469

$ 40,459

1.45

0.10

$ 188,407

7,259

$ 195,666

$ 55,620

2.00

0.10

$ 73,387

1,527

$ 74,914

0.00

$ 71,413

8,096

$ 79,509

$ (8,797)

(0.40)

0.10

$ 76,603

15,282

$ 91,885

$ 23,109

1.09

0.10

Shares outstanding

27,973

27,781

22,198

21,874

21,240

Balance Sheet Data

Working capital

Total assets

Long-term debt

Stockholders’ equity

Average Net Daily Production

Oil (Bbls)

Gas (Mcf)

MCFE (6:1)

Average Sales Price

Oil (per Bbl)

Gas (per Mcf)

U.S. Reserves

Oil (Bbls)

Gas (Mcf)

MCFE (6:1)

Stockholders’ Equity
($ millions)

300

250

200

150

100

$ 34,000

$ 40,639

436,989

64,000

286,117

6,667

108,195

148,199

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

$ 9,618

184,497

19,398

134,742

3,493

69,698

90,656

212,135

22,607

147,932

3,254

62,739

82,266

23.29

3.73

23.53

3.44

16.56

2.21

12.98

2.16

$ 18.87

2.33

23,669

241,231

383,247

Reserves
(BCFE)

400

300

200

100

20,950

225,975

351,673

18,900

207,642

321,042

8,614

132,605

184,289

11,493

196,230

265,188

Production
(Daily MMCFE)

160

120

02
(projected)

To Our Shareholders

•

Thomas E. Congdon
Chairman of the Board

Mark A. Hellerstein
President & Chief Executive Officer

This is not an easy time. Year 2001 was

Through this turbulent year we nonetheless

prices from year-end 2000 to December 31,

tumultuous. Oil and gas prices seesawed,

grew our reserves by 9%, modestly

2001. We replaced 166% of our 2001 produc-

gas ranging from $9.73 in the first quarter to

i n c reased production, maintained our

tion at an all-inclusive finding cost of $2.03 per

$1.73 while oil wilted from a high of $32.00 to

financial strength and re c o rded the

MCFE. Excluding the $10.8 million spent on

a low of $17.50 per barrel in the fourth quart e r.

second highest earnings in the history

pre-production costs at the Hanging Woman

Gas storage by year-end was at a record level,

of the Company.

largely the result of the weak economy and

Basin coalbed methane project and the negative

pricing reserve reduction, our finding cost and

the fact industrial users switched to cheaper

Net income in 2001 was $40.5 million or $1.45

p roduction replacement percentage were $1.41

energy when prices soared in the 2000-01

per share compared to $55.6 million or $2.00

per MCFE and 225%, respectively. The 2001

w i n t e r. Rig utilization in the U.S. rose to

per share in 2000. Earnings before interest,

finding cost reflects a 33% increase from 2000

effective capacity early in the year, resulting

taxes, depreciation, impairment and exploration

in the completed cost of comparable wells. In

in diminished service quality and substantial

were $137.5 million or $4.91 per share, up

view of our expectation that the long-term gas

cost increases that were slow to recede as

2% from the prior year. Production increased

price will be strong, this $1.41 finding cost

drilling activity declined in the autumn.

3% to 54.1 BCFE. While our average price

met our economic criteria.

for gas rose 6% to $3.77 per MCFE, expenses

n Further afield, St. Mary was among the

increased at a greater rate. Lease operating

Current gas prices have been weakened by

thousands stiffed by Enron. But worse yet, the

costs grew 46% to $1.02 per MCFE re f l e c t i n g

mild weather, re c o rd storage and the economic

sudden collapse of that corporation and the

a $4.9 million increase in workover expense,

downturn. We expect demand to recover with

subsequent scrutiny of other major compa-

largely on properties acquired in the Tipperary

the economy and a return to normal weather.

nies revealed business practices damaging to

purchase and in the Judge Digby field. An

But our industry’s accelerated pace of gas

confidence in the integrity with which most

example of escalating service costs is control-

exploration over the last several years has

business affairs are conducted in this country.

of-well insurance rates, which tripled.

failed to increase production and reserves.

Exploration expense and depreciation, depletion

Much of this activity has focused on the Gulf

n Finally, on September 11 St. Mary nearly

and amortization charges rose 100% and

of Mexico where re s e rve lives are short .

lost two of its senior members of management

29%, re s p e c t i v e l y, due to several exploration

Technology gains — 3D seismic and new

in World Trade Center 1 — a reminder that it

disappointments and higher service and

completion techniques — have made

is the people of this Company that are its

equipment rates. General and administrative

possible the discovery and development of

most valuable asset.

costs per unit of production remained flat.

smaller reservoirs. But, hey, they’re smaller.

The moderately increased year-end reserves

of natural gas reserves in the U.S. has risen

of 383 BCFE were net of a reduction of 32

from 16% to 25% in just ten years. New and

Consequently the average annual decline rate

BCFE caused by the decline of oil and gas

•

Full Cycle Economics

Production Replacement
(%)

Capital Expenditures
($ millions)

3.0

2.5

2.0

1.5

1.0

0.5

350

300

250

200

150

100

200

150

100

Gas
Oil
98– 00 AVG

Oil

Gas

2001

02
(projected)

n St. Mary

n Howard, Weil, Labouisse,

Friedrichs Inc Peer Group Mean

n St. Mary

n Peer Group, 125 Companies included
in Andersen Global E&P Trends 2001

unconventional sources of gas are more costly

p rojects. The more important planned exploita-

capital expenditures and dominate our core

and require long lead times. We believe gas

t i o n activity include:

areas with our technical expertise.

prices will return to the $3.00 to $3.50 range

• nine wells at Northeast Mayfield

— a view already reflected in the five-year

• seven wells in the Arkoma Basin

We continue to build value per share by

NYMEX price strip.

• eight Granite Wash wells in Oklahoma

adding value to our assets in hand and those

• ten operated Red River and Madison wells

we acquire. Our strong and very real balance

We begin the year 2002 with extraordinary

in the Williston Basin

sheet has proved valuable in the past during

financial strength. Following our March

• six Odom Lime wells at Ft. Chadbourne

t rying times. We are seeing costs decline

issuance of $100 million of senior convertible

• six Strawn wells in the Permian Basin

and pro p e rty packages sold by companies

notes, we have $50 million in the bank and an

• four injection wells at the Shugart water-

who have traditionally been our purc h a s e

unused borrowing capacity of $170 million.

flood project in the Permian Basin

competitors. This is the time that our financial

We have more prospects than ever before and

• thirty wells in east Texas, north Louisiana

strength and technical capability allow us to

a capital budget of $164 million

and Mississippi in our ArkLaTex region

take advantage of “opportunity leverage” as

for 2002. Here is our plan to build value in

• two wells at our largest value property,

opposed to “financial leverage”. Accordingly,

the year ahead:

Judge Digby in the Gulf Coast.

we view the present as a time of advantage

n Production is forecast to grow to 57 to

n We have large potential exploratory wells

59 BCFE. Based on NYMEX strip prices of

planned at Matagorda 701 in the Gulf of Mexico

March 12, 2002

for St. Mary.

$2.40 per Mcf and $20.00 per barrel, we

and at our Carrier prospect in east Texas.

would realize approximately $2.75 per MCFE

Each prospect has potential of over 100 BCF

after hedges. Assuming this price deck and

with working interests expected between

lease operating costs, including taxes, of

25% and 40%. We will conduct production

$1.00 to $1.05 per MCFE and G&A of $.20 to

tests on the eighteen well pilot program in the

Mark A. Hellerstein

$.24 per MCFE, discretionary cash flow is

Hanging Woman coalbed methane project in

President and Chief Executive Officer

forecast at $3.25 to $3.50 per share.

Wyoming-Montana and hope to increase our

n Of the $164 million capital budget, 37% is

interest averages 92% over possible reserves

115,000 acre leasehold position. Our working

allocated for acquisitions, 20% for exploration

of 200 BCF.

and development in the Mid-Continent, 19%

in the Williston and Permian Basins, 11% in

n We will continue to control operations of

Thomas E. Congdon

the Gulf Coast and 8% in the ArkLaTex region.

properties representing approximately three-

Chairman of the Board

Another 5% is allocated to unconventional gas

quarters of our exploration and development

Operations

Ronald D. Boone
Executive Vice President and
Chief Operating Officer

Reserve Base By Region

Mid-Continent – 33%

Gulf Coast/GOM – 13%

ArkLaTex – 13%

Williston – 32%

Permian – 9%

St. Mary focuses its

exploration, development

and acquisition activities

It is our responsibility at St. Mary to manage a

St. Mary operates in five core areas that

p o rtfolio of oil and gas pro p e rties that pro v i d e s

are managed out of our four regional offices.

the foundation for our continuing growth. We

Each of our regional offices has a full

must find, develop and operate oil and gas

complement of geoscientists, engineers, land

in five core operating are a s :

properties economically and in a socially and

professionals and support personnel. A senior

the Mid-Continent region;

onshore Gulf Coast and

o ff s h o re Gulf of Mexico;

the ArkLaTex region; the

Williston Basin in North

Dakota and Montana; and

the Permian Basin in west

Texas and New Mexico.

environmentally responsible manner.

technical manager with over 20 years of

p rofessional experience manages each re g i o n a l

We have focused our operations in mature

office. The staff in each office is experienced

basins in the United States where we have

and hand picked. Each member of the profes-

core expertise and a strong existing presence.

sional staff in each office has spent most of

In these mature basins we are better able to

his or her career in the basin or region where

manage risk and achieve our economic return

he or she is working. Each regional office

objectives. We also concentrate our operations

is supported by centralized administration in

in those mature basins where we can become

our Denver office.

a dominant operator. Being a dominant operator

provides competitive advantages, which are

In each of our regional offices we have

important to improve economics, such as:

detailed, and quite often proprietar y, geologic,

1. Preferential access to drilling and workover

been accumulated over years of operating in

geophysical and engineering data, which has

rigs and experienced crews;

2. Extensive knowledge of local contractors

and service providers;

3. Negotiated service cost rates and

discounts; and

4. Oil and gas marketing strength.

each of our core areas. This data, along with

the use of state of the art technology, pro d u c e s

consistent and predictable results year after

y e a r. In addition, our extensive acreage holdings

in each of our core areas allow us to drill and

have a significant ownership in the prospects

Capital Expenditures By Region

Mid-Continent – 20%

Gulf Coast/GOM – 11%

ArkLaTex – 8%

Williston/Permian – 19%

Other Areas – 5%

Acquisitions – 37%

we generate. Our acreage holdings also allow

reserves are proved developed. During 2001

us to participate in prospects drilled by

we participated in drilling 196 wells with an

i n d u s t ry part n e r s .

85% success rate and 77 recompletions with

a 74% success rate.

In 2001 we made an initial investment in

unconventional gas pro p e rties. We have

Our 2002 capital expenditures budget is $164

acquired leases and options to earn leases

million, which includes $104 million for explo-

on more than 135,000 acres of prospective gas

ration and development, and $60 million for

reserves in coal beds and tight gas sands in

property acquisitions. The $60 million we are

anticipation of improving commodity prices.

allocating to acquisitions represents 37% of

Using state of the art technology, we believe

our capital expenditures program. With a

these properties represent significant long life

strong balance sheet and available credit, we

reserve potential for our Company. We spent

have the financial ability to spend significantly

$11 million on these types of properties in

more on acquisitions should larger opportuni-

2001 and have included $8 million for these

ties become available. We will be actively eval-

p ro p e rties in our capital expenditures

uating larger value packages in 2002 due to

program in 2002.

the unusually large number of properties that

are coming on the market.

In 2001 production increased 3% to a total of

54.1 BCFE, or average daily production of

148.2 MMcfe per day. Net proved reserves at

December 31, 2001 increased 9% to 383

BCFE with a reserve base of 63% natural gas

and 37% oil. Eighty-six percent of our

Pictured left to right are Julian Pope, Vice President–Land and Administration,

Kevin Willson, Vice President–Drilling and Production and Marlon Wells,

Production Manager. They are standing outside the Frac Van after supervising the

successful hydraulic fracturing of the Billy 7-20 well in our Mayfield S.W. field.

Julian and Kevin are co-managers of our Mid-Continent region.

St. Mary has operated the Mid-Continent region out

Our extensive geological, engineering and land data-

of the Company’s Tulsa, Oklahoma, office for over

bases create a competitive advantage for St. Mary.

25 years. The Mid-Continent is a mature re g i o n

Centralization of accounting, gas marketing and

placing a heavy emphasis on development drilling

administration functions in Denver enable the Tulsa

and technical expertise. Our technical staff averages

o ffice to focus on drilling, production and acquisition

over eighteen years of regional experience per person

o p p o rtunities. This organizational stru c t u re generates

and continues to generate and execute economic,

a highly motivated staff and allows for quick decision

low risk drilling programs year after year.

making at the local level.

Mid-Continent Region
Mid-Continent Region

•
•

St. Mary has been operating in the Mid-Continent for over twenty-five years. Exploration,

development and acquisition activities in the Mid-Continent region are focused in the

Anadarko and Arkoma Basins. The multi-pay potential of the region has provided

St. Mary with a consistent and predictable economic return.

The Mid-Continent region is managed out of

The Mid-Continent region accounted for 33% of

our Tulsa, Oklahoma, office. Our 32 person

our estimated proved re s e rves at December 31,

staff conducts operations in the Anadarko

2001, or 126.3 BCFE. Natural gas represents

and Arkoma Basins in Oklahoma, Texas and

94% of our reserves in the region. Eighty-five

Arkansas, where we have been operating

percent of our reserves in the region at

since 1973.

December 31, 2001 were proved developed.

Over the years the Anadarko Basin has been

During 2001 the Mid-Continent re g i o n

the workhorse for us. Almost 50% of our core

accounted for 31% of our capital expenditure s ,

capital expenditures have been in the Anadarko

or $56.3 million. We participated in 88 gross

Basin over the past four years. The Anadarko

wells in the region, of which 83% were

has provided us with a strong base of opera-

completed as producers. We operated 30 of

tions and growth. The multi-pay potential of

the wells drilled and owned an average 65%

1 – Anadarko Basin 2– Arkoma Basin

the region helps to provide consistent and

working interest in these wells. We also

PROVED RESERV E S

P E R C E N TAGE OF TOTAL RESERV E S

G AS / OIL MIX

126.3 BCFE

3 3 %

9 4% / 6%

predictable results. Applying state of the art

participated in the recompletion of 10 wells

technology in drilling, hydraulic fracturing, and

in this region with a success rate of 50%.

innovative completion techniques to the re g i o n ’s

PROVED DEVELOPED RESERV E S

8 5 %

tight gas reservoirs enables the acceleration

Our Northeast Mayfield exploration program

C A P I TAL EXPENDITURES

$33 MILLION

of production and associated cash flow. We

continued to grow in 2001 as we participated

are able to generate prospects year after year

in the completion of six wells during the year

because of the knowledge and the geologic

with no dry holes. We have had excellent

i n f o rmation gained by a staff that has spent the

success in this area exploring for both Lower

majority of its professional career in the re g i o n .

and Upper Morrow sands at depths between

•

Hydraulic fracturing treatments pump

proppants such as sand or high-strength

ceramic material carried by jelled water,

plus additives or nitrogen gas down a well

at high pressures to create fissures for

several hundred feet around the well bore.

These fissure s / f r a c t u res enhance the ability

of oil or gas to flow to the wellbore, there-

by increasing the production, profitability

and life of the well.

18,000 and 21,000 feet. The Brothers 1-20 well

(18% St. Mary interest) was drilled in 2001

and has produced at a rate of 25,000 Mcf

per day. The Ross 2-11 well (29% St. Mary

interest) had an initial production rate of

3,800 Mcf per day. The Granite Wash play

continues to be active with 16 new completions,

five of which were in the Sixty-Six field and five

more of which were in the Mayfield S.W. field.

The Lillie 2-11 well (79% St. Mary interest) in

the Sixty-Six field had an initial production

rate of 3,500 Mcf per day. The H.B. 6-20 well

(100% St. Mary interest) in the Mayfield S.W.

field had an initial production rate of 1,900 Mcf

and 280 Bbls per day. The Easley 1A (77%

St. Mary interest), a Morrow/Springer well in

the Elk City field, had an initial production rate

of 3,000 Mcf per day from the deeper Springer

zone and is currently producing at over 7,000

Mcf per day from Lower Morrow pay, which will

ultimately be commingled with the Springer.

Mid-Continent Proved Reserves
(BCFE)

Mid-Continent Capital Expenditures
($ millions)

Mid-Continent Technical Employees

140

120

100

02
(budget)

n Exploration & Development n Acquisitions

Our large acreage position in the Anadarko

contiguous sections. Drilling activities in Coal

Basin is a significant asset that could not be

County will focus on established plays in the

replicated short of a major acquisition of

Booch, Hartshorne, Wapanucka and Cromwell

another large player in the Basin. This acreage

f o rmations. The leases have deeper exploratory

position and our long time presence in the

potential below about 7,000 feet. Seven wells

region allows us to compete in essentially all

are planned for 2002 and our working interest

of the significant plays that develop in the

is expected to be in the 85% to 100% range.

deep Anadarko Basin. Our acreage lease own-

ership in the Basin is approximately 250,000

During 2002 we anticipate drilling an initial

gross and 60,000 net acres.

test well in our Carrier prospect in Leon

County, Texas. Carrier is a high-risk, high-

Our 2002 Mid-Continent capital expenditures

potential platform reef prospect located near

budget is $33 million. We plan to utilize three

the industry’s prolific Cotton Valley pinnacle

to four drilling rigs throughout the year to drill

reef production in Leon, Limestone, and

a p p roximately 28 St. Mary operated wells in the

Robertson Counties. We will be seeking

region. In addition, we anticipate participating

industry participation in a 20,000 foot test

in 100-125 wells to be drilled and operated by

well and expect to have a working interest

other entities. Nearly 50% of our budget in the

in the range of 25% to 35%.

Mid-Continent region will be allocated to NE

Mayfield where we plan to drill nine wells

in 2002. Our working interest in the 18,000

to 21,000 foot wells is expected to average

32%. Our 2002 capital expenditures budget is

allocating $4.5 million to a developing new play

in Coal County, Oklahoma, in the Arkoma Basin

where we have acquired leases in twenty-five

Pictured left to right are Dan Bloomer, Exploration Manager, Chuck Jones, Vice

President–Regional Manager, David Janise, Engineering Manager and Dwight Bowles,

Land Manager. The Lafayette office operates wells drilled in the shelf area of the

Gulf of Mexico and onshore in south Texas and south Louisiana.

The Lafayette office generates exploration and

complex geology, opportunities still exist for those

exploitation opportunities along the Gulf Coast and

who are willing to work the details. Our technical

offshore in the Gulf of Mexico. These areas are

team in Lafayette has over 200 years of combined

excellent settings for large accumulations of hydr o-

local experience and is focused on the task of doing

carbons in small areas. The thick sandstones are

the detailed work necessary to be successful in a

very porous and yield high production rates. Both

difficult and geologically complex area.

basins have been heavily explored, but due to

Gulf Coast/ Gulf of Mexico Region
Gulf Coast/ Gulf of Mexico Region

•
•

St. Mary’s origin was in South Louisiana with the purchase of 24,900 acres of fee land in

St. Mary Parish. Our focus in the Gulf Coast/Gulf of Mexico region is to explore and develop

the multiple basins of onshore Louisiana and in the shallow waters of the Gulf of Mexico.

Our 16 person regional office in Lafayette,

revitalizing exploration and development

Louisiana, manages St. Mary ’s diverse activities

activities in the Miocene trend along the

in the onshore Gulf Coast and offshore Gulf

Gulf Coast.

of Mexico. Our presence in south Louisiana

dates to the early 1900’s when our founders

The Gulf region accounted for 13% of our

acquired a franchise property in St. Mary

estimated proved re s e rves at December 31,

Parish on the shoreline of the Gulf of Mexico.

2001, or 50.3 BCFE. Ninety percent of our

These 24,900 acres of fee lands yielded more

reserves in the region at December 31, 2001,

than $5.5 million of gross oil and gas royalty

w e re proved developed and 88% were

revenue in 2001. Our onshore Gulf Coast and

natural gas.

Gulf of Mexico presence increased significantly

in 1999 with the acquisition of King Ranch

During 2001 this region accounted for 21%

E n e rg y. This acquisition included 260,000

of our capital expenditures or $38.4 million.

PROVED RESERV E S

50.3 BCFE

g ross undeveloped acres and a large 3-D

We participated in 19 gross wells in the re g i o n

P E R C E N TAGE OF TOTAL RESERV E S

1 3 %

seismic database.

of which 11 were completed as producers.

G AS / OIL MIX

PROVED DEVELOPED RESERV E S

8 8% / 12%

9 0 %

C A P I TAL EXPENDITURES

$18 MILLION

Our focus in the region includes ongoing

24 wells in the Gulf region with a success

We also participated in the recompletion of

development and exploration programs in

rate of 71%.

multiple basins onshore south Louisiana as

well as several offshore shallow water Gulf of

The successful development of the Judge

Mexico blocks. Advanced 3-D seismic imaging

Digby field, where we have interests ranging

and interpretation techniques and extensive

from 10% to 20%, continued in 2001. The

subsurface geological interpretations are

interest in this outside-operated, ultra-deep

•

Gulf Coast/GOM Technical Employees

Gulf Coast/GOM Proved Reserves
(BCFE)

field located in Point Coupe Parish outside

Our 2002 Gulf Coast/Gulf of Mexico capital

Baton Rouge, Louisiana, was acquired in the

expenditures budget is $18 million. In the Gulf

King Ranch Energy acquisition. Three new

of Mexico we plan to test a large re s e rv e

Tuscaloosa sand wells were completed during

potential 3-D target at Matagorda 701 during

the year and a fourth well was drilling at year-

2002. Matagorda 701 is located 50 miles

end. The Parlange #12 (11.5% St. Mary i n t e r-

northeast of Corpus Christi, Texas, in 110 feet

est) was drilled to 23,220 feet and

of water. We also plan to test an additional

completed in the C-2 zone, which was a new

fault block on the east flank of the Matagorda

field pay. During 2001 the well produced at

700 field in 2002. Two additional tests are

rates as high as 64,000 Mcf per day. The

budgeted for the Judge Digby field in 2002,

J. Wuertele #1 (15% St. Mary interest) was

as well as the recompletion of several wells

completed in the B-8 zone and produced at

in this multi-pay geologically complex field.

41,000 Mcf per day. The J. Wu e rtele #2

(20% St. Mary interest) was completed in

We own 24,900 acres of fee lands and

the B-6/B-7 zones and produced at rates of

associated mineral rights in St. Mary Parish,

45,000 Mcf per day. The J. Wuertele #3 (10%

located approximately 85 miles southwest of

St. Mary interest) was spud on November 15,

New Orleans, Louisiana. Since the initial

2001, and was drilling at year-end to a total

discovery on our fee lands in 1938, our

depth of 22,000 feet.

cumulative oil and gas revenues, primarily

landowners’ royalty, from the Bayou Sale,

The Miami Corp T-1 S/T (25% St. Mary

Horseshoe Bayou and Belle Isle fields have

interest) at High Island was completed in the

exceeded $235 million. We have curently

Camerina sand at an initial production rate

leased 10,357 acres as we encourage develop-

of 4,300 Mcf per day.

ment of the properties. A discovery at South

Gulf Coast/GOM Capital Expenditures
($ millions)

02
(budget)

n Exploration & Development n Acquisitions

St. Mary will operate the drilling of

a p p roximately 200 wells in 2002. Our

long term relationships with drilling

contractors and our commitment to

continuous drilling programs allow us

to use experienced crews that keep costly

drilling problems to a minimum.

Horseshoe Bayou in early 1998 and a subse-

quent successfully completed well in early

1999 established that significant accumulations

of gas are sourced and trapped at depths

below 16,000 feet.

St. Mary participated in a 51-square-mile

3-D seismic survey over the Spindletop field

near Beaumont, Texas, which was completed

in 2001. Our partner group has leased or

optioned approximately 19,000 acres within

the seismic outline. We have a 21.25% working

interest in this project, which is planned to

be a multi-year exploration and development

program. Several wells are planned in this

project during 2002.

Pictured left to right are David Hart, Vice President–Geology, George Hearne, Vice

President–Regional Manager and Mike Rosenzweig, Vice President–Engineering.

They are standing in the Box Church gas plant that processes gas from our largest

field in the ArkLaTex region.

The strength of the Shreveport office begins with

to producing facilities and expedites access to

people, most of whom have spent virtually their entire

historical and current data that is not always

c a reers working in the ArkLaTex region. The technical

commercially available. Being where the action is

expertise and extensive regional experience of our

and focused on the task of finding and producing

E&P team, along with excellent working re l a t i o n s h i p s

h y d rocarbons without financial, accounting and

developed over the years with local independents,

other administrative responsibilities makes for an

landowners, and regulatory agencies are invaluable.

efficient and cost effective E&P effort.

The regional office concept facilitates easy access

ArkLaTex Region •
ArkLaTex Region •

•
•

The large field discoveries at Haynesville and Box Church have made the ArkLaTex

region a consistent top performing region of St. Mary. The ArkLaTex region is focused

on searching for new opportunities and potential analog fields.

The ArkLaTex region is operated out of our

The ArkLaTex region accounted for 13%, or

office in Shreveport, Louisiana. Our 18 person

48.7 BCFE of our estimated proved reserves

staff focuses on eastern Texas, northern

at December 31, 2001. Eighty-five percent of

Louisiana, southern Arkansas and southern

our reserves in the region at December 31,

Mississippi. We have been operating in the

2001, were proved developed and 84% were

ArkLaTex region since 1992 when we acquired

natural gas.

the oil and gas properties of T.L. James &

Company. Since 1992 we have made $18.2

During 2001 the ArkLaTex region accounted

million of niche acquisitions that have pro v i d e d

for 11% of our capital expenditures or $20.3

access to strategic undeveloped acreage

million. We participated in 35 gross wells in

1 – East Texas Basin 2– Northern Louisiana Basin
3 – Mississippi Salt Dome Basin

and pro p r i e t a ry geologic and seismic data,

the region of which 89% were completed as

PROVED RESERV E S

48.7 BCFE

P E R C E N TAGE OF TOTAL RESERV E S

1 3 %

G AS / OIL MIX

8 4% / 16%

which have resulted in an active program of

p roducers. We operated nine of the wells drilled

exploitation and development.

and owned an average 54% working interest

in these wells. St. Mary also participated in

PROVED DEVELOPED RESERV E S

8 5 %

We have had discoveries that became major

the recompletion of 15 wells in the ArkLaTex

C A P I TAL EXPENDITURES

$14 MILLION

development and operating fields such as

region with a success rate of 87%.

Bayou D’Arbonne, Haynesville and Box Churc h .

We have recently expanded our operations

Activities in the ArkLaTex region during 2001

into southern Mississippi where we anticipate

focused on the search for new opportunities

leveraging our technical expertise into new

and potential analog fields to Box Church and

prospects in the Mississippi Salt Dome Basin.

Trinidad in the East Texas Travis Peak play as

•

ArkLaTex Technical Employees

St. Mary operates the centralized gas

ArkLaTex Proved Reserves
(BCFE)

gathering, compression and dehydration

facility at our Box Church field. The plant

compresses gas gathered from the 33 wells

in the field to pipeline pre s s u re. The

dehydration facility removes water from the

gas to conform to pipeline quality standards.

well as the continued development of the

approximately 73,500 gross and 26,300 net

major fields we operate in the region. We also

a c res as well as 10,723 net acres of

anticipate increasing activity in the James

mineral servitudes.

Lime horizontal play where we have added

leasehold at the Huxley field offsetting excellent

Our 2002 capital expenditures budget in the

new completions.

A r k L a Tex region is $14 million. We will continue

to focus on the search for new opportunities

Three successful new wells were drilled in our

and potential analog fields in which to apply

Box Church field, the Wilson #12, the Wilson

our pro p r i e t a ry geologic models and pro d u c t i o n

#14 and the White #13. The Trinidad field

techniques. We anticipate participating in 30

development where we have a 25% intere s t

gross wells in the region during 2002 and will

was also active in 2001 with the completion

operate properties representing approximately

of nine new wells. Six additional locations are

75% of our drilling capital expenditures budget.

ArkLaTex Capital Expenditures
($ millions)

budgeted at Trinidad in 2002.

Our holdings in the ArkLaTex region are

comprised of interests in approximately 502

producing wells, including 98 operated wells.

Our lease ownership in the region totals

02
(budget)

n Exploration & Development n Acquisitions

Pictured left to right are Terry Holzwarth, Engineer/Acquisitions Manager, Bob Nance,

President–Nance Petroleum Corporation, Jim Bailey, Geophysicist and Gary Evertz,

Engineer/Operations Manager. The rig in the background is drilling the successful

Federal 7-35 well in the North Branch field in western North Dakota.

Our regional office in Billings is responsible for the

personnel. Involving all disciplines, which consists

Company’s activities in the Northern Rockies and

of people who have essentially made their careers

the greater Permian Basin of West Texas and New

in their geographical areas of responsibility, gives

Mexico. Within all of our areas of interest, the team

us the edge needed in a very competitive industry.

concept is stressed. Each team consists of geologists,

Being in active mature geological provinces like much

geophysicists, reservoir engineers, production

of the lower 48 states, a seasoned and cohesive

engineers, land persons and the appropriate support

team of experts is essential to success.

Williston/Permian Basins
Williston/Permian Basins

•
•

Nance Petroleum Corporation has operated in the Williston Basin since 1969 and has

managed St. Mary’s interest in the Williston Basin since 1991. Nance began managing

St. Mary’s Permian Basin operations in 1999. Nance Petroleum’s ability to interpret 3-D

seismic data has significantly improved the economics of these oil producing areas.

Nance Petroleum Corporation, a wholly owned

the region at December 31, 2001, were pro v e d

subsidiary, manages our operations in the

developed and 80% were oil.

Williston Basin, the Permian Basin and Rocky

Mountain areas. Our Nance office in Billings,

During 2001 the Williston Basin re g i o n ,

Montana, includes a 28-person staff. Nance has

including the coalbed methane properties in

managed our interests in the Williston Basin

Montana and Wyoming and other properties

since 1991, initially under a joint venture

managed in the rocky mountain states,

a rrangement and as a wholly owned subsidiary

accounted for 37% of our capital expenditures

since June 1, 1999. Since 1999 the Nance

or $68 million. We spent $16 million on e x p l o-

office has also managed our interests in the

ration and development and participated in 3 9

P e rmian Basin. In addition, Nance is re s p o n s i b l e

g ross wells in the region of which 93% were

for the development of our coalbed methane

completed as producers. We also part i c i p a t e d

properties and other oil and gas properties we

in the recompletion of 24 wells with a success

own in the rocky mountain states.

rate of 83%. In November 2001 we completed a

W IL LI S TO N B AS IN

f rom Choctaw II Oil & Gas, Ltd. The pro p e rt i e s

$41 million acquisition of oil and gas pro p e rt i e s

are located in the Williston Basin and the

1 –Williston Basin 2 – Hanging Woman Basin

PROVED RESERV E S

121.9 BCFE

P E R C E N TAGE OF TOTAL RESERV E S

3 2 %

G AS / OIL MIX

PROVED DEVELOPED RESERV E S

2 0% / 80%

8 7 %

C A P I TAL EXPENDITURES

$22 MILLION

The Williston Basin region, which includes the

Green River Basin of Wyoming and produce

Williston Basin in eastern Montana and western

approximately 1,200 barrels of oil and 4,600

N o rth Dakota and certain other pro p e rt i e s

Mcf of gas per day. The Williston Basin region

managed in the rocky mountain states,

replaced 435% of its reserves in 2001.

accounted for 32% of our estimated proved

reserves at December 31, 2001, or 121.9

Our exploration and development in the

BCFE. Eighty-seven percent of our reserves in

Williston Basin is primarily based on the

•

Williston/Permian Proved Reserves
(BCFE)

160

120

Pictured left to right are Bob Bachman,

Geologist and Herb Thackeray, Operations

Engineer. Bob and Herb, along with other

members of the Nance Petroleum staff,

manage and develop our properties in the

Permian Basin.

Williston/Permian Capital Expenditures
($ millions)

i n t e r p retation of 3-D seismic data. We have

P ER MI A N BA S IN

been successful using 3-D seismic imaging to

02
(budget)

n Exploration & Development n Acquisitions

Williston/Permian Technical Employees

delineate stru c t u re and porosity development in

Our operations in the Permian Basin of eastern

the Red River formation. Since 1991 we have

New Mexico and western Texas accounted

successfully completed 30 out of 32 gross

for 9% of our estimated proved reserves at

wells we have drilled and operated in this Basin.

December 31, 2001, or 36.1 BCFE. Eighty-one

During 2001 we drilled and successfully

percent of our reserves in the region at

completed 7 new wells.

December 31, 2001 were proved developed

Our large acreage position in the Williston

and 65% were oil.

Basin allows us participation in wells drilled

During 2001 we participated in 12 gross wells

by other operators and to have a significant

in the region of which 100% were completed

ownership in prospects we develop and drill.

as producers. We also participated in the

We typically have working interests ranging

recompletion of four wells with a success rate

from 60% to 100% in wells we operate. Our

of 50%. The East Shugart Delaware Unit

acreage lease ownership is approximately

waterflood project was initiated in 2000. The

467,000 gross and 291,000 net acres.

initial response from the water injection is

a n t i c i p a t e d in 2002. We are hopeful the East

Our 2002 Williston Basin capital expenditures

Shugart waterflood will be an analog to our

budget is $22 million. We plan to drill 10 wells

successful Parkway Delaware Unit waterflood

and conduct seven 3-D surveys, exceeding

that increased production from 325 Bbls per

the number of surveys conducted in any prior

day in 1996 when the property was acquired,

year. Our prospect inventory continues to

to 1,125 Bbls per day in February 2002.

expand as results from current activity lead to

additional areas to explore. In addition we

Our 2002 Permian Basin capital expenditures

anticipate participating in eight – twelve wells

budget is $9 million. In addition to drilling four

to be drilled and operated by other entities.

injection wells in the East Shugart waterflood,

$11 million, which included drilling 14 wells in

two 3-D based Morrow tests are planned

an 18 well pilot program. During 2002 drilling

in the Parkway field and six in-fill wells are

of the pilot well program will be completed.

planned at Ft. Chadbourne. We anticipate

The wells will be production tested and the

drilling opportunities will develop in 2002

p e rmitting and environmental issues related

from the reprocessed 3-D seismic data over

to this project will be addre s s e d .

Permian Basin

the 30,450 acres on our 21.45% interest

PROVED RESERV E S

36.1 BCFE

P E R C E N TAGE OF TOTAL RESERV E S

9 %

G AS / OIL MIX

PROVED DEVELOPED RESERV E S

3 5% / 65%

8 1 %

HJSA lease in Ward County, Texas.

Our 2002 capital expenditures budget for the

OT H ER AR EA S

unconventional natural gas projects in the

coalbed methane project and other potential

rocky mountains is $8 million.

C A P I TAL EXPENDITURES

$9 MILLION

In 2001 we acquired leases covering 115,000

acres in which we own an average 92%

working interest in the Hanging Woman Basin

of Montana and Wyoming for prospective

coalbed methane development. Our capital

e x p e n d i t u res for this project in 2001 were

•

B O A R D O F D I R E C T O R S

O F F I C E R S

Thomas E. Congdon
Chairman

Mark A. Hellerstein
President and Chief Executive Officer

Ronald D. Boone
Executive Vice President and Chief Operating Officer

Robert L. Nance
Senior Vice President

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 Secretar y

James C. Robertson
Assistant to the President and Assistant Secretary

Lynn Ruffin
District Landman and Assistant Secretar y

Larry W. Bickle
Houston, Texas
Managing Director
Haddington Ventures, L.L.C.

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

Arend J. Sandbulte
Duluth, Minnesota
Director and Retired Chairman
ALLETE, Inc.

John M. Seidl
San Francisco, California
Chief Program Officer, Environment
Gordon and Betty Moore Foundation

Shareholder Information

Investor Services

Investor Relations Contact

You can reach our corporate office at:
St. Mary Land &
Exploration Company
1776 Lincoln Street,Suite 1100
Denver, CO 80203
303-861-8140

We also have offices in Tulsa, Oklahoma, Billings,
Montana and Shreveport and Lafayette, Louisiana:

St. Mary Operating Company
7060 South Yale,Suite 800
Tulsa,OK 74136-5741
918-488-7600

St. Mary Land & Exploration Company
330 Marshall Street,Suite 1200
Shreveport,LA 71101
318-424-0804

Nance Petroleum Corporation
550 N. 31st Street,Suite 500
Billings,MT 59101
406-245-6248

St. Mary Energy Company
202 Rue Iberville,Suite 110
Lafayette,LA 70508-3295
337-232-3100

DESIGN BY: MARK MULVANY GRAPHIC DESIGN (DENVER, C O L O R A D O )

P H OTOGRAPHY BY: RON COPPOCK–KING (DENVER, C O L O R A D O )

Stockholders,securities analysts or portfolio managers
who have questions or need info rmation concerning
S t .M a ry m ay contact Bob Hanley Vice Pre s i d e nt–B u s i n e s s
Development at 303-863-4377.
E-mail: bhanley@stmaryland.com

Annual Reports, 10-Ks, 10-Qs
To receive an information packet on St.Mary, or to be
added to our mailing list,contact:
Investor Relations Coordinator, at 303-863-4322
E-mail: information@stmaryland.com

Please visit our web site at:www.stmaryland.com

Stock Transfer Agent
Any stockholder with questions or inquiries regarding
stock certificate holdings, changes in registration address,
lost certificates,dividend payments and other stockholder
account matters should be directed to St.Mary Land &
Exploration Company’s transfer agent at the following
address or phone number:

Computershare Investor Services
350 Indiana Street,Suite 800
Golden,CO 80401
303-262-0600

Nasdaq: MARY
The Company’s common stock is listed for trading on the
Nasdaq National Market System under the symbol MARY.

The price range of the Company’s common stock by
quarters for the last two years are provided below. As of
March 12,the Company had 27,805,529 shares of common
stock outstanding.

Market Prices

2001— Quarter Ended

2000— Quarter Ended

March 31

June 30

September 30

December 31

high

low

high

low

$35.00

$20.63

$15.75

$11.19

25.24

21.81

22.20

19.25

14.58

14.65

21.03

24.31

34.31

14.78

14.75

19.00