SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1996
Commission File Number 0-20872
ST. MARY LAND & EXPLORATION COMPANY
(Exact name of Registrant as specified in its charter)
Delaware 41-0518430
(State or other Jurisdiction
of incorporation or organization) (I.R.S. Employer Identification No.)
1776 Lincoln Street, Suite 1100, Denver, Colorado 80203
(Address of principal executive offices) (Zip Code)
(303) 861-8140
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ x ] No [ ]
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock as of the latest practicable date.
As of May 3, 1996, the registrant had 8,759,243 shares of Common Stock, $.01 par
value, outstanding.
THIS AMENDMENT ON FORM 10-Q/A TO THE REGISTRANT'S FORM 10-Q FOR THE QUARTER
ENDED MARCH 31, 1996 IS BEING FILED TO INCLUDE EXHIBIT NO. 27, FINANCIAL DATA
SCHEDULE. ALL OTHER INFORMATION CONTAINED IN THE ORIGINAL FORM 10-Q IS
UNCHANGED.
ST. MARY LAND & EXPLORATION
---------------------------
INDEX
-----
Part I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance
Sheets - March 31, 1996 and
December 31, 1995 ....................... 3
Consolidated Statements of
Income - Three Months Ended
March 31, 1996 and 1995 ................. 4
Consolidated Statements of
Cash Flows - Three Months Ended
March 31, 1996 and 1995 ................. 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations ........................... 9
Part II OTHER INFORMATION
Item 4. Submission of Matters to a Vote
of Security Holders ...................... 15
Item 6. Exhibits and Reports on Form 8-K ......... 15
Exhibits
Exhibit No. 27 Financial Data Schedule
2
ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
ASSETS March 31, December 31,
-------------------------------------
1996 1995
---------------- ---------------
Current assets:
Cash and cash equivalents $ 3,879 $ 1,723
Accounts receivable 14,003 8,068
Prepaid expenses 910 850
Refundable income taxes 176 176
---------------- ---------------
Total current assets 18,968 10,817
---------------- ---------------
Property and equipment (successful efforts method), at cost:
Proved oil and gas properties 168,922 165,750
Unproved oil and gas properties, net of impairment allowance of
$2,245 in 1996 and 1995 12,356 11,752
Other 3,275 2,535
---------------- ---------------
184,553 180,037
Less accumulated depletion, depreciation, amortization and impairment (111,723) (108,392)
---------------- ---------------
72,830 71,645
---------------- ---------------
Other assets:
Investment in Russian joint venture 4,391 4,140
Investment in Summo Minerals Corporation 4,756 4,842
Other assets 3,547 4,682
---------------- ---------------
12,694 13,664
---------------- ---------------
$ 104,492 $ 96,126
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 13,817 $ 7,715
---------------- ---------------
Long-term liabilities:
Long-term debt 21,352 19,602
Deferred income taxes 1,141 1,228
Stock appreciation rights 1,514 1,178
Other noncurrent liabilities 213 121
---------------- ---------------
24,220 22,129
---------------- ---------------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value: authorized - 15,000,000 shares;
issued and outstanding - 8,761,815 shares in 1996 and
8,761,855 shares in 1995 88 88
Additional paid-in capital 15,835 15,835
Retained earnings 50,496 50,378
Unrealized gain on marketable equity securities-available for sale 69 15
Treasury stock - 2,572 shares, at cost (34) (34)
---------------- ---------------
Total stockholders' equity 66,455 66,282
---------------- ---------------
$ 104,492 $ 96,126
================ ===============
The accompanying notes are an integral part
of these consolidated financial statements.
3
ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
Three months ended
March 31,
-------------------------------
1996 1995
------------ ------------
Operating revenues:
Oil and gas production $ 11,408 $ 8,621
Gain (loss) on sale of proved properties - 1,150
Gas contract settlements and other revenues 22 263
------------ ------------
Total operating revenues 11,430 10,034
------------ ------------
Operating expenses:
Oil and gas production 2,956 2,389
Depletion, depreciation and amortization 2,927 2,569
Impairment of proved properties - 443
Exploration 2,537 1,107
Abandonment and impairment of unproved properties 250 238
General and administrative 2,084 1,675
Gas contract disputes and other 77 67
Income from equity investees (111) 70
------------ ------------
Total operating expenses 10,720 8,558
------------ ------------
Income from operations 710 1,476
Nonoperating income and (expense):
Interest income 57 76
Interest expense (320) (226)
------------ ------------
Income from continuing operations before income taxes 447 1,326
Income tax expense (57) (70)
------------ ------------
Income from continuing operations 390 1,256
Gain on sale of discontinued operations, net of income taxes 78 -
------------ ------------
Net income $ 468 $ 1,256
============ ============
Net income per common share:
Income from continuing operations $ .04 $ .14
Gain on sale of discontinued operations .01 -
------------ ------------
Net income per share $ .05 $ .14
============ ============
Weighted average common shares outstanding 8,759 8,762
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
4
ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the three months ended March 31,
----------------------------------------
1996 1995
---------------- -----------------
Cash flows from operating activities:
Cash received from oil and gas operations $ 9,091 $ 7,841
Cash paid for oil and gas operations,
including general and administrative expenses (3,741) (2,791)
Exploration expenses (1,830) (1,042)
Interest and other receipts (35) 234
Interest paid (163) (148)
Income taxes paid (1) (17)
---------------- -----------------
Net cash provided by operating activities 3,321 4,077
---------------- -----------------
Cash flows from investing activities:
Proceeds from sale of oil and gas properties 13 2,098
Capital expenditures, including dry hole costs (6,148) (3,547)
Acquisition of oil and gas properties - (6,189)
Investment in St. Mary Operating Company 1,750 -
Investment in Summo Minerals Corporation - (1,977)
Other 1,821 9
---------------- -----------------
Net cash used by investing activities (2,564) (9,606)
---------------- -----------------
Cash flows from financing activities:
Proceeds from long-term debt 2,300 1,880
Repayment of long-term debt (550) (517)
Dividends paid (350) (350)
Purchase of treasury and common stock (1) (39)
---------------- -----------------
Net cash provided by financing activities 1,399 974
---------------- -----------------
Net increase (decrease) in cash and cash equivalents 2,156 (4,555)
Cash and cash equivalents at beginning of period 1,723 9,976
---------------- -----------------
Cash and cash equivalents at end of period $ 3,879 $ 5,421
================ =================
The accompanying notes are an integral part
of these consolidated financial statements.
5
ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(in thousands)
For the three months ended March 31,
-----------------------------------------
1996 1995
--------------- ---------------
Reconciliation of net income to net cash provided by operating activities:
Net income $ 468 $ 1,256
Adjustments to reconcile net income to net
cash provided by operating activities:
Depletion, depreciation and amortization 2,927 2,569
Impairment of proved properties - 443
Loss in equity investees (111) -
Gain on sale of oil and gas properties - (1,150)
Dry hole costs 692 300
Abandonment and impairment of unproved properties 250 238
Deferred income taxes (49) (110)
Other (19) 79
--------------- ---------------
4,158 3,625
Changes in assets and liabilities:
Accounts receivable (1,402) 552
Refundable income taxes - (83)
Accounts payable and accrued expenses 603 (180)
Deferred income taxes (38) 163
--------------- ---------------
Net cash provided by operating activities $ 3,321 $ 4,077
=============== ===============
Supplemental schedule of noncash investing and financing activities:
In March 1996, the Company acquired an additional 35% shareholder interest in St. Mary Operating Company
for $234,000 and assumed net liabilities of $339,000.
The accompanying notes are an integral part
of these consolidated financial statements.
6
ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. They do not include all information and notes required by
generally accepted accounting principles for complete financial statements.
However, except as disclosed herein, there has been no material change in the
information disclosed in the notes to consolidated financial statements included
in the Annual Report on Form 10-K of St. Mary Land & Exploration Company and
Subsidiaries (the Company) for the year ended December 31, 1995. In the opinion
of Management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the periods presented are not necessarily indicative of the results
that may be expected for the full year.
The accounting policies followed by the Company are set forth in Note 1 to the
Company's financial statements in Form 10-K for the year ended December 31,
1995. It is suggested that these financial statements be read in conjunction
with the financial statements and notes included in the Form 10-K.
Note 2 - Investments
In March 1996, the Company completed its purchase of the Anderman Group stock of
St. Mary Operating Company ("SMOC") at book value. The purchase increased the
Company's ownership in SMOC from 65% to 100%. Through March 31, 1996 the Company
accounted for its investment in SMOC using the equity method of accounting.
The Company accounts for its investment in the Russian joint venture using the
equity method of accounting. For the three months ended March 31, 1996, the
Company has recorded a gain of $197,000 as its equity in income from the Russia
joint venture.
Note 3 - Contingencies
During 1995, the Company and other unrelated parties were named as defendants in
a class action suit filed in Oklahoma seeking payment of royalties on amounts
received in prior gas contract settlements. While the Company's leases state
that royalties are paid only on oil and gas produced and sold, the end result of
any litigation seeking royalty payments on amounts received in oil and gas
settlements cannot be known in advance, and it is possible that a judgment
adverse to the Company could result even though gas was not produced and sold.
Management believes its position is legally correct and plans a vigorous defense
of this suit. In the event of adverse judgment, however, management believes the
maximum exposure of the Company in this litigation, exclusive of interest, if
any, would be approximately $4.5 million. The Company has no material exposure
to claims for such payments outside of Oklahoma.
7
ST. MARY LAND & EXPLORATION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
The Company is also aware that, in two appellate proceedings in which the
Company is not involved, the Oklahoma Supreme Court has been asked to address
issues regarding the entitlement of lessors to royalty payments on amounts
received by oil and gas working interest owners as a result of gas contract
claims. While the Company believes that royalties are not owed until oil and gas
is produced and sold, the decision of the Oklahoma Supreme Court cannot be known
in advance and it is possible that the ruling will establish a right of royalty
owners to payment. Such a ruling could adversely affect the Company's position
in the royalty litigation described above.
Note 4 - Income Taxes
Federal income tax expense differs the amount that would be provided by applying
the statutory U.S. Federal income tax rate to income before income taxes
primarily due to the utilization of capital loss carryovers, Section 29 tax
credits and percentage depletion.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company receives significant royalty income from its Louisiana fee
lands. Revenues from the fee lands were $1.4 for the first quarter 1996 compared
to $1.2 million for the first quarter 1995. Management anticipates lower revenue
from the Louisiana fee lands in future years unless the lessees continue infill
drilling, recompletions and further exploration and development to offset the
normal production decline of producing properties. Texaco, Vastar and Oryx have
notified the Company of several geologic objectives they intend to test in 1996
as a result of their 3-D seismic surveys.
Included in the 1996 results are the operations of several acquisitions made
during the past few years as well as an increased ownership in Panterra
Petroleum ("Panterra"). On February 1, 1994, Panterra acquired the Williston
Basin assets of J.L. Cox for $2.7 million. Since the Company funded 100% of the
purchase price, it earned an increased percentage of all partnership assets.
With the purchase of an additional interest from a Panterra partner at year-end
1994, the Company increased its ownership to 74% of the partnership. In April
1994, the Company acquired interests in Oklahoma from Exxon for $2.3 million and
in April 1995, the Company acquired interests in Louisiana from Pennzoil for
$1.5 million. The Company closed an acquisition of additional Louisiana
properties in July 1995 from Kelley Oil Corporation for $2.2 million. In
December 1995, the Company acquired two different interests in the Box Church
Field located in Texas for $2.2 million.
The Company entered into several long-term take-or-pay gas sales contracts
in the late 1970s and early 1980s at prices substantially above current market
prices. When the purchasers failed to take the volumes required by the contracts
and began paying lower market prices, the Company commenced legal proceedings
against the purchasers. The Company settled these claims out of court, receiving
lump-sum payments as compensation for all prior claims and remaining contract
values. The Company has no future obligation to deliver gas to these purchasers.
The Company settled the last remaining disputes in 1994 for $5.7 million. As a
result of the purchasers' failure to take the required gas, the Company was
underproduced approximately 1.9 BCF relative to other working interest owners at
March 31, 1996. With all disputes now settled, the Company is selling additional
gas and beginning to reduce this imbalance.
The Company's revenue from gas sales has been seasonal in the past. In
warmer weather, the demand for and production of gas generally decline. As a
result of deregulation of the transmission business and increased storage
availability, the Company's gas sales do not necessarily follow the prior
seasonal pattern.
The Company follows the "successful efforts" method of accounting for its
oil and gas properties. Under this method, all property acquisition costs and
costs of exploratory and development wells are capitalized when incurred,
pending determination of whether the well has proved reserves. If an exploratory
well does not have proved reserves, the costs of drilling the well are charged
to expense. The costs of development wells are capitalized, whether productive
or nonproductive. Exploratory geological and geophysical costs and the costs of
carrying and retaining undeveloped properties are expensed as incurred. An
impairment allowance is provided to the extent that capitalized costs of
unproved properties, on a property-by-property basis, are considered to be not
realizable. Prior to the adoption of Statement of Financial Accounting Standards
("SFAS") No. 121 effective October 1, 1995, the net capitalized costs of proved
oil and gas properties were limited to the aggregate undiscounted, after-tax,
future net revenues determined on a property-by-property basis (the "ceiling
test").
9
In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," which addresses the impairment of proved oil and gas
properties. The SFAS No. 121 impairment test compares the expected undiscounted
future net revenues from each producing field with the related net capitalized
costs at the end of each period. When the net capitalized costs exceed the
undiscounted future net revenues, the cost of the property is written down to
"fair value" using the discounted future net revenues for the producing field.
The Company adopted SFAS No. 121 as of October 1, 1995 and recorded an
additional impairment charge for proved properties of $1 million in the fourth
quarter of 1995. In October 1995, the FASB issued SFAS No. 123 "Accounting for
Stock-Based Compensation." This standard establishes a fair value method of
accounting for stock-based compensation plans either through recognition or
disclosure. The Company will adopt this standard in 1996 through compliance with
the disclosure requirements set forth in SFAS No. 123. The Company does not
believe the adoption of this standard will have a material impact on the
financial position or results of operations of the Company.
RESULTS OF OPERATIONS
The following table sets forth selected operating and financial information for
the Company:
Three Months Ended March 31,
1996 1995
---- ----
(In thousands, except BOE data)
Oil and gas production
revenues:
Working interests $10,012 $ 7,427
Louisiana royalties 1,396 1,194
----- -----
Total $11,408 $ 8,621
======= =======
Production:
Oil (Bbls) 261 243
Gas (Mcf) 3,318 3,346
----- -----
BOE equivalent (6:1) 814 801
=== ===
Prices:
Oil $ 17.48 $ 16.83
Gas 2.07 1.35
Oil and gas production costs:
Lease operating expense $ 2,114 $ 1,675
Production taxes 842 714
--- ---
Total $ 2,956 $ 2,389
======= =======
Statistics per BOE equivalent (6:1)
Sales price $ 14.01 $ 10.76
Lease operating expense 2.60 2.09
Production taxes 1.03 .89
---- ---
Operating margin $ 10.38 $ 7.78
Depreciation, depletion and amortization 3.60 3.21
Impairment of producing properties - .55
General and administrative 2.56 2.09
Oil and Gas Production Revenues. Oil and gas production revenue increased
$2.8 million, or 32% to $11.4 million for the first quarter 1996 compared to
$8.6 million in 1995. Oil production volumes increased 7% while gas production
declined 1% for the first quarter 1996 compared to the 1995 period. The Company
experienced some production loss due to freezing during the first quarter of
1996. Average net daily production was 8,945 BOE for the first quarter 1996
compared to 8,900 BOE in 1995. This production increase resulted from new
properties acquired and drilled during the past year. The average oil price for
10
the first quarter 1996 increased 4% to $17.48 per barrel, while gas prices
increased 53% to $2.07 per Mcf, from their respective 1995 levels. The Company
has hedged approximately 56% of its 1996 production at an average $18.47 NYMEX
price. The Company realized a $50,000 decrease in oil revenue or $.19 per barrel
for 1996 on these contracts compared to a $29,000 decrease or $.12 per barrel in
1995. The Company has also hedged 21% of its 1996 gas production at an average
NYMEX price of $1.93. The Company realized a $464,000 decrease in gas revenues
or $.14 per MCF for 1996 from these hedge contracts compared to a $18,000
increase in 1995.
Oil and Gas Production Costs. Oil and gas production costs consist of lease
operating expense and production taxes. Total production costs increased
$567,000, or 24% to $3.0 million in the first quarter 1996 compared to $2.4
million in 1995. The lease operating expense per BOE increased 24% to $2.60 for
the first quarter 1996 compared with $2.09 for 1995 due to increased workover
expense and higher operating costs on properties acquired.
Depreciation, Depletion, Amortization and Impairment. Depreciation,
depletion and amortization ("DD&A") increased 14% to $2.9 million for the first
quarter 1996 compared with $2.6 million in 1995 because of increased production
from reserve acquisitions and new wells drilled. DD&A per BOE was $3.60 in the
first quarter 1996 compared to $3.21 in 1995. There was no expense for
impairment of producing oil and gas properties in the first quarter 1996
compared to $443,000 in 1995 for several high cost marginal wells.
Abandonment and impairment expenses for unproved properties increased
slightly to $250,000 in the first quarter 1996 compared with $238,000 in 1995.
Exploration. Exploration expense increased $1.4 million to $2.5 million in
the first quarter 1996 compared to $1.1 million in 1995 because of increased
geophysical costs for 3-D seismic programs and higher exploratory dry hole
costs.
General and Administrative. General and administrative expenses increased
24% to $2.1 million in the first quarter 1996 compared to $1.7 million in 1995
because of compensation expense associated with the Company's stock appreciation
rights, the cash bonus plan and higher professional fees.
Legal disputes and other consist of legal expenses in connection with gas
contract disputes and the Company's mining activities. This expense increased
slightly to $77,000 in the first quarter 1996 compared to $67,000 in 1995.
Non-Operating Income and Expense. Net interest expense increased $113,000 to
$263,000 in the first quarter 1996 compared to $150,000 of net interest income
in 1995 as a result of higher debt levels.
Income Taxes. The effective rate for the first quarter 1996 increased to 13%
compared to 5% in 1995 because a capital loss carryover was utilized in the
first quarter 1995. Section 29 tax credits and percentage depletion reduced
statutory rates for both periods.
Net Income. Net income for the first quarter 1996 declined $788,000 to
$468,000 compared to $1.3 million in 1995. This decline resulted from the $1.2
million gain on sale of three producing wells in 1995 with no comparable gain
from sale of properties in 1996. This $1.2 million decline was partially offset
by higher operating income resulting from higher product prices and resulting
production revenue partially offset by increased operating expenses.
11
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are the cash provided by
operating activities and debt financing. The Company's cash needs are for the
acquisition, exploration and development of oil and gas properties, debt
obligations, payment of trade payables and payment of dividends to stockholders.
The Company generally finances its exploration and development programs from
internally generated cash flow and continually reviews its capital expenditure
budget based on changes in cash flow and other factors.
Cash Flow. The Company's net cash provided by operating activities decreased
19% to $3.3 million in the first quarter 1996 compared to $4.1 million in 1995.
A $1.3 million increase in oil and gas sales was offset by a $950,000 increase
in oil and gas operating expense and a $788,000 increase in exploration costs.
Net cash used in investing activities decreased 73% to $2.6 million in the
first quarter 1996 compared with $9.6 million in 1995 due to a $3.6 million
decline in capital expenditures and acquisitions and the cash received with the
acquisition of St. Mary Operating Company. Total capital expenditures in the
first quarter 1996 increased $2.6 million to $6.1 million compared to $3.5
million in 1995 due to increased drilling activity. There were no acquisitions
in the first quarter 1996 compared to $6.2 million in 1995 for the Ward Estes
top lease and the additional interest acquired in Panterra. The Company invested
$2.0 million in Summo Minerals Corporation during the first quarter of 1995.
Net cash provided by financing activities was $1.4 million in the first
quarter 1996 compared to $1.0 million in 1994. The Company borrowed funds in
1996 and 1995 for its capital expenditure programs and its 1995 mining
investment.
The Company had $3.9 million in cash and cash equivalents and working
capital of $5.2 million as of March 31, 1996 compared to $1.7 million of cash
and cash equivalents and working capital of $3.1 million at December 31, 1995.
This increase resulted from the purchase of the remaining stock of St. Mary
Operating Company.
Credit Facility. On April 1, 1995, the Company extended its credit facility
with two banks to provide a $30 million secured three-year revolving loan which
thereafter converts at the Company's option to a five-year amortizing loan. The
amount which may be borrowed from time to time will depend upon the value of the
Company's oil and gas properties and other assets. The Company's borrowing base
is currently $30 million and will be redetermined semi-annually. The Company
reduced this commitment until the next redetermination in 1996 to $25 million,
of which $10.6 million was outstanding at March 31, 1996. When the debt to
capitalization ratio is less than 30%, the loans accrue interest at the
Company's option of either the banks' prime rate or LIBOR plus 1/2% and 3/4% for
the revolving and term loans, respectively. The interest rate increases as the
Company's debt to capitalization ratio increases. The loan under the credit
facility is collateralized by substantially all of the Company's domestic oil
and gas properties. The credit facility provides for, among other things,
covenants limiting additional recourse indebtedness of the Company and payment
of dividends if the loan is in default or borrowings exceed the applicable
borrowing base.
Panterra, in which the Company has a 74% ownership, also has a credit
facility with an $18.5 million borrowing base and $14.5 million outstanding as
of March 31, 1996. The partnership intends to use the available credit to fund a
portion of the 1996 capital expenditures.
Outlook. The Company believes that its existing capital resources, cash flow
from operations and available borrowings are sufficient to meet its anticipated
capital and operating requirements for 1996.
12
For 1996, the Company anticipates spending approximately $44 million for
capital and exploration expenditures with $13 million allocated for domestic
acquisitions, $26 million for low to moderate risk domestic exploration and
development and $5 million for large target, higher risk domestic exploration
and development.
The Company and the Anderman Group, through subsidiaries, are involved in a
joint venture with Chernogorneft Oil and Gas Enterprise, a local Russian oil
producing enterprise, to develop the Chernogorskoye Field in western Siberia.
The joint venture has obtained bank credit commitments from the European Bank
for Reconstruction and Development and the Overseas Private Investment
Corporation which are non-recourse to the Company. The joint venture has
received $42.5 million from loan advances through March 31, 1996 and anticipates
the committed balance of $10 million to be funded later in 1996. Through March
31, 1996, the Company had expended approximately $7.6 million on the Russian
project of which $4.4 million has been capitalized as an investment in the
venture. With the completion of bank funding commitments, the Company
anticipates that most of its future share of expenditures for the project will
be funded from cash flow generated by the project and non-recourse bank
financing. Because substantially all of the revenues from the Russian joint
venture will be applied initially to development of the Chernogorskoye Field and
repayment of associated bank debt, the Company does not anticipate receiving
significant cash flow from the Russian joint venture for approximately five
years. At December 31, 1995, the undiscounted future net revenues attributable
to the Company's share of the Russian joint venture's proved reserves was $36.6
million (after debt repayment). The Russian joint venture is now a fully
operational project with financing commitments and a reasonable tax structure.
Because the Company's plans are to concentrate its expenditures on domestic
projects, combined with the always present uncertainty of regulatory and other
aspects of the Russian project, the Company is currently considering the sale of
its interest in the Russian joint venture if such a sale can be made at a price
substantially in excess of the Company's expenditures to date for the project.
During 1995, the Company and other unrelated parties were named as
defendants in a class action suit filed in Oklahoma seeking payment of royalties
on amounts received in prior gas contract settlements. While the Company's
leases state that royalties are paid only on oil and gas produced and sold, the
end result of any litigation seeking royalty payments on amounts received in oil
and gas settlements cannot be known in advance, and it is possible that a
judgment adverse to the Company could result even though gas was not produced
and sold. Management believes its position is legally correct and plans a
vigorous defense of this suit. In the event of adverse judgment, however,
management believes the maximum exposure of the Company in this litigation,
exclusive of interest, if any, would be approximately $4.5 million. The Company
has no material exposure to claims for such payments outside of Oklahoma.
The Company is also aware that, in two appellate proceedings in which the
Company is not involved, the Oklahoma Supreme Court has been asked to address
issues regarding the entitlement of lessors to royalty payments on amounts
received by oil and gas working interest owners as a result of gas contract
claims. While the Company believes that royalties are not owed until oil and gas
is produced and sold, the decision of the Oklahoma Supreme Court cannot be known
in advance and it is possible that the ruling will establish a right of royalty
owners to payment. Such a ruling could adversely affect the Company's position
in the royalty litigation described above.
The amount and allocation of future capital and exploration expenditures
will depend upon a number of factors including the number of available
acquisition opportunities, the Company's ability to assimilate such
acquisitions, the impact of oil and gas prices on investment opportunities, the
availability of capital and the success of its exploratory activity which could
lead to funding requirements for further development.
13
EFFECTS OF INFLATION AND CHANGING PRICES
The Company's results of operations and cash flow are affected by changing oil
and gas prices. Within the United States, inflation has had a minimal effect on
the Company. The Company's foreign operations may be adversely affected by
inflation in Russia and other countries. The Company cannot predict the extent
of any such effect. If oil and gas prices increase, there could be a
corresponding increase in the cost to the Company for drilling and related
services as well as an increase in revenues.
14
PART II. OTHER INFORMATION
Item 4. Submission of matters to a Vote of Security Holders
There were no matters submitted to a vote of shareholders.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Description
27 Financial Data Schedule
(b) There were no reports on Form 8-K filed during the
quarter ended March 31, 1996
15
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
St. Mary Land & Exploration Company
October 8, 1996 By /s/ MARK A. HELLERSTEIN
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Mark A. Hellerstein
President and Chief Executive Officer
October 8, 1996 By /s/ RICHARD C. NORRIS
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Richard C. Norris
Vice President - Accounting and
Administration and Chief Accounting
Officer