St. Mary Reports Results for Third Quarter 2007 and Provides Guidance Update.
"The third quarter was a solid quarter for St. Mary. We grew production for the seventh consecutive quarter and set a new quarterly production record for the Company. The management team is focused on delivering solid results with an eye toward improving our capital efficiency and our operating cost structure. We continued to make progress in a number of key resource areas and expanded our presence in the Olmos shallow gas play with an acquisition in South Texas which we closed in early October. I am pleased with the Company's pace and direction," commented Tony Best, President and CEO.
THIRD QUARTER RESULTS
St. Mary announces third quarter 2007 earnings of $57.7 million or $0.89 per diluted share. Third quarter 2006 earnings were $55.9 million or $0.88 per diluted share. Adjusted net income, which adjusts for significant non-cash and non-recurring items, was $57.8 million or $0.89 per diluted share for the third quarter of 2007 compared to $53.0 million or $0.83 per diluted share for the comparable period in 2006. Discretionary cash flow increased to $162.3 million in the third quarter of 2007 from $140.5 million in the same period of the preceding year, an increase of 16 percent. Net cash provided by operating activities increased to $191.7 million in the third quarter of 2007 from $101.2 million in the third quarter of 2006. Adjusted net income and discretionary cash flow are non-GAAP financial measures - please refer to the respective reconciliation for the nearest comparable GAAP financial measure in the Financial Highlights section at the end of this release, which contains explanations as to why the Company believes these non-GAAP measures are meaningful.
Revenues for the third quarter of 2007 were $246.7 million compared to $198.0 million in the comparable period of 2006. Oil and gas production during the third quarter of 2007 averaged a quarterly record of 298.4 million cubic feet of gas equivalent per day (MMCFE/d), an increase of 19% from 251.7 MMCFE/d in the third quarter of 2006 period and 4% higher than the 286.1 MMCFE/d in the second quarter of 2007. Average realized prices, inclusive of hedging activities, were $7.03 per Mcf and $67.56 per barrel during the third quarter of 2007. These were 2% lower and 10% higher, respectively, than the realized prices in the third quarter of 2006. Average prices, excluding hedging activities, were $5.98 per Mcf and $71.68 per barrel during the quarter, which were 7% lower and 10% higher, respectively, than the same quarter last year. The Company's natural gas realizations continue to benefit from high Btu gas in several of our regions, which is being processed to extract the natural gas liquids. The prices for natural gas liquids have trended with crude oil prices, thus benefiting from the rise in oil prices in recent months.
Total lease operating and transportation expense was up slightly between the third quarters of 2007 and 2006 on a per MCFE basis. A large unplanned workover at Judge Digby accounted for $0.03 per MCFE of this increase. The increase in depletion and depreciation expense from the third quarter of 2006 to the third quarter of 2007 reflects the higher finding cost environment experienced by the industry in recent years to acquire and develop properties. Exploration expense for the current quarter came in below guidance due to lower than expected geologic-related costs in the period. Year over year, the overall increase in exploration expense is the result of increased levels of technical headcount, higher NPP payments, and 3D seismic work in the Mid-Continent region. General and administrative expense for the third quarter of 2007 was slightly higher than guidance as a result of higher than budgeted cash and stock-based compensation costs associated with increased headcount and the fact that a portion of stock-based compensation expense moves directionally with the Company's share price. The variance between the 2007 and 2006 general and administrative expense predominately reflects the increase in personnel mentioned above as well as the incremental costs associated with supporting and providing office space for those individuals.
The Company's forecasts for the fourth quarter and the full year 2007 are shown below.
St. Mary estimates the basis differential (the difference between estimated realized oil and gas prices, before hedging, and the applicable NYMEX prices) for the fourth quarter of 2007 will be $5.50 to $6.50 per barrel of oil and $0.50 to $0.60 per Mcf of gas.
Below is an updated summary hedging schedule for the Company. All the prices in the table below have been converted to a NYMEX equivalent for ease of comparison using current quality and transportation differentials. The majority of the oil trades are settled against NYMEX. The gas contracts have been executed to settle against regional delivery points that correspond with production areas of the Company, thereby reducing basis risk. For detailed schedules on the Company's hedging program, please refer to the Form 10-Q for the period ended September 30, 2007, which is expected to be filed with the Securities and Exchange Commission on or about November 2, 2007.
As previously announced, St. Mary's teleconference call to discuss third quarter results is scheduled for November 2, 2007, at 8:00 am (MDT). The call participation number is 888-424-5231. A digital recording of the conference call will be available two hours after the completion of the call, 24 hours per day through November 16 at 800-642-1687, conference number 19138412. International participants can dial 706-634-6088 to take part in the conference call and can access a replay of the call at 706-645-9291, conference number 19138412. In addition, the call will be broadcast live at St. Mary's website at www.stmaryland.com and the earnings press release and financial highlights attachment will be available before the call at www.stmaryland.com under "News-Press Releases." An audio recording of the conference call will be available at that site through November 16.
INFORMATION ABOUT FORWARD LOOKING STATEMENTS
This release contains forward looking statements within the meaning of securities laws, including forecasts and projections. The words "will," "believe," "budget," "anticipate," "intend," "estimate," "forecast," "plan" and "expect" and similar expressions are intended to identify forward looking statements. Although St. Mary believes the expectations and forecasts reflected in these statements are reasonable, it can give no assurance that they will prove to be correct. These statements involve known and unknown risks, which may cause St. Mary's actual results to differ materially from results expressed or implied by the forward looking statements. These risks include such factors as the volatility and level of oil and natural gas prices, the availability of economically attractive exploration and development and property acquisition opportunities and any necessary financing, the uncertain nature of the expected benefits from the acquisition of oil and gas properties and the ability to successfully integrate acquisitions, the pending nature of the announced divestiture of non-core oil and gas properties as well as the ability to complete the transaction, the uncertain nature of the expected benefits from the divestiture of oil and gas properties and the amount of expected proceeds to be received from the divestiture, lower prices realized on oil and gas sales resulting from our commodity price risk management activities, unsuccessful exploration and development drilling, the imprecise nature of estimating oil and natural gas reserves, uncertainties inherent in projecting future rates of production from drilling activities and acquisitions, drilling and operating service availability, uncertainties in cash flow, the financial strength of hedge contract counterparties, the negative impact that lower oil and natural gas prices could have on our ability to borrow, litigation, environmental matters, the potential impact of government regulations, and other such matters discussed in the "Risk Factors" section of St. Mary's 2006 Annual Report on Form 10-K/A and subsequent Quarterly Reports on Form 10-Q filed with the SEC. Although St. Mary may from time to time voluntarily update its prior forward looking statements, it disclaims any commitment to do so except as required by securities laws.
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