St. Mary Land & Exploration Company

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St. Mary Land & Exploration Company

1776 Lincoln Street, Suite 700
Denver, Colorado 80203
U.S.A.
Telephone: (303) 861-8140
Fax: (303) 861-0934
Web site: http://www.stmaryland.com

Public Company
Incorporated: 1908 as St. Mary Parish Land Company
Employees: 226
Sales: $393.9 million (2003)
Stock Exchanges: New York
Ticker Symbol: SM
NAIC: 211111 Crude Petroleum and Natural Gas

Operating out of Denver, Colorado, St. Mary Land & Exploration Company is a publicly traded independent oil and gas company involved in the acquisition, exploration, exploitation, and development of natural gas and oil bearing properties. The company is involved in five core areas of the United States: the Mid-Continent region of Oklahoma and northern Texas; the ArkLaTex area that includes parts of Arkansas, Louisiana, Texas, and Mississippi; the Gulf Coast region; the Rocky Mountain region that includes the Williston Basin in eastern Montana and western North Dakota, and Wyoming's Powder River, Green River, and Wind River basins; and the Permian Basin of west Texas and eastern New Mexico. St. Mary also maintains offices in Tulsa, Oklahoma; Billings, Montana; Shreveport, Louisiana; and Houston, Texas.

Incorporating in 1908

The origins of St. Mary date back to 1900 when Chester Congdon and four men—Guilford Hartley, David Adams, A.L. Ordean, and A.S. Chase—paid $11,000 to acquire 17,700 acres of Gulf Coast marshland in St. Mary Parish (the equivalent of a county) of Louisiana, located about 85 miles southwest of New Orleans. Congdon, who resided in Duluth, Minnesota, had already made a fortune from Minnesota iron mines and Arizona copper mines. His partners in the Louisiana venture were also mining men, and although they planned to drain the land for agricultural development, they were wise enough to obtain the mineral rights in addition to the surface rights. Given that the land proved wholly unsuited to agriculture, this decision was key to the success of the investment. In 1908 the venture was incorporated as the St. Mary's Parish Land Company. It would be reincorporated in Delaware in 1915. Congdon and Adams also bought another 7,200 acres of land in the area, which they held under a company they named Tidal Wave Land Company. The two companies would be merged under the St. Mary name in 1935.

Oil was discovered on the Texas Gulf Coast in 1901 in an area known as the Spindletop salt dome. St Mary land abutted the Belle Isle salt dome, where it was hoped that oil would eventually be found. The land may not have been a good investment in terms of farming, but it was worth holding onto to see what developed. During the 1920s Louisiana experienced a boom in oil and gas exploration, which gradually spread toward St. Mary, Louisiana. Some attempts were made to discover oil on the property, but no one had succeeded until the predecessor of Texaco, which took a lease on the land in 1933 and began exploration efforts. On May 6, 1938, the St. Mary No. 1 well, dug to the depth of 9,910 feet, became operational, producing 335 barrels of oil per day. It became the anchor of the Horseshoe Bayou Field, one of the country's great oilfields. St. Mary then leased some 4,000 acres to Atlantic Richfield, the predecessor to Vastar, which in 1941 discovered the Bayou Sale Field. It was also in 1941 that St. Mary began to pay cash dividends, distributing essentially all of the company's income from royalties to shareholders.

To support the United States' efforts in World War II, the exploitation of the two St. Mary oilfields was greatly accelerated. Natural gas was a byproduct but there was no way to capitalize on it until the postwar years when a network of gas pipelines was developed, in many cases converting oil pipelines to the purpose. Gradually, U.S. gas companies began to switch from "town gas" made by reducing coal to coke in local plants to natural gas. Sun Oil Company, now known as Oryx, had actually discovered gas at Belle Isle in 1941 but it was not until 1950 that it took a lease on St. Mary's adjacent land to look for the commodity. In 1955 the company completed its first well on the property.

St. Mary's business relied exclusively on lease payments and royalties, which were distributed almost completely to shareholders until the mid-1960s when it became clear that the company had to invest some of that predictable cash flow to prepare for the day when the lands were depleted of oil and gas. In 1966, Thomas E. Congdon, the grandson of Chester Congdon and a Yale and Harvard graduate, was named president of St. Mary. The headquarters of the company was moved to Denver, Colorado, and with a small staff he began a diversification effort, looking for opportunities in the Rocky Mountains and Mid-Continent region with partners through both drilling and acquisition. In 1971 Congdon established a long-term relationship with George Anderson, a man who would one day be named "Wildcatter of the Year" by the Independent Petroleum Association of the Mountain States. Like Congdon, Anderson was an Ivy Leaguer, graduating from Princeton University in 1957 with a doctorate in geology. After a brief academic career he started his own company in Oklahoma's south Anadarko basin. Although, according to Congdon, Anderson had only a moderate level of revenue from his few wells, "he was very instinctive and aggressive. When a play was in the making, he was on it—bang. He could recognize an opportunity and grab it quickly." With Anderson's assistance, St. Mary broadened its portfolio to include large holdings in the Anadarko Basin in Oklahoma and smaller holdings in the Permian Basin of west Texas and southeast New Mexico, Williston Basin of Montana and North Dakota, and properties in the ArkLaTex Basin. In 1983 Anderson and St. Mary formalized their relationship to pursue drilling operations.

Looking Overseas in the 1980s

In the late 1980s St. Mary and Anderson's company, Anderson/Smith Inc., began to look for overseas opportunities and acquired target drilling properties in Argentina, Chile, Papua New Guinea, the Philippines, and Russia. Their involvement in Russia began in 1990 when officials from that country brought data packages to the United States showing a great deal of promise in properties that had just become privatized in the wake of the breakup of the Soviet Union. According to Congdon, "We bought a couple of those data packages and went over in spring 1990 to look at some projects. But they were well beyond our capability, so they offered us a third project to do." This project was the development of a 127,000-acre site in the Chernogorskoye field in western Siberia. St. Mary bought in, along with Itochu Corporation of Japan, which arranged to buy the production. With St. Mary providing support personnel, Russian partners handled operational control. In late December 1992, drilling began on the site and in 1993 production began and Itochu began to take delivery.

In 1992 St. Mary went public, taking advantage of a period of time when Wall Street was interested in energy companies. St. Mary had enjoyed strong growth in the previous three years, with revenues increasing from $20.3 million to $27.8 million. It also boasted an enviable record of having paid a cash dividend for 52 consecutive years. The company's domestic portfolio of oil and gas properties was impressive and its prospects in Russia inviting. (The company also was involved in some domestic mining projects.) Moreover, St. Mary had little debt, just $4.9 million, as opposed to $44 million in equity. The initial offering of stock, with Denver's Hanifen, Imhoff serving as lead underwriter, was oversubscribed. In the end, St. Mary netted $23.1 million. In connection with the offering, the company shortened its name, dropping the word "Parish," to avoid the possible misconception that the company was a nonprofit, religious organization.

As part of St. Mary's transformation, experienced executives were brought in to help run the business. In September 1991 Mark A. Hellerstein was hired as chief financial officer and several months later, in May 1992, he became president and within the year was named a director of the company. (Congdon became chief executive officer, a new position.) Hellerstein graduated from the University of Colorado in 1974 with a degree in accounting. From 1980 to 1986 he served as CFO for Worldwide Energy Corporation. He then went to work for CoCa Mines Inc., a St. Mary affiliate headed by Congdon that was involved in mining. The business was sold in 1991, leading Hellerstein and other CoCa Mines executives to transfer to St. Mary. Some of them would launch some modest copper mining ventures with St. Mary. But with Congdon approaching 70 years of age, Hellerstein was singled out to be groomed as the future head of the company. He would succeed Congdon as chief executive officer in 1995, and upon Congdon's retirement in September 2002, he became chairman of the board.

Company Perspectives:

Our primary objective is to invest in oil and gas producing assets that provide a superior return on equity while preserving underlying capital, resulting in a return on equity to stockholders that reflects capital appreciation as well as the payment of cash dividends.

St. Mary posted uneven results in the first half of the 1990s. The company reported sales of $50.7 million in 1992 and net income of $15.6 million, but the next year sales fell to $38.6 million and net income dropped to $3.7 million. In 1994, sales rebounded to $4.8 million, while net income held steady at $3.7 million, and then in 1995 revenues dipped again, to $38.6 million, and profits eroded further, dipping to $1.7 million. One area of disappointment was the company's foreign investments, which failed to pan out, prompting a change in direction in the mid-1990s as St. Mary's management decided to focus on five core domestic operating areas. The Argentine and Chilean interests were sold in 1994. In 1996 the company sold Wyoming gas properties that no longer fit with its strategy. Then, in early 1997, the company sold its working interest in the Chernogorskoye oilfield in Russia. In the meantime, St. Mary began a judicious program to acquire properties in its core areas, generally making buys of less than $10 million. Larger opportunities were more competitively priced and eliminated the advantages that St. Mary could bring to a property. In 1994 the company completed four acquisitions at a total cost of $12.4 million. A year later, it spent $8.1 million for six properties, and spent $21 million in 1996 to acquire 11 properties in the Permian Basin of New Mexico and west Texas. The largest of these transactions was the $10 million purchase of a 90 percent interest in the oil and gas properties of Siete Oil and Gas Co. St. Mary enjoyed a strong year in 1996, when sales topped $59.5 million and net income improved significantly, to $10.3 million. Whereas much of this success was attributed to recent acquisitions, St. Mary also was able to take advantage of 3-D seismic data to squeeze out further oil and gas in older properties.

Secondary Stock Offering in 1997

To fund its exploration and development activities as well as to pay for further acquisition, St. Mary made a secondary offering of stock in February and March 1997, selling 2.18 shares of stock and netting $51.3 million. The company used some of this cash during the course of 1997 to continue adding to its reserves. For the year, St. Mary paid $27.3 million for five separate acquisitions. Of that amount, $20.3 million was spent to supplement the company's interests in the Anadarko Basin, $3.8 million for properties in Louisiana, and $3.2 million for properties in the Permian and Williston Basins. In addition, to support Gulf Coast operations, St. Mary opened an exploration office in Lafayette, Louisiana, in 1997.

St. Mary sold off some nonstrategic interests in Oklahoma and Canada in 1998, realizing net proceeds of approximately $23.2 million. During the year, the company also invested $4.2 million to complete six acquisitions, spending $3.4 million for properties in the Permian and Williston basins and another $800,000 for producing properties in Louisiana and the Anadarko Basin. Revenues jumped to $91 million in 1997 and net income more than doubled over the previous year, totaling $23.1 million. The following year, however, sales fell to $78.7 million and the company posted an $8.8 million net loss, a large portion of which, $4.5 million, was a charge taken on the Russian joint venture.

St. Mary completed two important acquisitions in 1999. In June of that year, it added Nance Petroleum Corporation and Quanterra Alpha L.P. in an $8.2 million stock transaction. As a result, St. Mary picked up 25.85 percent of a partnership that it did not previously own and added properties in the Williston Basin of Montana and North Dakota. Then, in December 1999, St. Mary used its stock to acquire King Ranch Energy, Inc., which owned properties in the Gulf of Mexico and the onshore Gulf Coast. It was subsequently renamed St. Mary Energy Company. St. Mary barely returned to profitability in 1999, earning just $82,000 on $73.3 million in sales, but the company was poised for an exceptional year in 2000, when sales improved to more than $195.6 million and net income soared to $55.6 million, results that landed St. Mary on Fortune magazine's list of fastest-growing companies, ranked at number nine. Although a surge in energy prices was attributed for much of the gain, the company also took advantage of the situation because it was able to improve its oil and gas production by 69 percent over the previous year.

In the first years of the new century, St. Mary continued to acquire properties and add to its reserves. In 2001 it branched into coalbed methane development by acquiring properties of Caribou Land & Livestock Montana, located in the Hanging Woman Basin of Montana and Wyoming. In December 2002 St. Mary paid $69.5 million in cash to acquire oil and gas properties in the Williston Basin of Montana and North Dakota from Burlington Resources Oil and Gas Company. Later in that month, in a deal that would close in 2003, St. Mary acquired oil and gas properties in the Williston, Powder River, and Green River basins of the Rocky Mountains from Flying J Oil and Gas and Big West Oil and Gas. In 2001 and 2002, St. Mary posted revenues of $207.5 million and $196.4 million, respectively, and net income of $40.5 million and $27.6 million. Also in 2002, the company received permission to be listed on the New York Stock Exchange, a move that management hoped would improve investor recognition of the company's stock.

St. Mary enjoyed another outstanding year in 2003, recording revenues of nearly $394 million and net income exceeding $95.5 million. The company also was well positioned for continued growth. The venture into coalbed methane was now in the development stage and on the verge of beginning production. Moreover, the company expected to soon receive 3-D seismic data on its original 25,000 acres in St. Mary Parish, Louisiana, which during its history had already produced some 200 million barrels of oil and 3.5 TCF of natural gas, and held the potential to provide even more profits to St. Mary shareholders.

Principal Subsidiaries

St. Mary Minerals Inc. Parish Corporation; St. Mary Operating Company; Nance Petroleum Corporation; St. Mary Energy Company.

Key Dates:

1900:: Chester Congdon and partners buy land in St. Mary Parish, Louisiana.
1908:: St. Mary Parish Land Company is incorporated.
1938:: The first major oil find is made on company properties.
1966:: Congdon's grandson, Thomas E. Congdon, is named president and launches a diversification effort.
1992:: The company goes public, and drops "Parish" from its name.
2002:: Thomas Congdon retires as chairman; the company is listed on the New York Stock Exchange.